Electricity Bill 2022: Can it mend India's Power Sector?


When the Electricity (Amendment) Bill, 2022 was introduced in Parliament on August 8th, it sent shock waves across with the opposition, farmers and unions protesting. Sitting with dues of Rs 5.5 lakh crore, state-discoms are in dire need of an overhaul. But will this bill be the panacea for all the ills of the power sector? Host Kalpana Pathak speaks with Sanjiv Sahai - Former Power Secretary GOI; JP Chalasani, Independent Advisor, Power Sector, and Sarita C Singh, Senior Assistant Editor at The Economic Times to seek answers. Credits: Excelsior News, Quick News

This is an audio transcript of The Morning Brief podcast episode: Electricity Bill 2022: Can it mend India's Power Sector?

BG Sound 0:01
This is the morning brief from the economic times.

BG Sound 0:10
I'm going to start good thing. He's introduced the much awaited electricity Amendment Bill. This was done in the Lok Sabha today. And the Prime Minister has also sent that bill to a standing committee on energy for further examination.

Kalpana Pathak 0:22
The power sector wants to do an aviation and a telecom. That is to give you and me the option to choose our own service provider and probably at a better tariff. But these are measures for us as a consumer. There's another change it wants to bring in to improve the health of the distribution companies or DISCOMs through competition. DISCOMs are companies which bring power to our homes and offices and they have been financially unwell, burdened with lakhs of crores of debt. So to reform the power sector, on Eighth of August, the electricity Amendment Bill 2022, was tabled in the parliament since the year 2000. This would be the fourth attempt to reform the sector, but the opposition farmers and unions are unhappy.

BG Sound 1:40
Consultation kiya. Yeh Bill Logon ke haath meing hai. Yeh Bill Kesaano ke haath mein hai.

BG Sound 1:50
Modi Sarkaar electricity Bill mein panshodha lekar aayi tho raajnetik sangraam shuru ho gaya. Delhi ke CM Kejriwal and Punjab ke CM Bhagwant Mann ne free bijli bandh karne ki saadish batate hue Modi Sarkar par humla bhola. Kejriwal ne iske baadh ek tweet bhi kiya. Bijli ke maamle mein kaanoon banane mein raajya ka barabar ka adhikaar hai. Magar iss videh ke baare mein Kendra sarkaar ne kisibhi rajya se raay nahi maangi hai. Aam Aadmi party iska virodh karti hai.

Kalpana Pathak 2:16
So why are unions and farmers opposing the bill? Will we be given a choice to pick our own service provider? What all needs to be done before the bill is implemented? It's the 20th of September from the economic times I'm Kalpana Pathak and you are listening to the electricity bill 2022. Can it mend India's power sector? For answers to these questions, I speak to Sanjiv Sahaj, a former power secretary, JP Chalasani, a power industry veteran with four decades in the industry, and my colleague Sarita Singh, who has been writing on the sector for over 15 years. Before we delve into the discussion with our guests, let us understand a few basics. power sector is broadly divided into three categories, generation, transmission, and distribution. Generation is a de licensed activity, while distribution and transmission requires licenses. Distribution is the weakest link in this power value chain where discounts are unable to settle power bills. There are 71 discounts in the country with a total debt of rupees 5.5 lakh crore, irregular tariff revisions power theft, inefficient billing and collection and non payment of subsidy by states have led to this financial mess. Earlier the reform attempts were about creating more competition on the demand side. This time, the focus is also on opening the supply side. For consumers the tariff may come down when the regulator fixes the maximum price and the service providers stick to it. But for the industry, it may open Pandora's box. Let us hear from a former power secretary who has ideated and implemented many power reforms. Mr. Sahai Welcome to the Morning Brief. Let me start by asking you how do you see the bill?

Sanjiv Sahai 4:18
I see that the electricity amendment bill really provides a legal framework to make the power sector financially viable and sustainable foster investments encourage growth in renewables and above all give consumers the choice of the distribution company from which they can purchase electricity. And if I hark and, you know, draw the example of airlines and telecom Airlines was also seen as an industry where competition would have been very difficult, but it happened and the net result was that you have for the consumers cheaper airfares. Many more people now who can afford to travel by air. I see the similar similar thing happening in the power sector. The competition even though the regulators under the Act have been mandated to keep, you know, ceiling tariff and minimum tariff, so that there is no credit repricing within that range, there will be competition not only on tariffs, but also on the Quality of Service

Kalpana Pathak 5:20
Mr. Chalasani, let me come to you. The bill aims to allow customers to choose their electricity provider is that good?

JP Chalasani 5:27
See multiple service provider in any sector is good for the customers. Even in Aviature, we have seen in terms of aviation sector in terms of the telecom sector, and internationally, many countries have multiple service providers in the same area. But that is not the issue here. Ratio is fine. It's good. But are we ready for that at this stage? So is what is to be one has to ask for? And is it ready right at this stage for the entire country as a whole some parts of it are ready? And how do we reach their ratio, like Bombay is an example where you have multiple service provider for quite some time, the Tata Power as well as BSES has both been existing for quite some time. But of course, the network is different. Because if you look at it Electricity Act 2003 itself has provided for multiple service providers in the same discom area. But it only said that you need to create your own network. So this deal exists that point of time. Now in this amendment we're talking about you don't need to pay the network, the existing network can be used by every supplier is what is the difference. For example, if you're taking Delhi example, which was privatized in 2002, straight away if you had provided for multiple service provider, rather then privatizing was establishing with a single service provider, the whole segment, I don't think Delhi would have reached where we reached today. So my opinion is that as we need to go to multiple service providers, some discounts are ready for multiple service provider today. So I think each discount has to have a different approach. Rather than saying that you know, we will straight away start with multiple service provider for every single discom. The previous drafts you remember, we were talking about separating the carrier and content now that has been dropped in this bill and now we're talking about carriers and content will remain the same existing discount will continue to supply as well as own the network and others will have. I'm not too sure how will it work? Because who will, how much money we'll get on to the network network improvement various factors will come.

Kalpana Pathak 7:09
Mr Sahai, I want to ask you, with multiple players in the market would not a supplier cherry pick its customers.

Sanjiv Sahai 7:15
So let's first see what is cherry picking data distribution licensee only focuses on big customers and does not fulfill its obligation to people who are low paying customers. It's right

Kalpana Pathak 7:28
yes, yes.

Sanjiv Sahai 7:29
Now there is a Universal Service Obligation with the license. So no distribution licensee can refuse to give connection. If an applicant meets the criteria from giving a connection. There is also a minimum retail tariff, which means nobody can do predatory pricing and housed another one by bringing the tariffs so low that it becomes financially unsustainable for a person without deep pockets, there is also a maximum tariff set. So competition will ensure that the better distribution licensee in terms of service and price point will get good customers that is what always happens, but they cannot get away from their Universal Service Obligation.

Kalpana Pathak 8:14
Before we move forward, let us hear from Sarita. What is she picking up from her sources? Hi, Sarita Welcome to the Morning Brief. Tell me what is the industry's view on the provisions of the bill? Do they find it productive or detrimental?

Sarita C Singh 8:28
Hi Kalpana, thanks for having me on the show, industry guys are actually divided on the electricity amendment bill, the generators, they feel that this is one of the biggest reforms that is going to take place in the sector, while the others, which include distribution companies, and of course, some of the regulators. They're not very happy with the provisions of the bill. So the generators, they feel that this bill sets right the problem areas in the sector, mostly on the distribution side, the bill focuses so much on the distribution sector. So on the distribution utilities side, and on the regulator's side, they actually see this bill as a very bad news. The distribution companies are mainly governed by the state governments, and also the regulators. So in a way, they have their reporting to two bosses. And now this bill also gives a lot of powers to the central government and adds one more boss to whom they would be reporting in a way this is being seen as the center is stepping on a lot of rights of the state governments and it's not going very well with the federal structure of the country.

Kalpana Pathak 9:39
What is it that companies are telling you?

Sarita C Singh 9:41
So the generators are very happy with the provisions of the bill? It actually answers a lot of their troubles that they have been facing all these years. There is actually so much focus on the distribution and on the regulatory mechanism that the generators are really awaiting clearance of the bill and its passage.

Kalpana Pathak 10:03
So, when you say troubles, what kind of troubles are they facing? Could you give us some details

Sarita C Singh 10:08
The power projects in the country, they are operating and selling the power to these distribution companies, if you see the there are monopolies basically this distribution companies are monopolies which purchase power from these generation companies, because these distribution companies are not making enough money, they're not able to pay to the generation companies, most of these generation companies very often complain that distribution companies being monopolies after the power supply, they negotiate they ask for rebates on their power bills or do not pay for months. So, that is that is one of the major problems in the power sector today we are facing. So when this distribution sector and the distribution utilities are set, right, it's going to be a major plus point for the generation companies and also the equipment suppliers and also the coal suppliers. So, if the chain is set, right, the sector is going to flourish is what they feel.

Kalpana Pathak 11:10
Power is the concurrent subject, meaning both state and center can make laws for the sector. But the bill proposes to allow the power regulator to license applicants for distribution in more than one state, which according to many is crossing the line. Previously, this was purely the state's domain. Mr. Chalasani, in your opinion, how do you weigh this,

JP Chalasani 11:32
the retail distribution sector which had seen closely when we took over the Delhi distribution business is completely a different ballgame compared to its addition the transmission business, but CRC predominantly heartless, today, the anything and everything connected with the ultimate customer, retail customer, that service has to depend on the state regulator, in my opinion, the CRC got it can't get mixed on CRC just because it's a multi state. So therefore, as for the retail segment is concerned, it has to be sole regulatory authority of that particular state.

Kalpana Pathak 12:02
So given the fact that out of 71, discounts, only 12 are rated a plus and nearly 2/3, fall in the C and D rating category. Should estate have multiple service providers.

JP Chalasani 12:14
Yeah, I think in my opinion, you can't have one single formula, which can be applied across the country. So multiple service provider is a good concept. And it shows those discounts were you can start multiple service providers today, like example, I said that Delhi, Bombay, and all those 16 discounts in the category A And some of them in Category B, pick them up and go for multiple service provider. Pick those 35 discounts, which are in C and D category, which are really in the bad. Pick them up and say first how do you improve those discounts in terms of financial viability there whether it's required to get in private sector for one single private service provider first and do that, or even some state distribution companies are there in the category A. So you need to do some improvement and bring to a certain level before you do have multiple service providers.

Kalpana Pathak 12:58
Another aspect of the bill is that it seeks to support renewable energy, states would be required to fix renewable purchase obligations, and failure to do so will attract penalty. How do you see the renewable energy provisions in the bill? Mr. Sahai?

Sanjiv Sahai 13:14
See, we've seen RE based tariffs go south, the world is very anxious about global warming. India as a responsible nation has made commitments and the government is absolutely resolute as I read from newspapers and hear them to achieve the targets this is the call of the day and RPO that is Nirmal purchase obligation is a step in the right direction, it will give a big Philip to the RE sector. Also there are provisions in the bill which make for payments. There have been delays in payments by the discoms which in a sense, made the investment climate somewhat murky by ensuring that the discounts are accountable to generators, they pay on time, the investment climate in India will be far more commercially viable. And we will see much more investments in the RE sector.

Kalpana Pathak 14:11
All right, but just help me understand this Mr. Sahai if I am to draw re power through the day when the sun is shining, am I supposed to switch off the coal fired plants and if I'm supposed to do that, will that not impact the efficiency of the coal based plants,

Sanjiv Sahai 14:28
No. that situation is not likely to arise in the medium term future. So the coal power plants are actually required to stabilize the grid,. RE Power is interminent, it is variable. So it is coal thermal power station which will ensure the stability of the grid, you don't have to switch on and switch off. You may have to back down a little at times, but that is within the technical norm.

Kalpana Pathak 14:56
Alright, so you're saying that that's not going to be a concern as other analysts So, pointed out, you know,

Sanjiv Sahai 15:01
we have to look at the entire grid stability in a whole host of measures. So, there will be battery storage, which will be the immediate response, if the demand suddenly goes down or goes up, the demand goes down, then the battery will store power and demand power. If the demand goes up battery will discharge power, then you have pumped storage and then you have cold based thermal power plants. They all work in different timeframes, immediate response comes from battery, then hydro and then cold.

Kalpana Pathak 15:32
The new bill proposes 35 amendments to the Electricity Act of 2003 and suggests that the central government can give directions to the states directly bypassing the states. This is seen as against India's federal structure. Can you tell us how will this impact the discounts? Mr. Chalasani?

JP Chalasani 15:51
See, first of all, the regulation of the director is not in the state government purview, not in the central government purview. Regulation of tariffs is completely with the regulator's even today the state governments don't regulate the tariffs. And as far the subsidy provision is concerned, even if the tariff is fixed by the regulator subsidy provision is available today. They can even provide the subsidy agreement saying that okay, I'll still provide the subsidy and it will continue to be there in tomorrow. Take an example of food Kalpana bootsector, for sector prices are completely decontrol. But at the same time, the government gets in and it procures food and it's supply and the ration shops and various things. Similar way. If you want to subsidize for a particular segment of customers, let's say for the agriculture or the low end customers in terms of consumers and less than 100 units, you can always do it in a transparent way. I don't think that this bill is taking away that provision. No. But issue is that the power supply at the retail level is a socio political subject in our country, unlike any other infrastructure segment, the government's win lose based on the power supply situation, the state, so people in general attribute the success or the failure of the retail segment to the local state government, not a central federal government. So therefore, the state governments have that fear psychosis, saying that if I'm not controlling this, but impact of this, I will be held accountable. So then I will I will have a problem. So that needs to be addressed. How do we do that?

Kalpana Pathak 17:09
All right. So how genuine are the concerns that this bill will make electricity unaffordable for both ordinary power consumers and farmers by ending all subsidy?

JP Chalasani 17:18
I don't think this bill is making anybody's tariff unviable. Bill is really saying customer tariffs. And then if your particular government wants to subsidize subsidies, but I'm saying is that we will all will have affordable tariffs provided to bring in if you look at the example of Delhi. Delhi has no tariff increase. So because the last levels when they were privatized when we took over from DVB, for anywhere between 40 to 60%. And today lost ourselves single digit for all three discounts. So there is no need for increasing tariffs. Nobody's complaining about tariffs in Delhi. And you remember that when it got privatized, there was so much of education about tariff increases by 5 paise 10 paise that way , and have you heard any of that sort of agitation today in Delhi. So I think it can become affordable provided you bring in efficiency problem is that today, because there is an inefficiency, and we want to pass on that in terms of tariffs to recover the cost, people will object to it.

Kalpana Pathak 18:06
Alright, but at the cost of repeating myself, I'd like to ask you, why do you think farmers unions and the opposition parties are in that case protesting against the bill?

JP Chalasani 18:18
I think it's, I'm too naive to comment on such issue. But I think it's more of a understanding of the sector is very, very complex. Frankly, even even many of the regulator's themselves don't understand the sector one lever, you pull them three other levers will move in the sector. Without your knowledge. I think it's more of a making people to understand. I don't think this bill is making the tariffs to go up at all. And in fact, by bringing in that the reforms in terms of either multiple service providers or privatizing the whole distribution system, you bring in more efficiencies and the tariffs would become affordable. And you're seeing this in every single distribution company, which is today's performing very well.

Kalpana Pathak 18:57
So according to Mr Chalasani there's a lot of work that needs to be done to improve the situation of discoms before multiple service providers are brought in. Mr. Sahai. In a nutshell, if I would ask you to sum up the bill, how would you do that?

Sanjiv Sahai 19:09
So the farmers subsidies not being touched. So the bill has no relationship with that. And therefore, there is no point talking about the bill and the subsidies because bill contains no measure, which will stop payment of subsidies is between the state government and its consumers. The bill focuses on the financial viability of the sector, and it has several provisions to ensure that this sector becomes financially sustainable, because the dues from discount to the generating companies are over one lakh crore for that several provisions have been brought in on the renewable side renewable purchase obligation has been created. As far as consumers are concerned. There can be many more distribution licensees. So this was a pre existing provision in the act the only thing that has been deleted is that distribution licensing need not own its own distribution network. We have seen what happened in Mumbai. Because of this provision, there's duplication of distribution network which unnecessarily raises costs. So this is a bill which encourages efficiency and gives consumer choice.

Kalpana Pathak 20:20
The purpose of the electricity amendment bill is to make power just like any other product or service. The concept of allowing multiple discounts in a single area is not new. In Mumbai and suburban areas, multiple discounts have existed. But this has not resulted in happy customers. There is no data to show that competition will ensure better performance. A key difference this time is that a new entrant can use the infrastructure of the existing discom by paying some charges. The opposition parties see this as an attempt to boost privatization. A reason for protest is also the fact that center did not take states into confidence on the amendments. This despite electricity being on the concurrent list. The bill is currently sent to the standing committee For more discussions, and the way out is to bring all impacted parties on the same table for an agreement. But this is easier said than done. If however, the bill sees the light of the day, a few years down the line, we may have more efficient discoms, a robust power sector and a better tariff for all of us. You have been listening to the electricity bill 2022 Can it mend India's power sector on the morning brief. Thank you Mr. Sahai, Mr. Chalasani, and Sarita for your insights. And thank you for tuning into this podcast brought to you by the Economic Times team,

Kalpana Pathak 21:48
Show producer Sumit Pande sound editor Rajas Naik executive producers Anupriya bahadur and Arijit Barman . We hope you liked this episode. Do share it on your social media networks. The morning brief drops every Tuesday, Thursday and Friday. Do tune into et play our latest platform for all audio content, including the morning brief. Have a great week ahead. All clips used in the episode belong to the respective owners credits mentioned in the description.

Transcribed by https://otter.ai

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