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Historical Background of Legislative Initiatives
The Indian Electricity Act, 1910
Provided basic framework for electric supply
industry in India.
Growth of the sector through licensees.
License by State Govt.
Provision for license for supply of electricity in
a specified area.
Legal framework for laying down of wires and
other works.
Provisions laying down relationship between
licensee and consumer
The Electricity (Supply) Act, 1948
Mandated creation of SEBs.
Need for the State to step in (through SEBs)
to extend electrification (so far limited to
cities) across the country.
Main amendments to the Indian Electricity
Supply Act
Amendment in 1975 to enable generation in
Central sector.
.
Amendment to bring in commercial viability
in the functioning SEBs – Section 59
amended to make the earning of a minimum
return of 3% on fixed assets a statutory
requirement (w.e.f 1.4.1985) .
Amendment in 1991 to open generation
to private sector a establishment of RLDCs.
Amendment in 1998 to provide for private
sector participation transmission, and also
provision relating to Transmission Utilities
The Electricity Regulatory Commission Act,
1998
Provision for setting up of Central / State
Electricity Regulatory Commission with
powers to determine tariffs.
Constitution of SERC optional for States.
Distancing of Government from tariff
determination.
The Electricity Act, 2003
The Electricity Bill, 2001 was introduced in
Lok Sabha on 30th August, 2001 and was
subsequently referred to the Standing
Committee on Energy for examination and
report. The Standing Committee submitted its
report on 19th December, 2002
.
. Based on the recommendations of the
Standing Committee on Energy, the
Government of India moved certain
amendments. The Electricity Bill, 2001 along
with these amendments, was passed by Lok
Sabha on 9th April, 2003.
The Bill as passed by Lok Sabha was
considered and passed by Rajya Sabha on
5th May, 2003. The Electricity Bill, 2003 as
passed by both Houses of the Parliament
received President’s assent on 26th May,
2003 and was notified in the Gazette of
India on 2nd June, 2003.The provisions of
the Act except section 121 were brought
into force with effect from 10th June 2003
Background and salient features of the Act :
Power is today a basic human need. It is
the critical infrastructure on which modern
economic activity is fully dependent. Only
55% households in India have access to
electricity. Most of those who have access
do not get uninterrupted reliable supply. The
industry in India has among the highest
tariffs in the world and is not assured of the
quality of supply.
In this era of globalisation, it is essential that
electricity of good quality is provided at
reasonable rates for economic activity so that
competitiveness increases.Being
internationally competitive is now essential
for achieving the vision of 8% GDP growth
per annum, employment generation and
poverty alleviation.
In recent years the financial health of SEBs
has been deteriorating. There is a big gap
between unit cost of supply and revenue and
the annual losses of SEBs have been
increasing and have reached unsustainable
levels (over Rs. 33,000 crores
In the last two Plan periods, barely half
of the capacity addition planned was
achieved. The optimistic expectations
from the IPPs have not been fulfilled and
in retrospect it appears that the approach
of inviting investments on the basis of
government guarantees was perhaps not the
best way.
The energy as well as peaking shortages
across the country is a matter of concern
and the situation would have been worse but
for the slowdown in manufacturing sector.
The Hon’ble Prime Minister and Chief
Ministers have set before the nation the
goal of electrifying all our villages by 2007
and all our households by 2012. Access is yet
to be provided to about 80,000 villages.
Uninterrupted and reliable supply of
electricity for 24 hours a day needs to
become a reality for the whole country
including rural areas.
The sector should be able to attract funds
from the capital markets without
government support. The consumer is
paramount and he should be served well with
good quality electricity at reasonable rates.
. Enough generating capacity need to be
created to outgrow the situation of energy
and peaking shortages and make the country
free of power cuts with some spare
generating capacity so that the system is also
reliable. The sector is to be made financially
healthy so that the state government
finances are not burdened by the losses of
this sector
It is in this context that the Electricity Act,
2003 seeks to bring about a qualitative
transformation of the electricity sector
through a new paradigm. The Act seeks to
create liberal framework of development for
the power sector by distancing Government
from regulation
. It replaces the three existing legislations,
namely, Indian Electricity Act, 1910, the
Electricity (Supply) Act, 1948 and the
Electricity Regulatory Commissions Act, 1998
The objectives of the Act are “to
consolidate the laws relating to
generation, transmission, distribution,
trading and use of electricity and
generally for taking measures conducive to
development of electricity industry, The Act
strikes a balance which takes into account
the complex ground realities of the power
sector in India with its intractable problems.
promoting competition therein, protecting
interest of consumers and supply of
electricity to all areas, rationalization of
electricity tariff, ensuring transparent
policies regarding subsidies, promotion of
efficient and environmentally benign
policies, constitution of Central Electricity
Authority, Regulatory Commissions and
establishment of Appellate Tribunal and for
matters connected therewith or incidental
thereto.”
The salient features of the Act are:
1. Generation has been delicensed and
captive generation freely permitted.i.e. Any
generating company may establish, operate
and maintain a generating station without
obtaining a licence under this Act with only
exception that it should comply with the
technical standards relating to connectivity
with the grid referred to in clause (b) of
section 73.
Note: Hydro-projects would however need
concurrence from Central Electricity Authority
No person shall
(a)transmit electricity; or
(b)distribute electricity; or
(c)undertake trading in electricity,
unless he is authorised to do so by a licence
issued, exceptions informed by authorised
commissions through notifications
3. No license required for generation and
distribution in rural India
Central Government may, make region- wise
demarcation of the country, and, from time to
time, make such modifications therein as it
may consider necessary for the efficient,
economical and integrated transmission and
supply of electricity, and in particular to
facilitate voluntary inter-connections and co-
ordination of facilities for the inter-State,
regional and inter-regional generation and
transmission of electricity.
Transmission utility at the central and state
level to be a government company-with
responsibility of planned and coordinated
development of transmission network
5. Open access in transmission with
provision for surcharge for taking care of
current level of cross subsidy, with the
surcharge being gradually phased out.
The state government required to unbuldle
State Electricity boards. However they may
continue with them as distribution licensees
and state transmisison utilities
7. Setting up state electricity regulatory
commission (SERC) made mandatory
8. An appellate tribunal to hear appeals
against the decision of (CERC’s) and SERC’s
9. Metering of electricity supplied made
mandatory
10. Provisions related to thefts of electricity
made more stringent
11. Trading as, a distinct activity recognised
with the safeguard of Regulatory
commissions being authorised to fix ceiling
on trading margins
12. For rural and remote areas stand alone
system for generation and distribution
permitted
.
The Electricity (Amendment) Bill, 2005
The Electricity (Amendment) Bill, 2005 was
introduced in the Lok Sabha on December
23,2005 to amend the Electricity Act, 2003.
The Bill was referred to the Parliamentary
Standing Committee on Energy (Chairperson:
Shri Gurudas Kamat), which was scheduled
to submit its report on March 23, 2006.
The Bill proposes to amend the Act by
deleting the provision for ‘elimination’ of
cross subsidies. It , however, retains the
provision for reduction of cross subsidies.
The provision was deleted taking into
concern the fact that it might not be possible
to eliminate cross subsidies in the near
future.
The Bill seeks to provide that both the Central
Government and State Government would
jointly attempt to supply electricity to all
areas including villages and hamlets through
rural electricity infrastructure and
electrification of households. In the Act, the
onus of rural electrification was solely on the
State Government.
13. Thrust to complete rural electrification
and provide for management of rural
distribution by panchayat, cooporative
societies, NGOs, franchises etc.
14. Central government to prepare National
Electricity Policy and tariff Policy
15. Central electricity authority to prepare
National electricity plan
The offences relating to theft of electricity,
electric lines, and interference with meters
are cognizable offences. There was concern
that the Act stood as a barrier to investigation
of these offences by the police. The Bill
seeks to amend the section in the following
manner:
It emphasizes that a person cannot be
prosecuted for any offence punishable under
the Act without the permission of the Central
Government or Appropriate Commission or a
Chief Electrical Inspector or an Electrical
Inspector or licensee or the generating
company. An Appropriate Commission could
be the Central Regulatory Commission or
State Regulatory Commission or Joint
Commission.
t clarifies that the police have the power to
investigate cognizable offences under the
Act.
In order to facilitate speedy trials, it provides
that a Special Court (the state government
can constitute any number of Special Courts
for such areas as may be specified, to
facilitate speedy trials of offences) shall be
competent to take cognizance of an offence
without the accused being committed to it for
trial.
Finances
The Financial Memorandum of the Bill
estimates that the Rajiv Gandhi Grameen
Vidyutikaran Yojana (with an outlay of Rs
16,225 crore) would have a subsidy
component of Rs 14,750 crore to be funded
from the Consolidated Fund of India in two
phases. Phase 1 of the scheme has begun
from the financial year 2005-2006 with a
sanction of Rs 5,000 crore of subsidy from
the Consolidated Fund of India. No other
expenditure, recurring and non recurring,
from Consolidated Fund of India would be
involved.
OVERALL STATUS OF POWER
SECTOR REFORMS IN INDIA
The over dependence on private sector for
the reforms in power sector is not good for
the country and the country needs a
balanced approach.
After more than two decades
of power sector reforms in
India it has failed to ensure
adequate supply of electricity
in the country, bring down
AT&C losses.
.
Make the power sector
vibrant, viable and profitable,
bring in the benefits of
competition in power
generation and distribution
by way of reduced tariff and
better consumer services
The very purpose of Electricity Act 2003
was to reduce the losses in Power sector,
improve the financial health of the sector &
reduce the subsidy burden of Government.
But due to faulty execution of policies the
contrary has happened.
The financial health of power sector has
further deteriorated & Government is now
even subsidizing private DISCOMS. What
is more serious is that due to continued
wrong energy policies banking sector may
collapse under the burden of non-
performing assets being generated by
Power Sector.
Electricity Act 2003 envisaged that with the
setting up of independent regulators and
distancing of government from tariff
matters, the state distribution utilities would
be able to achieve financial viability and
there by restore the financial health of the
power sector.
.
While state Discoms resorted to loans from
the banks and financial institutions to meet
operational deficits, it has now resulted in a
position of debt trap for many of the state
power utilities
While financial restructuring plan (FRP) is
being imposed on states which is forcing
the states for introducing privatisation for
the reduction of AT&C losses through
introduction of input based distribution
franchise.
The government has overlooked the cases
of state sector Discoms of Andhra, Tamil
Nadu, Karnataka and Punjab where the
AT&C losses were reduced under public
sector ownership.
Their reduction of AT&C losses could be
considered and adopted by the other
states having higher level of AT&C losses
as an alternative to the proposal of input
based distribution franchise or any other
model of privatisation
New government should review power
sector reforms and make necessary
amendments wherever needed. The
practical model adopted by Andhra
Pradesh Eastern Discoms and Punjab
have actually achieved remarkable results.
The concept of achieving low tariffs
through competitive bidding in Ultra Mega
Power Projects (UMPP) has been
completely defeated by the changes made
in terms of reference after award of
contract by giving various concessions to
successful bidders.
Private sector companies have been
successful in getting the tariff revised from
CERC despite signing of MOU’s with state
utilities for long term supply contracts on
one pretext or other.
While the tariff policy of Government of
India stressed for setting up of new
projects under competitive bidding, several
state governments have gone in for MOU
route of cost plus tariff for new projects
which will result in higher tariff and costlier
power to the consumers.
The new government must clearly lay
down the policy guidelines.
Government must ensure that no further
amendments are made in Electricity Act
without the completion of review of power
sector reforms
Power Ministry has proposed anew
segment named ‘supply license’ in addition
to existing generation, transmission,
distribution and trading licenses. The main
aim of this is to further develop power
market rather than improving the
performance of the sector.
Autonomy & independence of Regulators
has been completely eroded as it has been
captured by vested interests due to
interference by state governments even in
tariff matters under the clause of public
interest.
Most of regulatory commissions are
headed by retired bureaucrats who are
enjoying all powers without any
responsibility.
The crisis being faced by Indian Power
Sector threatening to undermine the
economic survival of the nation & oppose
those who are advocating the retrogressive
energy policies which are plunging the
country into darkness.
.
There is over 20000 MW of stranded
generating capacity due to coal shortage.
Coal India is not supplying full quantity of
coal to the thermal plants which have
already been completed.
These plants are being asked to go for
imported coal which will increase
generating cost for which there may be few
buyers
With the thrust on capacity addition in
private sector, several States are now in a
condition of surplus power during part or
most of the year.
This is resulting in a situation whereby
these thermal power stations are ordered
to be backed down or shut down so as to
enable these private sector thermal
stations to operate at optimum or full load
Gas power stations are lying idle due to
costly natural gas. Priority of allocation of
gas to NTPC stations and state gas power
stations should be ensured at economical
rates as a measure to safeguard CPSU/
State Utility finances.
Central electricity Authority which played a
major role in power development of country
has been completely sidelined. Now there
is no central agency to look after the
coming of need based generating station
across the country. Now thermal plants are
being constructed without looking in to
geographical needs of country.
There is an urgent need to place an
alternate agenda for the reforms in power
sector by the new Government for power
sector development in the country to meet
the national aspiration of electricity for all at
affordable cost.