CURRENT AFFAIRS – 10/06/2023

The Electricity Act 2003 provided the framework for the dismantling of the State Electricity Boards and the separation of generation, transmission and distribution into separate companies. Electricity generation was delicensed, while transmission and distribution remained licenced and regulated activities. Promoting competition, protecting consumer interests, and the supply of electricity to all were key objectives of the legislation.

Under the new regime, a competitive industry structure in generation has evolved. The share of private investment in the creation of new generating capacity has increased rapidly. Competitive procurement through long-term power purchase agreements (PPAs) grew and prices discovered through the market turned out to be lower than anticipated under the earlier cost-plus dispensation for determining tariffs. The impressive growth in renewable power is entirely the result of private investment. Tariff-based bids for the supply of electricity to distribution companies (Discoms) has been the key to the extraordinary success of the National Solar Mission. Further, India now has one of the cheapest rates for solar power supply in the world.

When the contours of the new law were being discussed, the introduction of full deregulation and competition (like in the United Kingdom in the early 1990s) was advocated by those who believed that we should adopt the latest ‘reforms’ from the West. In the U.K., a mandatory power pool had been created where all generators submitted bids for the next day, indicating the quantity they could supply along with the price. These bids were stacked in ascending order of price. The price with the quantity at which the total demand indicated by the suppliers would be met became the pool price for electricity. This mimicked the intersection of the supply and demand curves to get the market price. Full retail competition had also been introduced and consumers could choose from among several suppliers who had emerged to serve the market. Though these reform ideas had a strong constituency (including Enron), these were found to be unsuitable for India.

Power was and is being supplied from individual power plants through long-term contracts at prices determined for each. As the plant depreciates, the fixed (capital) cost component in the tariff declines; the older the plant, the cheaper its electricity. Adopting the free market (power pool) model would have meant that all electricity would be sold at the price of the electricity from the most expensive plant at which demand would be fully met. The resultant steep price shock could just not be absorbed. For example, electricity from Bhakra Nangal which was being supplied at a few paise per unit would have had to be sold at over ₹4 a unit then. For decision-makers, such deregulation became a non-starter once the full implications were understood.

The Distribution Licensee (Discom) has the universal service obligation of supplying electricity to meet the full demand of every consumer (existing and new), in its licence area. Therefore, the Discom has the responsibility of projecting demand growth and making arrangements for reliable electricity supply. It does this by entering long-term power purchase contracts. Power-generating capacities have risen rapidly and the power supply position has become comfortable. There has also been the milestone of the completion of rural and household electrification, where discoms have been pivotal.

The Electricity Act gives consumers with a load of 1 MW and above the right to open access, enabling them to buy electricity from whomever they choose to and pay the Discom only for the use of their distribution network and a cross-subsidy surcharge. This cross-subsidy surcharge became necessary as higher-end industrial and commercial consumers pay more and cross-subsidise the lower-end households whose tariffs are less. However, the explicit mandate in the Electricity Act to the State Electricity Regulatory Commissions, to progressively reduce cross-subsidies, remains unimplemented. This has resulted in the cross-subsidy surcharge continuing and acting as a barrier. Not many large consumers are meeting their electricity needs even now using open access. At the margins, generating plants may be able to generate electricity over and above what they are required to supply through their existing contracts; Discoms may have surpluses as well as shortages at different points of time. These can be sold. Power exchanges have come up to enable trading and optimal utilisation of the total generating capacity in the country. The exchange prices are volatile — either a little above marginal cost when demand is modest and shooting up when demand surges, necessitating the imposition of price caps. This is not an unexpected phenomenon as demand for electricity is inelastic.

‘Reforms’, ‘markets’, ‘competition’ and ‘consumer choice’ have positive connotations. Discoms are seen as the weak link in the supply chain of electricity, with rising cumulative losses and an inability to pay generators on time. The idea of somehow dispensing with the Discoms and letting the free market solve the problems of the power sector appears deceptively simple and attractive.

The problems with Discoms, however, lie in the domain of political economy. Foremost here is the inability of regulators in the States to determine cost reflective tariffs. State governments find it difficult to give timely subsidies as required by law. This underlying problem cannot be solved by implementing some imported reform idea(s). There is the political economy issue of misgovernance and rent seeking in some States where privatisation, as in Delhi, may perhaps be the only solution.

Investment in generating capacity has been taking place primarily on the strength of long-term PPAs with Discoms. Financing, equity as well as debt are de-risked by these PPAs which have the implicit guarantee of the state. The energy transition to renewables is accelerating and the reliability of power supply is increasing. This is based on Discoms projecting demand and entering long-term contracts for meeting increasing demand. Without Discoms this edifice would collapse; and without new investment, we may face power shortages again. It needs to be noted that the exemplar for reformers, the U.K., did not see significant demand growth, and the consequent need for new generating capacity after the new dispensation came into place. However, to drive their energy transition, the state had to invite bids for renewable energy through “contract for differences” which assured successful bidders’ payment of the difference between the market price and their bid price whenever the market price fell below their bid price.

The war in Ukraine has led to ironical consequences, emanating from a dogmatic faith in the deregulated market. Electricity prices went up many times due to the inelasticity of electricity demand, government was compelled to give cash support for lifeline consumption, profits of energy companies reached record highs, and government had to impose taxes on their windfall profits. In an earlier era, governments would have considered imposing price controls. Gordon Brown, the former Prime Minister, went so far as to call for temporary nationalisation.

The consequences of implementing the reform idea of doing away with the centrality of the Discom must be thought through. Lessons from the experience of the last year in the U.K. should be analysed. There are no quick-fix easy solutions.

Despite daunting challenges to Nepal’s democracy, governance and stability and seemingly intractable bilateral irritants, the Prime Ministers of Nepal and India have shown that a pragmatic approach and mutual sensitivity can re-energise bilateral relations.

The Prime Minister of Nepal, Pushpa Kamal Dahal Prachanda’s first bilateral visit to India since assuming office in the current term is notable in this sense. Driven by challenges presented by the post-COVID-19 world, current realities as well as huge opportunities, India and Nepal were able to review the entire spectrum of the bilateral agenda covering political, economic, trade, energy, security and developmental cooperation.

Prachanda deserves credit for this. He is in a weak position at home as leader of only the third largest party in Parliament, well behind K.P. Oli and Sher Bahadur Deuba, who are waiting to take over from him, not to speak of leaders from smaller parties who are being wooed by the Opposition to cause political instability. Prachanda has shown political courage and probably shrewdly calculated the costs of paying heed to the spectrum of political noises warning him not to be soft and to extract solutions to irritants such as the 1950 Treaty, border differences, and India’s reluctance to receive the report of the Eminent Persons Group (EPG) set up by the two governments. Instead, he seems to have listened to the few voices of reason and moderation, and to focus on opportunities to building a better future.

Prachanda has had stints as Prime Minister. In his very first term, as a fiery Maoist rebel-turned political leader, he did give India a few rude shocks, crossing red lines by insisting on visiting China first, or dismissing the Army chief, considered to be a palace loyalist, to which India took strong objection (there was a clear understanding that when the Maoists joined the political mainstream, there would be no interference with the Royal Nepal Army). Later, India too would give Prachanda a few shocks — sending a Prime Ministerial special envoy to urge Madheshi parties not to support Prachanda in order to save his government. But this time round, Prachanda came across as a serious, self-confident and mature statesman.

The Indian Prime Minister, too, has shown sensitivity, for example when he reassured Prachanda that differences on the border issue would be resolved to mutual satisfaction. Neither side tried to justify their official version of the border as the correct one.

The visit has helped in underlining the real priorities — the “game changers” which can transform the economic landscape of the sub-region, such as hydropower projects to supply energy to India (and eventually to Bangladesh), infrastructure, access to Indian river transport, innovative tourism circuits, and better connectivity.

In the aftermath of the COVID-19 pandemic, renewed high-level commitment to bilateral cooperation on multiple fronts, with improved deliveries, was necessary. There was unprecedented cross-party consensus when the Mahàkali Treaty, identifying the Pancheshwar Multipurpose Project (PMP), with power stations of equal capacity on both banks of the river, was negotiated, signed and received parliamentary ratification a few years ago, despite political changes in both countries. The finalised Detailed Project Report (DPR) will be submitted to both governments expeditiously, finances arranged and modalities of implementation concluded within one year after their approval of the DPR.

There is a new dimension of cooperation in the power sector with the transmission passage (trilateral power transaction) from Nepal to Bangladesh through India. With new power projects now under implementation or on the drawing board, and the finalisation of an agreement for long-term power trade wherein it was agreed to strive to increase the quantum of export of power from Nepal to India to 10,000 MW within a timeframe of 10 years, an era of prosperity awaits the entire sub-region.

Enhancing digital financial connectivity is another crucial development. The MoU between the National Payments Corporation of India and the Nepal Clearing House Ltd. for facilitating cross-border digital payments, and the Indian offer to create a ground station and supply 300 user terminals to offer the services of the South Asia Satellite to Nepal under grant assistance are important; they would promote regional cooperation in the space sector, and space technology applications in telecommunication and broadcasting, tele-medicine, tele-education, e-governance, banking and ATM services, meteorological data transmission, disaster response and the networking of academic and research institutions.

The real challenge for Nepal is to depoliticise cooperation with India, especially in water resources cooperation, improve the quality of democracy and governance at home, and check unbridled corruption, which is alarming even by South Asian standards. For India, it may be necessary to address the perception in Nepal that it is no longer a foreign policy priority, and to give a sense of ownership, equality and credit for major forward movement in sectors such as hydropower to parties across the political spectrum, rather than only to the government of the day.

Predictably, the Opposition parties in Nepal have termed the visit a sell-out. But they should be made aware of the fact that if there continues to be a steady focus on development — as demonstrated during the Prachanda visit despite possible political instability in Kathmandu — Nepal will find India going the extra mile in meeting its needs and expectations.

The views expressed are personal

As the tussle between Punjab and Himachal Pradesh continues over the 99-year-old lease of the British-era Shanan Hydropower Project situated in Himachal Pradesh’s Jogindernagar, the Himachal Pradesh government has yet again made it clear that it will not relent.

The project is presently under the control of the Punjab government, and its lease will expire in March 2024.

The Himachal Pradesh government has announced that it will not renew or extend the lease period, and wants the project to be handed over to it before the expiry of the lease period. However, the Punjab government is in no mood to do so, asserting its readiness to take legal recourse, if needed, to retain the project.

On Friday, Himachal Pradesh Chief Minister Sukhvinder Singh Sukhu said he had urged Union Power Minister R.K. Singh, who was on a visit to the State, to complete the process for the time-bound transfer of Shanan Hydroelectric Project to Himachal Pradesh, among other issues.

“I have apprised the Union Minister about all the issues related to ownership of the Shanan hydel project and also about its lease period which is expiring in March 2024. I apprised him that the ownership rights of the Shanan project do not rest with the Punjab government as it was only given on lease to the Punjab government,” said Mr. Sukhu, adding that the Union Minister had assured that he would address all the issues in a time-bound manner.

Mr. Sukhu had earlier written a letter to Punjab Chief Minister Bhagwant Mann stating that the 99-year-old lease of the project given to Punjab by the then ruler of Mandi, Raja Joginder Singh Bahadur, would end on March 2, 2024. The Himachal Pradesh government has decided not to renew or extend the lease period of the project, and intends to take over the project, it added.

In a judgment that has come as a shot in the arm for dog lovers across the country, the Madras High Court has set aside Directorate General of Foreign Trade’s (DGFT) April 25, 2016 notification imposing a ban on import of dogs into the country.

The DGFT had ordered that only dogs that had been used as pets by the importers abroad; canines required for research by R&D organisations; and animals required for internal security by the defence and police force, could be imported.

Justice Anita Sumanth held that the notification had been issued without necessary scientific study and due diligence as called for. The verdict was delivered while allowing a batch of three writ petitions filed by Kennel Club of India (KCI), Madras Canine Club (MCC) and individual dog lover C.R. Bhaalakkrishna Bhat who insisted on allowing import of dogs to be used as pets, for participating in dog shows and for ethical breeding.

The judge pointed out that the trigger for the DGFT’s notification was a letter written on December 1, 2015 by then Union Minister for Women and Child Development Maneka Sanjay Gandhi to the Department of Animal Husbandry, Dairying & Fisheries. A copy of the letter marked to the DGFT sought a blanket ban on import of dogs citing threat to the native species and also possibility of pathogens being carried by the imported animals.

However, debunking the fears, the judge wrote: “The absolute ban now imposed is on the basis that import of dogs for commercial breeding will bring foreign diseases to India as well as contaminate native gene pool. As far as import of alien diseases is concerned, there are effective measures for quarantine and testing of the animals prior to permitting entry into India. Thus, this can be no reason to justify the ban.”

On the fear of a possible threat to the native species due to import of dogs, she said, “While I have no doubt in my mind that all steps must be taken to protect and perpetrate original, native Indian breeds, this cannot be achieved by placing an embargo on the import of foreign dogs for commercial purposes, by ensuring, of course, that such commercial purposes are regulated by the State and are ethical.”

The judge directed the Tamil Nadu government to formulate, within eight weeks, a set of regulations for commercial breeding of dogs and place them before the court on August 5.

If the Centre succeeds in its marquee Jal Jeevan Mission (JJM), a nearly ₹3.6 trillion enterprise to provide piped potable water to all of India, it would avert close to 4,00,000 deaths from diarrhoea, a modelling study by the World Health Organization (WHO) and commissioned by the Jal Shakti Ministry, said on Friday.

Additionally, this would avoid 14 million DALYs (Disability Adjusted Life Years) from diarrhoea, save close to $101 billion and 66.6 million hours every day of time that would otherwise have been spent — predominantly by women — collecting water, the authors of the study noted. A DALY represents the loss of the equivalent of one year of full health and are a way to account for the years of life lost due to premature mortality (YLLs) and the years lived with a disability (YLDs), due to prevalent cases of a disease or a health condition, in a population.

Currently about 12.3 crore rural households, or 62%, have piped water connections up from 3.2 crore or about 16.6% from 2019 when the scheme was launched. The Centre has claimed that it will achieve 100% coverage by 2024. A fully functional tap water connection is defined as a household getting at least 55 litres of per capita per day of potable water all through the year.

The WHO study is an extrapolation and doesn’t compute the number of diarrhoeal deaths averted, at the present levels of coverage. It also doesn’t account for the degree of contamination in the piped water now being made available, Dr. Rick Johnston of the WHO and one of the study authors told The Hindu. For the data required to arrive at its estimates, the authors used population data from the United Nations, the 2018 National Sample Survey and data on water quality collected by the JJM.

“Currently a potable water connection is being provided every second. Five States including Gujarat, Telangana, Goa, Haryana, and Punjab and 3 Union Territories — Andaman & Nicobar Islands, Daman Diu & Dadra Nagar Haveli and Puducherry have reported 100% coverage. Himachal Pradesh at 98.87%, followed by Bihar at 96.30%, are also poised to achieve saturation in near future,” Vini Mahajan, Secretary, Department of Drinking Water and Sanitation, said at an event to publicise the report. “Every dollar invested in sanitation interventions gives a $4.3 return in the form of reduced health care costs,” he added.