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JUL 26 2016

Govt writes back to FE: We care for the poor, Sunilji

  • Economic Times, ET Bureau / Hyderabad
  • Created: Tue 26th JUL 2016

 

Monday’s column by Sunil Jain in The Financial Express (goo.gl/T2L1XT) raised the question of open access of electricity where it was claimed that power prices are high because open access is not implemented or promoted. To my mind, this raised a fundamental question—whom should the Government keep in mind while formulating and implementing policy in the country? The question for the power sector is: Who is the “consumer”? In my view, the consumer includes not only the high-end commercial and industrial consumers but also the general public and especially, the poor farmers who toil day and night to feed the country. The latter too need to be supported, and the job of a policymaker is to balance the interests of all segments of society.

Competition as a policy is desirable for improving efficiency and extending resultant gains to the consumers. The Electricity Act, 2003, and the subsequent policies of the Government do recognise this fact, and several actions have been taken to further promote competition in the entire power sector, while increasing access to affordable and reliable electricity for the poor of the country. We have multiple players in generation, transmission, trading and distribution today and this has been possible because of the facilitative framework created by the government. We have gradually moved from a state of deficit scenario to a stage where we have adequate availability of power for meeting the demand.

In fact, this intent of the government is clearly outlined in the National Tariff Policy, 2016, where it has given guidelines for providing open access to customers above 1 MW in a particular time period and also outlined the determination of appropriate charges like cross subsidy surcharge, additional surcharge and stand by charges, to ensure that a fair balance is achieved between the financial viability of utilities and embedded customers who continue with the utilities. Many state regulators are reviewing existing open access regulations in view of this policy to make this process more equitable. In Parliament, we have also introduced an Amendment to the Electricity Act, 2003, seeking to further encourage competition in power supply for consumers at large; however, it needs consensus as we are part of the federal polity.

We must not forget that competition and the consequent efficiency gains make sense only if the fruits reach the last man on the street. Socio-economic realities of India cannot be ignored, which necessitate cross-subsidisation between different consumer categories to protect the interests of the vulnerable sections of the society, namely, the farmers and the poor.

Open access is one of the cornerstones of competition and the government has been, and remains, keen on encouraging it. Since the power market is still evolving, the law also carves out certain conditionalities while allowing open access. It talks about levy of cross-subsidy surcharge and also additional surcharge to help discoms recover their stranded costs. Some large open access consumers also expect the discoms to supply them power whenever they are unable to secure cheap power from the market. This results in additional costs for maintaining extra capacity to meet this demand while losing out on helping the poor through cross-subsidy charges. Then, there are instances of consumers switching between discoms and open access at will. The distribution companies who are responsible for supplying power to all consumers, including the poor and the farmers, have to be compensated for the costs they incur for supply of power to all and being the supplier of power of last resort.

States like Maharashtra and Gujarat have highlighted the instances of misuse of open access and captive status of an industry to avoid payment of cross-subsidy surcharge. These are distortions which have an adverse effect on the poorer consumers who are forced to purchase from their existing discoms. Thus, in open access, few consumers can shift in and out of captive and state discoms’ power supply net, thus demonstrating that well-intentioned and well-crafted policy can be misused.

This has highlighted the need to define rules which are non-discriminatory. It requires that there should be a definite period for which open access can be allowed and a consumer can fall back upon the discom for supply during this period only on payment of standby charge, which should adequately compensate the discom on account of providing power on contingency to such consumers.

The Union government has provided an ecosystem of efficiency, transparency and accountability. In the last two years, we have increased inter-state transmission capacity along with increased generation, coupled with easing of logistics and fuel constraints. This has made it possible for power to be traded at such low rates realising the vision of One Nation, One Grid, One Price at the power exchanges. Through the Vidyut PRAVAH app this information is continuously being made available, so that states are encouraged to buy power to provide electricity at very low rates.

Reforms are not only about creating opportunity of open access. It is also about enabling the stakeholders to be part of competition and that is why the Union government came up with the Ujwal DISCOM Assurance Yojana (UDAY) scheme for permanent resolution of all issues ailing discoms and helping them make a transition to sustainable profit-making entities. Let us not forget that duty of any caring government is to make “24X7 Power for All”, a reality, not only for cherry-picked large consumers but for the common man, the poor man, the farmer on an equal footing.

The author is a joint secretary in the ministry of power

 

Sunil Jain replies:

None of this addresses the issue I have raised of the failure to introduce competition in electricity supplies—doing this through ‘open access’ was mandated in Electricity Act of 2003 but, as the rejoinder acknowledges, little has been done so far and the future timeline is unclear. Confusingly, the power ministry rejoinder avers by ‘open access’ but then slams it on grounds it is being abused.

It is odd that the ministry should be talking about abuse of ‘open access’ since the Act envisages surcharges to take care of this—indeed, the surcharge is what allows different categories of users to continue to be subsidised even as others move out.

It is also not clear how the ministry plans to get more players at the distribution level in order to increase competition—these are the amendments being talked of—if it is not even ready to bring in ‘open access’ for big consumers to start with, and for all, over time. Lowering costs for ‘cherry-picked large consumers’, by the way, is critical if Make-in-India manufacturing is to flourish.

Tags

Gujarat Maharashtra Standby Captive Open Access Regulators Distribution Companies Grid Tariff Electricity Act Ministry of Power United States Power exchanges Power Tariff policy power market Trading Electricity Consumer STANDBY India National Tariff Policy CAPTIVE

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