August 28, 2022

Electricity Bill: An Aggressive Push to an Old Agenda

T Anjali

THE Electricity (Amendment) Bill 2022, introduced in the Lok Sabha on August 8, 2022, is yet again another attempt to privatise electricity distribution, reduce subsidies, and leave India's poorest to the caprices of the market. Such attempts to amend the Electricity Act of 2003 were made in 2014, 2020 and again in 2021. It now has reappeared in new clothes in 2022. While the Electricity Act of 2003 was itself the first major step in this direction, all attempted amendments since 2014, including the latest one, aim to push this agenda even further. 

The Electricity Act 2003, passed by the first NDA government, treats electricity as a commodity to be priced according to the laws of the market. Not as a necessity for the household, the farmer, or the industry, as it was under the 1948 Electricity Act. The 2003 Act aimed to increase the role of private players in the two major segments of the power sector, i.e., power generation and the distribution of electricity to end users. Only transmission was left in the hands of the central or state governments. Despite various attempts of successive governments since then, the power distribution segment remains largely un-privatised, with only a few cities moving towards private distribution licensees. Power generation, on the other hand, has attracted some private investments, buoyed by guaranteed returns and iniquitous contracts against the state distribution companies (Discoms)—enforced by the central government from time to time.


The experience of two decades of privatisation of power generation clearly shows us the serious problems with this model. We are dealing with non-performing assets and non-performing markets in need of regulatory intervention at every step. And such regulatory intervention has always favoured private generators, nationalising their losses, which are borne by the people but allowing them their private profits.

The new amendments are largely focused on attempting to privatise the retail segment of the power sector, i.e., electricity distribution. One of the perceived obstacles to the privatisation of electricity distribution so far was the requirement for licensees to erect infrastructure to distribute electricity. The Electricity Act 2003 allows multiple distribution licensees to distribute power in one area. However, they must distribute it through their own networks. As per the new amendments, this requirement has been removed (Amended Section 42) meaning no physical infrastructure is will be required by a company to distribute electricity.

With this amendment, private companies who are given licenses to distribute electricity in a region will be allowed to use 'other' (or pre-existing) networks on the payment of some nominal wheeling charges. It is no secret that the existing electricity distribution network is that of the state government-owned distribution companies. States have invested substantially in building it, and this has been no easy task given the expanse and difficult geographies of many states. However, these networks will now be used by private companies who are given licenses for some regions within a state. The state distribution companies will manage the networks for these companies and also compete with them to distribute electricity in that area. This is a competition that they are unlikely to win because they will simultaneously still be in charge of supplying electricity to areas that private companies will not want to serve. In other words, the entire distribution market will be handed over to electricity traders who will own no assets, while the state governments will have the responsibility to provide the entire distribution infrastructure required for supplying the electricity to its people.

In general, private companies do not find rural areas attractive. The largest segment of rural electricity demand is from agriculture. Agricultural supply is subsidised in most states because it is an important input to agriculture and keeping the costs of this input low is important for ensuring that farmers, already in severe debt, are not burdened further by the rising costs of electricity. The remarkable organisational capacities of the farmer's movements, and their historic mobilisation efforts, led to the withdrawal of the ill-conceived farm laws last year. Alongside, they also extracted a promise from the ruling BJP government that it would not interfere in clauses related to subsidies for agricultural power supply.

However, the government has found a way to circumvent this promise in the new Electricity (Amendment) Bill, 2022. This aggressive push in the proposed Amendment allows private licensees in regions within a state-owned distribution company's area to use the distribution network set by the state utilities. This will likely result in private companies taking over distribution in the cities and towns and distribution of electricity directly to private industrial consumers. These consumers currently cross-subsidise electricity consumption in agriculture, i.e., they pay more than it costs to supply electricity to them (cost-to-serve), while subsiding the cost of electricity to rural, mainly agricultural consumers, who pay less than the cost-to-serve.

Agricultural consumption accounts for about 22 per cent of the total electricity consumed in India, and currently, about 55 per cent of the subsidy provided to farmers comes from cross-subsidisation. The rest is given as a direct subsidy by state governments. However, suppose state governments lose the industrial and commercial consumers in urban areas who cross-subsidise agricultural consumers. In that case, the ability of the state distribution utilities to subsidise agricultural consumption will severely diminish and eventually lead to poorer quality and reliability of power supply to rural areas.

Additionally, electricity distribution requires significant capital investments and deep corporate pockets, even if the existing distribution network of state-run utilities is made available to these companies at a song. Distribution transformers need to be upgraded from time to time, and more lines need to be laid to cope with increasing demand and to ensure the reliability of the power supply. It is no wonder, therefore, that in cities where private licenses are currently functioning, they are largely run by big corporate entities, viz., Tata, Reliance, and Adani. This is not a business for small enterprises. Clause 61 of the proposed Amendment also asks that "electricity tariffs recover all prudent costs and provide reasonable returns on investments", to ensure that this business is profitable for those private companies who venture to invest.


The gist of the amendments is, therefore, that large corporate houses in India will make profits by supplying power to the cities, even as rural consumers will be left to the mercy of state governments whose finances have been increasingly constrained and made dependent on the centre. And let us not forget that simultaneously, infrastructure built using public money will be used by these corporate houses to further their profits.

Since 1990, various neoliberal governments have tried to make electricity obey the laws of the market. Unfortunately for them, it obeys the laws of physics. We have surplus power capacity in the country, but just as recently as last summer, many states faced severe electricity shortages. Coal has to be physically mined and transported; we cannot control the wind any more than we can control the monsoon, and the sun does not shine at night. We need wires to get electricity into our homes and offices. Unfortunately, the lights, fans, and batteries of our mobiles and computers cannot be powered using radio waves. It is quite evident that the separation of wires and electricity, and the trade of electricity between private suppliers and consumers based on prices determined by the market, will simply not work. What happens when there is a shortage on the supply side, and what happens when consumers are unable to pay? Do the lights go off? Who faces the consequences if that happens?

There is substantial empirical evidence, from within India and across the world, that privatisation of power supply either has no impact on reducing the cost of power or, in fact, leads to an increase in costs, as scarcity of supply benefits private suppliers of electricity. In the UK, the only country where the separation of wires and electricity has been tried, studies have concluded that there is little impact on efficiency improvement. On the other hand, the cost of electricity for ordinary domestic consumers has increased multi-fold.

In India, over 75 per cent of the cost of electricity is that of power generation. Transmission and distribution make up only the remainder. There is no logical reason to believe that privatising electricity distribution will lead to a reduction in costs. The stated objective of the proposed amendments (of cost reduction) is therefore disconnected from the actual reality of high costs that consumers are facing.

The unrelenting push for privatisation in the power sector has no scientific basis and is driven by an ideological position that prefers privatisation over public service provision. Electricity is a basic need for human well-being and a critical input for production. Treating it as a tradeable commodity in the market, available only to the highest bidder, will leave a large section of the Indian population vulnerable to the caprices of the market and potentially deprived of this basic input required to improve their lives and livelihoods. It is through the untiring struggles of power sector workers, farmers, and ordinary consumers that attempts to foist such policies on the Indian people have been defeated in the past, and it is through such struggles once again that the Electricity (Amendment) Bill, 2022 must be defeated.