New power sector amendments propose more government

The proposed amendments must focus more on how to deal with the prevalent losses than to bring in more complex enforcement mechanisms

he agency expects PFC’s tangible common equity/tangible managed asset (TCE ratio) to fall by about 90 basis points if added to its balance sheet.
he agency expects PFC’s tangible common equity/tangible managed asset (TCE ratio) to fall by about 90 basis points if added to its balance sheet.

By Amar Patnaik

The Ministry of Power (MoP) published draft amendments to the Electricity Act, 2003, on April 17. Power is in the Concurrent List and administered both by the central and state governments. In the draft amendment Bill 2020, MoP, inter alia, proposed setting up of Electricity Contract Enforcement Authority (ECEA), which will have jurisdiction to adjudicate upon matters regarding specific performance of contracts even while retaining State Electricity Regulatory Commissions (SERCs) set up under the earlier Electricity Act, 2003. There are also several other changes proposed.

Questionable intent

Firstly, MoP has proposed certain amendments to Section 86(1)(f) of the 2003 Act to avoid any conflict with the newly incorporated Section 109A which talks about ECEA. The original Section 86(1)(f) of the 2003 Act entrusted the power of adjudication of disputes between the licensee and generating companies to state commissions, who could refer them to arbitration, if necessary. The Supreme Court, in GUVNL v Essar Power, had held that all disputes, and not merely those pertaining to matters referred to in clauses (a) to (e) and (g) to (k) in Section 86(1), between the licensee and generating companies can be resolved by state commissions or an arbitrator appointed by it. Post amendment, this position will get altered and the powers of state commissions in dispute resolution will be enjoyed by ECEA.

Secondly, the amendment proposes to make it mandatory for ERCs to reduce cross-subsidy in the manner as will be provided in the tariff policy to be announced by the Centre from time to time (as per Section 3 of the parent legislation), by withdrawing this power from SERCs who currently enjoy this power under Section 42 of the parent Act. It was up to the discretion of SERCs to order removal of such cross-subsidies. Post amendment, this power of state governments or SERCs will be scrapped. The potential consequences of such an arrangement could be problematic as tariff rates suggested by the Centre might not address state-specific challenges.
Therefore, MoP has to clearly specify the intention behind the proposed amendment and how it would succeed in achieving the objective of continuing reforms in this sector.

More government

There is also the question of the need for creating another authority when there is already ERC. Several other sectors such as telecom, civil aviation, etc, which have their own regulatory bodies, do not have such a dual authority structure. The regulators also perform the function of enforcement in these cases. The Association of Power Producers (representative body of private power generators) has raised apprehension that “we may waste great effort and time on fight for jurisdictional space between ECEA and ERCs. For instance, on the multi-state PPAs, it took three years to get clarity from the Supreme Court. There should be a clear demarcation between the two authorities.”

Centre superseding states’ rights

The Centre plays a major role in ensuring monitoring, reporting and accounting of crucial parameters in this sector. Given the varying ground-level realities and governance frameworks in states, directing more powers to the Centre would mean subversion of states’ rights and possible impairment of their interests, thereby dealing a lethal blow to cooperative federalism. There will be no flexibility at the state level to alter the design and implementation to suit states’ needs. Thus, changes proposed to Section 42 and 86, being in direct encroachment of state powers, must be revisited.

Other lacunae

While discoms can engage franchisees or sub-distribution licensees to distribute electricity on their behalf in a particular area under new proposals, the amendment is silent on signing of the requisite PPA between them. Absence of a legal contractual backing denudes the entire arrangement from the trust that is so essential for successful and efficient implementation of this arrangement. Such a clause was prevalent in the 2018 draft amendment Bill and needs to be reincorporated in the new draft.


The 37th report of the Parliamentary Standing Committee on Energy noted that the power sector had Rs 6 lakh crore of bank loans as of June 2017. Of this, Rs 37,941 crore is NPAs, while restructured advances amounted to Rs 60,858 crore. It would have been worthwhile had the proposed amendments focused more on how to deal with the prevalent losses than to bring in more complex enforcement mechanisms so as to confuse consumers.

The author is a Rajya Sabha MP

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First published on: 05-05-2020 at 06:20 IST