Draft Electricity (Amendment) Bill 2020: Proposals brighten outlook for sector

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May 4, 2020 8:02 AM

While the Draft Bill which seeks to increase private participation and address key issues has been welcomed by industry, more clarity is needed on some of its provisions.

draft electricity amendment bill 2020, ministry of power, power sector india, india electricity sectorAmong the other major changes proposed are provisions for removal of regulatory assets.

The Draft Electricity (Amendment) Bill 2020, unveiled last month by the Ministry of Power, has been welcomed by power distribution companies even as they await more clarity on the implementation of some of its provisions. Experts hold that by sidestepping contentious issues and focussing on critical concerns impacting the sector, the government has helped the prospects of the Bill being passed by Parliament soon.

This is important because two draft versions of amendments to the Electricity Act of 2003 floated by the Union power ministry in 2014 and 2018 failed to become law. The amendments have been framed keeping in mind the “few critical issues which have weakened commercial and investment activities in the electricity sector and need to be addressed immediately to ensure sustainable growth of the country”, the government said while unveiling the proposals.

“These amendments were essential since the electricity sector has been evolving with increasing non-government investments and structural changes throughout the value chain,” ICICI Securities has said in a recent note.

Experts agree that ‘doability’ has guided the scope of the amendments that the government has proposed, with reforms included in the earlier draft that evoked opposition having been dropped. To take one example, the provision for separation of ‘carriage and content’, which would have segregated the business of operating local transmission systems from the distribution of electricity — effectively allowing end-consumers to choose who they want to buy electricity from, similar to the way telecom and direct-to-home television operators work— is not present in the new amendment Bill.

“The clauses in the draft amendment Bill are far more relevant to the times we live in and the challenges thereof,” says Devtosh Chaturvedi, managing director, Feedback Energy Distribution Co (Fedco). His comment needs to be viewed in the context of the draft amendments pushing for greater participation of private players in the sector. The Bill has introduced the concept of a ‘distribution sub-licensee’, which would allow a state-run discom to authorise a ‘distribution sub-licensee’ to distribute electricity in an area, without the latter requiring a separate licence. It has also improvised on the existing concept of a ‘distribution franchisee’—whose functions are similar to those of a distribution sub-licensee—and mandated that such an entity would not need separate approval from state regulators.

While welcoming the initiative, Ganesh Srinivasan, CEO, Tata Power Delhi Distribution Ltd, tells FE, “we are waiting for more clarity on the revenue and compensation mechanism envisaged for sub-licensees and franchisees. Also, the distinction between the operational aspects of franchisees and sub-licensees is not very clear yet.”

Among the other major changes proposed are provisions for removal of regulatory assets (recoverable discom expenses which regulators acknowledge as pass-through costs, but which are not immediately built into tariffs), strengthening of payment security mechanisms and the incorporation of a separate renewable energy policy. To address payment-related disputes, the draft Bill proposes to establish an Electricity Contract Enforcement Authority. TPDDL’s Srinivasan holds that “the exact jurisdiction of the new Authority will have to be clearly defined or there is a risk of the already complex regulatory process becoming more tedious”.

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