January , 2021
Can joint venture in power distribution sector be a viable model?
19:41 pm

Kishore Kumar Biswas


The Electricity (Amendment) Bill, 2020, has been proposed by the Government of India a few months ago. In a nutshell, it aims to reduce governmental subsidies and expand the ambit of privatisation - especially in the distribution segment of the power sector. Many experts think that the proposed Bill would fail to address the long term crisis of the sector. There have been political questions pertaining to this Bill as well. This is because the power sector is in the concurrent list and any one-sided decision by the Union government would create political issues.  


Doubts about efficacy


It is also argued that the proposed Bill is a push for privatisation. It hopes to cut the procurement and operation cost for financially distressed distribution companies (discoms). Under this franchisee model, the state-owned discoms would maintain the wires and infrastructure and a sub-licensee, mostly a private sector, would supply electricity to consumers.


Different scholars like Kanitkar, Mahalingam and Srikant (Economic and Political Weekly, 10 October, 2020) have pointed out that it is not the discoms that have been responsible for the high cost of power procurement in the first place. Even when the demand for power has been short, as has been the case in the pandemic situation, the discoms have had to pay a fixed charge to power plants as per agreements they had already signed. Additionally, coal prices have risen in the last few years partly because of coal cess. All such extra costs are being passed on to the discoms. It is also argued that the push for renewable energy in an ‘unrealistic’ way has also pushed up power costs. So, privatisation of discoms cannot be a way to solve the problem. The three experts conclude that a robust planning at all levels of the government is required. They also argued that an integration of generation, transmission and distribution of power is essential to ease the situation.  


A model where government and the private sector can work jointly


At present the share of electricity consumption as a percentage of total power consumption in India is 17%. The government’s target is to lift it to 26% of total energy. There are two types of challenges. One is from the supply side, that is, supplying quality, reliable and sustainable electricity with commercial viability by the state-owned companies. On the other hand, generating adequate demand for power backed by the purchasing power of the consumers is another challenge. At present, there are problems from both sides. The state owned discoms are financially stressed. Government-owned companies may sell power with different political compulsions. So subsidised power supply to several sections of people has turned into a commercially unsustainable model. Therefore, for them (the government power suppliers) there is no surplus to modernise the power sector. Under such circumstances, the chances for the private sector gaining up is high. That is why planning for a joint entrepreneurship model (between government and private players) seems to be a viable option.


What would be the change in the new proposed model? Rabindra Nath Sen, former Chairman, Damodar Valley Corporation and former Chairman, West Bengal State Regulatory Authority has expressed his version in the December 2020 issue of Energy Konnect. He thinks that complete privatisation is not possible and also not a wise move. He also believes that many well-run state-owned companies like the National Thermal Power Corporation (NTPC) or the Power Grid Corporation (PGCL) or state distribution licensees like Gujarat, where public sector employees have shown remarkable performance, can be models in India. According to him, there is need for such a plan where there would be no cut in employment in the public sector but the power companies would run with higher efficiency. Here lies the importance of the idea where private investors would join state owned power distribution companies with their modern technology. So, if the existing state-owned infrastructure is supplemented by the efficient and modern private enterprises, the power sector as a whole can get a new lease of life. In this model, poor people or the targeted sections would also continue to get subsidies. Sen has suggested the following:


1) Discom employees must get to share rewards and penalties, over and above their regular salary remuneration.


2) Tariff must be voltage based and must be the same for all classes of customers and linked to the cost of services.


3) Affordability will be addressed through DBT of the ‘Bijli money’ to the bank accounts of the customers. They must have a simple way of using this ‘Bijli money’ to pay their electric bills only.


4) The ownership of both existing and added assets should continue with the original owner - the state owned Discom.


5) It is also proposed that there will be an incentive for the private owner to do better in terms of AT&C (Aggregate Technical and Commercial) loss reduction than the specified loss reduction trajectory because any improvement in loss reduction is to be awarded to the private party.  

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