Amendments in Electricity Act will send wrong signals to investors: FinMin

New Delhi, Aug 4 | Updated: Aug 5 2005, 06:30am hrs
The finance ministry has suggested that power sector regulators should decide a year in advance on the annual programme for reduction and rationalisation of cross subsidies.

Even while agreeing with some of the amendments proposed by the power ministry in various sections of the Electricity Act on the issue of elimination of cross-subisdies, the finance ministry says these amendments will send wrong signals to the investors that cross-subsidies and surcharges will continue indefinitely.

This ministry also suggests that the extent of cross subsidies should be kept within such fiduciary limits, as may be prescribed, the finance ministry has said in a hard hitting letter to the power minister PM Sayeed.

It adds the proposed amendments in the Electricity Act by the power ministry would tantamount to robbing the regulators of their discretionary powers. It has also charged the power ministry of suggesting amendments that are regressive in nature and may be detrimental to investments in the Electricity sector.

Its shockING, says north block
WRONG SIGNALS: Finance ministry says amendments will send signal to investors that cross-subsidies and surcharges will continue indefinitely
TURF MATTERS: Amendments by the power ministry would tantamount to robbing the regulators of their discretionary powers
TRIPPING ABROAD: Move would be construed as converting regulators into arm of govt. This could have implications in any global arbitration
WHO NEEDS IT Finmin letter says why tamper; there has been no case of major conflict between regulators and government that necessitates such amendments
The proposal to rob the regulators of their discretion could also be construed as converting the regulator completely into an arm of the government. This in turn could have implications in any international arbitration where the independence of the regulator is a major factor in determining whether any action is in the nature of expropriation by the state, said the letter. Further, the independence of the regulators is the cornerstone of electricity reform and our attempt to attract private investment into the electricity sector.

The proposed amendments, the ministry said, would mean the government would be in a position to regulate the sector through instructions. This is the position that prevailed in the past. Introduction of regulators was meant to insulate the sector from such interventions. The amendments are not conducive to a stable environment which would attract private investment, the letter added.

The finance ministry has in fact questioned the power ministry of its intentions behind suggesting such amendments. It is not apparent why the need for this amendment has arisen at all. Since 1998 a large number of state electricity acts have introduced provisions for an independent regulator. The Electricity Act was also enacted in 2003. There has been no case of major conflict between the regulators and the government that necessitates such amendments, it says in its letter.