The discom dilemma: The devil is in the detail

One essential difficulty that appears to have been ignored on this whole train is the impact of this Invoice on the current privatisation of discoms undertaken in Odisha and in Chandigarh.

By Somit Dasgupta

Quite a bit has been written concerning the Electrical energy (Modification) Invoice 2021, however nothing has generated extra dialogue than the idea of getting a number of distribution firms (discoms) in a given geographical space. The Invoice states that anyone desirous of participating within the distribution enterprise has to ‘register’ with the state electrical energy regulatory fee involved, and that the regulatory fee can be obliged to register the brand new entrant inside a interval of 60 days. The brand new discom(s) will use the community of some other discom for wheeling energy to their customers. The ability buy agreements (PPAs) of the unique discom will get distributed amongst the brand new discom(s), and they’d even be free to supply energy from different sources, corresponding to electrical energy trade(s).

The Invoice solely states the intent of the laws, i.e. to have multiple discom in an space so that customers can select their provider. The nuts and bolts haven’t but been spelt out, and because the cliché goes, the satan is within the element. Conceptually, having a number of discoms in an space is not any totally different from the idea of separation of ‘content material and carriage’, which the federal government had first launched within the Invoice drafted in 2014. This may once more throw open points that have been being hotly debated whereas contemplating separation of ‘content material and carriage’, corresponding to who shall be answerable for losses, how ‘cherry choosing’ shall be prevented (taking away profitable customers like industrial and industrial customers, and leaving out low-end ones like agriculture and home), what can be the modality of declaring ceiling tariffs when there’s multiple discom, what can be the system of cross-subsidies, and so on. This new idea of utilizing the wires of some other discom (as acknowledged within the Invoice of 2021) has introduced in different challenges like how will non-discriminatory open entry of the distribution wires be ensured, will the unique discom nonetheless be all in favour of upgrading its distribution infrastructure if it has to share it with different discom(s) within the space, and so forth. It’s pertinent to notice that two discoms working in an space utilizing one another’s wires is already occurring in Mumbai and has brought on appreciable friction and litigation. Additional, this obsession of giving option to customers to decide on their provider can also be not understood as a result of it has been seen within the UK (the place such alternative exists) that small customers hardly change their suppliers because the transaction value may be very excessive.

One essential difficulty that appears to have been ignored on this whole train is the impact of this Invoice on the current privatisation of discoms undertaken in Odisha and in Chandigarh. When the Odisha discoms have been privatised, sure projections have been made relating to their industrial losses within the years to come back, which the privatised entities are anticipated to satisfy. These targets now might turn into troublesome to satisfy if part of the clientele shifts to another discom(s). Their whole calculations will go awry as a result of the patron base and the patron combine will endure a change if extra discoms soar into the fray. The identical logic will apply to Chandigarh. The federal government might henceforth discover it troublesome to undertake privatisation of discoms as a result of no potential investor will have the ability to venture its income realistically and no regulatory fee can lay down a trajectory for discount of business losses! Privatisation of discoms and having a number of discoms, subsequently, must be handled as different fashions and it might not be sensible to pursue each, assuming that the brand new Invoice is handed.

Though fairly a number of massive consultancy corporations are talking in favour of the provisions of the brand new Invoice, their views must be taken with a pinch of salt since what they’re visualising is a large potential for consultancy assignments. In any case, a roadmap for this complete train must be made that may require revising current rules, getting ready a number of reviews touching numerous aspects, sufficient to maintain their coffers jingling for the following couple of years. The simplest answer on enhance the distribution enterprise is probably by privatisation of discoms on a public-private partnership (PPP) mode with transitional monetary help from the federal government and a prescribed industrial loss discount trajectory. That is precisely what was accomplished in Delhi in 2002 and the outcomes are there for us to see.

The creator is senior visiting fellow, ICRIER, and former member (Financial & Business), CEA