22 February 2021 | BRIDGE TO INDIA
The Ministry of Power has tabled a draft Electricity Amendment Bill in Lok Sabha. The foremost provision in the draft Bill relates to liberalisation of power distribution business. The government is proposing to end DISCOM monopoly by allowing any new player to enter the business anywhere in the country. The draft Bill also includes a few other assorted provisions designed to tackle various procedural issues in the sector.
- The draft Bill requires DISCOMs to share their power sourcing arrangements and distribution network with the new players;
- Crucial details concerning regulatory design for sharing of legacy PPAs, network costs and tariff pooling across consumer segments are missing;
- Other provisions covering RPO compliance, tariff approvals by regulators and payment security fund maintenance by power purchasers are piece-meal in nature;
As per the draft Bill, state regulators would define business criteria for new players keen to enter distribution business. Subject to fulfilment of these criteria, (deemed) approvals shall be given necessary approvals to operate within 60 days of application date. Incumbent DISCOMs would be required to share their power sourcing arrangements as well as distribution network with the new players. There is no explicit universal service obligation requirement for the new players. Instead, the Bill proposes creation of a universal service obligation fund managed by a state-government nominated entity. Presumably, the idea is that any tariff recovery over ‘Average Cost of Supply’ from C&I consumers, for example, would be transferred to this fund for sharing with other distribution companies.
Entry of private players would enable consumers to choose their power supplier on the basis of better service or lower price, or a combination of both. The government is hoping that loss of consumers would, in turn, force state government-owned DISCOMs to up their game and improve overall efficiency in the sector. In theory, it is a sound economic argument. We have seen several instances of liberalisation in banking, aviation, telecoms and even power generation, amongst other sectors, over the last thirty plus years. But the public sector entities have almost always been left behind in all such cases and there are few examples of revitalised incumbents. Cue strong opposition from opposition parties, state governments, DISCOMs and even some consumer bodies.
The devil would be in detail. Successful liberalisation of distribution sector would require intricately designed regulatory mechanisms for sharing of legacy PPAs, network costs as well as tariff pooling across different consumer segments. Lack of reliable operational data could also be a stumbling block.
Other proposals are more assorted in nature. Failure to comply with RPO targets would result in financial penalties increasing over time – INR 0.25-0.50/ kWh in the first year, INR 0.50-1.00/ kWh in the second year and INR 1.00-2.00/ kWh in the first year. To reduce offtake risk, a provision mandates that power supply to offtakers would not be scheduled until all payment security fund requirements have been fulfilled as per the agreed contract. There are provisions requiring state regulators to process retail tariff petitions and power purchase petitions by DISCOMs within 90 days. Another provision suggests that if a state regulator is unable to operate satisfactorily because of inadequate staffing, the central government may, “in due consultation with the state government,” entrust its functions to another regulatory agency.
The draft Bill is notable as much for many exclusions as it is for final inclusions. Key reform measures including direct payment of tariff subsidies by state governments, separation of content from carriage, privatisation of DISCOMs, a new contract enforcement authority and hydro power procurement obligation, mooted just last year, have been binned. Tariff reform has also been given a miss.
Before we get to the execution stage, there is the all-important matter of getting the Bill through the Parliament. Curiously, the draft version has not yet been released publicly (BRIDGE TO INDIA has seen a copy) possibly in anticipation of fierce resistance from different stakeholders. The recent precedent of farm laws, which were rushed through the Parliament without full debate and are now stuck, is not encouraging.