India's new Electricity Bill is a step in the right direction to ensure the country's power sector is a better place to invest and work in, according to I M Sahai

INDIA is one of the biggest ‘hydro’ countries in the world. Although it has an estimated 84GW potential (at 60% load factor) and another 10GW of small hydro potential, its installed hydro capacity is still only between 25-26GW. This, with a total installed generation capacity of about 100GW, gives a 25:75 ratio between hydro and non hydro sources. Experts feel that for balanced power development in the country, especially for sufficient peaking power, the ratio should be closer to 40:60 (as was the case in the 1960s and 1970s).

Achieving this will not be an easy task. Even raising hydro’s share by 10% would require an additional 10GW, costing about US$10-15B (with a matching investment in transmission and distribution). These funds are hard to come by out of government coffers. In fact, after the 1970s, construction of big, multi purpose hydro projects by federal or federally-aided utilities had slowed down due to a lack of resources.

Big hydro projects, which are currently under construction, have experienced their fair share of problems. Ecological concerns, opposition by environmental groups, difficulties in resettling project oustees and mobilising funds have all played a role. Such projects include Sardar Sarovar (1450MW) in Gujarat, Nathpa-Jhakri (1500MW) in Himachal Pradesh and Tehri Stage-I (1000MW) in Uttaranchal. Others under construction, like Srisailam-Left Bank (900MW) in Andhra Pradesh and Upper Indravati (600MW) in Orissa, have already taken a decade or more.

Indira Sagar (1000MW) in Madhya Pradesh and Purulia pumped storage plant (900MW) in West Bengal were previously to have been developed by state utilities, but have now been revived by bringing the federally-owned National Hydroelectric Power Corporation (NHPC) on board as a partner.

When India’s power sector was opened to private investment and participation in 1991 it was expected that there would be private interest in hydro. However, after the initial flurry when a number of memoranda of understandings (MoUs) were signed, only ten medium and large hydro projects were actually taken up for development by IPPs. Even after August 1998, when the Indian government announced a set of new measures, incentives and concessions, the situation did not improve. Developments have only occurred in small hydro in recent years, due to the initiative and active interest taken by some state governments like Himachal Pradesh and Punjab.

Electricity bill

To revive private investment in India’s power sector, the federal government undertook a major exercise last year to formulate a new electricity law. The final draft was put together after extensive consultation with various stakeholders lasting several months. Called the Electricity Bill 2001, it was introduced in the Indian Parliament in August 2001 for consideration and passage.

The Bill seeks to accomplish a number of objectives. It is a single, comprehensive legislation on electricity and seeks to replace three existing federal laws: the Indian Electricity Act, 1910; the Electricity (Supply) Act, 1948; and the Electricity Regulatory Commission Act, 1998. Thus an existing or a prospective stakeholder would, after the enactment of the Bill, only have to refer to one federal power statute

The Bill also includes provisions relating to the on-going sectoral reforms and restructuring, obviating the need for states to have their own power reform laws. At the same time, it nudges recalcitrant states to speed up such reforms in the light of provisions now being made in the federal law.

The Bill covers all sub-sectors of power — hydro and thermal generation, transmission, distribution. It lays down procedures for licensing (where still required), setting tariffs, power trading, retail supply and consumer protection. It specifies offences and prescribes penalties and deals with the constitution, functioning and powers of Electricity Regulatory Commissions (ERCs) at the federal and state levels.

Licensing hydro projects

To what extent will the new Bill assist in future hydro power development in India in order to attract private investment and speed up the process? In generation, the Bill begins by abolishing the requirement of all generators, except hydro, to obtain a licence – whether producing power for his own use, for sale to the state utility or to a third party. All hydro generation projects would still require a licence to be given by the government, federal or state (as the case may be). The division of authority among the latter would presumably be prescribed in due course through an executive order, based on the capital cost and/or proposed installed capacity of the project.

Even a small hydro project, irrespective of its size, will continue to require the approval of the state government. For hydro projects having a capital cost of more than a certain monetary limit, to be prescribed from time to time by the federal government, the project report would have to be submitted to the Central Electricity Authority (CEA) for concurrence. This provision already exists and is in operation. The CEA in arriving at its decision, would consult the plethora of state and federal agencies. Experience has shown this to be a time-consuming process. The Bill does not specify any time limits for CEA to complete its consultations.

In cases where a project is proposed on a river on which a multi-purpose project is already in operation, action would be taken in co-ordination with the utility operating the latter and the concerned state government.

The government’s concern about ensuring the optimum and co-ordinated exploitation of river basin potential can be understood. However, this could have been done without putting projects through the travails of licensing. As it is, the promoter of a hydro project has to obtain a number of statutory and non-statutory approvals in finalising his scheme.

Only in the case of an inter-state river is caution required. Inter-state disputes in India over the usage and sharing of river waters had been legion – even from the colonial times. Thus the Indian Constitution, adopted in 1950, has a rare clause providing for the creation of a judicial tribunal to settle such an inter-state river dispute.

Although matters have improved over the recent years, the project approval process for a hydro project is still quite tortuous, needing, as stated earlier, a number of prior approvals. Since the state power utility is still the major purchaser of power from IPP plants, even negotiations leading to a PPA are not without delay and complications. The new Bill is not likely to make any significant changes to the situation as it did not touch on this issue.

On the positive side the Bill has reiterated the reduction of the role of the CEA to that of advising government and ERCs, data-gathering, undertaking studies and doing sectoral planning.

Evacuation of power

Another positive feature of the Bill is that a generating company would have the option to supply power to any company licensed to undertake transmission, distribution or power-trading. It could even supply power directly to a consumer or class of consumers. This is a part of the dismantling of the monopoly of the State Electricity Boards (SEBs) which the Bill has carried forward as a part of the on-going sectoral reforms.

Following the federal policy of gradual privatisation of power transmission, the Bill allows new lines to be set up, and old lines taken over, by private companies wishing to enter transmission sub-sector either in itself, or along with generation/distribution. A hydro developer could thus own, maintain and operate his own lines, if he so desires.

However, like other transmission licensees, the operation of his line would be subject to grid control, monitoring and directions of a state or federal transmission utility (which would be government-owned). The licensee would also have to provide non-discriminatory, open access to any company or consumer wishing to use his line, so long as it pays the tariff determined by ERC. In case of an inter-state line, the license would be given and tariff set by the federal ERC, while for an intra-state line that would be done by the state ERC.

Trading and distribution

The age-old policy of licensing power distribution is to be continued, except that the latter would go more in the hands of private companies as the state governments and their utilities gradually move out of that field. The increased privatisation of distribution is expected to bring in greater operational economy, improvement in efficiency and retail service, and more investment in this key area.

The state ERC, apart from setting retail tariff from time to time, in an open and transparent manner, would also promulgate an Electricity Supply Code governing the terms of such supply. To safeguard the interests of the consumers, the ERC would also lay down standards of performance by a licensee, on pains of compensating the dissatisfied customer in case of default by the licensee.

Until recently, an adverse feature of power supply in India was the inability of state electricity boards (SEB) to pay promptly and in full for the power purchased from a generator – federal, state, or private. This was because the provisions of the existing law were perverted over the years by the state governments in fixing retail tariff on populist rather than commercial lines. The tariff was not revised by them in due time to account for increase in costs, certain favoured classes (domestic and rural customers) were subsidised via below-cost rates and yet, the state government did not recompense the SEB for that. With the creation of ERC, the role of State Government in crucial matters like licensing and tariff has been ended, except for ‘such directions in matters of policy involving public interest as the state government may give to it [ERC] in writing.’

A better place

The new Bill is a step in the right direction and, if faithfully implemented, would make India’s power sector a much better place to invest and work in. There are a few lacunae, no doubt. Hydro licensing is one of them. More emphasis (with appropriate provisions) could have been laid in the Bill on renewables such as small hydro; and on uprating and refurbishment of old plants. On the whole however, a hydro company, whether already operating in India or intending to enter, would find the new Bill to its liking and adding to its strength.