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Power Sector Policies and Service to the Poor, Shri R V Shahi, Former Secretary, Ministry of Power

"Prayas", a reputed NGO, organised a two day National Conference on Regulation and Electricity Service to the Poor at Delhi on August 7-8, 2009. I had the occasion to chair the session on "Pro-Poor Measures, Role and Potential of Policy and Planning". Prior to this session, I could also participate in the session on "Role and Potential of Regulation" which was chaired by the Chairman of Central Electricity Regulatory Commission. The paper that had been prepared by me, with particular reference to the Legislation, Policies, Rules and Schemes which are in place, is reproduced below :

As we know, electricity sector, prior to the Electricity Act 2003, was governed and managed through, and on the basis of, two important legislations viz. Electricity Act 1910 and Electricity Supply Act 1946. As per the second Act, development of electricity sector was anticipated through State Electricity Boards. Though the Act did not provide any specific treatment for the poor, it is well known that political considerations prevailed through several decades, and it is these considerations which also addressed the issue of subsidy etc. As a result, the sector was never allowed to develop and grow on a commercial line and provide its service in a sustainable manner. In most cases, therefore, neither the poor got served well nor were those customers who had the ability to pay, and could pay, were properly serviced. Chaotic conditions created over a period of more than fifty years led to the realisation of the need for a radical restructuring of this sector. This recognition led to the enactment of Electricity Act 2003 and a number of accompanying statutory and other policies.

Electricity Act 2003 specifically provides for the much needed dispensation to solve the problem of power for the poor. Section (4) of the Act provides "The Central Government shall, after consultation with the State Governments, prepare and notify a national policy, permitting stand alone systems (including those based on renewable sources of energy and non-conventional sources of energy) for rural areas." Section (5) further states that "The Central Government shall also formulate a national policy, in consultation with the State Governments and the State Commissions, for rural electrification and for bulk purchase of power and management of local distribution in rural areas through Panchayat Institutions, user's associations, co-operative societies, non-government organisations or franchisees". Section (6) has made it obligatory for the appropriate Governments for supply of electricity in rural areas.

Liberalisation of the power sector through Electricity Act 2003 meant a number of reforms and restructuring deliverables including de-licensing of power generation, open access on transmission systems, open access on distribution networks, multiple licensees in the same area of supply, empowered regulatory institutions, subsidised supply of electricity only on payment by Government, re-organisation of Electricity Boards etc. While transmission, distribution and trading have been prescribed to be licensed activities, in order to encourage quicker power generation and distribution in rural areas, the Act specifically provides that power generation and distribution both will be de-licensed in rural areas. The proviso of Section (14) says "provided also that where a person intends to generate and distribute electricity in a rural area to be notified by the State Governments, such person shall not require any license for generation and distribution of electricity .............."

The National Electricity Policy notified in January 2005 not only reinforced these legal provisions, but also extensively elaborated what needs to be done for rural electricity distribution. This Policy puts at the top "rural electrification" among a dozen other issues which the Policy seeks to address (refer Para 4.0 - Issues to be Addressed). In Para 5.1.1 the Policy recognises that about 56% of rural households have not yet been electrified even though many of these households are willing to pay for electricity. Determined efforts should be made to ensure that the task for rural electrification for securing electricity access to all households and also ensuring that electricity reaches poor and marginal sections of the society at reasonable rates is completed within next five years.

Para 5.1.2 of the NEP provides that reliable rural electrification system will aim at creation of (a) Rural Electrification Distribution Backbone (REDB), (b) from REDB a feeder to distribution transformers in every village settlement, (c) household electrification, (d) wherever grid connectivity is not feasible, Decentralised Distributed Generation together with local distribution network, and (e) development of infrastructure to cater to the needs of agriculture and other economic activities. Para 5.1.3. Specifically requires household electrification in Dalit Basties, Tribal Areas and other weaker sections.

Particular care has been taken in the Policy for subsidised electricity supply for the poor. Para 5.5.2. of the NEP provides "a minimum level of support may be required to make the electricity affordable for consumers of very poor category. Consumers below poverty line who consume below a specified level, say 30 Units per month, may receive special support in terms of tariff which are cross-subsidised. Tariffs for such designated consumers will be atleast 50% of the average (overall) cost of supply. This provision will be further re-examined after five years."

These important provisions have been further reinforced with greater details in the Rural Electrification Policy issued by the Ministry of Power in August 2006 in compliance with Sections (4 & 5) of the Electricity Act 2003. This Policy brings out, in detail, the mechanism of involvement of local community in rural electrification. Financial assistance in rural electrification projects has been stipulated. Section (7.1) provides that "for attainment of the objective of providing all households with access to electricity by year 2009, it is necessary to seek least cost options after taking into account full life cycle costs and explicit as well as implicit subsidies in different delivery options and mechanisms."

A very important provision in this Policy obliges the State Governments for enabling Decentralised Distributed Generation in rural area. Para 8.8 stipulates "Special Enabling Dispensation would be put in place for stand alone systems of upto 1 MW which are based on cost effective proven technology and use locally available resource such as bio-mass. These projects would have automatic approval for land use change for area as per norms, pollution clearance if technology is proven, safety clearances on the basis of certification conveyed."

Thus, it may be seen that the Electricity Act, the National Electricity Policy and the Rural Electrification Policy, have not only duly recognised the need for special dispensation in the matter of electricity supply in rural areas specially for the poor, but specific line of actions have been suggested. If implemented with proper planning and committed execution, these provisions have the potential for fetching far reaching positive outcomes. Central Government, State Governments and Regulators - each one of them has definite role. So far as the Central Government is concerned, it formulated and notified a very powerful Scheme, Rajiv Gandhi Grameen Vidyutikaran Yojna which provides as much as 90% of the project cost as grant funding, and even the balance 10% is funded by way of loan to the State Government by Rural Electrification Corporation. On the Decentralised Distributed Generation upto 1 MW, a lot is required to be done, and can be done, by the State Governments and the State Regulators. This approach, if implemented, can transform the shape of rural electricity supply in India. The RGGVY also funds fully the electricity connectivity for all the BPL households. Based on experience, the Central Government would need to provide adequate and timely fund, and REC would need to closely monitor the outcomes.

The single most important issue for rural India, where most of poor people live, is the issue of availability of power itself. The problem of lack of connectivity (56% of rural households not having electricity connectivity as per Census 2000) is progressively getting mitigated under the Rajeev Gandhi Grameen Vidyutikaran Yojna. But, a bigger issue that may emerge is that after we have created the rural electricity distribution infrastructure good enough to provide household electrification, would there be power to supply. Obviously, in a situation of extreme shortage, urban India will continue to receive priority treatment, and power will be supplied to rural India only when there is balance after meeting the requirement of towns and cities. Normally, this should not happen, but in practice this is what happens and will happen. Therefore, we need to find alternative solutions. For the isolated villages and hamlets, decentralised generation and supply arrangements have been attempted over the years by the Ministry of Non-Conventional Energy Sources and parallel Departments in the State Governments. Technologies adopted generally have been PV Systems and in some cases Bio-mass and Micro- hydel. In both these cases, the applications have been rather limited. In the case of PV, though the lighting requirement in these far flung areas has been met except in rainy seasons, in any case, this cannot be a satisfactory arrangement for economic development activities. There is an urgent need for going in a big way on various forms of Decentralised Distributed Generation. This alone can meet the need of rural India not only for lighting but for the development of rural economy as a whole.

Various Decentralised Distributed Generation Technologies do not appear cost effective if we attempt to compare cost of power generation with other conventional systems. State Distribution Utilities, however, need to recognise the total cost concept which would include the cost starting from large power stations right upto the rural consumers, and should also take into account the losses in transmission and distribution systems. If this is properly accounted for there will be an element of support which will make the non-conventional distributed generation commercially acceptable. This approach will obviously require and orchestrated integration of inputs from various agencies and a commitment and belief that these systems alone can provide an effective answer to rural electricity supply problems.

In the Rajeev Gandhi Grameen Vidyutikaran Yojna, not only rural electricity distribution infrastructure has been planned and almost fully grant funded, but also the funding covers connectivity right upto households for families below poverty line (BPL). At one stage we were seriously considering, in the Ministry of Power and REC, whether this could be integrated with provision of CFL to these families within the funding already provided, so that the burden of excess electricity consumption is minimised. This approach needs to be pursued with required fine tuning.

Under the Electricity Act 2003, as already mentioned above, rural areas have been given special attention. State Governments were advised by the Ministry of Power and in almost all the cases, the rural areas have been notified for this purpose. The role of State Regulatory Commissions would be very crucial. Using the liberal provision of the Act, co-ordinating with the State distribution companies for estimating the savings on account of substantial reduction in the distribution loss, when decentralised generation facilities are set up, and declaring a price at which the development agencies could supply power, a comprehensive Scheme could be worked out suited to the specific needs of different rural clusters. The role of Regulator is relevant because distribution companies on their own would not be able to factor in the savings they would achieve. This has to form part of their annual revenue requirements. It is this saving which can support somewhat higher cost of power from new technologies in the distributed generation. In absence of this, this may remain a non-starter.

Revenue sustainability of rural electricity supply has always been a matter of concern. Technical losses due to the long LT Lines have inevitably been high. Coupled with these have also been the problems of metering, billing, bill collection in these scattered areas. Rajeev Gandhi Grameen Vidyutikaran Yojna has an important requirement of putting in place Franchisees which will take care of both technical and commercial responsibilities in rural electricity supply. Whether it is grid connected power supply or supply through DDG route, the Scheme of Franchisees appears to be the best alternative. State Utilities as well as Regulatory Commissions have definite roles to make this happen.

Another important aspect which, no doubt, has been noticed but has not received due attention is the pattern of energy consumption in rural area. Government does support heavy subsidy on account of kerosene oil lamps and also use of kerosene in cooking by rural poor. But when it comes to subsidising, in a significant way, rural electricity through new and innovative methods which will replace consumption of kerosene oil, but which are definitely costlier, it becomes a big problem to decide. This mind set has to change. Once the present pattern of subsidy, huge distribution losses of distribution companies, long haul transmission loss and transmission cost are all duly integrated an accounted for, the economics of distributed generation would automatically fall in place.

NGO's have also not been active in this field. In the context of Franchisee Scheme, in the Rural Electrification Policy of the Ministry of Power, we provided that NGO's can also take up this role. In a few States, such as West Bengal and Uttarakhand we did get a few such groups interested, but considering the magnitude of this problem, the response from NGO's has been disproportionately low. Specific provision (Section 6) of the Electricity Act stipulates a role for NGO's in the matter of bulk purchase of power and management of local distribution in rural areas. This is one area which needs to be acted upon. Role of State Governments and Central Government may be by way of capacity building in this regard. Large NGO's of the country may themselves come forward and also help in creating new NGO's and guiding the existing NGO's. It is relevant to mention that even in U.S.A. the rural electricity is largely managed through co-operatives, an initiative which was started in thirties and continued to get strengthened through sixties. The support of the Government was substantial.

Our Prime Minister has been emphasising on an inclusive growth, and various initiatives of the Government, including Bharat Nirman, vindicate this approach. An 8 to 9% growth of economy will be meaningful only if its benefits percolates down and permeates through the entire cross-section of the society. Policies and Schemes in general are on these considerations. What is important is the proper implementation of these Schemes. It is here where the shoe pinches. The weak link is the governance systems, particularly in States which need these Schemes most. An awareness is visible now but the process to tone up the administration and improve governance is rather slow. Silver lining, however, is the public pressure and exposure by the media. This gives a great hope that things will change and will change faster for the better.

Mr. Girish Pradhan, the Additional Secretary, Ministry of Power, emphasised that Rajiv Gandhi Grameen Vidyutikaran Yojna is a very important initiative of the Government of India to take electricity not only to all the villages but to also households. The families below poverty line, under this Scheme, get connectivity right upto their houses free of cost. He did, however, mention that the role of State Government in the implementation of the Scheme, which is fully funded by the Government of India including as much as 90% grant funding, is very crucial for the success of this initiative. If the project reports are not properly prepared and if serious attention is not given during implementation for quality of work and for timely completion, the desired objectives will obviously be difficult to achieve. Ground level monitoring, including quality of execution needs to improve. State Utilities and State Governments have to take this Scheme as their project and provide the required inputs with seriousness and commitments. Another important element of this Scheme is the introduction of Franchisees. So far, about 90,000 villages have been covered. This needs to be intensified.

Mr. Kwawu Gaba, Lead Energy Specialist, World Bank, in its Presentation, highlighted that right Policies are in place. In terms of implementation, however, there are gaps. Estimates of expenditure required also need to be revisited. They appear to be on the lower side. The time target seems to be tough to meet. Systematic monitoring needs to be strengthened.

Mr. Prabir Purkayastha (DSF), highlighted that supply constraints had become worse, capacity additions have been meager dependence on BHEL alone for the manufacturing capacity has proved ineffective because we should have had much larger manufacturing capacity in respect of power plant equipment like in China. Rural Electrification even in U.S.A. was largely supported by the Government. He expressed a view whether decentralised small generation units were the right answer and preferred that rural area should also get grid power supply.

Take aways from this session could be summarised as below:

  1. Inadequacy of power is the real issue. Though it should not happen, but it will happen, rural India will continue to get last priority in the situation of shortage.

  2. Decentralised generation, but grid connected, could be one of the most effective solutions. It could also draw power from the grid when made available, but also give excess power to the grid. There is a need for the Government of India to come out with a comprehensive policy on small generation facility for rural area. This Policy could address issues of automatic clearances, State Government making land available, free use of distribution network, commercial arrangement like Franchisees etc. The Regulatory Commission could factor in the financial support in view of the likely savings in transmission and distribution losses and in transmission cost in the existing grid connected power supply.

  3. Solar system could prove effective and they need to be fully supported.

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