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Uncertainties on Reorganisation of State Electricity Boards Must End, Shri R V Shahi, Former Secretary, Ministry of Power

During the last few years, after the notification of Electricity Act 2003, in June 2003 most of the States have already reorganised their State Electricity Boards. There are a few States which are yet to do it. It may be recalled that Electricity Act 2003 stipulates several changes in the structure of the electricity industry. It is based on the premise that unless the age old structure of the industry, which got modelled on the basis of almost 100 year old Act viz. Electricity Act 1910 and Electricity Supply Act 1948, is overhauled to keep in tune with the changing needs, the ultimate customers would not get w hat they have always deserved and have remained deprived of the consumer friendly treatments by their electricity suppliers. Consumer is the focal point of Electricity Act, 2003. It presupposes that no structure can be sacrosanct. If to meet the needs and aspirations of the society and of electricity consumers (industry, agriculture, business and household), another structure is considered more appropriate, that should be done.

It also needs to be recalled that during the year 1999 - 2000 when the talk about reform of the electricity sector, in a comprehensive way, started, it was the general consensus that Electricity Board structure, as stipulated in the Electricity Supply Act 1948, has, by and large failed to deliver the desired outcomes in most of the States. The following facts and background weighed in favour of a comprehensive electricity legislation:

  1. Electricity industry, all over the country, presented a picture of total financial bankruptcy. The annual loss of the order of Rs. 3,000 Crores (1990-91) had reached a staggering level of Rs. 30,000 Crores within a period of ten years, and it was apprehended that within subsequent few years it might go as high Rs. 50,000 Crores annually.

  2. Shortages of electricity kept mounting, theft of power remained totally beyond control, consumer's satisfaction reached rock bottom, and the poor financial situation became the focal issue on account of which no investments could be attracted.

  3. Electricity Regulatory Commission Act 1998 had started showing some positive outcome, though the Regulatory Commissions were still struggling to get over the teething problems. While the discussions on the draft of a comprehensive Electricity Bill was in progress, a number of States had already started restructuring their Electricity Boards. In fact, Orissa had passed a legislation viz. the Orissa Electricity Reform Act in 1995, based on which they had already reorganised the Board into generation companies, transmission company and four distribution companies. Similarly, during the period 1997 to 2000, Haryana, Andhra Pradesh, Uttar Pradesh, Karnataka, Rajasthan, Delhi and Madhya Pradesh had also legislated their own Electricity Reform Acts. All these legislations provided for restructuring of the respective State Electricity Boards into generation, transmission and distribution companies. In some cases, when reorganised, the positive results had started showing up. In many cases, pursuance to implementation of the Acts, the reorganisation process was under progress.

  4. Distancing of the Government from the tariff determination process had started in many States through the interventions of the State Electricity Regulatory Commission and similarly at the Central level through the Central Electricity Regulatory Commission.

  5. Though all these initiatives, limited to a few States, were in very initial stage, yet, the perception about the direction in which the reform was moving was positive. A general consensus started emerging that a comprehensive Electricity Act was badly needed and when such an Act would be in place the sector would definitely move towards positive reform and fruitful outcomes in the larger interest of consumers who ought to be the ultimate beneficiaries of these reform initiatives.

It is in the above background that Electricity Bill received wide spread support and finally, when passed by both the houses of Parliament, the Act was notified for implementation, in June 2003. At that time, the targeted outline for the reorganisation of the Electricity Boards consisted of - 6 to 8 months for formulation and notification of various rules under the Act, preparation for reorganisation by various States to take about 18 to 24 months and putting the reorganisation in place in the total period of about 2 ? to 3 years, counting from June 2003. This was a realistic schedule, though somewhat longer, keeping in view various technical and human relation issues at the level of State/State Electricity Boards. Electricity Act provides a period of one year during which this restructuring needs to be done. The relevant provision of the Act is given below:

"Section 131

(1) With effect from the date on which a transfer scheme, prepared by the State Government to give effect to the objects and purposes of this Act, is published or such further date as may be stipulated by the State Government (hereafter in this Part referred to as the effective date), any property, interest in property, rights and liabilities which immediately before the effective date belonged to the State Electricity Board (hereafter referred to as the Board) shall vest in the State Government on such terms as may be agreed between the State Government and the Board.

(2) Any property, interest in property, rights and liabilities vested in the State Government under sub-section (1) shall be re-vested by the State Government in a Government company or in a company or companies, in accordance with the transfer scheme so published along with such other property, interest in property, rights and liabilities of the State Government as may be stipulated in such scheme, on such terms and conditions as may be agreed between the State Government and such company or companies being State Transmission Utility or generating company or transmission licensee or distribution licensee, as the case may be :

Provided that the transfer value of any assets transferred hereunder shall be determined, as far as may be, based on the revenue potential of such assets at such terms and conditions as may be agreed between the State Government and the State Transmission Utility or generating company or transmission licensee or distribution licensee, as the case may be".

However, considering the nature of the problem, the preparations that may be necessary and also the inertia built up in the system, a provision was made in the Act in Section 172 which allowed continuation of the State Electricity Board. But, for this, consent of Central Government was made obligatory:

"Section 172

Notwithstanding anything to the contrary contained in this Act, -

(a) a State Electricity Board constituted under the repealed laws shall be deemed to be the State Transmission Utility and a licensee under the provisions of this Act for a period of one year from the appointed date or such earlier date as the State Government may notify, and shall perform the duties and functions of the State Transmission Utility and a licensee in accordance with the provisions of this Act and rules and regulations made thereunder :

Provided that the State Government may, by notification, authorise the State Electricity Board to continue to function as the State Transmission Utility or a licensee for such further period beyond the said period of one year as may be mutually decided by the Central Government and the State Government."

When we were making this Proviso we were conscious of the fact that if an option had been allowed to the State Government to continue the State Electricity Board, local pressures would work on them to neutralise the requirement of reorganising the State Electricity Board. And, therefore, the consent of the Central Government was made necessary without which a State Government could not allow continuation of State Electricity Board beyond one year from the notification of the Act i.e. beyond June, 2004.

As mentioned above, in our team in the Ministry of Power we were all set to see this process completed latest by June, 2006 in all the States. However, when the new UPA Government assumed office in June 2004, under the Common Minimum Programme, a commitment was made, obviously under pressures from the Left Group, that Electricity Act 2003 would be reviewed. This set in a period of uncertainty. The Left Group was of the view that a number of provisions in the Act, including mandatory reorganisation of the Electricity Board, would need to be reviewed. In all such State Electricity Boards, in which the officers and staff were reluctant to restructure, this development came as a big relief. The process of interaction with the Left Group continued for over a year. The Ministry of Power succeeded in conveying to them the spirit of various provisions of Law and it was possible for them to accept the changes relating only to elimination of cross-subsidy and involvement of Central Government in rural electrification activities.

In the meantime the State Governments were given extensions for reorganisation from time to time, when these discussions with the Left Group were going on. In each case of extension, the State Government was made to commit that it was making necessary preparatory exercise for restructuring of the Board and that it only needed sometime before the process could be completed. In none of the cases the extension was granted on the plea that reorganisation would not be done. During the period 2005-06, the Ministry of Power also got a comprehensive study carried out by Indian Institute of Public Administration to critically evaluate the outcomes of the reorganisation of Boards in whichever States such reorganisations had already been carried out. This study conclusively established the validity of reorganisation. It came out with the finding that in whichever State the reorganisation has been done and proper placement of senior level team has been completed with due delegation of authority to them, there are definite indications of improvements. They strongly recommended reorganisation. After this study, couple of years have passed and now it has been established beyond doubt that reorganisation, as stipulated under the Act, if allowed to function properly, will lead not only to positive outcomes but will also be in the best interest of consumers. Confused and diffused accountability, which was the characteristic of Electricity Board, will not permit delivery of desired results, unless pin-pointed and focussed responsibilities with commensurate empowerment are provided to generation, transmission and distribution entities, it is unlikely that we will be able to achieve overall growth and progress of the sector for the benefit of the consumers.

Reorganisation per se will not benefit unless the Government commits to make it an effective exercise. Under the Act, State Transmission Utilities have been obliged to discharge certain functions, which include non-discriminatory Open Access to different generation entities and distribution licensees. Under a mixed organisational arrangement, like in Electricity Board, they wouldn't be expected to discharge this responsibility in an objective and impartial manner. There is definite conflict of interest. It is also for this reason, apart from many others, that reorganisation is a must. The relevant provision of the Act relating to the responsibility of the State Transmission Utility is extracted below:

"39.(2) The functions of the State Transmission Utility shall be -

  1. to undertake transmission of electricity through intra-State transmission system;

  2. to discharge all functions of planning and coordination relating to intra-state transmission system with -

  1. Central Transmission Utility;

  2. State Governments;

  3. generating companies;

  4. Regional Power Committees;

  5. Authority;

  6. licensees;

  7. any other person notified by the State Government in this behalf;

  1. to ensure development of an efficient, co-ordinated and economical system of intra-State transmission lines for smooth flow of electricity from a generating station to the load centres;

  2. to provide non-discriminatory open access to its transmission system for use by -

  1. any licensee or generating company on payment of the transmission charges; or

  2. any consumer as and when such open access is provided by the State Commission under sub-section (2) of section 42, on payment of the transmission charges and a surcharge thereon, as may be specified by the State Commission".

The States of Bihar, Jharkhand, Kerala, Himachal Pradesh, Meghalaya, Punjab and Tamil Nadu, have yet to reorganise their Boards. Six years have passed. Any reasonable period of preparation cannot be prolonged to such long durations. Even if we allow for the uncertainties which got created on account of review as stipulated under the Common Minimum Programme of the UPA, for which we may allow at the maximum approximately two years, the long delays in reorganisation of the Boards in these States cannot be satisfactorily explained. It is now time that the final deadline set must be ensured. There are incentives linked to reorganisation. Ministry of Power may consider following actions, if reorganisation is not completed:

  1. Reduction or even complete elimination of allocation of unallocated quota of power capacity from the Central power generating stations.

  2. Certain disadvantages to be introduced in the APDRP Scheme (they could get only partial benefits).

  3. Rajeev Gandhi Grameen Vidyutikaran Yojna is a 90% grant funded Scheme. Reduction in benefits under the Scheme could be considered.

  4. Setting up of new generating capacities or allocation of new capacity from Central stations could be reviewed for negligible allocations.

These are all powerful tools which could be used to convey to the States which have not reorganised that reorganisation of the Board is an important requirement of the Electricity Act. It is in the interest of the State and its people that it is done. It no longer needs any revalidation because highly satisfactory outcomes of such reorganisation in various States have fully vindicated the rationale of this provision of the Act. Section 172 was not meant to be used for such protracted postponement of this important and powerful reform initiative.