The government is expected to introduce the Electricity (Amendment) Bill, 2021 in Parliament soon. The bill is the latest attempt by the Centre to reform a sector that has seen incremental reforms for the past 25 years without ever dealing with the issues that plague it.
India is one of the largest power markets in the world, but is also one of its most inefficient as reflected in the fact that aggregate technical and commercial cost (AT&C) losses for the sector runw at around 22 per cent against the global average of 8 per cent.
In the value chain of the power sector, distribution is the weakest link consisting of numerous state-owned distribution companies. While the Electricity Bill 2003 and other steps taken by the governments of the past have tried to reform power distribution companies, these companies have largely remained saddled with losses.
According to a NITI Aayog report released in August, power distribution companies had accumulated losses of Rs 90,000 crore in the previous financial year. “Due to these accumulated losses, discoms are unable to pay power generators on time — as of March 2021 an amount of Rs 67,917 crore was overdue,” the report said.
States and the Centre have largely tried to infuse capital time and again into power distribution companies to reduce their losses and improve efficiency, but the problem has remained unsolved. Recently, the government provided Rs 3.05 lakh crore support to power discoms with the focus shifting towards better governance and management, instead of merely reducing their losses.
The delicensing of power distribution to allow private sector participants to enter the sector has resulted in largely positive results. According to NITI Aayog, the delicensing of power distribution in Delhi to three private sector players has reduced AT&C losses to 9 per cent from as high as 55 per cent.
The franchise model implemented by Odisha and the Maharashtra government in Bhiwandi have given positive results so far and could provide a roadmap for solving the issues with state-owned distribution companies.
THE NEW BILL
The Electricity Amendment Bill 2 2021 proposes to radically alter the structure of the power distribution in the overall power supply chain. The Bill proposes complete delicensing to end state monopoly over power distribution by allowing more than one company to operate in the state.
Additionally, consumers will be given the choice to choose the distributor they feel provides the most efficient and cost effective services. Further, state-owned discoms will now get to tap into the private sector via franchise model or licensing model.
The franchise model will ask the private player to take care of operations without owning the underlying assets, a move that could potentially improve bill collection and reduce leakages. The licencing model will allow the private player to own the assets as well as be in charge of operations.
Other major steps include the introduction of smart meters, which is expected to improve billing efficiency, right to round-the-clock electricity supply for the consumer and incentives for consumers to shift to solar power via rooftop solar panels.
ISSUES LEFT UNADDRESSED
While Rakesh Jhunjhunwala might see the bill as bigger than the economic reforms of 1991, the reality is less exciting.
The bill does address several issues regarding distribution, but has left concerns around fixed costs untouched. There has been no intention to address soaring coal costs and freight costs, both of which have risen at rates higher than weighted-average WPI and CPI index.
Further, the bill has shied away from making discoms accountable by using AT&C losses as a performance metric. The metric could have provided a measure of governance improvement at state-level discoms.
In summary, the bill could finally address the broken chain in the power sector but its implementation will have to carry in the reformist spirit of the bill. “A flexible and home-grown approach to reform, which is supported by states and the Centre, and allows for ‘learning by doing’, will be instrumental in determining the success of reforms,” NITI Aayog said.