Centre's power reforms tied in knots amid protests by Opposition states

As the Centre pushes reforms in the power sector, especially for the beleaguered electricity distribution segment, several states, especially those ruled by Opposition parties, are clamouring against it. Maharashtra, West Bengal, Tamil Na­du, and Kerela have voiced their reservations against the proposed amendments to the Electricity Act, 2003.

The irony is the states opposing the amendments on the ground of threat of privatisation already have private partnerships in power supply.

The proposed Bill was slated to be placed on the floor of Parliament in the Monsoon session. But it still awaits Cabinet approval amid several states complaining that they have been not consulted on the issue. Senior officials, however, said the Bill was circulated among all stakeholders, including state governments, and their comments were taken into consideration.

The Centre in April 2020 unveiled the first set of draft amendments to the Electricity Bill, 2003, and asked states to submit their comment. Major amendments included an end to subsidised power rates, replacing it with "direct benefit transfer (DBT)" of subsidy, reduction of cross-subsidy burden on industrial consumers, new contract enforcement authority, and new selection process for existing state electricity regulatory commissions (SERCs).

In February this year, the Centre further amended the existing Electricity Act, 2003, to abolish power “distribution licence” and allowed any company to supply electricity in an area, after necessary regulatory approval. With this, the Centre ended the monopoly of existing power distribution companies (discoms), which are mostly state-owned entities, and any and every area was thrown open to be offered to private discoms.

This decision followed an announcement by Finance Minister Nirmala Sitharaman last year when under the Aatmnirbhar Bharat package to boost investment, she had said, discoms of all Union Territories would be offered to private companies.

The push to privatise discoms has become a major bone of contention between the Centre and states. The challenge also comes at a time when the BJP-led Central government has unveiled a second power distribution reform of Rs 3 trillion. The scheme aims at improving finances and operations of discoms, most of which are in dire straits.

The last discoms reform scheme UDAY, launched in 2014, concluded in 2020 with most states failing to meet their stipulated targets. So far, there have been four reforms or financial restructuring schemes over the last decade for state-owned discoms.

With the changes suggested in the Electricity Act, several states have now started attacking the Centre citing the federal structure of the electricity sector, where generation and transmission comes under the Centre while distribution is a state subject.

In a recent letter to the prime minister, West Bengal Chief Minister Mamta Banerjee wrote that states were not consulted regarding the amendments. “Power is too important a sector for such unilateral interferences, especially when ‘electricity’ as a subject is in the Concurrent List of the Constitution of India and any legislation on a subject in such a list needs serious prior consultation with the states. In the present case, there has been some tokenism of consultations, but no real exchange of views, which is antithetical to the federal structure of our polity,” she said in her letter.

She also further said the approach suggested in the proposed Bill would result in the concentration of private profit-focused utility players in the “lucrative urban-industrial segments, while poor and rural consumers would be left to be tended by public sector discoms".

West Bengal has a private power discom CESC (promoted by R P Goenka group) in some parts of Kolkata.

R K Singh, Union power minister, was reported questioning the statement of West Bengal CM. The minister said last week: “Why she (Banerjee) wants to protect monopolies is not clear, especially the private company in Kolkata, which has one of the highest tariffs in the country.” He further said the Bill would end government and private monopolies in power distribution.

“There must be competition in this sector so that people can choose a distribution company which gives more efficient service at lower prices,” Singh said.

Shiv Sena MP Sanjay Raut reiterated the same complaint that states were not consulted on the provisions of the Electricity (Amendment) Bill, and it is not in the interest of the country. “The provisions ring a danger bell for state electricity companies. Our party is holding consultations in this regard,” he said.

In Maharashtra, Mumbai has two private discoms – Tata Power and Adani Electricity. Tata has been in operations in the financial capital for a decade and Adani recently took over the business from Reliance Infra, which also operated for a similar period. Maharashtra also has private power distribution franchisees in some areas, such as Bhiwandi which was the first to have this model when Torrent Power took over the franchisee business in 2007.

Being a franchisee is different from privatisation — part of the power supply operations lies with the private partner while ownership remains with the state department.

In July last year, during the power ministers’ conference, Bihar — ruled by BJP ally JD(U) — opposed the proposal for privatisation of power distribution as it feared it would lead to an increase in the power rates. Tamil Nadu, Odisha, and Kerela also raised objections against several provisions of the Bill.

Odisha however, has recently awarded all its power distribution zones for privatised power supply. Tata Power has won all the zones. Odisha also has private franchisees in some areas operated by Feedback Infra.

Last year, several states also condemned the move to end subsidised power rates. The provision of power tariff determination has been revised in the Bill and it asked all state electricity regulatory commissions (SERCs) “to determine tariff for the retail sale of electricity without any subsidy under section 65 of the Act”.

The amendment proposes to give subsidies directly to the consumer. States, including Bihar, opposed this on the ground that it would be difficult to enforce DBT in electricity, sources said. Giving electricity subsidies to certain sections of electricity consumers is prevalent in all states.  In Delhi, the subsidy is based on consumption units. As these subsidies are difficult to recover, the finances of discoms get impacted as a result.

There is no clarity exactly when the Bill will be cleared by Cabinet and for parliamentary passage. But given the politics around the matter, for the moment, the Centre seems to have postponed it to live to fight another day.