Get App
you are here: HomeNewsEconomyPolicy
Last Updated : Jan 14, 2020 09:35 AM IST | Source:

States’ role key to power reforms

GoM on National Tariff Policy needs to build a broad-based consensus to push through the amendments

Moneycontrol Contributor @moneycontrolcom
S&P BSE Utlities | 2019 return: -9.42 percent | Price as on 31 Dec 2018: Rs 1946.60 | Price as on 13 Dec 2019: Rs 1763.28
S&P BSE Utlities | 2019 return: -9.42 percent | Price as on 31 Dec 2018: Rs 1946.60 | Price as on 13 Dec 2019: Rs 1763.28

Abhijit Kumar Dutta

Of the several glitches that the power sector is tripping on in recent times, tariff is one of the major fault areas. Very much aware of the problem, the government has now set up an inter-ministerial group, headed by home minister Amit Shah, to discuss the proposed National Tariff Policy, which is  being considered as a major reform to energise stressed power assets.

That power tariff is a politically sensitive matter is obvious from the fact these proposed reforms are hanging fire for quite sometime now and the composition of the group of ministers (GoM) betrays the government’s intention to make it as broad-based as possible so that the views of all quarters can be heard and accommodated. According to an Economic Times report, the GoM will have 10 ministers, eight with cabinet rank and two having independent charge, giving it the character of a mini cabinet.


Almost a year-and-a-half back, power and renewable energy minister R.K.Singh had informed the Lok Sabha of the government’s intention to amend the National Tariff Policy (NTP) of 2016. Nothing much was heard about the matter in the interim. Now in its second term, the NDA government has decided to push through the contentious reforms and the cabinet secretariat — where it was earlier sent for approval — had referred the amendments to the Shah-led GoM.

What are the highlights of the proposed key amendments? One significant provision that had been included in the amendments is the imposition of penalties by an appropriate commission on distribution companies (discoms) for power cuts other than force majeure conditions or technical faults. The government does not want consumers to pay the price of inefficiencies of discoms and, therefore, an amendment to the NTP suggests that AT&C (aggregate transmission and commercial) losses in excess of 15 per cent shall not be passed on to consumers but shall be borne by discoms.

While ensuring 24-hour adequate power supply to all categories of consumers, the draft policy has proposed that in case of power cuts other than in force majeure conditions or technical faults, an appropriate penalty, as determined by the state electricity regulatory commission shall be levied on the discom and credited to the account of the respective consumers.

The draft policy has suggested that any subsidy would have to be given through direct benefit transfer (DBT) i.e. directly in the bank accounts of such consumers. Also, there should be an appropriate commission to ensure that “cross-subsidies are reduced and the tariff for all consumer categories are brought within ±20 per cent of the average cost of supply”.

It has also called for simplification of tariff categories and rationalisation of retail electricity tariffs.

However, not all the proposed amendments are easily implementable. For example, take the case of DBT. Though DBT had been by and large a success in the case of cooking gas, for electricity subsidy it could pose significant challenge in implementation. Most subsidised consumers for electricity are rural and many of them are poor. Even with the steady progress of Pradhan Mantri Jan Dhan Yojana, many rural and poor customers are not active users of bank accounts and financial inclusion will take more effort and time.

Challenges notwithstanding, these consumer-centric proposed amendments are steps in the right direction. Also, it is a no-brainer that unless the tariff structure is overhauled there is little chance of power distribution companies to come out of the present rut. And if the financial condition of discoms remains poor, the woes besetting the power generation sector will never end.

According to a Business Standard report, the power generation sector, which has the highest load of non-performing assets worth Rs 2 lakh crore, has seen a minimal resolution of stressed projects during the current financial year.

The problem with discoms, as we have seen in the past, is that they are hardly allowed to function and operate in a commercially viable manner by the respective state governments. Political interference has marred the performance of these entities. In recent times, we have seen how states like Andhra Pradesh, Rajasthan and Uttar Pradesh have dithered on power purchase agreements. Also, for obvious political reasons, state governments, almost always, drag their feet when it comes to revising power tariff, dealing a debilitating blow to discom finances.

As regards the proposed amendments to the NTP, the Economic Times report suggests that state governments and discoms have already voiced their opposition regarding clauses such as penalties for load shedding.

It has to be kept in mind that electricity being on the concurrent list, any amendment or any policy for the power sector will need states’ support to succeed. Prayas (Energy Group), a Pune-based NGO, puts it succinctly: “…given the vast differences across states, the policy (NTP) should be flexible to incorporate state-specific realities in design and implementation. Therefore, the policy should preferably have broad principles which the states are encouraged to adopt and adapt to their requirements.”

The Amit Shah-led inter-ministerial panel will, therefore, have to make every effort to bring states on board regarding the proposed amendments to the National Tariff Policy to make power reforms a success.

Abhijit Kumar Dutta is a freelance writer. Views are personal.

Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.
First Published on Jan 14, 2020 09:34 am
Follow us on