Analysis of the clarification given by the Govt. of India.
AIPEF Note on Union Power Ministers clarification is attached for wide publicity amongst all employees and consumers as well amongst all MP's & MLA's.
Shailendra Dubey
Chairman
Note regarding the Electricity Bill 2020 –
Analysis of the clarification given by the Govt. of India.
(Issued in public interest, by the All India Power Engineers Federation, AIPEF)
Preamble
In the 21st Century, electricity has become an essential necessity for life and need to be accorded the status of a fundamental right under Article 21 of the Constitution of India. Electricity is listed in the concurrent list in the Seventh Schedule of the Constitution of India. Amendment to legislation by the Parliament, without extensive consultation with State Governments and reference to the Standing Committee of Parliament is undesirable and could lead to a large number of operational problems including extensive litigation.
The structural imbalance between the Union and the States needs to be addressed before change in legislation. Every agency that taps the DISCOMS - the public sector undertakings PFC, REC, NTPC etc. and all the private sector firms, make super profits, whilst the DISCOMS that are the direct interface with the consumer, go deeper and deeper into unrecoverable losses.
I. Ease of doing business
The concept of ease of doing businesses should be agnostic to ownership. There is a need for a level playing field.
Elimination of Cross- subsidy
How would elimination or reduction of cross subsidy manifest itself as ‘ease of doing business’? Across all countries and all industries, cross subsidy is a common practice. Most Multinational Corporations use cross subsidization to open and or differentiate markets or launch new products. Whether there should be cross subsidy or not should be determined on a case to case basis and that is precisely the job of the state regulatory commissions.
Creation of a contract enforcement authority?
a) The Electricity Contract Enforcement Authority has been justified on the grounds that the Regulatory Commission do not have criminal power like arrest and detention in prison, attachment of property etc. Almost the entire electrical power supply industry is regulated by either government officials or semi government officials operating the DISCOMS. They act in their ex officio capacity. They would now be intimidated into seeing merit in the arguments of the private vested interests.
b) Indian jurisprudence has enough legal provisions under various laws like the contract act to deal with contracts. It is important that the Government of India explain the inadequacies of the existing laws to deal with electricity contracts. An associated question is - would creation of such an authority be a forerunner for every other sector of the economy?
c) Contract Enforcement Authority will overlap with the Regulatory Commissions resulting in endless litigation. There is a need to quantify the increase in litigation post Electricity Act 2003. Further legislative changes should aim at litigation avoidance rather than litigation promotion.
d) There is a need to reopened, re-examined and renegotiated contracts rather than enforcement them. For example:
i) Amendment to PPAs for non - payment of Fixed Costs even when electricity is not purchased by the DISCOMS. This principle has been accepted in the COVID relief package, but restricted was only to the Central PSUs, private sector was excempt.
ii) Revision of Solar energy tariffs in keeping with the current discovered price of Rs. 2.44 per unit or less against agreements that require payment of as high as Rs. 15 per unit. In every sector of the economy, changes in technology and commercial terms of trade, cause upheavals and contracts are renegotiated. The ‘must run’ status of high cost solar power is making DISCOMS losses unmanageable. Ultimately, it is the consumer who pays.
iii) The 37th Parliamentary Standing Committee on Energy had examined the reasons for the 34 private sector thermal power plants becoming stressed assets. There are serious allegations of over-invoicing. These units must be kept out of the preview of any form of contract enforcement.
The existing Regulatory Commissions could, if necessary, be given additional powers to deal with a contingency requiring enforcement of a contract. There is no need to add yet another agency.
II Regarding Direct Benefit Transfer.
· The Electricity (Supply) Act 1948 Section 59 (1) required that State Governments to ensure a surplus of not less than three per cent for the SEBs. Almost all States violated the law and SEBs were always at a loss.
· Electricity Act 2003, Section 65 mandated that “If the State Government requires the grant of any subsidy to any consumer or class of consumers …the State Government shall pay, in advance and in such manner as may be specified, the amount to compensate the person affected by the grant of subsidy.”
· The Electricity Bill 2020 puts the responsibility on the consumer to make full payment, as per the tariff for retail sale of electricity without any subsidy, determined by the state regulatory commissions under section 65 of the Act. Thereafter, subsidy would be given into the account of the consumer maintained by the Distribution Companies through DBT (Direct Benefit / Cash transfer).
By way of clarification the Govt. of India has assured, “It is being provided in the new Tariff Policy that the electricity supply shall not be disconnected even if State Government s are unable to pay the subsidy in time or even if the State Government fails to pay the subsidy for 3 to 4 months”
Two questions arise.
i) If circumstances compelled violation of the Electricity Act 1948 and 2003, what is the assurance that the same compelling reasons will disappear merely by reversing the burden of full payment and making it the responsibility of the State Governments. Why should any consumer trust the Government of India or Governments of the states?
ii) Would the disconnection take place if the consumer does not pay in time. The assurance is only for default by the State Government.
Before brining legislative changes, it is important to arrive at a national consensus on the vexatious question: How is the cost of electricity supplied to the tube wells be computed? It is impractical to expect the farmer to pay the full cost of electricity. There is no understandable reason, for not subsidizing irrigation from underground water. Surface water is highly subsidized and only half or less of the interest charges alone are recovered as water charges. There is a need to bring parity between the two forms of irrigation.
III. Privatizing the distribution system
There has been constant compelling pressure on the state Governments to privatize the distribution system. Repeatedly the Government of India has asserted that non-compliance would result in states being denied loans from the Central PSUs.
The following concerns need to be addressed before privatization of the distribution network:
a) When the State Electricity Boards were unbundled, there was no unbundling of accounts. That is, there were no separate audited accounts of the assets and liabilities and account of SEB’s generation distribution and transmission business? Before further unbundling of distribution there is a need to have separate audited accounts of the assets and liabilities and accounts of the distribution systems various cities and areas that are being parceled off to franchisees. It is a fact that Delhi Electric Supply Undertaking (DESU) was privatized without an audited statement of accounts and an asset register.
b) Even though a public monopoly would be made a private monopoly there is not audit by a public authority like the CAG.
c) Most of the distribution transformers and lines have not kept pace with the load growth due to lack of investment. There is a need for investment in modernization of the distribution system. Before privatization there should be a legally enforceable contract that the private distribution companies or franchises would make investments in the upgrading of the distribution system, instead of only in upgrading metering and improving the commercial side of distribution. This is important since the index for monitoring is Aggregate technical and Commercial losses (AT&C). Experience has shown that improvements made by the private agencies have been mostly due to payment collection, particularly of outstanding dues.
d) Privatization was attempted in - Gaya, Samastipur and Bhagalpur in Bihar, Kanpur in Uttar Pradesh, Gwalior, Sagar and Ujjain in Madhya Pradesh, Aurangabad and Jalgaon In Maharashtra, Ranchi and Jamshedpur in Jharkhand - the Regulatory Commissions were compelled to cancel the franchise. What is the assurance that this would not repeat again?
e) Experience of many countries studied by the World Bank has shown that “Overall, we find no major differences between the efficiency and quality of services which commercial end-users receive from private or public utility companies…. A study of United Kingdom has shown that “The ultimate aims of the U.K. reforms were to remove the sector from government funding and to reduce prices for consumers through the increased efficiency of private sector operation and the pressure of competition. Broadly speaking, the first objective has been accomplished, but the second objective has yet to be convincingly achieved”
It is important that the consumers are convinced that legislative changes are in their interest. Forcing a legislative change may prove to be counter-productive.
IV. Enforcing payment security
Electricity, by its very nature, is a system, where the demand- supply dynamics keeps on continuously changing. The interconnected grid makes it essential that there is continuous management of the grid and that the frequency is kept steady, while ensuring merit order dispatch. Nothing should be done to disturb this very critical and on line activity. Burdening the load dispatch centers with commercial activities may prove counter-productive and endanger the grid.
V. Renewable and Hydro Power
With hydro power being bracketed with solar and wind energy, the only source of power that is separated is thermal power generated from fossil or nuclear fuel. Nuclear and petroleum fueled power is miniscule. Basically, its super critical coal fired stations and renewable energy on a common grid. Solar and wind are intermittent energy producers and with a common grid maintaining grid stability is most critical. Making separate policies would be counter-productive.