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VOICE OF ELECTRICITY WORKERS

June 2004 -September 2004 Index

MEMORANDUM FOR REVIEW OF ELECTRICITY ACT: 2003 UNDER NCMPTO PRIME MINISTER BY NATIONAL CO-ORDINATION COMMITTEE OF ELECTRICITY EMPLOYEES & ENGINEERS

9.7.2004

Memorandum to the Hon’ble Prime Minister of India regarding the Electricity Act: 2003

Dear Sir,

We have seriously deliberated on the subject referred to above and decided to submit the following for your kind consideration and suitable action.

  1. Preamble

The UPA government have announced a Common Minimum Programme for implementation in which they have stated “Electricity Act: 2003 will be reviewed” and the Prime Minister in his address to the Nation has stated “ Higher rates of economic growth, urbanization and the modernization of agriculture will continue to increase the demand for energy. This demand can only be met with new investment, increased efficiency and rational pricing. Even as we plan to make more efficient use of conventional sources of energy, we must invest in the development of non-conventional sources. We will evolve an energy policy package that will cover all sources of energy and will address all aspects like energy security, access and availability, affordability and pricing, efficiently and environment.”

The experience of the power sector in the last 15 years of reform driven by the policy of liberalisation and privatisation, in a nutshell are: -

  1. This new act proposed separation of rural India from urban. The power supply for the peasantry and rural area is left out to local self -governments, NGOs etc..

  1. In the name of resources crunch the private monopolies -- foreign and Indian -- were invited for power generation as Independent Power Producers (IPPs) and offered major incentives. These incentives were guaranteed return on equity @ 16%, higher rate of depreciation to an average of 8.04%, Higher O&M cost related to the Project cost, full reimbursement of income tax treating it as a pass through item to tariff, treating the exchange rate variation as a pass through item to tariff, etc.

  1. This resulted in increase in cost of power. Central Public Sector Organizations also exploited the situation and increased power cost like other IPPs and expedited the process of SEBs becoming sick and a more than 3 fold increase in the cost of power supply.

  1. The high price of electricity in the country led to closure of industries in many areas and making Indian industry non-competitive. India’s power tariff for industry currently is one of the highest in the world. The story of agriculture sector needs no narration.

  1. The power requirement of the country has been inflated purposely, creating a panic situation and allowing for more and more concessions to private and foreign capital.

  1. The fuel policy has been changed for using hydrocarbons for power generation. The use of naphtha as fuel has led to huge increases in the costs of such power.

  1. The power losses and theft under the Electricity Boards has been exaggerated up to and above 50% and in the name of improving efficiencies, the SEBs are being dismantled.

  1. The cross subsidy system in vogue has been changed and tariff rates for the peasants and poor sections have been increased, in almost all cases faster than for other sections.

  1. The private operators came into field failed to fulfill their contract and hence power shortages become a continuing process. We do not go into the experience of Orissa, Andhra, and latest in Delhi and the notorious experience of Enron in Maharashtra. This is in short our experience of reform period.

In this context we are offering an alternative framework to that contained in the Electricity Act 2003 from our experience.

The Engineers and Employees are of the firm view that the Electricity (Supply) Act 1948 was the appropriate instrument for the development of the Electricity Supply Industry in the country. We have strong reservations on the need for enacting the Electricity Act 2003 as it fails to addresses the core concerns of the power sector, such as the need to reduce the cost of electricity, customer satisfaction, rural electrification and the necessity for electricity service to have a universal service obligation. The Act has not led to the reduction of the subsidy burden on the Government; it merely shifts the nature and content of the subsidy. The Electricity Supply Act 1948 was a time-tested legislation that has enabled the growth and development of the electrical power supply industry. The Electricity (Supply) Act 1948 enables private sector participation, open access and trading consistent with public interest. What it does not allow is unbridled profits to investors and speculation in power. Major improvements in the functioning of the electricity industry can be brought about with within the framework of the Electricity Supply Act 1948. The problem was not with the legislation but with the implementation of the legislation. We, The engineers and the employees of the Electrical power Supply Industry therefore demand that the Electricity (Supply) Act 1948 be restored.

Without prejudice to the above demand in view of the intention expressed in the Common Minimum Programme (CMP) of the United Progressive Alliance to review the Electricity Act: 2003 we are proposing a set of amendments that need to be made in the present legislation.

  1. Amendments Proposed

2.1 Amendment in the Statement of Objectives of the Electricity Act 2003

  1. Service to the customer and extension of supply to rural areas should be the principal objective of the Act. Privatisation and development of private market for power cannot and should not be the objective of the Act.

  1. Delivering power at affordable prices by optimizing generation at the least cost.

  2. Ensuring continued supply, at affordable rates, to the agriculture sector in order to sustain food production and food security, to government aided educational institutions, hospitals, small-scale industries including cottage industries etc..

  1. Ensuring that this essential and public service has an obligation for universal service provision and is accessible to all citizens and that electricity enables the balanced and coordinated development of the all regions of the country.

  1. Ensure that the balance between the Centre and the states in the federal structure of India as envisaged in the Constitution of India and Electricity (Supply) Act 1948 is not diluted.

  1. Ensure that the wealth and assets created by the Indian people is not taken over by Indian and foreign monopolies.

  1. Rights and privileges of the employees should be safeguarded.

  1. Enable the conservation of energy through suitable instruments in demand side management and proper choice and use of fuels.

  1. The profits of a regulated sector like power should be capped based on the prime RBI lending rate and not an arbitrary figure such as 16%. This should be part of the Act as it was in the 1948 Act. The depreciation rate should also be realistic in line with the anticipated life of the plant.

  1. Cross-subsidies should continue in the tariff formulation subject to an upper limit beyond which it will have to be direct subsidy from the Government.

  1. Power should be made available at affordable to all sections of the people with special provision for agriculture.

  1. Electricity development has to correct the very large regional imbalances that exist in the country.

  1. Tariff is to be fixed by the concerned governments. The regulatory authorities should only be responsible for an equitable implementation of such policies.

    1. State Electricity Boards

Fundamental Issues: Generation, transmission and distribution are closely interconnected activities that need to be coordinated in a holistic manner. Considering the importance of electricity as an essential intermediate input for economic development, there is a distinct advantage in integrating the activities within a single organisational structure. Public ownership and control is desirable as electricity supply is a utility service and its control not to be left to be dictated by the market forces, would be detrimental to the interests of a developing country like ours. Experience in various states has shown that unbundling of the State Electricity Boards (SEBs with or without privatisation) has not resolved the fundamental problems – burden of losses to the SEBs or subsidy from the Government and T&D and other commercial losses. On the other hand the other overheads on account of multiple organisations has increased and so also the coordinated working. Experience of privatisation in Orissa and Delhi is equally dismal.

The following are the principles for detailing the amendments to the Electricity Act 2003 regarding SEBs:

  1. The State Electricity Boards should be retained as they are and restore where they have been split.

  2. Budgetary subventions should be used to reimburse the State Electricity Boards for sale of electricity below the cost to serve.

  1. Concessions made to any section of consumers should be made transparent and quantified.

  1. SEBs should be allowed to be financially viable as envisaged in Section 59 of the Electricity Supply Act 1948 and the Regulatory Commissions should ensure the financial viability.

  1. SEBs must provide supply at defined standards and ensure customer satisfaction even under conditions of shortages

    1. Central Electricity Authority (CEA)

Fundamental Issues: Electrical Power is an extremely capital and skill intensive industry. Since its inception sections of the industry have exhibited cartel and monopoly characteristics. Regulation of this industry is only possible with technical knowledge. Since power has no finished goods inventory and can only be produced when consumed. The planning is an integral part of regulation of the industry.

The following are the principles for detailing the amendments to the Electricity Act 2003 regarding CEA:

  1. CEA should be the repository of technical excellence in India so as to enable it to a) Prepare a National Power Plan b) Provide technical support to the Regulatory Commissions and governments c) Apprise the techno-economic viability of generation and transmission projects and d) evaluate the technical and commercial claims of manufacturers and service providers.

  1. CEA should maintain and regularly publish for public consumption cost and performance data regarding the power industry. The data should include all captive generation and all investments made in transmission and distribution by private and public companies/boards.

  1. CEA should periodically review and publish the performance of all private or public distribution companies/boards.

  1. Adherence to the National Electricity Plan and Technical advice of CEA should be made mandatory.

  1. Techno-economic clearance of all Power Projects should be mandatory above 100 MW.

  1. REBs, the main instrument of grid control, should be made more effective and strengthened by restoring RLDCs with them.

  1. CEA should be responsible for managing the NLDCs and RLDCs so as to ensure that they function on a non-commercial and impartial manner.

  1. In order to ensure high standards, the provision that the Chairman must be selected from amongst the members should be restored.

3.0 Regulatory Commission (RCs)

  1. RCs should be professional bodies. No person should be made Chairman or Member of the RC unless her/she has been associated with the electrical power industry for a minimum period of 15 years.(Civil servants must only be permitted only if their experience in industry related postings is more than 10 years)

  2. Appointments to RCs should be transparent and notified in public in order to invite objections to the appointment of a person. The selection committee report should be tabled in the legislature.

  3. The expenditure of the RCs should be a charge on the Budget.

  4. The term “public interest” should be clearly and specifically defined in its application with regard to the jurisdiction and decisions of the RCs and the State Governments. In case of a dispute between the RC and the State Governments opinion should be sought from CEA/appellant tribunal/CERC.

  5. RCs should have the obligation to review all PPAs entered into before their coming into force and regulate them in order to enable least cost supply to the consumer.

  6. Responsibilities, obligations and powers of the RCs should be clearly defined.

  7. National Guidelines should be issued by CERC so that there is some form of uniformity in the decisions of the SERCs.

4.0 Generation

  1. “Captive Generation” must be defined more precisely so as to prelude large industrial units from making a back door entry into generation and trading without assuming responsibility for rural electrification that shall remain in the domain of the SEBs. The captive generators should be regulated and should pay surcharge to compensate the SEBs for their obligation for universal service provision.

  1. Hydro power should not be privatized (A hydro power site is a gift of nature and is finite, privatizing should not be allowed of this finite resource)

  1. There has to be social control on the techno-economics of power plants. Choice of fuel and cost of the power plant and consequent cost of generation must be regulated.

5.0 Open Access and Trading

  1. “open access” is meaningless in a situation of supply shortages and shortfall in transmission capacity. Therefore, it is neither desirable nor feasible to have unfettered open access.

  1. Provisions for 2nd licencee for distribution should be removed.

  1. Universal service obligation is directly hindered by unfettered open access since it tends to segregate the profitable and the loss making segments of the supply industry and privatise only the former.

  1. Trading should be restricted only to the public owned agencies since there is a grave danger of large speculative profits if there is inadequate regulation leading. Under the present conditions of shortages it is not possible to have on line market regulation, consequently there will be cherry picking and domestic and agricultural consumers will be the causality.

Thanking you,

Yours faithfully,

Akhil Bharatiya Vidyut Mazdoor Sangh
All India Federation of Electricity Employees
All India Federation of Power Diploma Engineers
All India Power Engineers Federation
National Working Group on Power Sector
Electricity Employees Federation of India

 

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