Draft Electricity Amendment Bill: Delicensing distribution will ensure viability of Discoms, says Govt

Despite the strident objections by the States to the proposed amendments to the Electricity Act, 2003, the Union Power Ministry on Thursday remained firm on its position, underlining that reforms like delicensing distribution and strengthening the dispute resolution mechanism will enhance the sector’s financial viability. The measures would also bring in more efficiency in the power distribution system besides providing more choice to the consumer, sources said.

In the draft Electricity Amendment Bill (2021), the Power Ministry proposes to delicense the distribution business to bring down entry barriers. Such a step will allow multiple distribution companies to operate, thereby bringing in competition and offering choice to consumers. At present, power distribution is either a private or public sector monopoly and consumers do not have a choice.

The proposed Bill is yet to be cleared by the Union Cabinet and is unlikely to be introduced during the ongoing Winter Session of Parliament. Sources said these proposals were discussed in a series of consultations with the States, electricity regulators, industry players, among other stakeholders.

States oppose move

Last week, Tamil Nadu Chief Minister MK Stalin wrote to the Prime Minister seeking his intervention to defer the proposed amendments as they have “far-reaching detrimental implications for the State discoms”. In August, West Bengal Chief Minister Mamata Banerjee had written to the PM urging him to drop the Bill claiming it to be “anti-people”.

Following these objections, the Power Ministry circulated a clarification asserting that these steps have been taken to strengthen State Electricity Regulatory Commissions (SERCs). This will be done by providing them with civil court powers, increasing the number of members from two to three with the addition of a Member (Law), and providing them with powers to determine tariffs. Another key proposal of the government is to ensure the financial viability of the power sector by streamlining the payment security mechanism. It proposes to provide scheduling and despatch of electricity only if the payment security mechanism has been established as agreed upon by the parties concerned. The Ministry has also suggested encouraging cross-border trade in electricity under the vision of ‘One sun one world one grid’.

Mechanism for monitoring

The Ministry has suggested the creation of a mechanism to monitor compliance with the Electricity Act. It has proposed that the SERCs create a mechanism for monitoring, with the approval of State governments, of compliance by discoms. However, it has dropped crucial proposals like direct benefit transfer (DBT) and setting up an Electricity Contract Enforcement Authority (ECEA).

Subsidies dropped

Proposals like DBT on power subsidies and the creation of the ECEA have also been dropped. The issue of DBT was raised by protesting farmers, a segment which receives highly subsidised electricity. The proposals were dropped after consultations with the States, associations and other stakeholders on the earlier draft of proposal of 2020, which was put in public domain for stakeholders consultation in April 2020.

The Ministry also dropped the proposal of a single selection committee for appointment of chairman and members of SERCs. Power Ministry sources clarified that power of appointment to SERCs will remain with the State government as per the existing Act, while dispute resolution with respect to contracts will remain with the appropriate commissions.

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