Why Is the Centre Pushing a New Electricity Bill in the Midst of the COVID-19 Crisis?

The Electricity Bill, 2020 requires the elimination of subsidies and cross-subsidies, and if enacted, electricity will become a luxury commodity.

Note: This story was updated at 9:29 AM on April 23 to add the power ministry’s response and clarification. It can be read below.

In the midst of a pandemic that has forced even the highest court to suspend its proceedings except for very urgent cases, the Government of India has thought it fit to start, on an urgent basis, the process of enacting the Electricity Act, 2020.

A draft of the Bill has been circulated for comments to be given within 21 days, about a week after the lockdown ends. In 2014 and 2018, there were attempts to bring in similar legislation. However, due to strong opposition from the state governments and the power engineers and employees, the Bills were not introduced in parliament. Perhaps that explains the rush to put through legislation when the coronavirus overwhelms all other concerns.

Signing the structural adjustment loan conditionalities in 1991 started the process of changing all economic-related activities. The Electricity Act, 2003 was enacted with the objectives like “generally for taking measures conducive to development of electricity industry, promoting competition therein…… development of market in power including trading…. promotion of competition, efficiency and economy in activities of the electricity industry”. The main operational part consisted of unbundling of vertically integrated State Electricity Boards, creating regulatory commissions and an appellant authority, removing mandatory techno-economic sanction for setting up thermal power plants.

The statement of objects and reasons of the Electricity Bill, 2003 makes it clear that the purpose of the Bill is to a) ensure the protection of the contracts and timely payment b) privatising distribution c) removing subsidies and cross-subsidies.

Why another semi-judicial authority?

The new Bill seeks to create the Electricity Contract Enforcement Authority, another organisation which will be headed by a retired judge. When there are regulatory commissions and an appellant authority, why is another semi-judicial authority required is the first question. What would be the demarcation between regulating and enforcing contracts?

A related question is: When Indian jurisprudence has robust legislation on contracts, why is separate legislation exclusively for one commodity or service (whichever way electricity may be defined) required? In the All India Power Engineers Federation Vs Sasan Power Ltd and others case, the Supreme Court has held that “it is clear that the moment electricity tariff gets affected, the consumer interest comes in and public interest gets affected….. if there is any element of public interest involved, the court steps in to thwart any waiver which may be contrary to such public interest” Why is this government so unconcerned about consumer interest?

What is so sacred about electrical contracts that they have to be enforced?

In the gold rush that followed the 2003 Act, several state governments signed contracts that were negotiated and were not based on competitive bids. Several power purchase agreements (PPAs) required that the fixed cost be paid to the power generating company even if their power was not consumed. Several state distribution companies (DISCOMS) are paying thousands of crores of rupees as fixed costs, even when they do not buy a single unit of power from these generating units. Therefore, does public interest not require the contract to be amended, rather than be enforced?

The same question needs to be asked in respect of solar power plants, set up entirely in the private sector. Long term PPAs, some valid for 25 years, at fixed costs were entered into without any provision for technological innovations or market conditions that could, in the future, bring down the prices. For example, the agreement the Southern Power Distribution Company of Andhra Pradesh signed for the purchase of 400 MW of solar power generated at the solar park set up at Galiveedu Mandal, Kadapa district at Rs 4.50/kWh. Similar, high tariff contracts were signed by several states. When the present Andhra Pradesh government tried to reduce the tariff to Rs 2.44, which is the prevailing price of solar power, all hell broke loose. Ambassadors of countries including Japan, Canada and France, some financial institutions and renewable energy developers took up the matter with the prime minister, Union power minister R.K. Singh and chief minister Jaganmohan Reddy.

Union power minister R.K. Singh decreed that the AP government shall immediately reverse its orders. The Andhra Pradesh high court dismissed the case, asking the renewable power companies to raise their objections before the Andhra Pradesh Electricity Regulatory Commission (APERC). Why should state governments not be able to renegotiate contracts when there are technological and market changes that reduce the tariffs? If it happens in every sector, why not in the power sector? Entrepreneurs are rewarded for taking risks, are they not?

Solar power panels. Photo by Thomas Lloyd Group/Wikimedia Commons.

Should the state protect and reward questionable private investments?

The Electricity Act, 2003 removed the statutory obligation to obtain a techno-economic approval, from the Central Electricity Authority (CEA), for setting up thermal power plants. The private sector set up 34 thermal power plants, importing power generating equipment from China. Infrastructure for production of 40,000 megawatts, that is the equivalent to four years’ production capacity of BHEL, was imported. As a consequence, BHEL has posted losses after about four decades of posting profits. Most of these 34 power plants became stressed assets for the following reasons that the 37th report of the Parliamentary Standing Committee on Energy identified:

  • Non-availability of Fuel due to the cancellation of coal blocks and projects set up without linkage.
  • Lack of enough PPA by states
  • Inability of the promoter to infuse the equity and working capital
  • Contractual/Tariff related disputes
  • Issues related to Banks/Financial Institutions (FIs).
  • Delay in project implementation leading to cost overrun.
  • Aggressive bidding by developers in PPAs

Every one of these reasons constitutes managerial misjudgement, if not complete incompetence.

The parliamentary report noted that, as of June 2017, the power sector had nearly Rs 6 lakh crore of total bank loans. Of this, Rs 37,941 crore are non-performing assets, while restructured advances amounted to Rs 60,858 crore. The concern is not limited to financial stress but also criminality. The Directorate of Revenue Intelligence (DRI) has issued show cause notices worth over Rs 50,000 crore for alleged over-invoicing of coal and manufacturing equipment. A case filed in the Delhi high court by the Center for Public Interest Litigation has quoted very specific and detailed data of over-invoicing. However, the Bombay high court has denied DRI even the right to obtain information from outside India.

The question, therefore, is: Why should such questionable investments be protected and contracts related to them be enforced?

Also Read: The Dangers of Dismantling India’s Public Sector

Privatising the distribution system 

There are two myths that are promoted. One that by allowing several licences, there could be retail competition. The second myth is that private monopoly is superior to public monopoly. These myths are to be enacted into law through the Electricity Bill, 2020.

The operational part of the Bill is to privatise DISCOMS through franchisees and then to introducing multiple licences. The present Bill is completely ambiguous about the mechanism, even though they have used the word licensees. In the cities of Gaya, Samastipur and Bhagalpur in Bihar, Kanpur in Uttar Pradesh, Gwalio , Sagar and Ujjain in Madhya Prades , Aurangabad and Jalgaon In Maharastra, Ranchi and Jamsedpur in Jharkahnd, to name a few, the regulatory commissions were compelled by hard core evidence of failure to cancel the franchise.

What would be left of the role of the states?

The Constitution puts power under the concurrent list. However, with the enactment of the Electricity Bill, 2020, whatever is left under the purview of the state governments would be taken away. The Electricity Bill, 2003 unbundled the state electricity boards, transferred to independent regulators the power to set tariff and parameters for the working of the supply industry. The new Bill would create an independent contract enforcement authority and empower load dispatch centres to oversee the payment-security mechanism before scheduling the dispatch of electricity and to be made mandatory.

On the operational side, renewable energy is almost completely private-owned. Private thermal and Central sector thermal plants are the dominant players. On grounds of higher levels of pollution, systematic state-owned thermal plants have been ordered to be shut down. States have little role in transmission. The Electricity Bill, 2020 enforces privatisation of distribution, in addition to the Central PSUs lead by NTPC have been entering the arena. 

Making Electricity a luxury 

This Electricity Bill 2020 requires the elimination of subsidies and cross-subsidies, therefore when enacted, electricity would become a luxury commodity. Electricity plays an indispensable role in modern life. How would one live on the 20th floor of a multi-storied building, get modern medical diagnostics or treatment and maintain channels of communication without electricity?

All sections of people, state government and those working in the electrical power supply industry should in unison ensure that this Bill is not enacted.

K. Ashok Rao is a patron of the All India Federation of Power Engineers.

Power Ministry responds:

In this regard Ministry of Power has clarified the matter as below: A section of media has reported that Centre is pushing new electricity bill.

As can be seen, Ministry has transparently placed the Draft Bill on the website, and tweeted, inviting suggestions/comments from all stakeholders giving adequate time. #ElectricityBill2020

Following is Ministry’s Tweet posted on 17.4.2020 :
“Draft Electricity (Amendment) Bill 2020.
Suggestions/Comments may be sent/emailed within 21 days. Please check the link for details:

7:35 PM · Apr 17, 2020·Twitter for iPhone”

Further, there is no proposal for elimination of subsidy. State Governments can provide subsidy to any consumer directly. This will make consumers more aware about subsidy received by them and will make State govt more responsible in release of subsidy in time.

These initiatives will induce more transparency and responsibility in dealing with electricity subsidy matters.

We encourage all stakeholders to send their comments/suggestions to the Ministry.