Subsidies on power will continue: Power Secretary

Alok Kumar says State governments will have the discretion to continue

August 13, 2022 05:00 pm | Updated 11:26 pm IST - NEW DELHI

File photo for representation.

File photo for representation. | Photo Credit: B. VELANKANNI RAJ

The Centre’s move to introduce the Electricity Amendments Bill, 2022, has stoked protests by Opposition parties and trade unions on the grounds that it violated the Constitutional principles of federalisation, which was a step towards privatising the electricity sector and would make power costly. In an interview with The Hindu, Alok Kumar, Secretary, Ministry of Power addressed concerns on provisions of the Bill, its intent and the reforms it envisages.

The Bill was introduced in the Lok Sabha and referred to a Standing Committee following stringent protests. Did the Centre anticipate this degree of opposition?

When reforms are introduced, there are always different shades of views. This Bill was drafted following the Budget of 2021 and we have undertaken consultations with all States, industry bodies, regulators. Most States had supported the provisions. In the course of discussions, there were also objections on some aspects by States.

What were the concerns raised by States?

A major concern raised was that of ‘cherry picking’ (or when a new player with an electricity distribution licence can choose areas, with maximum paying customers, and avoid regions where such electricity charges collection is historically negligible). This is incorrect. All players with a new licence continue to be bound by Universal Service Obligation (that mandates power to be provided to rural and remote residents at affordable rates).

Secondly, we have proposed that the Central government prescribe the area to be served by a licensee—at present this is a minimum of one district or one municipal area—and we have moved to further increase this unless the State government decides on a smaller area. A sufficiently large area, like a municipal corporation, for instance, would ensure a wide mix of consumers. We have built-in provisions such as cross-subsidy and wheeling charges in the maximum chargeable price, to safeguard against such cherry-picking (Wheeling charges are money paid to an existing licensee by a new one for use of an electricity distribution network).

So, to clarify, farmers who currently get free electricity or those who get subsidised electricity will continue to receive them?

Absolutely. The Electricity Act doesn’t mention ‘free’ electricity. Sec 65 says State governments may give subsidies to any class of consumers and there is no change at all in this section. The State government will have the discretion to continue free or subsidised power. Reducing cross-subsidies have always been mentioned in the tariff policy (Electricity Act) and for it to be reduced as per the recommendation of the State commission. Those provisions continue. It is a complete myth that the new Bill proposes to do away with subsidies or free power.

A major problem in the electricity distribution sector is the poor financial health of electricity distribution companies (States collectively owe them over ₹1 trillion). Can the entry of private players, as the Electricity Bill envisages, solve this?

A discom’s financial health depends on three factors: Properly determining tariffs, the government paying discoms the subsidies it owes and their operational efficiency. This Bill helps with strengthening discoms ability to determine tariffs, we have several provisions outside this Bill to see that these subsidies are paid and finally, the operational efficiencies of several discoms are improving over time. Of these, the first two factors are relatively more important.

Under the amended Bill, an existing licensee can earn wheeling charges from new licensees, secondly, there is a lot of unmet demand that this Bill will facilitate as well as improve the ability to collect charges and help fund cross-subsidies. There are a lot of industries that have captive power plants because electricity access is unreliable and if they can be serviced by more players, that money will flow into the collective pool. This Bill will induce competitive pressure on incumbent licensees. You will have to give better consumer services—and we have seen this in the case of the telecom sector—and will require them to improve operational efficiency. The electricity consumer is at the centre of the Bill.

A major challenge for electric companies is recovering the cost of providing electricity to rural India. How does this new Bill address this question?

A large number of consumers –80 to 90%--are willing to pay provided an accurate bill is given to them in time. The major problem is that our utilities don’t provide this, and they are unable to maintain proper metering.  To address this, we are encouraging the adoption of smart meters (prepaid electricity bills) and many places have shown that their increasing adoption of such meters has led to improved collection charges. As far as agriculture metering goes, we aren’t insisting on it and have left it to states to meter electricity at the consumer or feeder level. We are not mandating metering for farmers; however, our requirement is that agriculture feeders have to be segregated; we should know how much energy is consumed and how much of it is going to farmers.

States can subsidise but how will private players agree to this?

The Electricity Act doesn’t distinguish between State and private sector licensees. A State government’s decision to provide a subsidy applies to both public and private sector entities.

Is the telecom sector the reference point for which reforms in the electricity sector are envisioned?

The economic principle is that the same wire or network shouldn’t be duplicated, it must be shared. We are also not changing the ownership structure of any asset.

The changes in the telecom sector saw job losses and churn. Do you expect similar things to happen here?

There will hardly be job loss, in fact, there will be new jobs because there will be new people to cater to and hence need for more metering, infrastructure maintenance etc.

Like the telecom sector, will we see bidding for certain regions by aspirant distribution companies?

No, because bidding isn’t relevant to the power sector as this is a wired infrastructure, unlike spectrum. We will be increasing the area that will be available to a prospective licensee and anybody interested will have to approach the regulator and they will issue the license if certain conditions are met. There can be multiple distribution companies in a single region, all serving the consumers with the same obligations. There was a proposal to delicense the distribution, but many States didn’t agree to it and so this was dropped.

How enthusiastic are private players to the provisions of the Bill?

The wish list of the industry is huge and we haven’t agreed to all of them. There are business models that can deliver better services to the consumer without damaging the basic structure of the sector and compromising on standards.

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