Electricity

Respected Chief Minister,

At the recent Niti Ayog meeting, the Prime Minister (PM) is reported to have said that “India’s federal structure and cooperative federalism emerged as a model for the world during Covid crisis” (https://www.hindustantimes.com/india-news/indias-federal-structure-became-role-model-covid-19-pm-modi-niti-aayog-meeting-101659873302169.html).

While the sentiment underlying the statement is commendable, it is important that it is translated into tangible action in all respects.

In the past, I had addressed you through a series of letters about the areas in which the Centre took unilateral decisions without consulting the States, despite the fact that such decisions had the effect of impinging on the States’ economy and their governance, and the necessity that the States should come together on a common platform to take up such matters collectively, so as to persuade the Centre to respect the lakshman rekha of federalism.

You are aware of how the Centre, without consulting the major stakeholders, namely, the States and the farming community, had rushed into enacting three contentious farm legislations and proposed a Bill to amend the Electricity Act of 2003, which would have hurt the farmers’ interests, as also the finances of the State power utilities and the interests of the electricity consumers. The Centre had to revoke those laws eventually, when the farmers across several States protested vehemently. At that time, the Centre had assured the States and the farmers that it would hold prior consultations with them before acting on those legislative measures in the future.

In my last letter dated 23-7-2022 addressed to you (thttps://countercurrents.org/2022/07/letter-to-the-state-chief-ministers-come-together-on-electricity-and-msp/), I expressed my apprehension that the Centre could renege on its assurance to the States and re-introduce the electricity Bill in the ensuing monsoon session of the Parliament, in which case, some of the regressive provisions of that Bill would become a reality, including the entry of profiteering private companies in remunerative distribution segments, mandatory absorption of expensive renewable energy, dis-continuance of cross-subsidisation etc., imposing heavy costs on the State utilities, resulting in higher electricity tariffs, which in turn would hurt the interests of the consumers, especially the farmers, the small business enterprises and the low-income households.

As expected, the Centre has since tabled the Bill to amend the Electricity Act, 2003, without consulting the States, the farmers associations, the other consumer groups, the utility employees and so on. Surprisingly, the Centre has also come up with a second Bill, proposing amendments to the Electricity Conservation Act of 2001, which also incorporates several regressive provisions that impose a heavy cost burden on the State power utilities. Apparently, the provocation for this is the commitment that the PM had given at the 26th UN Climate Change Conference of the Parties at Glasgow in October-November, 2021 (COP26), which have forced the government to mandate overly ambitious targets to be achieved by India for transiting from coal-based electricity to renewables, mostly solar photo-electric (PV) energy.

So far, India’s efforts in promoting solar PV electricity have their focus on large centralised solar generation plants, predominantly owned and controlled by private corporate entities, based on long-term Power Purchase Agreements (PPAs). Such plants operate at low capacity utilisation levels as they depend critically on solar radiation available on cloud-free days. They appropriate large tracts of land. Transmission of electricity from the centralised solar plants to the consumers involves significant technical losses.

While the unit costs of PV electricity have been on decline due to technological improvements, the long-term PPAs with the solar plant promoters do not permit such improvements to be factored in and the corresponding tariff benefit passed on to the consumers. While several States had made attempts to renegotiate the PPAs for the benefit of the consumers, the Bill that amends the 2003 Electricity Act has a provision to tie the hands of the States in that respect, as if to benefit the private promoters of the solar plants.

It is doubtful as to how long the present trend of declining unit PV costs would continue, as there is a near monopoly in the hands of a few overseas companies on the basic raw materials used in solar PV panels and one cannot rule out the possibility of the unit costs showing an upward trend in the near future. Such monopolies could also create uncertainties in the supply line for solar PV manufacture.

Also, large scale dependence of the electricity supply system on solar energy, as is being planned by the Centre, will pose problems for grid stability, as being witnessed in Australia and a few other countries. It is coal-based electricity generation in India that has so far facilitated grid stability.

The Bill amending the 2003 Act has provisions that mandate compulsory absorption of solar and other renewable forms of energy by the State utilities, irrespective of the costs, which implies that a State power utility would be precluded from drawing less expensive forms of energy, merely to comply with such an externally imposed mandate, to the cost of their own finances and to the detriment of the consumers’ interests.

As if this is not enough trouble for the State utilities, the Bill also imposes constraints on them, in terms of payment security verification by the load despatch centres, coming in the way of the merit-order despatch system administered by the latter, though the financial problems faced by the State power utilities are partly contributed by Central agencies and the Centre seems to ignore that fact conveniently.

For example, during last year and more recently during the current year, when acute coal shortages arose as a result of Centre’s mismanagement of domestic coal supplies, the Centre had conveniently passed on the blame to the States, forcing them to import coal at exorbitant prices, a measure seen by many as a ploy to grant undue benefits to domestic private business houses who supply coal from their overseas mines. The Centre is yet to compensate the States for the additional costs on imports.

The second Bill, which seeks to amend the Electricity Conservation Act of 2001, to some extent, reinforces the mandatory requirement that the State power utilities should absorb electricity supplied from renewable sources but it also lays down a tight time scale for escalating the minimum threshold levels for such mandatory drawal of renewable energy, presumably in line with the goals committed by the PM at Glasgow. What should cause concern to the States is that the Centre should impose such a regressive mandate without caring to analyse the cost implications of it and how it would cripple the finances of the already debt-burdened State utilities. The resultant tariff escalation would hurt the electricity consumers in the States and would also have adverse implications for the economy of the States.

It is not the Centre, but the States that stand accountable to the consumers in their respective areas.

There are other provisions of the two electricity Bills which are equally regressive and the States may get them examined in detail. Some of us could provide inputs, if needed.

Had the Centre held consultations with the States well in advance of the Glasgow conference on the technological and financial implications of the use of renewable energy, the mechanisms that should exist in place for the State utilities and the consumers to be compensated for the additional costs, if any, and the ways and means of the Centre helping the States in making a smooth transition to renewable energy, the Centre would have been able to evolve a domestic consensus on the basis of which it could have made implementable commitments at the UN COP26.

After all, the term “cooperative federalism” referred by the PM at the recent Niti Ayog meeting represents such consensus building in consultation with the States.

In principle, it is unacceptable that, in a federal set up like ours, the Centre should unilaterally take decisions that weaken the hands of the States in the matter of governance, impose schemes that may not fit into the State’s own development priorities and cast statutory obligations that impose costs on the States. The two Bills now tabled in the Parliament, one to amend the 2003 Electricity Act and the second to amend the 2001 Electricity Conservation Act amount to such an imposition. Had the Centre been more sensitive to the spirit of federalism, it would have prepared analytical papers on the technical and the financial implications of the proposed legislative measures and circulated them in advance to the States for eliciting their views.

Against the above background, I would once again appeal to you to bring this up collectively on behalf of a “Federal Front” to persuade the Centre not to overstep the lakshman rekha of federalism and hold meaningful prior consultations with the States and the other stakeholders, before proceeding further on these two Bills.

In the federal scheme of governance provided in the Constitution, the subjects to be dealt with by the Centre exclusively, those by the States exclusively and those concurrently by the Centre and the States stand well defined. In principle, the States which are nearer the people in terms of governance and, therefore, better placed to understand their needs, should have a greater say in decision making in matters that concern the people. In the recent times, in the name of several Central and Centrally Sponsored Schemes (CSSs), the Centre has been intruding into the domain of the States and resorting to direct transfer of cash assistance to the beneficiaries through the banking system, bypassing the States and the local bodies. During the last few years, there has also been a shift away from capacity building assistance under the CSSs towards direct cash assistance, which tends to push the beneficiaries into dependence on Centre’s munificince rather than being empowered to be self-reliant. These are disturbing trends that need to be discouraged.

I earnestly hope that you will take up such issues collectively in the coming days.

Regards,

Yours sincerely,

E A S Sarma

Visakhapatnam

Former Secretary to Government of India

 


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