The Electricity Bill will encourage competition, rationalise power tariffs and ensure a transparent policy regarding subsidies

New Delhi: After a three-year wait, controversies and confusion, the Indian Parliament finally passed the Electricity Bill last week. This Bill replaces the archaic Indian Electricity Act, 1910, Electricity Supply Act, 1948, and the Electricity Regulatory Commission Act, 1998. The Bill attempts to set in motion far-reaching reforms in the power sector by encouraging competition, rationalising power tariffs and ensuring a transparent policy regarding subsidies.

In the first place, the Bill recognises that the sources of generating power as well as the usage of power are different, say in a North Eastern state as compared to say Madhya Pradesh. The Bill allows each state to frame its own laws and chart their own reform path by instituting a suitable enabling framework.

The Bill envisages the 'open access' scheme, which will enable the consumer to choose the source from which he can obtain his power. Under the open access scheme, a group of consumers can get together and as bulk consumers, choose to buy power either directly from the generating company or intermediaries such as traders and distributing companies.

Currently, bulk consumers cannot choose their power source and are forced to purchase their power from the state electricity board (SEB) or its successor distribution licenses. The scheme will take over a year to be implemented, but once implemented it will encourage competition, help drive down power costs and improve services.

The Bill also attempts to induce competition by allowing two distribution companies to operate in the same area. Thus, a company like BSES, which distributes power to some areas in Mumbai, can now also distribute power in the areas where the Tatas operate.

Cost effective
Another significant factor is that the bill now permits setting up captive power-generating plants. Large public utilities like the Railways, which till now has been compelled to buy electricity at a high price from hydel power generating units. Given a choice to generate power on its own through captive plants, the Railways would be able to minimise the cost of power.

The setting up of captive generating plants will not require permission from any authority. But, in the case of captive hydro projects, clearance from the Central Electricity Authority will be required, as the issues of dam safety and optimal utilisation of water resources need to be looked into.

The Bill also allows open access to the transmission and distribution lines in phases to promote competition and efficiency. Access in distribution for bulk consumers is to be permitted in stages by the State Electricity Regulatory Commission.

With the entry of private players in generation, transmission and distribution, the SEBs will be forced to get their act together. The working and the ways of these boards are known to every common man in this country. Faced with the prospects of losing customers, they will have to provide quality and low-cost power to survive. The transmission and distribution losses, which currently are a colossal 30 per cent, will have to be brought done to at least 20 per cent in less than two years.

The subsidies these SEBs enjoy are equivalent to about 1.5 per cent of the country's gross domestic product (GDP). If subsidies are eliminated it will enable our GDP jump from the present 6 per cent to 7.5 per cent without the help of other sectors of growth. The Bill envisages making explicit the elements of cross-subsidies and eventually phasing them out.

Today, the national average cost of generating power is Rs 3.50 per unit while the average realisation is 2.50 per unit. The industrial consumer is paying a higher price for cross-subsidising the cost of power to other sectors.

Check politicians and theft
Political will is also an important factor in ensuring that the new laws are implemented properly in letter and spirit. The Electricity Employees Federation of India had opposed the Bill and had even struck work to demonstrate their opposition. Their main fear is that the Bill would bring in privatisation of the Electricity Boards and the existing work culture would vanish.

Politicians, too, must refrain from taking populist decisions on the power front. A couple of years back, Prakash Singh Badal, former chief minister of Punjab, had written off electricity dues worth Rs 800 crore of the farmers of Punjab. This was done during an election year but the write-off did not help. Badal was trounced in the polls.

Power theft is also a major concern plaguing this sector. It is common knowledge that thefts take place with the connivance of SEB officials. The Bill attempts to curb power thefts by providing punitive measures against conniving officers.

The above measures are aimed at generating an additional capacity of 1-lakh megawatts by the year 2012. This would require an investment of about 1 lakh crore, of which the government will spend Rs 40,000 crore and the balance Rs 60,000 crore is expected from the private sector. If this is done, India will become self-sufficient and will generate cheap and quality power.

Dr Craig Barret, CEO of giant chip-maker Intel, had come to India in the nineties looking for prospects. He was asked whether he would set up a chip-making plant in India. He bluntly said: "No."

His argument was that in chip manufacturing, quality and continuous power are critical. "If there is power outage for even a second, the loss could be about a billion dollars and, therefore, setting up a plant in India is out of the question."

We hope that he changes his views the next time he comes calling.