The Hindu : KERC wants Govt. to be wary of power consultants

Online edition of India's National Newspaper
Saturday, Jun 28, 2003

Southern States

Southern States - Karnataka

KERC wants Govt. to be wary of power consultants

By A. Jayaram

Bangalore June 27. The Karnataka Electricity Regulatory Commission (KERC) has cautioned the State Government about the advice from financial and distribution privatisation consultants in the power sector as they have an inherent bias towards the private sector.

In its comments submitted to the State Government on the proposed amendments to the Karnataka Electricity Reform Act of 1999, the KERC has noted that the mandate of the consultants is to ensure the successful privatisation of utilities. The Government should appoint a panel of independent experts to scrutinise and vet the recommendations of the consultants. The independent experts will be able to advise the Government on the suitability of the schemes suggested by the consultants. In other words, the commission wants the Government to have the final say in the matter of privatisation of distribution of power.

The KERC has also held that the proposed amendments to the Karnataka Electricity Reform Act of 1999 are in violation of the Electricity Act, 2003, adopted by the Centre as it will whittle down the powers of the commission at least in the transition period. Under the Central Act, the State Commission shall determine the tariff for generation, supply, transmission and wheeling of electricity, wholesale, bulk, or retail, as the case may be. But under the amendments proposed by the State Government, the major functions of the KERC are to be shifted to it (Government) during the transition period and the first multi-year period (a total of 10 years). The commission will have to only oversee the implementation of the transition arrangements on behalf of the State Government. Therefore, the proposed amendments are incompatible with the Electricity Act, 2003.

Politicisation

The KERC has noted that a major problem of the electricity sector is the politicisation of all economic decision-making. It is largely for that reason that independent regulatory commissions, to take decisions in an open, objective, and rational manner, were created, even without the transfer of ownership of the sector to private investors. The damage to public interest arising out of politicisation will be no less even in a situation of private ownership of utilities as compared with public ownership.

The commission is concerned over the likelihood of loss of transparency and public participation in the power sector if the Government adopts the proposed amendments. The amendments will completely reverse the most important feature of electricity regulation carried out so far — transparency and public participation. Contracts are proposed to be entered into between the Government and the private investors, and their terms will not be available for public comment before the Government goes ahead with the transactions. "As many as four tariff revisions per year can take place without the need for any public consultation or regulatory approval.'' The explicit provision in the amendment to bar public consultation is completely contrary to the spirit of transparency and public participation that runs through the Act (1999), and is, in the commission's opinion, completely inimical to consumer interests.

About the plus points of the Electricity Reform Act of 1999 which is in force in the State, and its concern for the consumers, the KERC notes that it explicitly mentions the need for balancing the interests of the various players in the sector to achieve efficiency, economy, and competitiveness. Section 11(1) of the Act states that the objective of regulation of purchase of power etc. should be the safeguarding of the interests of the consumers. At the same time, there should be recognition of the fact that supply and distribution cannot be maintained unless the charges for the electricity supplied are adequately levied and duly collected. It is clear that the protection of the consumer's interest in a manner that is sustainable over the long term is clearly the overriding objective of the Act.

Tariff revision

Expressing its concern over the "Multi-year tariff framework'' to be introduced through the amendment, the KERC has warned that it will eventually result in multiple revisions of tariffs in a year. The commission is strongly of the opinion that this provision is entirely against the interest of the consumers, who will be faced with tremendous uncertainty about the tariffs payable even within the short period of one year. The proposed amendment lays down that not more than four tariff adjustments may be made in a calendar year (Section 27A-3), and the commission is not required either to conduct consultation or to approve the tariff adjustment filing. The amendment clearly seeks to make the tariff adjustments completely automatic, in that no approval from the commission is required, and neither will there be any scope for public consultation.

During the transition period, besides the "automatic cost pass'' by the licensee to the consumer, some of the provisions of the transition arrangement will be mandatory. The Government has announced its decision to privatise all the four electric supply companies together.

The commission strongly urges the Government that merely discussing the distribution margin approach at a conceptual level is totally inadequate. It is obvious that the method recommended by the financial and distribution privatisation consultants is exceedingly dangerous to the State, and is fraught with the severest of adverse consequences. No quantification of the risks to the Government and the consumer that are likely from the distribution margin approach appears to have been attempted.

In its parting shot on the amendments, the KERC says that it will be a complete waste of public money to retain the commission which costs about Rs. 2 crore a year during the transition period. In that period, the commission could be kept in a state of suspended animation, and a suitable officer designated to oversee the power sector.

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KERC wants Govt. to be wary of power consultants