Awakening of the Power Dragon: Section 11

- Harry Dhaul, Director General, IPPAI

- Tarunima Sen, Senior Associate, IPPAI

Electricity does not move, it can’t travel and therefore, cannot really be transported

over distance. No human being has seen, smelt, and touched an electron ever.

Electricity markets are virtual markets based on accounting standards, assumptions,

market principles and trust.

So imagine and visualize, if you can, that electricity generated at point one is

consumed across a distance at point two. But is it? There is no way of proving it, and

there are millions of options and combinations where electricity in a network could

have been consumed elsewhere by others. Therefore, markets are based primarily on

the principle of trust and in a sense, good faith. And are thus, very sensitive and need

nurturing by the policy makers and regulators to ensure continued confidence in this

vital activity.

The Electricity Act 2003 visualizes non discriminatory open access as one of the

foundations of the new idea for India’s power sector reforms. There is, however, a

section in the act which gives the state government the power to intervene and give

direction to generating companies in ‘extraordinary circumstances’; Section 11 “The

appropriate Government may specify that a generating company shall, in

extraordinary circumstances, operate and maintain any generating station in

accordance with the direction of that Government” which in normal interpretation

could mean asking generating station to back down or increase generation in the

interest of security of the state grid.

However, it has been noticed that certain States are misusing this section to force

IPP’s and merchant power plants and in some cases surplus from Captives to sell to

them under duress at suppressed prices and then to sell the power to consumers and

customers outside the state at exuberant rates, thereby, collecting huge surplus

revenues for themselves. The Electricity Act 2003 did not visualize such massive

profiteering by state owned entities and the misuse of this section.

The Constitution of India the “Article 301, which grants to all citizens “Freedom of

trade, commerce and intercourse” (Part XIII Trade, Commerce and Intercourse within

the Territory of India). This clearly indicates that one can sell his ‘commodity’ (goods)

in any area within the national boundary. ‘Power’ or ‘Electricity’ is a recognized

commodity by the Supreme Court. Therefore going by the above statements,

electricity or power is a freely tradable commodity in India.

However, by invoking Section 11 in their State, power producers across the country

have been restricted to trade and therefore it has caused a great loss of faith and

credibility in the power market system.

Section 11 violates a power producer’s fundamental right to trade. It also over looks

Section 66 of Electricity Act of 2003 saying: “the appropriate commission shall

endeavor to promote the development of a market (including trading) in power in

such a manner as may be specified and shall be guided by National Electricity Policy

referred to in Section 3 in this regard”.

The impact of denial of Open Access will influence future and further investments in

the power sector, keeping in view the extraordinary, unconstitutional power the

errant governments have exercised in themselves and which is contrary to the

nature of the market principles. Denying open access has brought in uncertainty into

the Power Market besides putting a question mark on sanctity of contract, resulting in

a slowing down of private investments in this critical infrastructure sector, and all this

while the country continues to reel in darkness.

The recent trends and judgments in the courts as well as policy decisions taken by

state entities has put into question the holisticity and robustness of the Indian Energy

Market. It has also created uncertainty and a deterrent in the case of PPP in

infrastructure. This is ironic as the Planning Commission has recently been asked to

constitute a special commission in ways and means to encourage private

investments in infrastructure sectors.

Short term knee jerk steps to fight the immediate shortage of electricity during

seasonal mismatches particularly in the summer months by evoking Section 11 are

actually deterring investors from stepping up their investments in the Power Sector.

What could have been a unique market opportunity is being wasted simply because

of market distortion through interference of free market principle.

Short term knew jerk reaction lead to long term collapses. This needs intervention by

policy makers at the highest level.

The authors can be contacted at harrydhaul@gmail.com and

tarunimasen@ippaimail.org