The Hindu : National : Left seeks review of Electricity Act

Online edition of India's National Newspaper
Thursday, Oct 14, 2004

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National

Left seeks review of Electricity Act

By Our Special Correspondent

NEW DELHI, OCT. 13. The Left parties have written to the Manmohan Singh Government suggesting that public ownership and control was desirable in the power sector as electricity supply was a utility service whose control could not be dictated by market forces in a developing country like India.

The detailed note from the Left parties on the need for a review of the Electricity Act, 2003, has also brought to the Government's notice the poor experience of unbundling of State Electricity Boards (SEBs) in various States.

This had not resolved fundamental problems such as losses of the SEBs, the subsidy from the Government, transmission and distribution or commercial losses. On the other hand, overheads had increased on account of multiple organisations and coordinated working had been affected.

Another point of criticism was the statutory distinction in the Act between rural and urban areas and the mandate to eliminate subsidies and cross-subsidies. "This has serious implications for agriculture, power looms, streetlights, water works and 75 per cent of the rural population. The Act, if not amended, will divide the masses in rural and urban areas," the note said.

`No authority'

The Left parties have also highlighted the fact that the Electricity Act burdens the State Governments with a lot of responsibility but with almost no authority. "The authority to take effective decisions lies squarely with the State Electricity Regulatory Commissions (SERCs) which have no executive responsibility at all. It also needs to be kept in mind that the SERCs have been functioning for a limited period and are yet to establish suitable procedures and regulations in consultation with the utilities and the State Governments. While the regulatory body has a significant role, this cannot be a body which can overrule or ignore the declared objectives of the State Governments," the note pointed out.

Cross-subsidies

On cross-subsidisation, the note said a minimum level of support would be required to make electricity affordable for the very poor households since "electricity is a basic minimum need and is an essential driver of economic growth and poverty alleviation. The basic provision of electricity for all households is necessary for fulfilling human development objectives."

Other objections pertain to vesting only the State Governments with the obligation of electricity supply in rural areas; the guaranteed return of 14 to 16 per cent on equity investments; higher rates of depreciation; higher operating costs and the full reimbursement of income tax treating it as a pass through item to tariff.

Instead, the Left parties have suggested that profits from a regulated sector such as power should be capped at the prime lending rate of the Reserve Bank of India and not at an arbitrary figure.

Cross-subsidies should continue in tariff formulation, subject to an upper limit beyond which it would have to be a direct subsidy from the Government. There should be a more precise definition of captive generation so as to preclude large industrial units from making a backdoor entry into power generation and trading without assuming responsibility for rural electrification. It has also been suggested that hydropower should not be privatised as this was a gift of nature and was finite.

The four Left parties have called for an immediate review of the Electricity Act, while keeping in abeyance the mandatory provision of unbundling and replacement of the SEBs.

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