Policy Watch: Oops... Wrong Electricity Bill

As the country lurches from one power crisis to another, a crucial legislation that should charge the ailing power sector is still floundering in the darkness.

The Electricity Bill was conceived by late power minister Rangarajan Kumaramangalam to provide an enabling framework for the restructuring of the electricity industry along commercial lines. Twelve months and eight drafts later, the Bill is yet to see the light of day. It was to be tabled in the winter session of Parliament, but new power minister Suresh Prabhu, wants it to be discussed more widely, especially with the states. The new deadline: the budget session.

The industry is hoping the Bill won't get short-circuited again. The collapse of the Northern Grid on January 2, brought home the necessity for urgent reforms in the power sector which is plagued by high transmission and distribution (T&D) losses and unviable state electricity boards (SEBs). Points out Gajendra Haldea of the National Council of Applied Economic Research, the head of the team that drafted the Bill: ''Unless you induct competition, unless you de-politicise... this sector cannot survive.''

The Bright Lights

Ť All supply to be metered within two years
Ť SERCs to be set up within six months
Ť CERC to fix generation & transmission and SERCs, distribution tariff
Ť Cross-subsidy in tariffs limited to the marginal cost of supply
Ť SEBs to be restructured into focused, corporate entities
Ť Non-discriminatory access to the transmission system
Ť Applications for projects to be processed by regulators within 120 days
Ť Pooling arrangements to foster a spot market for electricity
Ť Gradual introduction of 'open access' to the distribution systems

The new Bill replaces (and integrates) the various legislations currently governing the industry-the Indian Electricity Act, 1910, the Electricity (Supply) Act, 1948, and the Electricity Regulatory Commissions Act, 1998. Both the Indian Electricity Act and the Electricity (Supply) Act are outdated and inadequate to cope with technological developments. For instance, they do not provide for the unbundling of SEBs into separate generation, transmission and distribution entities, or for power trading exchanges through which electricity can be bought and sold like any other commodity.

The Bill attempts far-reaching changes that will minimise government interference, improve efficiency, foster competition, and encourage investment (See The Bright Lights). Companies would no longer need a licence to set up a generating station, subject to other rules on location or use of fuel. And it takes the fixing of tariffs out of the hands of politicians and bureaucrats and puts it in the hands of independent regulators.

Balancing as it does the conflicting interests of different stakeholders, the Bill is being cheered by investors, the promoters of independent power projects (IPPs), and regulators. Understandably, the only ones unhappy are bureaucrats in the power ministry, the Central Electricity Authority (CEA) which gives techno-economic clearances to projects, and the SEBs. Says Roger Woods, CEO, National Grid: ''It's a framework for significant activity in the future.'' No wonder, the industry is impatient at the delay.

But Prabhu can't understand what the fuss is about. ''There are so many ingredients of the Bill that are already there in different laws. Nothing is holding the country back,'' he insists. Point conceded. Mohit Saraf, a partner in law firm Luthra & Luthra and legal advisor for the drafting of the Bill, agrees that it is possible to keep amending these Acts-done in 1991, 1996 and 2000-and develop the industry within the existing framework. ''However,'' he warns, ''this will quadruple the time and cost of development.''

The single-most important provision of the Bill is the compulsory metering of all connections within two years. Right now, only around 40 per cent of connections are metered. The loss of revenue from unmetered connections (comprising T&D losses, agricultural consumption, and plain theft) is the root cause of the financial crisis in SEBs that collectively lose around Rs 50,000 crore a year. Unfortunately, even T&D losses and theft are clubbed as agricultural consumption. Experts insist that proper metering would help identify and plug these leakages.

Equally important, the Bill provides a framework for trading in power. Right now, a private generator, which has a power purchase agreement with a SEB, cannot access the grid and sell power to another SEB. The draft Bill provides for open access-the ability to access the grid and evacuate power to transmission lines. This, says Harry Dhaul, Director General, Independent Power Producers Association of India, will allow companies to trade in power or bank that power. And to avoid conflict of interests, transmission companies have been barred from buying equity in a generating or distributing company.

The industry has some concerns over certain aspects of the Bill. For one, the unbundling of SEBs is not mandatory, a provision that was there in the first draft. This has been left to the will of the state governments. The authors of the Bill defend this dilution, saying it was necessary to make the legislation more acceptable to all stakeholders.

That apart, some experts feel that the Bill does not sufficiently address issues related to the financial viability of the sector. While depoliticising tariff-fixation by vesting this responsibility with the regulators, the Bill asks them to ''promote equitable supply of electricity with the rural areas and the weaker sections''. The government, it says, 'may' provide direct subsidies if it wishes to help these groups. However, it does not spell out how this should be done. Kari J. Nyman, lead specialist, energy sector unit, South Asia region, World Bank, stresses on the need to ensure the financial viability of the sector. ''If the utilities remain unviable, they will not be able to invest, especially in T&D, which will affect the quality of supply,'' he argues.

Transmission-pricing could also become a bone of contention. The Bill says the State Electicity Regulatory Commission (SERC) will regulate state transmission lines, while Central Electricity Regulatory commission (CERC) will oversee regional and national transmission lines. Experts feel the CERC must have jurisdiction over all transmission pricing as one transaction could involve more than two states, making coordination difficult. For instance, part of the power from the upcoming Hirma project in Orissa may be consumed in Gujarat. Though its tariff of Rs 1.65 per unit is said to be the lowest among all IPPs, by the time the power reaches Gujarat, the cost could increase significantly if the states through which it passes impose higher wheeling charges (say, 0.30/0.40 paise per unit). This could make such transactions unviable.

Clearly, the Bill is generating more heat than electricity at this point of time. It's now up to Prabhu to remove the static and smoothen things out.