Past Decades Show Why Privatising Power is no Reform

Since the 1990s, India has embarked on market-oriented power sector reforms that ranged from restructuring state electricity boards, establishing independent regulators, and partially privatising the power sector.

The past three decades have exposed the inefficiency of the Central government's reform programme in electricity planning, power sector financing, national tariff policy, and in developing an equitable national renewable energy policy. The present set of reforms is nothing but a desperate attempt by the government to cover up the policy miscalculations of the past decades while simultaneously protecting the interests of private power generators at the cost of state distribution companies.

The proposed reforms are meant for the complete privatisation of power distribution and hand over the assets of the power sector to big industrial houses at a nominal price. The entire burden of the unrealistically ambitious renewable targets, set ostensibly to please the international community, is sought to be passed on to states.

Odisha was the first state to get assistance from the World Bank for restructuring. The state electricity board was trifurcated into separate generation, transmission, and distribution. The distribution segment was divided into four regional utilities and later on privatised.

This was followed by eight other states.  Each of these states, after passing their reforms Act, unbundled their state electricity boards (SEBs) into separate entities of generation, transmission, and distribution. The only difference was in the case of Odisha and Delhi which went a step further and privatised their distribution sector as well.

The privatisation experiment has miserably failed in Odisha. The private firm, AES, left Odisha after a severe avalanche in the area operated by it.

The regulatory commission in Odisha has already cancelled the distribution license of Reliance-owned discoms (distribution companies) in Odisha. Despite failures of the privatisation move, now again Odisha discoms have been privatised in 2020.

The Electricity Act 2003 repealed all the existing electricity laws. The 2003 Act mentions that all SEBs have to be unbundled into separate entities of generation, transmission, and distribution. In order to enhance the generation, licensing has been done away with completely, except that techno-economic clearance is required for hydro projects. This also paved the way for two or more distribution licensees in the same geographical area.

The very purpose of the Electricity Act 2003 was to reduce the losses in the power sector, improve the financial health of the sector and reduce the subsidy burden of the government. But, due to faulty execution of policies, the financial health of the power sector has further deteriorated and the government is now even subsidising private distribution companies. Due to continued wrong energy policies, the banking sector was burdened with non-performing assets being generated by the power sector.

When private generation was allowed in 2003, and green power in the form of solar and wind energy was introduced, there was a stampede amongst state governments to sign up. As a result, power purchase agreements or PPAs were signed left, right and centre. State electricity boards signed one-sided power purchase agreements providing deemed generation clauses.

With uncontrolled and unplanned capacity addition by private sector developers, several states in the country now have surplus generation capacity, with the result that a considerable percentage of thermal power capacity in the state sector is being shut down for more than six months every year. The present PPAs signed between the state discoms and private developer, therefore, need to be amended.

Solar power in India is growing at a hectic pace and the government claims that India will be the only country in the world to meet the renewable power commitments. The tariff in solar power in some power purchase agreements is about Rs 15 per unit whereas the present trend is around Rs 2 per unit. However, the Central government is not allowing renegotiation of old costly PPAs. Successive Andhra Pradesh governments tried to review PPAs resulting in exorbitant tariffs but the Central government intervened to stall the move to revisit the PPAs in the renewable energy sector, claiming that such steps would affect investor confidence and the country's renewable energy targets.

The Electricity (Amendment) Bill, 2014, was introduced in the Lok Sabha seeking amendments in the Electricity Act, 2003. The major thrust areas are introducing carriage and content separation, enabling open access, competition, and greater impetus for renewable energy. However, the Bill was referred to the standing committee for energy and the committee submitted its report. Large-scale protests were seen by employees and engineers against the amendments. The Bill lapsed as the same could not be passed during the tenure of Lok Sabha.

In April last year, the Union power ministry released a draft of the Electricity Amendment Bill 2020. The draft calls for the creation of an electricity contract enforcement authority (ECEA), proposes a National Renewable Energy Policy and mandates payment security as necessary for scheduling of electricity, and facilitates cross-border electricity trade. The draft seeks privatisation of discoms by way of sub-licensing & franchisees.

Eleven states and one Union territory opposed many provisions of the Electricity Amendment Bill 2020. The states termed the draft Electricity (Amendment) Bill, 2020 against the spirit of the Constitution and contradictory to the decentralisation of power for states despite its inclusion in the concurrent list.

On May 16, the Finance Minister announced the privatisation of electricity departments in the Union territories. The power ministry circulated a draft standard bidding document (SBD) on September 20 for discoms for the privatisation of distribution licensees. It provides guidelines for states who want to offer their electricity distribution utilities to private players. The intention of SBD is not to reform the power sector but to thrust privatisation of the power sector across the country.

Since there was strong opposition to the Electricity (Amendment) Bill 2020, the same is being modified in a moth-eaten fashion and presented as Electricity (Amendment) Bill 2021. Now the government has planned to table Electricity (Amendment) Bill 2021 in Parliament during the ongoing Budget Session.

The government has proposed delicensing of electricity distribution similar to delicensing generation in 2003. This will facilitate multiple players into the distribution sector and giving complete freedom to create franchisees with no public accountability.

The private sector will be handed over the assets of state discom worth thousands of crores without any valuation. This is being done in the name of introducing consumer choice and competition. Such ad-hoc measures may cause more damage than good.

The experience of several franchisees doing business in many cities should have been an eye-opener. They failed to upgrade and modernise the existing distribution network. Many franchisee companies were forced to leave by the regulators after they committed frauds and burdened the state discoms with a few hundred crores of rupees.

An extensive study done by Prayas Pune, a non-profit outfit, on privatisation in Mumbai, shows how the experiment has failed, going by the numerous legal and commercial disputes as well as extremely high consumer tariffs. Mumbai is a clear example of how cherry-picking has failed.  Dadra and Nagar Haveli, Daman, Diu as well as Chandigarh are other examples of cherry-picking for profit by private players to the detriment of consumers.

The government is simply privatising the power sector and privatising power is no reform.

The writer is spokesperson of All India Power Engineers Federation. The views are personal.