The government has dropped the plan to break the monopoly of discoms by bringing in competition and has rather decided to focus on introducing a direct benefit transfer scheme (DBT) as the next wave of reforms in the power sector.

Minister of state for power R K Singh told IANS that the plan for separation of carriage and content operations in the distribution segment that would have allowed multiple discoms in one area has been dropped for now and may be covered as part of the next leg of reforms sometime in the future.

"The plan for ushering in competition in the distribution segment has not been covered now. It may happen sometime down the road not now, maybe in the next leg of reforms," Singh said indicating that the states are still not ready for it and have cited infrastructure shortcomings for not supporting this reform agenda.

The Electricity Act, 2003, laid the foundation for introducing competition at the consumer end of electricity supply through open access and provision for parallel distribution licensees. However both these concepts saw limited success in the Indian electricity sector. The process was fine tuned in the Electricity Amendment Bill by proposing separation of carriage and content operations in power distribution and allowing multiple players in a distribution area.

The latest Electricity Amendment Bill, which is being vetted by the law ministry, has dropped the provision that would have allowed a choice of power discoms to consumers with usage of even less than 1 MW.

"This (non inclusion of distribution sector reform) would be injustice to consumers who were expecting competitive electricity tariff to set in as soon as possible. The mechanism would have worked to the advantage of consumers now with prevailing lower fuel prices and the country having surplus power capacity. This could have helped consumers to get electricity at much lower rates than what is being offered for supplies made by inefficient state electricity boards," said an energy sector analyst who did not wish to be named.

At present only large customers using more than 1 MW have the permission to choose a supplier under open access regulations. The new legislation would have offered this choice even to retail customers thereby removing the restriction of one discom per circle and allowing multiple suppliers to compete to offer the cheapest and best services to electricity consumers.

Apart from reluctance to shed discom monopoly, states are not ready for this reform that would require a massive infrastructure and regulatory revamp. Moreover, with more than one supplier in circle and active private sector participation, states fear that sudden changes could lead to the bulk of state discoms prized commercial consumers moving to more efficient private ones. This could result in further stress for loss making discoms.

Sources said that inclusion of DBT itself has been a challenge and required a lot of convincing to bring states on board. "May be five years would be given to states to bring down cross subsidy surcharge and perfect DBT structure before unleashing competition in the distribution sector," said the source.

However, to ensure that discoms take to loss reduction trajectory, the power ministry has proposed a funding mechanism where disbursals would be made against specific loss reduction targets by state-owned funding agencies PFC and REC.

The amendments in the Act proposed earlier suggested segregating the carriage (distribution network) from the content (electricity supply business) in the power sector. The government would introduce multiple supply licensees in the content business based on market principles and continue carriage as a regulated business.