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Of all The Issues in Power Generation
The Electricity Act, 2003, was Aimed to Consolidate and Replace Several existing legislations on Electricity. But 8 years down The Road, the lack of Consensus between States and The Centre Threatens the very Purpose of The Legislation.
Issue Date - 12/05/2011
With effect from June 2, 2003, India adopted a new legislation called the National Electricity Act, 2003 (NEA), which replaced some archaic laws on electricity operations in the country. Among various other contours, the new Act consolidated the position of existing laws and also aimed to provide for conducive measures for developing the industry in the country. The Act was an attempt to address issues that had either prevented or impeded the reform process in India, thus generating a new hope in the electricity industry.

Before the government enforced NEA, the electricity sector in India was basically guided by The Indian Electricity Act, 1910 and The Electricity (Supply) Act, 1948, with generation, distribution and transmission of electricity being mainly carried out by state electricity boards. After the enactment of the Electricity Regulatory Commissions Act in 1988, when cross subsidies reached unsustainable levels, the government brought out the new legislation in 2003 to encourage the participation of the private sector, to bring in competition and also to distance state governments from tariff determination. The Act delicensed power generation completely (except for hydro power projects over a certain size), de-licensed distribution in rural areas and brought in a licensing regime for distribution in urban areas.

However, despite so many positives mooted in favour of the new legislation, the scenario of electricity in India is still marked by protests, burning effigies and ransacking of local electricity distribution authority premises. Coupled with the rising mercury and water scarcity, the people’s anger against long power cuts in places like Bihar turned volatile in many parts of the state some days back, with angry residents blocking roads, burning rubber tyres and ransacking electricity board offices, police said. But strangely enough, according to the latest data from Central Electricity Regulatory Commission (CERC), India’s installed capacity has risen to 170.23 GW, as on January, 31, 2011. The target for cumulative generation capacity addition for the 11th five-year plan (2007-08 to 2011-12) has been revised to 62 GW. Even with the projected average addition of over 12 GW every year during the 11th Plan, about 10 GW of peak shortage has been projected for March, 2012. Additionally, over 19,800 million units of shortage is expected for March, 2012.

However, considering the demand for electricity in India, there is no doubt that India offers tremendous scope for the sector. Undoubtedly, the intent of the Centre has been to bring conducive reform processes for the power sector in India. But then, it has also been a historically established fact that India has always failed to meet its power sector targets by a significant margin and the power sector continues to be affected by the shortfall, both on the generation and transmission sides. While the reforms intended through the Act were a good start, the real problem with the dismal scenario of electricity in India, like several other schemes doled out by the Centre, has been in its implementation. The failure of government initiatives, in this case, is largely based on the gaps in delivery, which is caused by the differences between the Centre and state governments to reach to an agreement on crucial issues pertaining to the Act.

As per the Indian Constitution, the power sector is a concurrent subject and is the joint responsibility of the State and Central Governments. The power sector in India is dominated by the government, with the states and central government sectors accounting for 58% and 32% of the generation capacity respectively, while the private sector accounts for about 10%. The private sector, which was expected to boost its participation exponentially, has a small but growing presence in distribution and is now slowly making an entry into transmission. Problems with land acquisition, the inability of most new entrants to secure fuel linkages for existing and planned power projects and delays in getting environmental clearances have all led to frustrating delays in projects getting off the ground. Liberalisation in power generation, a provision under the Electricity Act, was expected to provide a much-needed efficiency boost to the private sector, which unfortunately could not happen. Even as the private sector is undeniably affected by these problems, an equally daunting shortcoming is in project execution capability. This weakness is reflected most visibly in the inability to mobilise the labour and capital needed to execute projects in a timely manner. The shortage of a skilled workforce has also emerged as a major constraint for infrastructure growth. The saga of the Ratnagiri Gas and Power plant in Maharashtra, and the erstwhile Enron project, which is yet to begin running at full capacity almost 15 years after it was built, goes on to prove that the country’s power sector reforms, mandated by the Electricity Act of 2003, have done little to alleviate the chronic shortage of power.

Formulation of the tariff policy has also been an aspect that had already led to a lot of litigation and confusion under the earlier regime. In a bid to overcome these confrontations, NEA placed the responsibility of formulating the tariff policy on the Central government, something that few state governments have fiercely contested making the implementation of the reforms practically impossible. In an exclusive conversation with B&E, K. C. Venugopal, Minister of State for Power, says that one of the hurdles in the implementation stage of the Act was the concerns pertaining to the financial viability of Discoms and persisting problems. “Some states invoked Section 11 of Electricity Act to disallow open access to the generators within the state. As per the Electricity Act 2003, Section 11 is meant to be invoked only in extraordinary circumstances like threat to security of state, public order, natural calamity et al. and is not meant to restrict open access.” Moreover, as per the Act, only 16 states in India have officially notified what constitutes as ‘rural areas’ and therefore the rural distribution, where the implementation of the Act is crucial, is yet to be freed up in nearly 33% of India.


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