The Centre likely to amend the 2003 Electricity Act

The Centre likely to table the Bill in the Parliament in the monsoon session to amend the 2003 Electricity Act – The need for the States to express their views


 Respected Chief Minister,

Kindly recall how the Centre, a few years ago, had unilaterally enacted the three farm laws, in addition to introducing a Bill to amend the 2003 electricity legislation, without taking the States and the farmers’ association into confidence. Since both the farm laws and the electricity Bill would adversely affect the farmers’ interests, the latter launched an intense agitation across the country. During the later part of 2021, sensing that the agitation was gaining momentum and it could adversely affect its political interests in the ensuing Assembly elections in Punjab and UP, the political leadership at the Centre found it expedient to repeal the farm laws straightaway and put on hold the electricity Bill. In order to appease the farmers, the government assured them that neither the farm laws nor the electricity bill would be revived without prior consultation with all the stakeholders including the States, the farmers associations etc.

According to recent reports (, the government would table the electricity Bill in the Parliament during the coming monsoon session. If this is so, the government would be reneging on its earlier assurance that the Bill would not be introduced in the Parliament without consultation with the States and the other stakeholders. This is yet another example of how the Centre would be ignoring the States and crossing the lakshman rekha of federalism.

It is important that the States take note of the essential components of the electricity Bill and their far reaching implications.

Briefly, the Bill seeks to introduce an “open access” facility which would expedite large scale privatisation of the existing electricity distribution networks by permitting the private licensees to pick and choose the remunerative loads within their distribution segments and provide them electricity by making use of the State utilities’ power infrastructure. The Bill would further replace the existing time-tested system of tariff cross-subsidisation, which benefits agriculture, the weaker sections and the small businesses, with a system of “direct benefit transfer” by introducing “cost reflective tariffs”. Also, the Bill would impose obligations with associated penalties on the State utilities to absorb a certain prescribed proportion of electricity supplied from renewable sources, especially the large centralised solar plants run by corporate business houses, impose a “payment security mechanism” on electricity flows to the State utilities from the load despatch centres, which implies that no electricity would be supplied to the State utilities unless fully paid for, and establish an “Electricity Contract Enforcement Authority (ECEA)” under the control of the Centre to prevent the States from re-negotiating the existing Power Purchase Agreements (PPAs)” with the private generating companies. In addition, the Bill offers no guarantee for the electricity employees of their continued employment with the private distribution franchisees.

Before unilaterally introducing the electricity Bill in the Parliament, one would have expected the Union Ministry of Power to be responsible enough to explain the reasons for the proposed changes and their implications for the finances of the States and their utilities, their likely impact on agriculture, small businesses and their implications for the electricity employees and circulated a comprehensive paper for eliciting the States’ views. The States.have not been provided any such analysis beforehand.

The adverse implications of the Bill for the States and the electricity consumers are far reaching.

Till date, the track record of privatised distribution networks has been far from satisfactory. In the past, in more than ten cities in different States, the distribution franchises had to be revoked due to their unsatisfactory performance. Apparently, the Ministry of Power has conveniently chosen to ignore this.

The “open access” system coupled with the freedom given to private franchisees to cherry-pick remunerative loada, along with the “cost reflective tariffs” will spell a death knell for the State DISCOMs, as the existing arrangement of cross-subsidisation works only when the higher tariffs levied on the remunerative loads help the DISCOMs to subsidise the farmers and the other vulnerable groups of consumers. Once private franchisees deprive the DISCOMs of their revenue earning loads, the finances of the DISCOMs would crumble, since they cannot abruptly withdraw subsidies nor can the States raise additional resources overnight to be able to provide the subsidies through the “direct benefit transfere” through the banks. This will adversely impact agriculture and the interests of the vulnerable sections. Even from the point of view of governance, this arrangement would be counter-productive.

Neither the private franchisees have the expertise/ experience in operating distribution networks nor would they bring in any significant amounts of additional funds for managing them. They would raise loans from the PSU banks and saddle them with liabilities. Experience so far has shown that the private franchisees rarely invest on the distribution networks to reduce the line losses and improve the quality of electricity supply.

The “payment security mechanism” introduced in the Bill hinders the smooth flow of electricity for the State power utilities from the load despatch centres, interfering with the merit order despatch of electricity for the State utilities. This would pose a further burden on the utilities.

The idea of the ECEAs deprives the States of their freedom to renegotiate the existing PPAs with the private generating companies. In the past, PPAs were signed with a “deemed generation” clause that required the State utilities to compensate the private power generating companies for 100% of the capital costs, irrespective of whether the latter had supplied electricity or not. The State utilities were under duress to sign such regressive PPAs for ensuring the profitability of private power. This meant a heavy cost burden on the utilities and the consumers. Now that the private power producers are free to trade electricity across the borders, some States thought it fit to renegotiate the PPAs to bring corresponding benefits to the consumers.. Similarly, many States had signed long-term PPAs in the past with the promoters of large solar power plants at a time when they were not fully aware of the potential improvements in solar PV technology which could bring continuing reductions in the unit cost of solar electricity. Renegotiating such contracts became necessary from the consumers’ point of view. The new Bill overrides the renegotiating ability of the State utilities and entrusts contract enforcement to a Central agency. In effect, it benefits the private producers more than the consumers.

In the context of the current coal crisis sweeping across the States, the Centre, instead of owning its own responsibility for mismanaging coal supplies, has forced the State utilities to buy imported coal at exorbitant prices. In its anxiety to deal with the crisis, the same Power Ministry that found fault with the States for renegotiating the PPAs with the private power producers has since changed its stand overnight and asked them to re-negotiate the PPAs to accommodate the astronomically high import cost of coal in order to safeguard the profitability of the private power producers at the cost of the consumers. This shows how the Centre has had no hesitation in adopting double standards to suit the interests of the private companies.

The Bill introduces an element of uncertainty in the service conditions of the electricity employees, when private licensees enter the scene.

Against this background, it is abundantly clear that the new electricity Bill would weaken the finances of the State power utilities, cripple the States’ finances and impose a heavy cost burden on the smaller consumers, especially the farmers, all to benefit corporate business houses. The State cannot afford to ignore the far reaching implications of the Bill. Considering that electricity is an item included in the Concurrent List under the Constitution and considering that the States are more familiar than the Centre with the ground realities of electricity development in the country and are more directly answerable to the consumers, it is imperative that the States discuss and debate these concerns in depth and dissuade the Centre from taking any unilateral and precipitate action on the electricity Bill.

In the past, I had suggested through a series of letters addressed to the State Chief Ministers that it is time for them to join hands as a part of a federal front to articulate their concerns to the Centre in one voice. My letters can be accessed at the following weblinks.

I sincerely hope that you will get this examined on priority and ensure that the States’ considered views are communicated to the Centre before it is too late.


Yours sincerely,

E A S Sarma

Former Secretary to Govt of India




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