Electricity amendment bill 2021

IASbaba

August 9, 2021

GS-2: Government policies and interventions for development in various sectors
GS-3: Indian Economy and challenges with regard to resource mobilization

Context: The Central government is facing opposition to the Electricity Amendment Bill 2021 even before it is introduced in Parliament.

West Bengal CM has written to PM requesting that the Bill not be brought before Parliament claiming it was “anti-people” and would promote crony capitalism.

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 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.

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.
There is fear 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.”
This would make it difficult for existing Public sector discoms to continue to operate if all their industrial commercials are taken over by the private sector
Also, earlier plans to introduce private sector players had also envisaged a gradual reduction in cross-subsidy levels which have not materialised.
Other key concerns that states have raised are higher penalties for failure to meet Renewable Energy Purchase Obligations (RPOs)
Also, States are objecting the requirement that Regional Load Dispatch Centres and State Load Dispatch Centres follow instructions by the National Load Dispatch Centre. This proposed amendment is criticised as being the spirit of federalism

Way Forward

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
Minimum area to be covered by private sector competitors needs to be defined in a manner to include an urban rural mix, a universal service obligation, and elements of cross-subsidy in the ceiling tariff.

Connecting the dots:

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