Infravisioning: How The Screws Are Getting Tightened On Power Discoms
Vinayak Chatterjee's Infravisioning video series analyses and explains developments in India’s infrastructure sector to the BQ Prime audience.
Edited transcript of the video:
On Aug. 18, 2022, the Power System Operation and Control, the national grid operator under the Power Ministry, debarred 12 states and union territories from buying or selling electricity in the spot market, as a penalty for not clearing the dues in time to the suppliers of power—the generators.
This action caused quite a sensation in power circles and states, as this was the first time the grid operator had invoked the Electricity (Late Payments Surcharge and related matters) Rules, 2022, to penalise discoms.
Not surprisingly, the very next day the outstanding current dues of states and union territories to power suppliers dropped 80%. It was possibly the first time the stick was wielded after three decades of dangling carrots to motivate discoms to reform and it worked.
This action by the PSOC was a forerunner of other stringent measures building up. The Electricity Amendment Bill, 2022—that seeks to build further on The Electricity Act of 2003—was introduced in the Lok Sabha on Aug. 8, 2022 and is now pending consultations before a Parliamentary Standing Committee on energy.
Its introduction has miffed many states and former bodies, power employee associations and central trade unions have all threatened nationwide protests.
This renewed focus on discoms is also happening at a time the nation is engaged in a debate on the nature and desirability of freebies.
Electricity is a prime example of pre-election promises of free power. The bill also has a bunch of provisions to get discom behaviour to fall in line.
There are two that fundamentally strike at the core of discom operations.
The first is the choice to be given to electricity buyers to bypass an existing discom, as it allows a new supplier to use the existing infrastructure to supply power.
This is popularly referred to as the ‘content versus carriage principle’ where the fixed investment in carriage transmission is allowed to be used by multiple operators to distribute what is being carried inside it—in this case, the content is electricity.
The second provision gives extra powers to the load dispatch centres, which tell the power generators whom to supply to and manage the entire grid.
This second provision gives powers to the load dispatch centres to restrict supplies of power to those discoms who have not maintained proper and timely payments discipline to specific generators.
There are also the screws tightening on what is called the concept of a central pool for renewables.
For long, many renewable companies, especially the smaller ones, have been complaining about stepmotherly treatment by the discoms. So, the central government is also now contemplating measures to specifically address the issues of a host of disaggregated renewable energy generators who claim they are being held hostage by discoms.
The power ministry has suggested the creation of an intermediary company that will procure renewable power as a central pool and undertake the redistribution of that power and, most importantly, the payment collections from the discoms on behalf of these renewable energy companies.
This further restricts the flexibility that the discoms currently enjoy, particularly with relation to late payments and not sticking to commitments to picking up the power when it is available.
Well, the other initiative is Smart Metres, working in parallel to the Rs 3-trillion (Rs 3 lakh crore) Revamp Distribution Sector Scheme announced earlier in the finance minister’s budget speech.
This is seeing traction now with the power grid floating a tender for 10 million smart metres, the largest ever. The scheme is ultimately expected to be ramped up to 250 million domestic consumers and will significantly impact the current malpractices of non-metering, fictitious readings, tampering and collusion.
The implications are many, as the cat is being prepared to be set amongst the discom pigeons.
Opposition parties have cried foul and said the bill is against the federal structure, as electricity is a state subject and is in the concurrent list of the Constitution.
Further, the pressure and penalties on regulators, which are there in the bill, impacts their independent functioning. There is the added criticism that allowing new distribution companies to use the existing infrastructure is nothing but privatisation by stealth.
Power sector unions claim this will be the death knell for existing state-owned discoms, as they bear the onus of the Universal Service Obligation, whereas the new ones would target only the richer, creamier, urban segments of various markets.
There do exist apprehensions that the deliberations of the Parliamentary Committee examining the provisions of The Electricity Amendment Bill, 2022 will be so long-winded, that it may not ultimately see the light of the day, given what would be the stridency of the opposition to it from different quarters.
Many have suggested that it may have been wise for the government to have used a prior consultative approach like a GST-type Consultative Council involving the states.
The current bill comes against the backdrop of three decades of failed attempts to reform the electricity distribution sector.
The unbundling of the State Electricity Boards started in the early ‘90s, followed by the Montek Bonds of 2002.
The Accelerated Power Development and Reforms Programme of 2002 and The Electricity Act 2003.
Ujwal Discom Assurance Yojana or UDAY came in 2015, and in June 2020, the finance minister announced a special liquidity scheme to rejuvenate the ailing sector, following up with the current RDSS which is to install smart metres and related infrastructure.
Thus, the fate of the latest attempt—the passage of the 2022 bill to Parliament—is anxiously awaited as are the other non-legislative measures announced.
At the heart of the matter is the economic competitiveness of India, as you gradually see the screws getting tightened on the performance of discoms.
Vinayak Chatterjee is founder & managing trustee, The Infravision Foundation; and chairman, CII Mission On Infra, Trade & Investment.
The views expressed here are those of the author, and do not necessarily represent the views of BQ Prime or its editorial team.