Electricity Bill-2001: Future Forward - Views on News from Equitymaster

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Electricity Bill-2001: Future Forward

Mar 24, 2003

The government has tried to incorporate many reforms in the power sector in the past. But due to the legal hassles, reforms have not materialized. Consequently, SEBs (State Electricity Board) faced huge losses, which were to the tune of Rs 240 bn in FY02. The key contributors to these mounting losses were un-equitable tariffs, T&D (transmission and distribution) losses, inadequate metering, theft of power, etc. Also, no major private sector participation was seen in this sector because of the tedious process of licensing and preliminary conditions. The government felt an urgent need to introduce the reforms and it came up with a very innovative idea of consolidating the various legislations relating to production, supply and use of electricity in the form of Electricity Bill-2001. The bill was given a green signal in the cabinet. But it is yet to be discussed in the parliament to give it the form of law.

In this section, we will take a brief overview of the bill considering the generation, distribution and transmission aspects of the power sector. We will consider different issues that have emerged over a period of time, the measures the government has tried to incorporate through the bill and the possible impact on the reforms in the power sector, once the bill becomes a law.

Generation
Issues Measures Impact

Though private sector participation
has increased over the years, it is only 10% of the total generation

Elimination of licensing. It will be based on compliance with technical standards

De-licensing will help facilitate fresh investments and encourage private participation over the long term

Licensing issues involves cumbersome procedures

Independent profit centers, once the unbundling of SEBs takes place

Tariff rationalization will lead to stronger cash flows for companies

India has to generate 100,000 MW in the next 10 years to plug the demand supply gap

Competitive tariffs

De-licensing will also mean removal of cumbersome procedures, thereby giving speed to investment scenario

Subsidised tariffs: The gap between the cost of power generation and the tariffs has increased to 110 paise per unit by FY02

   

Transmission and Distribution (T&D)
Issues Measures Impact

Huge T&D losses of over 30% (2001-02 estimates)

Provision for prevention of theft of power and huge penalties for similar incidences

Increase in accountability of T&D losses

Power theft and inadequate metering

Independent transmission and distribution centers

Identification of T&D losses becomes easy once compulsory metering comes in place and thereby gives financial stability to operations

Full load on lines while transmission

Compulsory metering

Facilitates fresh investments

Increase in low voltage transmission lines because of rural electrification, which means higher technical losses

Open access: gives buyers the freedom to choose from any supplier

States having excess capacity would be able to supply to those facing shortage. This will prevent producers from going headlong into adding capacities and instead focus on optimum utilization of resources across the country

Gaps in demand supply across regions. Overall, energy shortage stood at 7.5% and peak shortage at 12.6% in 01-02

Introduction of the concept of power trading

 

The main advantage of Electricity Bill 2001 is that it will bring uniformity in the way the SEBs are restructured. De-licensing of power generation projects will help in improving investment flow in generation. The bill seems to be a very comprehensive one and it consolidates all the previous legislations in a structured manner.

It has identified the earlier obstacles, which the government faced and tries to avoid them this time. It has known the impact of T&D losses and has taken the necessary steps such as compulsory metering, stringent penalties for theft to reduce it. It hopes to establish an independent and transparent regulatory process. This would help to increase the pace of the reforms, avoiding the legal hassles and various ad hoc policies that had added to the bad health of the sector.

However, there are certain pitfalls, which hinder the passing of the bill into a law. The workers of SEBs are opposing the bill because of the fear that they will get privatized, which may adversely affect their job security. On the other hand, the Enron imbroglio might be a fear playing on the minds of private players. There may be opposition from political parties, state governments and the so-called affected parties. This calls for the phased introduction of the bill.

The bill has the potential of transforming the sector into a commercially viable industry, provided the state government’s restructure the SEBs in a manner provided in the bill. In short it provides a strong stimulus for reform and it represents a path forward for changing the paradigm of the electricity sector. It represents the best compromise possible to address the 'power'ful conflicts that beset the sector. But as said earlier, it is a long drawn process.

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