Thursday, April 15, 2021


Privatising power is no reform

VINOD GUPTA | March 03, 2021 03:43 PM

Since 1990, India has embarked on market-oriented power sector reforms that ranged from restructuring state electricity boards, establishing independent regulators, and partially privatizing the power sector.
The last three decades have exposed the inefficiency of the central government's reform program in electricity planning, power sector financing, national tariff policy, and in developing an equitable national renewable energy policy. The present set of reforms is nothing but a desperate attempt by the government to cover up the policy miscalculations of the past decades while simultaneously protecting the interests of private power generators at the cost of state distribution companies.
The proposed reforms are meant for the complete privatization of power distribution and hand over the assets of the power sector to big industrial houses at a nominal price. The entire burden of the unrealistically ambitious renewable targets set ostensibly to please the international community is sought to be passed on to the states.

Orissa was the first state to get assistance from the World Bank for restructuring. The state electricity board was trifurcated into separate generation, transmission, and distribution. The distribution segment was divided into four regional utilities and later on privatized.
This was followed by eight other states. Each of these states, after passing their reforms act, unbundled their state electricity boards (SEBs) into separate entities of generation, transmission, and distribution. The only difference was in the case of Orissa and Delhi which went a step further and privatized their distribution sector as well.
The privatization experiment has miserably failed in Odisha. AES left Orissa after a severe avalanche in the area operated by it.
The regulatory commission in Orissa has already canceled the distribution license of Reliance-owned Discoms in Odisha. Despite failures of the privatization move now again Orissa Discoms have been privatized in 2020.

The Electricity Act 2003 repealed all the existing electricity laws. The Act 2003 mentions that all SEBs have to be unbundled into separate entities of generation, transmission, and distribution. In order to enhance the generation, licensing has been done away with completely except that techno-economic clearance would be required for hydro projects. This also paved the way for two or more distribution licensees in the same geographical area.
The very purpose of the Electricity Act 2003 was to reduce the losses in the Power sector, improve the financial health of the sector & reduce the subsidy burden of the Government. But due to faulty execution of policies, the financial health of the power sector has further deteriorated and the government is now even subsidizing private distribution companies. Due to continued wrong energy policies, the banking sector was burdened with non-performing assets being generated by the power sector.

When private generation was allowed in 2003, and green power in the form of solar and wind energy was introduced, there was a stampede amongst state governments to sign up. As a result, Power Purchase Agreements were signed left-right and center. State electricity boards signed one-sided power purchase agreements providing deemed generation clauses. With uncontrolled and unplanned capacity addition by private sector developers, several states in the country are now having surplus generation capacity available with the result that a considerable percentage of thermal power capacity in the state sector is being shut down for more than six months every year. The present PPA’s signed between the state DISCOM and private developer need to be amended.

Solar power in India is growing at a hectic pace and the government claims that India will be the only country in the world to meet the renewable power commitments. The tariff in solar power in some power purchase agreements is about Rs. 15 per unit whereas the present trend is around Rs.2 per unit, however, The central government is not allowing renegotiation of old costly PPAs. Andhra Pradesh Governments tried to review power purchase agreements resulting in exorbitant tariffs but the central government intervened to stall the move to revisit the PPAs in the renewable energy sector, claiming that such steps would affect the investor's confidence and the country's renewable energy targets.

The Electricity (Amendment) Bill, 2014 was introduced in the Lok Sabha seeking amendments in the Electricity Act, 2003. The major thrust areas are introducing carriage and content separation, enabling open access, competition, and greater impetus for renewable energy. However. The bill was referred to the standing committee for energy and the committee submitted its report. Large-scale protests were seen by employees and engineers against the amendments. The bill lapsed as the same could not be passed during the tenure of LokSabha.

In April last year, the Union power ministry released a draft of the Electricity Amendment Bill 2020. The draft calls for the creation of an electricity contract enforcement authority (ECEA), proposes a National Renewable Energy Policy and mandates payment security as necessary for scheduling of electricity, and facilitates cross-border electricity trade. The draft seeks privatization of discoms by way of sub-licensing & franchisees.
11 states and one union territory opposed many provisions of the Electricity Amendment Bill 2020. The states termed the draft
Electricity (Amendment) Bill, 2020 against the spirit of the Constitution and contradictory to the decentralization of power
for states despite its inclusion in the concurrent list.
Finance Minister on May 16 announced the privatization of electricity departments in the union territories. The power ministry circulated a draft standard bidding document on September 20 for discoms for the privatization of distribution licensees. It provides guidelines for states who want to offer their electricity distribution utilities to private players. The intention of SBD is not to reform the power sector but to thrust privatization of the power sector across the country.

Since there was strong opposition to the Electricity (Amendment) Bill 2020, the same is being modified in a moth-eaten fashion and presented as Electricity (Amendment) Bill 2021. Now the government has planned to table Electricity (Amendment ) Bill 2021 in the parliament in this budget session.
The government has proposed delicensing of electricity distribution similar to the delicensing generation in 2003. This will facilitate multiple players into the distribution sector and giving complete freedom to create franchisees with no public accountability. The private sector will be handed over the assets of state Disccom worth thousands of crores without any valuation. This is being done in the name of introducing consumer choice and competition. Such ad-hoc measures may cause more damage than good.

The experience of several franchisees doing business in many cities should have been an eye-opener. They failed to upgrade and modernize the existing distribution network. Many franchisee companies were forced to leave by the regulators after they committed frauds and burdened the state Discoms with a few hundred crores of rupees.
Prayas Pune's extensive study on privatization in Mumbai shows how the experiment has failed with numerous legal and commercial disputes and extremely high consumer tariffs. Mumbai is a clear example of how cherry-picking has failed. Dadra and Nagar Haveli Daman, Diu as well as Chandigarh are other examples of cherry-picking for profit by private players to the detriment of consumers.
The government is simply privatizing the power sector and privatizing power is no reform

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