Give subsidy to State power Discoms but don’t pass financial liabilities on to them: Jyotiraditya Scindia

NEW DELHI, August 1, 2013. The Union Ministry of Power is not averse to doling of subsidies by States to cash-starved power distribution companies (Discoms) so long the financial liability on this count is not passed on to the utilities.

This was stated here on Thursday by Mr. Jyotiraditya Scindia, Minister of State for Power while inaugurating FICCI’s National Conference on ‘10 Years of The Electricity Act, 2003: A Critical Review’.

Mr. Scindia said that the Power Ministry is using the Financial Restructuring Package as a ‘carrot and stick’ policy with 50 per cent of the liabilities will vest on the books of the banks and 50 per cent on the balance sheets of States, unlike in the past when it was passed on to the books of Discoms.

He said, “We would like the Sub-Group of the Advisory Group of the Power Ministry to suggest forward-looking amendment to the Electricity Act to make the foundations of distribution utilities strong so that in open access they at least become revenue-neutral, if not surplus.” The sub-group is headed by Mr. R V Shahi, Chairman, Energy Infratech Pvt. Ltd. and former Secretary, Power, Government of India.

Open Access on Transmission and Distribution on payment of charges to a utility will enable number of players utilizing these capacities and transmit power from generation to the load centre. This will mean utilization of existing infrastructure and easing of power shortage. Trading, now a licensed activity and regulated will also help in innovative pricing which will lead to competition resulting in lowering of tariffs.

The objective of the Advisory Group, chaired by Minister Scindia has already discussed key amendments to the Electricity Act 2003 to bring more clarity to investors while helping expedite power distribution reforms in the country.

The group has suggested tightening provisions of the Section 10 of the Act, which have been misused by some states to block export of electricity from private plants outside their boundary. Further, provisions relating to grid security need to be strengthened by the Ministry before the country switches to a unified code in January by connecting the southern region to the rest of India.

The Advisory Group has also recommended amendment in the provisions of the Act to allow mandatory performance checks on central and state electricity regulatory commissions to ensure tariff revisions are undertaken by them on a periodic and timely basis.

On the occasion, Mr. Scindia released a Knowledge Paper on ‘10 Years of The Electricity Act, 2003: A Critical Review’.

Mr. Suresh Prabhu, former Minister for Power, Government of India, said that the Electricity Act 2003 has not failed but the lack of implementation and inaction has resulted in dismal outcomes. The power sector needs investment of US$60-70 billion every year and the state governments cannot possibly provide it. The private sector will invest only if the sector is bankable and viable. Hence, we need private sector participation on a much larger scale and at the same time the central and state governments must find ways to collaborate to make the process of implementation smooth. He suggested that the review of power sector should be carried out quarterly and checked whether the policy and implementation process is working efficiently or not. Increasing tariff should not be considered as a reform, instead efforts should be made to increase the efficiency of operations and reducing transmission and distribution losses.

Ms. Naina Lal Kidwai, President, FICCI, said, “Electricity is an important subject on the concurrent list. This federalism has, in fact, led to less than optimal results for the sector with policy implementation being either absent or undertaken in a very limited way. For the nation as a whole, this has meant that initiatives pertaining to open access, tariff rationalisation, competition etc. could not realise their real potential. To give a specific example, there have been instances where some states have invoked Section 11 of the Act even in an almost normal situation. Such measures are most detrimental to the market evolution and development and need to be stopped.”

“Another disturbing trend is that the country is facing severe power cuts at the same time when power plants are lying idle. Rising fuel costs makes power generation expensive and financially impaired power utilities prefer to load shed and cut costs. A lack of commercial orientation and presence of irrational tariff structures is severely impairing finances of distribution utilities. This is, in effect, affecting their power procurement and quality of supply,” she stated.

Mr. R V Shahi said that the Electricity Act must be looked at considering the other statutory policies such as policy instruments, tariff and electricity policy and rural electrification policy. He added that when the poicy review was undertaken it was found that transmission sector had shown a mix performance, distribution reforms were partially successful, perfomance of rural electrification had been disappointing and the tariff situation was grave.

He said that the mismatch in fuel supply was a major cause of concern and the Coal Bill which was pending in the Parliament for the last 12 years was putting the sector behind. Hence the sector needs to explore other alternatives and must consider the implications of these alternatives as well.

Mr. R S Sharma, Managing Director & CEO, Jindal Power Limited and Chairman, FICCI Power Committee, said that laws and policies exist in the power sector but action was missing, which was hampering the growth. Fuel should fire the power sector but at the moment it is not being able to do so.

Mr. Anish De, CEO, AF - Mercados EMI Private Limited, said that while the regulatory framework is of international standards and provides a great deal of independence and flexibility to regulators, the state level regulators have typically struggled to balance the needs of the customers and the utilities, and force through operational, financial and pricing efficiencies. The institutions have tended to be weak at the state level, leading to partial subversion of the regulatory objectives. The mechanism is however well entrenched in the Indian power system, and needs to be equipped with the tools and capabilities to execute the mandate more effectively than at present.

He explained that the key cause of the paralysis, obstructionism and ineffectiveness at the state level is the condition of the distribution companies. The poor financial state of the distribution utilities provide very limited latitude to the regulators to act on the issues of significance, whether those relate to the utilities' internal operations (efficiency, tariffs, supply standards, etc) or external aspects (market development, promotion of renewables, etc). Utilities fear of all measures to be inimical to their financial health except for tariffs. Regulators are wary of tariff revisions without commensurate improvements in efficiency and service standards, even when such revisions are for causes external to the utility. The stalemate has led to abnormal situations where regulators are now forced to raise tariffs by external agencies (Appellate Tribunal, RBI).

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