Unilateral imposition of obligations imposed by the Centre on State Power Utilities- The Centre to compensate the States

 Letter to the Chief Ministers

Respected Chief Minister

Kindly refer to my letter dated 8-8-2022 (https://countercurrents.org/2022/08/two-electricity-bills-tabled-in-the-parliament-without-consulting-the-states-letter-to-the-chief-ministers-of-states/) in which I cited the unilateral manner in which the Centre had tabled two Bills in the Parliament, one introducing several regressive amendments to the Electricity Act, 2003 and another for amending the Energy Conservation Act, also imposing undue obligations on the State power utilities to absorb electricity generated from renewable resources, both impacting adversely on the finances of the States and their utilities.

Though the Centre had assured the farmers’ associations last year, when the latter were persuaded to call off their agitation against the three contentious farm laws and the Bill to amend the Electricity Act, 2003, that all the stakeholders including the States and the farmers’ associations would be taken into confidence, before the government takes related measures, no such consultation took place. Unfortunately, the Centre has reneged on the assurance by bringing back the electricity amendment Bill to the Parliament and, in addition, introducing yet another Bill to amend the Energy Conservation Act, both imposing undue obligations on the States.

During the last several months, the Ministry of Power has issued highly regressive diktats to the State utilities, some purported to be under Section 11 of the Electricity Act, and some by way of executive orders, which severely curtail the States’ freedom to exercise choice in buying electricity in a cost-effective manner, that undermines the consumers’ interests. It is doubtful whether the Ministry of Power can issue such orders under Section 11 of the Act to State generation companies.

In one recent diktat, the Ministry of Power, invoking its authority under the Electricity (Late Payment Surcharge and Related Matters) Rules, 2022, has excluded several States, including Tamil Nadu, Telangana, Jharkhand, Bihar, Rajasthan, Andhra Pradesh and Chhattisgarh, from buying electricity from the power exchanges, a step that will accentuate the problems of the State utilities, especially at a time when they are already reeling under the heavy cost burden of having to import coal, a situation forced on them entirely by the Centre’s mismanagement of domestic coal supplies for two successive years. While the latest Centre’s order refers to a few specific States, one cannot rule out similar orders being issued in respect of the other States also.

Though one cannot question the electricity suppliers for seeking timely settlement of dues by the utilities, the Centre should appreciate that the utilities’ problems are not entirely attributable to their own failures.Some of the utilities’ problems are attributable to the national obligations cast on them, for which the Centre needs to own its responsibility and appropriately compensate the State utilities.

It is a matter of serious concern that the Centre-State relations in the matter of electricity, which is an item that lies within the concurrent jurisdiction of the Centre and the States, should become a one-way house, with the Centre taking unilateral decisions without owning its own responsibility, at least partially, for the huge liabilities that the States are forced to bear, as a result of farm subsidies to maintain the country’s food security, electricity subsidies to millions of low-income, disadvantaged households, who stand deprived of their livelihoods as a result of the multiple waves of Covid and the unilateral lockdowns imposed by the Centre, and the huge burden imposed on the States as a result of imported coal. Many decisions taken by the Centre during the last few months on coal imports are such that they grant indirect benefits to domestic private companies that supply coal to the State utilities from their overseas coal mines and the private generating companies supplying electricity to the utilities, based on imported coal.

The State power utilities have played a pivotal role over the last seven decades in promoting electricity development across the country, extending access to electricity to consumers in the rural and the remote areas, providing affordable electricity to the farm sector, that has helped the country to be self-sufficient in food, ensuring electricity supplies at reasonable rates to small businesses and so on. All this would not have been possible without subsidised electricity to such groups of consumers and a tariff system that permitted cross-subsidisation across different consumer groups. The proposed amendments to the Electricity Act will dismantle the system of cross-subsidisation.

Legitimately, the Centre having a comparable stake and responsibility for electricity development, especially to the extent that it promotes food security and people’s welfare, ought to have shared a reasonable proportion of the subsidy burden. In the particular case of lift irrigation, in the absence of a cogent national policy on the conjunctive use surface and groundwater sources and the consequent lowering of groundwater tables, the electricity use for lift irrigation has increased significantly, compounding the problem of subsidies for agriculture, the corresponding burden falling on the State utilities. It is unfortunate that, instead of offering to share that burden, the Centre should place the blame on the State utilities. As if that burden is not enough, the Centre has been imposing additional costs on the State utilities by forcing them to import expensive coal, forcing them to absorb electricity from renewable sources, reducing the choices available to the States in the matter of opting for less expensive sources.

The latest diktat that some States would be precluded from accessing the power exchanges will further aggravate the State utilities’ financial problems. That such a diktat should be issued, without the Centre failing to compensate the States for the undue obligations cast on them, amounts to the Centre violating the spirit of federalism by taking one-sided decisions that adversely affect the States’ interests.

In particular, before the  Centre can prevent the States from drawing power from the exchanges, it should compensate them fully for the losses suffered on account of coal imports, bear a portion of the liability arising from welfare-related subsidies, a share in subsidies necessary for sustaining food security, and a share in subsidies which are necessary to sustain small businesses.

In recent times, there has been  an unhealthy proliferation of Centrally Sponsored Schemes (CSSs), which intrude into the legitimate domain of the States. Over the years, the character of the CSSs has also changed from focussing on capacity building to forcing the beneficiaries to become more and more dependent on State munificence and charity. Such a change in the design of the CSSs tends to dilute the role of the States. It is the States which are better aware of the problems of the people in their respective areas and are more directly accountable to them. Therefore, straight-jacket schemes designed at the national level will not capture the State-specific ground realities. Most of the CSSs, along with the related financial allocations, should therefore be transferred to the States unconditionally, so as to enable the latter to adapt them to suit their respective needs.

As I have time and again appealed to you, the States should come together on a common platform to put up a Federal Front, to be able to take up such issues collectively with the Centre and persuade the latter to apportion the liabilities in an equitable manner and not to take unilateral decisions to the detriment of the States’ interests.

I once again appeal to you to constitute a Federal Front to  be able to voice the States’ concerns to the Centre.


Yours sincerely,

E A S Sarma


Former Secretary to Govt of India


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