Tackle The Discomfort

Context: An overview on the evolution of power sector regulation and the need for a government-owned National Power Distribution Company (NPDC).

Mounting debts in Power Sector: According to ICRA, gross debt level for state-owned discoms at an all-India level is likely to cross Rs.6 trillion in FY2022.

Evolution of power sector regulation in India

• Electricity Supply Act, 1948: Establishment of State Electricity Boards (SEBs) as vertically integrated utilities handling generation, transmission and distribution.
  • Since SEBs operated without regard to commercial concerns, electricity became a tool for appeasement and political patronage, finances deteriorated.
• Reforms in the mid-1990s: Unbundling of SEBs into separate generation, transmission and distribution entities, with substantial technical and financial assistance from World Bank.
• Accelerated Power Development Reforms Programme (APDRP), 2002: To upgrade sub-transmission and distribution system, funds given as additional central assistance.
• The Electricity Act, 2003: Sought to bring following changes:
  1. Deregulation of licensing fa or generation.
  2. Open access in distribution
  3. Opening up the power trading business.
  4. Mandatory metering.
  5. Stringent penal provisions for theft of electricity.
  6. State electricity regulation commissions specifying performance standards for distribution and concomitant tariff fixation.
• UDAY (Ujwal Discom Assurance Yojana), 2015: Aimed financial and operational turnaround of discoms.
  • Allowed state governments to take over 75% of SEBs debt as of September 30, 2015, and pay back lenders by selling bonds and Discoms to issue bonds for the remaining 25% of their debt.
  • A key obligation to be fulfilled was to reduce aggregate technical and commercial (AT&C) losses to 15% by 2018-19.
• Liquidity infusion scheme announced in 2020: Budget 2020-21 also announced a revamped reform scheme for discoms, entailing a Rs.3.05 trillion allocation over next five years.
• Budget 2021-22: Delicensing power distribution sector, a major shift in government thinking from the privatisation of discoms to allowing free market access.

Significance of GoI-owned NPDC

1. Complete GoI’s participation in all links of the power chain: fuels, generation, transmission and distribution.
2. Challenge hegemony of state-owned geographical monopolies that are discoms.
3. Pick up stranded capacities.
4. Make for a robust alternate market: Will reduce NPAs with credible sovereign backed power purchase agreements (PPAs).
5. Offer a pooled-price regime: Encompassing thermal, renewable, hydro and nuclear.
6. Provide a credible pricing format: Along with tariff rationalisation.
7. Critical power supply: To union territories, railways, army and other industrial, commercial and institutional establishments under GoI.
8. Provide a credible institutional option: To take over cities and nonurban circles willingly offered by state governments as well as bulk private users.
9. Showcase a ‘demonstration effect’: Of 100% smart-metering and lead distribution into the digital age.

Conclusion: It’s time to think beyond revamping discoms and take reformative steps like NPDC.