Draft power bill calls for privatisation of discoms, removal of subsidies
NEW DELHI: In order to reform the power sector, the Central government has unveiled the draft Electricity Bill, 2020, which seeks to remove subsidised power rates and cross-subsidy, recommends privatisation of the sector, strengthening of payment security mechanism and setting up of an Electricity Contract Enforcement Authority, among others. The Ministry of Power, which released the draft bill on Friday evening, has sought stakeholders’ comments within three weeks from April 17.
One major recommendation is the privatisation of distribution companies (discoms) by way of sub-licensing and franchises. Currently, most power discoms are run by states and several of them are under financial stress. The draft bill says that sub-licensing will allow states to choose a private company for distribution of power to a particular area, and help bring down loss of both electricity and finances.
It also sought to restrict deferment of revenue recovery and reduction in cross-subsidy to bring in a cost-reflective and simplified tariff. Currently, many state regulators adjust costs for future recovery, which includes subsidy commitment that eventually hikes power tariffs, resulting in weakening of discoms’ financial health. The amendment will allow states to grant subsidy, but without provisioning it in the tariff set by state regulators.
The states will have to grant subsidy through Direct Benefit Transfer for the consumers it plans to give relief. “Section 65 mandates the state government to grant subsidy to any consumer or class of consumers, but there are no corresponding provisions about the treatment of subsidies in the tariff determined by state commissions. It is proposed that state commissions determine tariffs for the retail sale of electricity without any subsidy under Section 65 of the Act,” said the draft. It also proposes to bring in an Electricity Contract Enforcement Authority to deal with the issues of non-performance of contracts, upsetting investment decisions and ease of doing business in the power sector.