The story so far: Opposition parties and several organisations have objected to certain features in the draft Electricity (Amendment) Bill, 2021. The Kerala Assembly has unanimously passed a resolution urging the Centre to withdraw the Bill. West Bengal Chief Minister Mamata Banerjee has written to Prime Minister Narendra Modi, reiterating her opposition to the “much-criticised” Bill. In Karnataka, farmers held demonstrations against the draft legislation. The proposed legislation, according to critics, goes against the federal structure of the Constitution as electricity is in the concurrent list. Those opposing the Bill contend that it will lead to more private players in the power sector, making electricity unaffordable for vulnerable sections, but the Centre says it has its reasons for proposing the changes.
What prompted the Centre to propose changes in the Electricity Act?
For years, electricity distribution has remained the sore point in the country’s power network. Thirty years ago, when the Centre opened up the power sector, experts argued that distribution should have been covered initially. The Electricity Act, 2003, led to thermal generation getting delicensed and States unbundling the vertically integrated State Electricity Boards into generation companies and distribution companies (discoms). Though the idea is to promote competition and efficiency, the discoms have, by and large, remained under the control of the States. At the end of June 2021, the discoms owed over ₹90,000 crore to power producers. Thirty-six out of 56 discoms reported aggregate losses of around ₹32,900 crore as on March 31, 2020. With the discoms saddled with structural challenges in governance and regulation, combined with the chronic problems of underinvestment, line losses and issues in billing, metering, and collection, the government has been trying to amend the Electricity Act. The present version of the draft Bill was drawn up in April 2020. Recently, Union Power Minister R.K. Singh said the revised draft, prepared in consultation with stakeholders, had been sent to the Cabinet Secretary.
What are the contours of the draft Bill?
The broad objectives of the legislation, as articulated by Mr. Singh a year ago, are: ensure consumer-centricity, promote ease of doing business, enhance sustainability of the power sector and promote green power. The draft Bill has covered nearly a dozen areas, such as distribution franchise and sub-licence, subsidy, and cost-reflective tariff. Among the remedies presented by the government through the initiative are direct benefit transfer (DBT) of subsidies, reduction of cross subsidies, role for distribution sub-licensees with regulators’ nod, the adoption of a national renewable energy policy and the establishment of the electricity contract enforcement authority. On August 10, the Union Minister informed the Rajya Sabha that after the announcement in the 2021 Union Budget on the need for enabling consumers to choose among discoms, the Centre held discussions with a range of stakeholders. As this required an amendment to the law, the “desired procedures are being followed”, he said.
Why have several States opposed the Bill?
The proposed de-licensing of distribution has unnerved many States, from Tamil Nadu to West Bengal and Maharashtra to Punjab. The States feel that a greater role for private distribution companies and franchisees would only lead to “cherry-picking of remunerative areas” by them, leaving it to the State discoms to serve social sector obligations and rural areas. This, they feel, will lead to the States incurring massive losses. Ms. Banerjee, in her letter to Mr. Modi, argues that while the Electricity Act, 2003, had struck a “fine balance” between the Centre and the States in the management of the sector, the proposed amendment “strikes at the root of the federal structure”. The objective of providing choices to the consumers would “end up in profiteering” by new service providers through tariff hikes. The draft Bill is also being opposed by many political parties and farmers on the ground that DBT will do away with the heavily subsidised or free power supply to the farm sector. This is why, it is one among three pieces of legislation against which agitating agriculturists’ bodies have been carrying on a campaign. One of the complaints of Tamil Nadu against the draft Bill is that hydro-power purchase obligation cannot be fixed separately as hydro-power generation is seasonal, monsoon-dependent and not in the control of its discom.
What is the way forward?
If the Centre and the States can arrive at a broad consensus, at least on two crucial areas of DBT and giving space for private distribution companies and franchisees, the proposed amendment can be a game-changer for the power sector, according to experts.