The Indian electricity supply industry: A model for Nigeria
The Central Electricity Regulatory Commission (CERC), the Central Electricity Authority (CEA), and the State Electricity Regulatory Commission (SERC) are the three regulators of electricity in India. The CERC is a statutory body initially constituted on July 24, 1998 under the Ministry of Power pursuant to the Electricity Regulatory Commission Act, 1998 for whose principal objective was the rationalization of electricity tariffs, formulation of transparent policies regarding subsidies, promotion of efficient and environmentally benign policies, and all other matters connected with electricity tariff regulation in relation to all central government power utilities, inter-state generating companies and inter-state transmission tariffs in India.
It is also the duty of the Commission to specify safety standards with respect of quality, continuity and reliability of its service especially in relation to the construction of electrical plants, electric lines and connectivity to the grid and the installation and operation of meters. Furthermore, in carrying out its advisory roles, CERC advises the central government on the formulation of national electricity and tariff policies and ensures the promotion of competition, and efficiency in the activities of the electricity industry.
The CEA as a regulatory body in India was duly constituted under Section 3(1) of Electricity Supply Act 1948 (now Section 70(1) of the Electricity Act, 2003). The CEA advises the Indian government on matters relating to the National Electricity Policy and formulates short-term and perspective plans for the development of the electricity sector in India. Under Section 73(b) of the Electricity Act 2003, CEA has the powers to prepare technical standards for the construction of electrical plants, electrical lines and connectivity to the grid, installation and operation of meters and safety and grid standards for electricity generating companies in India.
The Commission is also responsible for the concurrence of hydro power development schemes for the central, the state and the private sectors in India. In discharging this function, CEA takes into consideration factors that would result in the efficient development of the river and its tributaries for power generation in a manner consistent with the requirement of drinking water, irrigation, navigation and flood control. It therefore, plays an important role in promoting the integrated operations of the regional power grids and the evolution of a national grid. It (the CEA) also advises the Indian government on matters relating to the National Electricity Policy and formulates short-term and perspective plans for the development of electricity systems in India.
It must however be noted that there are obvious overlaps between the functions of the CERC and the CEA and this led to the suggested merger of both agencies. However, the Ministry of Power (MoP) opposed this merger. This continues to remain a concern for stakeholders.
On the other hand, the SERC is vested with the powers to regulate intra-state generation, transmission and distribution in India(including those of the State Load Despatch Center [SLDC]), and to determine bulk and retail tariffs to be charged to electricity consumers. SERC’s advisory functions include, promoting competition, efficiency and economy in the activities of electricity industry in the state and reorganizing as well as restructuring of the electricity industry in the state. SERC’s activities are to be guided by the principles of tariff determination as specified by CERC
Consumer Protection:
It is important to state that the consumers of electricity in India are statutorily protected from any adverse policies of the regulators. Thus, members of the public who are not satisfied with the operations of the CERC or the SERC can channel their grievances to the Appellate Tribunal within 45 days of the issuance of any such operational directives. The Tribunal has the authority to overrule or amend such directives. Appeals against the Tribunal can lie before the Supreme Court within 65 days of the delivering of such decision(s) by the Tribunal.
2.0 The Power Sector Reforms in India
2.1 Fragmented Privatization
The era of government regulated and vertically –integrated power sector has been relaxed in most countries, either completely (by way of 100% privatization of state enterprise and liberation of the markets for infrastructural industry services) or partially (by way of fragmented privatization). In the case of India, the model adopted seems to tilt towards fragmented privatization, especially considering the fact that it is a socialist economy. The monopolistic nature of the industry was diluted with the introduction of the economic policy in 1991. It would be recalled that the 1991 reformatory model was predicated on private management and capital generation. However, in 1996, the government policy reform was extended beyond financing strategies to the introduction of competition to efficacy target in the power sector.
Specifically at the state levels, the unbundling and privatization of the power sector in India started with the State of Orissa in the mid ‘90s. The state of Orissa with the support of the World Bank was able to unbundle the integrated utility into three (3) sectors, namely, the generation, the transmission and the distribution sectors. The generation and the distributing sectors were privatized and an independent regulatory commission was set up to regulate these utilities. Three Government-owned corporate utilities (Orissa Hydro Power Corporation (OHPC) -responsible for hydro power generation, Grid Corporation of Orissa (GRIDCO)-responsible for transmission and distribution functions and the Orissa Power Generation Company (OPGC) – responsible for thermal power generation) were formed with the agreement of ensuring full autonomy with effect from April 1, 1996. Their roles and responsibilities were well defined with their independent Boards in place. Subsequently, other states like Haryana, Uttar Pradesh and Andhra Pradesh followed.
In January 2000, the government of India issued guidelines for private sector participation in the transmission sector, creating two distinct routes for this participation: the Joint Venture (JV) route, wherein the central or the state transmission enterprises shall own at least 26% of equity and the balance would be contributed by the Joint Venture Partner (JVP), and an Independent Private Transmission Company (IPTC) route, wherein 100% of equity shall be owned by the private entity.
The commendable innovation of privatization in India was subsequently captured in the Electricity Act, 2003, enacted as the first comprehensive legislation to provide an enabling environment for enhancing competition and for private sector participation. The Electricity Act, 2003, introduced measures that seek to strengthen private sector participation in generation, transmission and distribution by removing barriers for its entry, and also promoted the use of renewable sources of energy in generation, as well as rural electrification.
Again, in February 2005, the National Electricity Policy of the government was designed inconformity with the Electricity Act, 2003. Thepolicy emphasizedon private sector participation in distribution in order to achieve a reduction in transmission and distribution losses in a bid to improve the quality of service to consumers. The policy further outlined the need to allow the private sector to invest in the electricity sector by providing it with multiple opportunities for investment and returns on investment on similar terms as obtainable in the other sectors. It further stated the need for a workable model on public-private partnership in the electricity sector to be adopted by the central and state government in order to enhance private sector participation in generation, transmission and distribution of electricity in India.
In addition, the National Electricity Plan (NEP) created by the CEA in April, 2007, emphasized private sector participation by the provision of a fixed return on investment based on an assessment of opportunities and risk.
Challenges with the India Model
The India government, as explained earlier, has been conservative in allowing partial privatization of the power sector, perhaps for the sole reason of preventing private companies from using the electricity sector for private maximization. There is therefore need for professional and competent operations of the state utilities with functional autonomy and without bureaucratic bottleneck in the electricity reform. The Electricity Act, 2003, although provided a time frame for unbundling the State Electricity Board of each State, many states have deferred their restructuring innumerable time. In some states like the Jammu & Kashmir, Puducherry, Goa, Sikkim, Arunachal Pradesh, Manipur, Mizoram and Nagaland, the power sector is functional through a government department and in some other states; the distribution of electricity continues to be public sector driven except for Delhi and Orissa.
The contribution of the private sector has therefore remained quite low, despite the passage of the Electricity Act in 2003 that divested the sector. For instance, in March 2008, the total generating capacity of private participation constituted only 14%. The private sector contributed 20,011 MW out of a total capacity of 143,061 MW. When compared against the energy generation in March 2008, it would be correct to say that the private sector contributed 5,424 MU out of the total energy generation of 61,206 MU, which merely represents about 10%.
Furthermore, some key implementing challenges militating against private participation in the electricity sector include ensuring availability of fuel quantities and qualities, lack of initiative to develop large coal and natural gas resources present in India, land acquisition, environmental clearances at state and central government level, fuel supply, financial closure, power equipment supply, project execution and training of skilled manpower to prevent talent shortages for operating latest technology plants. Thus, despite the multiple licensing provided under the Electricity Act, 2003, Investors perceive a high risk in the distribution sphere due to inefficiency and exposure to regulatory risks, especially taking into cognizance that distribution is under state jurisdiction.
It is pertinent to note however, that with the on-going intensified competition in the licensed and the liberalized electrical sector, many states are beginning to pull their stocks together, shedding the complacency of monopoly to face the competition.
India also faces the problem of inadequate coal and gas production as well as exploration of new fossil fuel reserves.
It is evident that constant power supply is essential for the growth of any nation. India has set out a target to be a global super power having the third largest GDP by 2030 and also to have a sustained economic growth of 8-10% for at least another decade. Many countries have decided to adopt the Indian model as a milestone for developing their electricity sector. At any rate, these countries must first appreciate and put in proper perspective, the challenges associated with the India electricity model in order to be able to build a formidable electricity sector. There is therefore the need to install administrative and regulatory measures that would harmonize the varied interests of investors, developers and consumers in India. Also, robust and comprehensive package of policies should be prescribed for the development of hydro potentials and other renewable energy resources at a faster pace to ensure a sincere commitment towards sustainable development. Finally, whilst the Indian model appears closest to a ‘role model’, Nigeria should only adopt what is ‘uniquely ours’ from the model and domesticate the same for our own purpose.
Tolu Aderemi (Partner) and Celestine Ike (Associate) are both of the Energy & Infrastructure Group of Perchstone & Graeys.
Tolulope Aderemi & Celestine Ike