Delicensing power distribution on anvil

In a major reform initiative, the government proposes to delicense the power distribution sector allowing competition in the supply of last mile electricity connectivity to consumers.

The proposed changes will be part of the new electricity amendment bill which the government proposes to introduce and pass during the coming monsoon session of Parliament. The bill will replace Electricity Act, 2003 which earlier delicensed power generation sector.

Official sources said that the draft bill has removed the wording distribution license. What this will do is to maintain status quo of existing distribution entities but will now allow entry of other participants in a distribution area if it is able to manage infrastructure for supplying electricity to consumers.

In her Budget 2021-22 speech, Finance Minister Nirmala Sitharaman had said that a framework will be put in place to give consumers alternatives to choose from among more than one distribution company. She had said that there is a need to provide choice to consumers by promoting competition and breaking monopolies existing in power distribution sector.

As per the plan, the delicensing will provide for infrastructure sharing by existing players. This will give an option to monetise assets by existing players while allowing new players to strengthen infrastructure and start supplying electricity to consumers on demand.

The changes will allow operation of more than one distributor in a supply area giving option to consumers to choose electricity supplier based on competitive tariff and assured supplies.

The Ministry of power earlier wanted to introduce provision for separation of carriage and content operation in the distribution sector as part of plan to break the monopoly of discoms. Under this while carriage or transmission aspect of distribution operation would have been retained with existing discoms, content or actual supply of electricity to households and others would have been freed for competition offering choice to customers to choose their electricity supplier. However, in the absence of requisite support from States to the move, the proposal was dropped.

What delicensing will do is to allow multiple players to bid for supplying electricity in a distribution area. Bids could be invited by states based on rules framed by them, guided by models to be developed by the Centre. Permission to distribute would only be given if a player brings along with the proposal a plan on providing last mile connectivity and other infrastructure support.

The government is looking at various schemes to reform the power sector. As part of a recent Covid related stimulus measure, it introduced a new Rs 3.03 lakh crore reform-based result-oriented power distribution scheme. This has brought various existing schemes in the power sector under one umbrella.

With regard to initiation of direct benefit transfer (DBT) scheme in the power sector, sources said that the reform measure could be undertaken at the State level while the Electricity Act will wait for competition to settle into the distribution sector first before proposing the changes.