Discom privatisation: Lessons from Chandigarh and Dadra & Nagar Haveli

March 10, 2021 4:15 AM

Building a political consensus is desirable. But mobilising legal resources to deal with hurdles that could be created by way of PILs is equally important

The Supreme Court being the apex court of our country has given judicial recognition to the twin pillars of the Electricity Act, 2003, viz competition and public interest.The Supreme Court being the apex court of our country has given judicial recognition to the twin pillars of the Electricity Act, 2003, viz competition and public interest.

By Pramod Deo & Arijit Maitra
Union power minister RK Singh told FE (April 8) that he intended to introduce a Bill to amend the Electricity Act 2003 (EA 2003) in the ongoing session of Parliament to enable operations of multiple distribution companies in any area and end the current state government-owned monopoly regime in the power distribution business. The central government has made several attempts in the last six years to amend the law by drafting amendment bills 2014, 2018, 2020 and the current draft of 2021, which seeks to facilitate the entry of private capital into the distribution business.

As a precursor to the grand plan of introducing private players into the distribution business through the proposed amendments, the central government decided last year to invite private players to manage the supply of power in the Union Territory of Chandigarh and later in Dadra and Nagar Haveli and Daman and Diu.

The preamble to the 2003 Act, among other things, states that the government is to take measures conducive to the development of the electricity industry and to promote competition while protecting the interests of the consumers. Thus, EA 2003 stops short of explicitly mentioning privatisation of the sector but implies it. Although the Act was reviewed in 2005, when UPA succeeded NDA, the preamble was left untouched.

The overarching legal principle is that the Courts must give effect to the purport and object of the Act.
The Supreme Court being the apex court of our country has given judicial recognition to the twin pillars of the Electricity Act, 2003, viz competition and public interest.

Following the purport and object of the 2003 Act, the ministry of power took steps in 2020 to privatise the electricity wing of the UT administration by selling 100% stake of the central government. Later that year, a tender process was initiated by the administrator of UT of Dadra and Nagar Haveli to select the bidder for the purchase of 51% share in the distribution company. Dadra and Nagar Power Distribution Corporation Ltd was created from the erstwhile electricity department of Dadra and Nagar Haveli and became operational in 2013.

The Bombay High Court recently suspended the tender process in Dadra and Nagar Haveli based on a PIL filed by an individual who appears not to have any institutional affiliations. The High Court was prima facie convinced that the process of privatisation was contrary to section 131 of the 2003 Act, which deals with the reorganisation of state electricity boards. In contrast, the notice of inviting bids was for privatising the electricity department in the Union Territory, not a state electricity board.

The other argument that found favour with the court is that the electricity department was not incurring any loss, and yet there was an attempt to transfer majority shares to private enterprise. The High Court stated that in the absence of any provision in the Act justifying the action of the central government, it was prima facie satisfied that not only the PIL petition had set up an arguable case on merits but had also set up a strong case for grant of interim relief.

A few months ago, the Punjab & Haryana High Court had stayed the privatisation of Chandigarh Electricity Distribution Co, admitting the UT Powermen Union’s (UTPU) plea. In that case, too, the absence of finalising the transfer scheme under section 131 was canvassed to show the process of inviting bids was flawed. The High Court stated that the employment scheme of the entity, in general, was required to be deliberated. However, when the process for privatising the Dadra utility was initiated, no lesson was learnt from the PIL in the Chandigarh Haryana High Court.

We find the argument that the electricity departments in the Union Territories, not being state electricity boards, could not be privatised under section 131 of the 2003 Act rather specious. The state governments constituted the state electricity boards under the Electricity Supply Act, 1948. At the same time, the electricity departments in the Union Territories have either continued to function as they were or have been corporatised. Just like the government could privatise any public sector undertaking, similarly, the government could privatise even these distribution utilities in the Union Territories under the control of the central government.

Thus, the argument that the distribution utilities in the Union Territories not being state electricity boards and hence could not be privatised is fundamentally flawed. Insofar as the employment scheme, in general, and reservation policy for the backward castes, in particular, is concerned, the scheme of the Act also provides for the protection, continuance of the same terms and conditions and priority for payment of retirement benefits.

Our review of the privatisation exercise of two electricity supply entities in the Union Territories has important lessons for the future all-India exercise that the ministry of power is contemplating. The planning and implementation of privatisation require a great deal of planning and effective coordination. At the outset, the possibilities of challenges to privatisation should be carefully considered. Building a political consensus is, no doubt, desirable. But mobilising legal resources to deal with the bottlenecks and hurdles that could be created by way of public interest litigation is equally important.

Deo is former chairman, CERC, and Maitra is legal expert (regulatory matters). Views are personal

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