ELECTRICITY REFORMS : One major reform that has been sacrificed at the altar of populism is the provision for ‘open access’ under the amended Electricity Act (2003).
Under the Narendra Modi dispensation, even as reforms are progressing on several fronts, ironically, electricity is one area where implementation is hamstrung by political establishments in majority of the states, including the BJP-ruled ones. The reason being they are embracing populism in the form of supply to certain segments such as farmers, poor households at low tariff, or even free, and letting thefts happen.
One major reform that has been sacrificed at the altar of populism is the provision for ‘open access’ under the amended Electricity Act (2003). Under this policy, which was to be implemented within five years of its enactment, choice is given to bulk consumers (those with consumption of more than 1 megawatt) to choose their supplier. While enabling such customers to access power at cheaper rates, the intent was also to pressurise state electricity boards (SEBs) to improve their working, leading to reduction in tariff offered by them.
The state electricity regulatory commissions (SERCs) were set up in each state for effective regulatory oversight and timely intervention to ensure proper implementation of this policy besides enforcing higher governance standards, bringing in competition and ensuring that correct tariffs were charged.
The SEBs are prone to charging high/exorbitant tariff from industries and businesses so that they can cross-subsidise cheap/free supplies to farmers and households and even absorb losses on account of power theft. It is a different matter that industries continue to make huge losses prompting the Centre to come out with what is termed as financial restructuring package. Three such bailouts were given in 2002, 2012 and 2015.
It was therefore inevitable that industries and businesses or the so called good customers of SEBs, would like to make use of the ‘open access’ policy in order to bring down their cost of buying power. But another provision in the Electricity Act (2003) put a spoke in the wheel. It required such customer to pay an ‘open access surcharge (OAC)’ to the SEB concerned whom they want to leave.
The levy of a surcharge on someone contemplating to get rid of a high cost supplier was by itself a contrarian thought. That the surcharge was meant to be temporary – to be reduced over a period of time – is no consolation at all.
The states used this lacuna in the policy to the hilt only to provide a protective cover to the SEBs. By fixing surcharge at a high level and not bothering to reduce (as mandated under the Act), they ensured that post-switch, effective cost of power to the consumer – tariff charged by new supplier plus OAC – is higher than what they pay to the SEBs. That rendered the switch uneconomical and customers had no other option but to remain with the SEBs.
The states have also used frivolous technical arguments (for example, saying there was no capacity in the system to carry electricity to them from a different supplier) to turn down the request made by customers for switching supplier. In short, they have succeeded in defeating the very objective of the amendment in the Act.
This has also led to collateral damage of SEBs remaining complacent with regard to their working, which meant continuing electricity outages co-existing with high levels of unutilised capacity. How far the states can go in shielding their SEBs at the cost of good customers is best illustrated by the example of the Indian Railways.
The Railways is the biggest consumer of fuel. It has an annual fuel bill of Rs 26,000 crore which includes Rs 12,000 crore as expenses on purchase of electricity. Under the Railways Act, it is allowed to distribute and supply electricity and is a “deemed” licensee as it is buying electricity for its own consumption.
Therefore, it is exempt from payment of surcharge which was confirmed vide an order of the Central Electricity Regulatory Commission (CERC) in November 2015 and later upheld by the Supreme Court (SC).
Enforcing the law
Yet, the Railways is paying around Rs 2,500 crore as OAC to various SEBs – Uttar Pradesh, Chhattisgarh, West Bengal and Odisha. For seeking waiver from payment, it has been trying in vain to get no-objection certificates (NOC) from the states (why it is asking for NOC when it is not needed as per the law is mysterious). Unfortunately, SERCs have no interest in enforcing the law either.
To bring about savings in fuel bill in particular, buying electricity at cheaper rates was one of the several innovative measures contemplated by the reformist Railway Minister Suresh Prabhu to improve its functioning and reduce its operating cost. Yet, he is far from achieving the objective due to the continued obstructionist role of the states in not letting the benefit of ‘open access’ filter through.
What is the utility of having a law which cannot be implemented? Why are states being allowed to get away? Why are SERCs not doing their job? How could OAC – an anathema to reforms – be allowed entry in the Act?
At the root of all this is the lack of political will to get rid of populism that is responsible for heavy losses of SEBs which they try to reduce – to a limited extent though – by charging exorbitant tariff from good customers. It is this buffer that they don’t want to lose. That should explain the levy of OAC and poor implementation of the law.
It is good to see the Modi government making all-out efforts to help states – both financially and technically – to reduce the transmission and distribution losses. But, this will be of little use unless the scourge of theft and cult of subsidies is eliminated. There is no escape from states shunning populism for meaningful reforms in the power sector.
(The writer is a New Delhi-based policy analyst)
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