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Will electricity Bill empower the sector?
THE electricity Bill, 2001 is to replace three existing central Acts. But it is not binding on the state governments, who can pass their own legislation. How far does it go to correct the ills of the present power system?
The emphasis on private investment in generation over the 1990s was misplaced. SEB revenues were falling behind expenditures. So private investors sought sovereign guarantees, and escrows, making the central government liable for state debts, or mortgaging future SEB cash flows to meet present liabilities.
Generation and inter-state transmission are cost-plus activities, with a guaranteed return of 16 per cent on equity. Savings on costs due to improved plant load factors or lower operating costs were not passed on to the SEB buyers.
SEBs make huge losses that are rising, at least partly due to escalating costs of power bought from the CPSUs. Losses in intra-state transmission and distribution are because of technical weaknesses, unbridled thefts by industries and households, subsidies and cross-subsidies to farmers and household consumers. There is little commercial orientation, poor accounting and bad information. State governments make up a part of the losses by charging increasing tariffs to good paying customers.
This is making India uncompetitive in an open economy. One result has also been the rise of captive generation estimated for bulk use at around 28,000 MW last year, not counting that generated by small units and households. Quality as frequency and voltage is poor and highly variable across the country. Over half the end consumption is either badly metered or not at all. Billing and collections are unsatisfactory. The Bill deals with some of these aspects. But it does not impose penalties for non-performance.
The Bill has many commendable features. It recognises electricity trading, encourages captive generation, allows open access to transmission lines, and leaves it to independent regulators to determine tariffs subject to guidelines laid down by the CERC. The CERC and SERCs must lay down principles for tariff determination including the permissible return at different stages. When tariffs are market determined, this can stop.
The Bill perseveres with cross-subsidisation, with the Regulators having to levy a surcharge on wheeling electricity to partly pay for the subsidy. This is objectionable and against the principle of open access.
Instead, governments could issue policy directives to Regulators asking for a designated proportion of the subsidies being added as a surcharge on tariffs, for a limited period, say three years, within which governments will bring subsidies down to levels that their Budgets can bear. The Bill makes no reference to non-payments and delays in payments by SEBs and other distributors for bulk electricity purchases. It should specifically do so, with penalties on top officers for such delays.
Regulators are also given the power to sanction applications for direct sales by generators to any private bulk consumer. This is a giant step forward in enabling bulk power trading. Even captive generators, merchant generators, CPSUs and SEBs (or successors), can enter this trade. However, the Bill by silently accepting the Orissa-type "single-buyer" model, with generators selling to a Transco and distributors buying from the Transco, will effectively kill competition.
Regulators must decide what to do about existing agreements by states to buy given proportions of CPSU-generated power and other "take-or-pay" contracts. The CERC will have to lay down rules for market operations. These must prevent market abuse of the kind that took place in California.
The creation of Regulatory Commissions will not by itself bring about fairness, predictability, a consultative process and transparency. They must have adequate jurisdiction to bring about competition. Search Committees for identifying members and chairmen must be independent and not government controlled, and should look for qualified professionals, not merely government employees. They must also be required to advise on reforms and restructuring, privatisation, examination of power purchase agreements, etc.
While the state must move out of much of the electricity sector, especially distribution and supply, immediate privatisation is no solution. Privatisation must follow the development of open access and trading in electricity markets.
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