Powering change: Open access must for atmanirbharta vision’s fruition

October 22, 2020 7:00 AM

Complete implementation of open access by removing tariff and non-tariff barriers to this, along with tariff reforms, could free up Rs 80,000 crore for industry to reinvest

The cost of supply at higher voltage levels is substantially lower than that for consumers connected at lower voltages.

By SL Rao

The advent of ‘competition’ in India brought a paradigm change in our lives as well as enormous benefits to the industry, consumer choice and welfare, and the economy at large. In a competitive environment, businesses are pushed to strive for their absolute best and achieve new goals that they otherwise would never have. Also, in an endeavour to stay ahead in the game, businesses attempt to offer innovative products and services, leading to an evolved marketplace. In this bargain, consumers get the best deal in terms of choice, price and quality. Therefore, competition offers a win-win paradigm for customer, business, market development as well as the economy. Indeed, a marketplace with fair and healthy competition also acts as a self-regulating mechanism.
Competition and its benefits

In 1991, liberalisation of the country’s economic policies was effected with the goal of making the economy more market- & service-oriented by expanding the role of private and foreign investments. Specific reforms included competition, deregulating markets, reducing import tariffs and reducing taxes to open up the economy. Since then, as a nation, we have been in the pursuit of competition over the last three decades. It has taken years to shift the focus from the cost- and negotiation-based models to competitive models across the economic landscape. In 2003, the Competition Commission of India (CCI) was set up as a statutory body to ensure that all citizens have access to the broadest range of goods and services at the most competitive prices in a transparent manner. Competition in industries such as telecommunications, retail, travel, e-commerce, aviation, etc, has been a game changer in introducing a wide variety of choices and ensuring quality delivery of services. Therefore, free and fair competition in the marketplace must be nurtured.

Power sector: A classic case of how not to let competition work
Introduction of competition has been one of the main aims of reforms in the electricity sector in India. One of the most important steps taken towards achieving this was the introduction of ‘open access’ in the Electricity Act, 2003. It was introduced with the aim of promoting competition in retail sale of power by allowing large consumers (power consumption above 1,000 kW) to source power from a supplier of their choice. Open access allows consumers non-discriminatory access to any transmission and distribution network for obtaining electricity from the source of their choice and not necessarily from the local power distribution licensee. The idea behind open access was to infuse competition in the power sector dominated by state-controlled distribution utilities and allow large industrial consumers to choose their service provider and the price. After 16 years of introduction, a negligible 1% of overall electricity consumed in the country is procured through open access. Power exchanges are servicing about 4,500 industrial and commercial consumers who are availing of partial open access. The potential, predictably, remains much higher.

Open access has not been successful largely due to the constraints created by the incumbent utilities in the form of tariff and non-tariff barriers. Tariff barriers are evident as cross-subsidy surcharge and additional surcharge, while non-tariff barriers could be restrictive eligibility conditions, delay in grant of standing clearance, approvals, etc; together, these barriers jeopardise the commercial viability of open access, and thereby hampering competition in supply of electricity. Open access charges vary substantially across states due to differences in tariff structures and lack of any standardised prescription on these charges.

Open access: A key imperative to India’s economic success
Struck by Covid-19, with a severe impact on industry and economic growth, India envisions promoting manufacturing and turning into a self-reliant and sustainable economy. The Make in India initiative, which was announced five years ago in September 2014 and covered 25 sectors of the economy, has achieved practically nothing in these five years. A few days ago, the department for promotion of industry and internal trade (DPIIT) again identified a list of 24 key sectors that are critical to boosting manufacturing and self-reliance. The government has been endeavouring to develop India as a global manufacturing hub and raise the share of manufacturing in GDP to 25% by 2025, from its current level of 17%; but success has been evasive as key critical pieces remain in jeopardy and unaddressed.

Electricity, as we all know, is a key input to manufacturing and also a key cost-contributor. To succeed in its ambitions, India must ensure quality and affordable power supply to manufacturing at a cost that is benchmarked to the cost of electricity in developed economies as a prerequisite. At the offence of repeating, it is strongly felt that unless competition and open access become a success, larger plans such as Make in India or becoming a self-reliant economy might never see light of the day. Ensuring competition and open access as ‘articles of faith’ and addressing the challenges that prevent competition must be integral to the government’s vision to building India as a manufacturing hub. Hence, the government must seriously consider radical reforms in the power sector to bring about transformative and paradigm changes that could then enable India to become a competitive manufacturing hub.

According to rough estimates by a top consulting firm, mere removal of non-tariff barriers in open access alone can result in economic savings of Rs 20,000 crore per annum. Non-tariff barriers, combined with limited tariff reforms—such as limiting cross-subsidy surcharge to 20%, removal of additional surcharge and voltage-wise wheeling charges—have the potential of increasing savings up to Rs 40,000 crore per annum. With complete removal of cross-subsidy surcharge, economic savings amounting to Rs 80,000 crore can be made by energy-intensive industrial consumers and the manufacturing sector. The potential savings of Rs 80,000 crore, if reinvested in manufacturing, could lead to a substantial increase in GDP and could potentially generate millions of additional direct and indirect jobs.

Thus, a competitive power sector where the consumer is at the centre and is empowered as well as enabled to make the choice of supplier, as well as the price of electricity, is imperative to India’s economic success. Over the last 16 years, since the introduction of competition through open access, state governments and distribution utilities have resorted to distorting the competition with regulators acting in collusion and playing as an extended arm of the governments and utilities. It is time for the regulator to focus on regulating with a light-handed non-invasive approach and ensuring a transparent, fair and competitive landscape to all the entities in the best interest and welfare of consumers as well the economy at large.

(The author is member, Advisory Board, Competition Commission of India, and former chairperson, Central Electricity Regulatory Commission)

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