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Will power reforms spell the beginning of a new era?

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With India aiming for 24x7 power for all, it needs to address the gaps and turn around the power distribution sector in both financial and operational performance. The proposed Electricity Amendment Bill is aimed at reforming the sector. Will privatization help? Mint explores:

With India aiming for 24x7 power for all, it needs to address the gaps and turn around the power distribution sector in both financial and operational performance. The proposed Electricity Amendment Bill is aimed at reforming the sector. Will privatization help? Mint explores:

What was the aim of Electricity Act 2003?

It sought to consolidate laws relating to generation, transmiss-ion, distribution, trading and use of electricity. It was aimed at adopting measures favourable to the development of the industry, encouraging competition, protecting consumer interests and rationalizing tariffs. In 2014, the Centre proposed an amendment bill to segregate the distribution network and electricity supply business and introduce supply licensees in the market, thereby increasing competition and providing a choice to consumers. The bill was subsequently referred to the parliamentary standing committee on energy.

What is the rationale behind the new bill?

In the 2021-22 Budget, a key proposal was to end the monopoly of state-run discoms and the delicensing of power distribution. Simply put, consumers would have the option of choosing the service provider and switch their power supplier as in the telecom industry. Cities such as Ahmedabad, New Delhi and Mumbai are home to 10% of Indians served by private discoms, but without the option of choosing the supplier. For the rest of the country, power supply is still controlled by state-run discoms. The amendment seeks to enable the entry of private companies in distribution, thereby bringing in the benefits of competition.

Pain point
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Pain point

How will the new system work under privatization?

The Electricity Regulatory Authority decides the tariffs, keeping the interests of both users and suppliers in mind. Private players would deliver power more effici-ently by plugging leakages and ensuring tech upgrades. When Delhi’s power distri-bution was privatized, aggregate technical and commercial (AT&C) losses declined from 55% in 2002 to 9% in 2019.

Why do some states oppose the move?

They are concerned that private players may focus on industrial and commercial users at the expense of residential and agricultural consumers. It could lead to tariffs going up, especially for farmers. It might also result in centralization of power, which as of now is under the concurrent list. However, the power distribution sector has been a weak link with AT&C losses hovering around 22% and almost all state electricity boards being bankrupt. Thus, competition will only bring about efficiency and help reduce losses.

What are the potential economic benefits?

It will make the sector financially viable. Taxpayers’ money will be better utilized for welfare and development instead of bankrolling electricity boards. Bringing in efficiency and tech would result in minimum power cuts and improved power supply. 24x7 power supply would facilitate enhanced economic activity in the agricultural and manufacturing sectors. It would lead to a better business environment and attract domestic and foreign investors.

Jagadish Shettigar and Pooja Misra are faculty members at BIMTECH.

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