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Electricity Reforms For An ‘Atmanirbhar Bharat’

India has attracted sizeable investments in generation which has taken the country from a supply deficit situation to a surplus one.

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Electricity Act 2003 (The Act) is a landmark for the power sector reforms in India. The Act brought a paradigm shift by encouraging competition in the sector. Generation was delicenced, transmission segment was opened to competition and large consumers given the freedom to source power from alternative cheaper sources via ‘open access’.

Ever since, India has attracted sizeable investments in generation which has taken the country from a supply deficit situation to a surplus one. With more competition and investments coming in the transmission segment, we are on the path to build a robust transmission network in the country. Power exchanges have facilitated transforming India into a true marketplace with single price discovered for pan-India.

One area that has not seen meaningful transformation, however, is “distribution”. Despite repeated bail-out packages, most state-run discoms are mired in huge debt and high losses due to operational inefficiencies and under-recoveries. Total debt burden of the discoms stood at Rs 3.84 lakh crore with an annual loss of Rs 61,000 Crore in FY 19. Most states discoms in India lose over 25% (AT&C loss) of the electricity supplied, due to poor distribution infrastructure, theft, poor billing, or non- payment of bills.

The draft Electricity Act (Amendment) Bill 2020 aims to address these very concerns and turn- around the distribution segment with some of the critical and long-awaited big-ticket reforms. First, SERCs will be mandated to determine retail tariffs at cost and without considering any subsidy component. Billing at cost reflective tariffs will also promote adoption of energy efficient measures by the consumers. This will also bring financial discipline in the discom operations and reduce under- recoveries.

Second, the amendments will continue to protect economically weaker sections of consumer through transfer of subsidy under the Direct Benefit Transfer (DBT) by the State Government. This is expected to significantly reduce the annual subsidy outflow estimated at ~Rs 80,000 Cr as it will allow for and encourage targeted delivery to deserving beneficiaries and plug the leakages in the system.

Third and the one with the most promise for a turn-around, is by bringing in more private investments in the distribution segment, with the introduction of Discom Sub-Licensees (DSL). While the exact contours of DSL operations are awaited. Revenue districts could be identified and awarded to a private entity to operate as the DSL. The DSL will be expected to undertake capital and carry out power procurement function to serve consumers in its sub-license area.

Along with requisite investments, the private participants will also bring in technology advancements, better governance and improve quality of supply to consumers. Improved infrastructure and use of best in class technology will bring down power distribution losses to sub 10% levels, even in the toughest locations.

For attracting investors in this segment, the framework being designed for private participation should ensure equitable distribution of risk and returns, provide adequate scale, and ensure multi- year tariff regime for tariff visibility.

While these reforms are need of the hour, we should already be planning for the further follow-on steps. Going forward, Discoms need to be benchmarked with global peers in terms of standards of service and quality of supply. Interruptions should be compensated at the highest rate of alternative supply for a consumer.

Today, with open access throttled in most states, Industries pay close to Rs 8-10/unit for electricity from incumbent Discoms, which is a major input cost for them. In addition, many maintain back-up supply due to erratic grid supply, which further adds to their cost. For the vision of AtmaNirbhar Bharat to succeed, Industries should not be made to pay for the inefficiencies of discoms or for cross subsidizing cheaper power to other class of consumers.

For Indian manufacturing to become globally competitive, it should receive 24*7 power at prices close to Rs 5 per unit (which is the estimated cost of supply to a high-tension consumer in India), making them competitive in comparison to peers like China, Malaysia, Vietnam.

If implemented in the true spirit and timely manner, the reforms envisaged via the Draft Electricity Act 2020, will usher in a new era for Discoms making them bankable, efficient, pro-consumer business ventures and pave the way towards AtmaNirbhar Bharat.

Disclaimer: The views expressed in the article above are those of the authors' and do not necessarily represent or reflect the views of this publishing house. Unless otherwise noted, the author is writing in his/her personal capacity. They are not intended and should not be thought to represent official ideas, attitudes, or policies of any agency or institution.

Vijay Chhibber

Director General, Electric Power Transmission Association (EPTA)

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