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Home News Power Sector News New Power Sector Policies - From Crisis to Disaster

New Power Sector Policies - From Crisis to Disaster

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Draft Electricity Bill is in its nth avatar and has now been placed in the Parliament. The salient features of the Bill are given below:
*Generation will be free from licensing and will not require a techno-economic clearance from Central Electricity Authority (CEA) and would need to conform only to minimum technical standards laid down by CEA.
* Any industry can set up captive generation anywhere and will get the right to transmit electricity to his plant through transmission lines of others.
* Load despatch will be by an independent entity.
* Transmission utilities will be for solely wheeling of electricity from generating stations to load centres but will not trade in electricity.
Draft Electricity Bill is in its nth avatar and has now been placed in the Parliament. The salient features of the Bill are given below:


* Generation will be free from licensing and will not require a techno-economic clearance from Central Electricity Authority (CEA) and would need to conform only to minimum technical standards laid down by CEA.

* Any industry can set up captive generation anywhere and will get the right to transmit electricity to his plant through transmission lines of others.

* Load despatch will be by an independent entity.

* Transmission utilities will be for solely wheeling of electricity from generating stations to load centres but will not trade in electricity.

* Distribution agencies will have their tariff regulated till competition is established. Once competition is established, the regulator will only fix wheeling charges.

* Rural Electrification will be done through users associations, co-operatives NGO's panchayats etc.

* Setting up of trading companies and a spot market for electricity. Transmission and distribution companies will have to provide an open access for wheeling such electricity for electricity traders.

* All cross subsidies will be removed progressively and converted to explicit subsidies for any class of consumers.

These are indeed far reaching reforms and will lead to an electricity sector quite different form that we have seen in the last 50 years. For the first time, the electricity sector is being recast to strip away all social objectives that had been built into the sector. Instead, what is being attempted, is a sector that will function on "Commercial lines" i.e. generate enough profits to fund its own expansion. The state's role will be limited to regulating the sector and providing explicit subsidies to any group of consumers that it considers economically vulnerable and requiring such subsidies.

Apart from removal of all social objectives, the other premise of the Bill is to convert electricity into a commodity that can be traded freely. This, according to the proponents of the Bill, will introduce competition in generation and lead to reduction in prices of electricity. This coupled with the improvement in "efficiencies" that will presumably follow privatisation of the state run electricity sector, will see reduction of electricity rates in the long run.

Let us see what are the implications of some of the above assumptions. The argument of disengaging the state from the electricity sector is that this will reduce the state's burden, as it will not have to foot the bill for the losses of the SEBs. What is left unsaid is that the subsidies that the state will need to provide may be much larger than the current losses. The Bill leaves the question of ownership, particularly of the transmission company deliberately vague. If the transmission company is owned by the state government, as it was in Orissa after these reforms were introduced there, then the losses of the transmission company will have to be added to the subsides that the state will have to provide. If all these are added together, a back of the envelope computation will show that the outflow of the state governments is actually likely to increase after these reforms. This is a sleight-of hand exercise-to call what are subsidies now as losses and call them subsidies later-claiming a reduction in losses.

The other premise of the Bill is that electricity can be supplied to rural areas through NGO's Panchayats, Co-operatives etc. Though there is no doubt that such innovative distribution schemes are urgently required for the rural areas, this leaves aside the question of who is to take electricity up to the distribution point near a village from where the local community structures can take over. The major cost is in providing the high-tension line and the substation. Purely from commercial standpoint, this activity is unlikely to be profitable and was the raison d'etre originally of setting up of the Sate Electricity Boards. Once the existing structure is dismantled as is being proposed in the Bill, there has to be an alternate mechanism in place for satisfying the need of rural electrification. It is not an accident that even in United States, rural electrification was completed in the 1930's only after Roosewelt, under his New Deal, created Tenesse Valley Authority and Rural Electricity Administration for explicitly this purpose. For millions of people, the greatest conquest of New Deal was the electricity co-ops that brought electricity to vast regions that private utilities had refused to service.



 

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