Ordinance on power reforms on cards as states stay divided

Unable to introduce amendments to the Electricity Act 2003 due to lack of consensus among states, the Centre has decided to push through the next big power sector reform by promulgating an ordinance by later this month or in early January.

The ordinance will have regulations to restrict cross-subsidy surcharge, ensure timely payment of generation dues by discoms and make power contracts non-negotiable.

Through the ordinance, the Centre may also strengthen the institution of power regulators, carry out separation of power carriage and content operation of distributors and develop a system of penalty for non-finalisation of cost reflective tariff on time.

The government intended to bring about some changes in the Electricity Act 2003, but it has failed to get parliamentary approval for the last five years as states are not on board over various proposals in the draft legislation.

"The power sector is also reeling under sluggish demand, reflecting overall slowdown in the economy. The sector needs a booster and if it's not coming through legislation then ordinance is the next best course of action. But the Centre needs to bring all states on board as most changes are to be implemented by them," said a power sector analyst.

Among the major changes is likely to be restoration of the sanctity of power contracts.

According to sources, the power purchase agreement between generators and discoms will be made sacrosanct with states limiting their rights to renegotiate PPAs midway of a project cycle. It's expected to be done by empowering power sector regulators, making their operations independent with statutory powers.

Strengthening of regulations for regulators is expected to remove investor uncertainty about contracts and delayed payments by state distribution companies. States, like Andhra Pradesh and Maharashtra, have been renegotiating PPAs with renewable energy players after the project was awarded to them. It has created a lot of uncertainty and investment in the renewable sector is on decline.

The ordinance is also expected to make regulations to penalise state discoms not finalising cost reflective electricity tariffs on time and delaying payments to generators. Also, the new regulations will restrict cross-subsidisation of consumers to 20 per cent max (the difference between highest and lowest tariff).

It could help industrial electricity tariff to fall, but would put more pressure on financially distressed discoms as higher industrial tariffs are biggest revenue earners for them.

The power tariff policy provides that cross-subsidy would be brought down to 20 per cent in the first phase. It will help in reduction of tariff for a section of consumers.

According to government data, discoms dues to power generators stands around Rs 81,000 crore. Of this, Rs 62,000 crore is overdue.

Sources said the Centre might also bring regulations on separation of carriage and content operations of discoms that will allow competition in a distribution circle, enabling consumers to choose their electricity suppliers. States are opposed to the move as it would rob them of a large number of paying consumers.

A direct benefit transfer (DBT) scheme may also be devised for consumers under which any subsidy that a state wants to give to any category of consumers will have to go directly into their bank accounts.

The power distribution sector is the last bastion where several attempts to reform have not borne results. Despite numerous schemes to fine-tune operations of discoms and clean their books, their financial losses have risen 89 per cent year-on-year to Rs 28,369 crore in FY19. Also, the discoms' overdues to power generation companies are around Rs 62,000 crore. IANS