CCI proposals to reduce power sector tariffs

Written by Ronojoy Banerjee | Ronojoy Banerjee | New Delhi | Updated: Aug 11 2010, 05:33am hrs
The competition regulator wants import tariffs on power equipment to be scrapped and Delhis two monopolistic power distribution companiesBSES and NDPLto feel the heat of competition. Further, it intends to divest municipal bodies of their exclusive right to develop urban slums and let private real estate players enter this area through a competitive bidding process.

In its wide-ranging recommendations set to be issued to the Planning Commission for the National Competition Policy (NCP), the Competition Commission of India (CCI) is understood to have stuck to the principle that policies that quarrel with the consumers right to a fair deal would need to go.

If CCIs proposals find their way to NCP, it would have the potential to change not only many extant government policies, but also the remit of many sectoral regulators. What makes the NCP less threatening to the regulators is, of course, the fact it lacks a statutory backing.

Under the Competition Act, CCI has powers to act against anti-competitive agreements and abuse of dominant position. It is also expected to soon get the powers to regulate mergers and acquisitions that can have an adverse effect on competition in the relevant geographical markets. The NCP will represent the overarching framework under which CCI would operate.

The commission had earlier cracked down on the National Capital Regions two power discomsAnil Dhirubhai Ambani Groups BSES and the NDPL (a joint venture of Tata Group and the Delhi government)for not allowing the consumer to instal the meter of his choice. The regulator said the two discoms with monopolistic presence in their respective areas were abusing their dominant position.

Through these recommendations, we are looking to cover a wide plethora of subjects. For instance, electricity is a major consumer concern and if only a handful of players get to supply it, then there could be a significant case for abuse of dominance...we hope to change that, a CCI official said on conditions of anonymity.

Scrapping the import tariff on power equipment would hit domestic major Bhel and benefit Chinese equipment suppliers, even as it would reduce the cost of power to the consumer.

Any import duty could increase the cost of power, hurting consumers, the CCI official said. The government is on the verge of imposing a 10% duty on ultra-mega power equipment. It is estimated that the duty would result in Rs 1-3 increase in the cost of power per unit. Conceptualised in 2006-07 by Planning Commission deputy chairman Montek Singh Ahluwalia, the NCP was to be drawn up on the lines of Industrial Policy and Electricity Policy. For this purpose, the Planning Commission had set up a working group to send in the recommendations.

Vinod Dhall who headed that committee told FE that the idea behind the NCP was to create a competitive environment. Even in providing basic services like education, health and banking, the government should follow the principles of competition, he said.

Other important suggestions that could form part of the NCP include providing fiscal incentives to infrastructure companies to develop areas in the countrys tribal belt and issuing vouchers to students who would then have the freedom to attend any government school of their choice. Though very ambitious in parts, the NCP is a step in the right direction, a corporate affairs ministry source said.

A Delhi-based competition lawyer, however, explained that CCIs recommendations could create friction with other designated regulators and the government may be required to demarcate the precise areas of jurisdiction. We have already seen the recent controversy over Ulips between Sebi and Irda...Lets hope that we dont see a repeat of that once CCIs suggestions are accepted, he said.

MM Sharma, head, competition law practice at corporate law firm Vaish Associates welcomed the CCI suggestions.

He said that the commission should refrain from entering into any area that deals with tariffs. For example, the CCI should not get into the affairs of the telecom sector. Even if they find a case for anti-competition (like tariff fixation by operators) let TRAI deal with it, he said.

Sharma added that once the CCI is empowered to look into mergers and acquisitions after the notification of sections 5 and 6 of the Competition Act, 2002, the CCI should not tinker with Sebis listing agreement as it could create a lot of unnecessary regulatory problems.

In its short tenure, the CCI has found itself in the middle of several controversies. In 2009 following an investigation order by CCI into the pre-payment penalty charged by banks for foreclosing loans, the RBI had reacted sharply. Similarly, CCIs M&A regulations would potentially be in conflict with telecom regulator TRAIs norms in this regard.