Electricity amendment bill 2021 —why are states such as WB opposing it?

The Central government is facing opposition to the Electricity Amendment Bill 2021 even before it is introduced in Parliament. West Bengal Chief Minister Mamata Banerjee has written to the Prime Minister requesting that the Bill not be brought before Parliament claiming it was “anti-people” and would promote crony capitalism. We examine key provisions of the Electricity Amendment Bill 2021 and why they are raising key concerns.

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What are the key changes in the Electricity Act that the amendment seeks to bring?

The Amendment is bringing in provisions to de-license power distribution allowing private sector players to enter the sector and compete with state-owned power distribution companies (discoms). The move would allow consumers to choose between power distribution companies. Finance Minister Nirmala Sitharaman had announced in the union budget that the government would bring a framework to allow consumers to choose between power distribution companies.

Power distribution in most of the country is currently controlled by state-owned distribution companies with some cities including Delhi, Mumbai and Ahmedabad being exceptions where private players operate power distribution.

Discoms are however struggling with high levels of losses and debt. The government has brought out a number of schemes to restructure the outstanding debts of discoms while incentivising them to reduce losses. However, such schemes have only brought short term financial space for discoms which have tended to continue to accumulate losses and debts post restructuring schemes such as the UDAY scheme launched by the government in 2015.

What is are the objections to delicensing of power distribution?

States have highlighted concerns that allowing the entry of private players could lead to “cherry-picking”, with private players providing power to only commercial and industrial consumers and not residential and agricultural consumers. Tariffs for power currently vary widely in India with commercial and industrial players cross subside the power consumption of rural residential consumers and agricultural consumers by paying far higher tariffs.

Mamata Banerjee said in her letter to the Prime Minister that the amendment would lead to “a concentration of private, profit-focussed utility players in the lucrative urban-industrial segments while poor and rural consumers would be left to be tended by public sector discoms.”

Experts also said there is the possibility that the move could lead to cherry picking by the private sector, especially till the time the tariff structure builds in cross subsidies.

“How is it possible for discoms to continue to operate if all their industrial commercials are taken over by the private sector?,” said an expert who did not wish to be quoted adding that earlier plans to introduce private sector players had also envisaged a gradual reduction in cross-subsidy levels which have not materialised.

The expert also noted that a universal service obligation in which any private player will be required to provide power supply to all consumers including residential and agricultural consumers may help address the issue of cross-subsidy.

According to minutes of a meeting held between the Power Ministry and state governments, Union Power Minister R K Singh assured states that the minimum area to be covered by private sector competitors would be defined in a manner to include an urban rural mix, a universal service obligation, and elements of cross-subsidy in the ceiling tariff.

What are other key concerns?

Other key concerns that states have raised are higher penalties for failure to meet Renewable energy Purchase Obligations (RPOs) and the requirement that Regional Load Dispatch Centres and State Load Dispatch Centres follow instructions by the National Load Dispatch Centre.

Mamata Banerjee said in her letter to the Prime Minister that the proposed amendment “strikes at the roots of federalism”.

States have also thus far failed to meet earlier RPOs and had also requested a rationalisation of penalties for not meeting RPO requirements.