Financial Daily from THE HINDU group of publications
Monday, Dec 23, 2002
Power reforms in Tamil Nadu Why it makes sense and money
WHILE deciding on a dispute between the West Bengal Electricity Regulatory Commission and the CESC Limited on October 3, Supreme Court judges, Mr Justice N. Santosh Hegde, Mr Justice B.N. Agrawal and Mr Justice B.P. Singh wrote:
"A perusal of Sections 29(2)(d), 29(3) and 29(5) of the 1998 Act shows that the consumers should be charged only for the electricity consumed by them on the basis of average cost of supply of energy, and the tariff should be determined by the State Commission without showing any undue preference to any consumer. The statute also obligates the State Government to bear the subsidy which if it requires to be given to any consumer or any class of consumers, should be only on such conditions that the Commission may fix and such burden should be borne by the Government.
"We have noticed the object of the 1998 Act is to prevent discrimination in fixation of tariff by imposing cross subsidy, but at the same time under Section 29(5) of the 1998 Act, if the State Government so chooses to subsidise the supply of energy to any particular class of consumers, the same can be done provided, of course, the burden of loss suffered by the Company is borne by the State Government and not imposed on any other class of consumers.
"In this view of the matter, we are of the opinion that while the Commission was justified in its view as to the non-applicability of cross-subsidy, the High Court was in error in issuing a direction to the Commission, contrary to the object and provisions of the 1998 Act to maintain a tariff structure which was prevailing prior to the Commission's report. It is still open to the State Government, if it so chooses, to direct the Commission to fix the tariff of supply of the electricity to any class of consumers at a reduced rate provided the State Government itself subsidises the same."
The judges have effectively said that the States, while deciding on subsidies to any sector, have to direct the respective ERCs to award a lower tariff only if they decide to bear the cost of such subsidy, and that the consumer or the utilities such as the SEBs cannot be burdened with the losses and higher tariffs.
We need to see the backdrop of the case as well as the intent of the court in delivering this judgment.
The West Bengal Electricity Regulatory Commission by an order dated December 7, 2001 determined the tariff for the sale of electricity by the Calcutta Electricity Supply Co Limited (CESC) for 2000-2001 and 2001-2002. Aggrieved by the determination of tariff, CESC preferred an appeal before the Calcutta High Court under Section 27 of the Electricity Regulatory Commissions Act 1998.
The High Court, by the impugned judgment, allowed the appeal of the company by itself re-determining the tariff and enhancing it. It is against this judgment of the High Court the above civil appeals were preferred.
While delivering the judgment, the Supreme Court decided to comment on cross-subsidies and a few other issues. In order that such statements are construed as definitive directions and not routine advice, the judges clearly stated their intent while evaluating the issues. The following are two passages from the judgment:
"... Be that as it may, all parties before us have unanimously contended that the basic issues involved in these appeals would arise frequently not only between the parties to this case and in the Calcutta High Court, but also all over India and since as of now there is no authoritative pronouncement of this Court on the questions which arise in these appeals, therefore, we should finally decide these issues, whatever be our findings on the question of bias... "
"... At one point of time we thought it appropriate to decide the legal issues pertaining to interpretation of the statutes alone and to remit the matter back to the Commission to reconsider the factual issues, to be determined by the Commission in the light of our findings on the legal issues. However, after hearing the parties at length, we thought that the ends of justice would be served if we could finally decide all the important issues arising in these appeals and thereafter to remit the matter to the Commission only, to apply those principles and recalculate the tariff on the basis of our findings and directions given in these appeals. It is in this light that we will now endeavour to settle the questions involved in these appeals... "
From the above, it is clear that it was the intent of the Supreme Court to settle all issues that will arise frequently in the ERCs. What does the judgment mean to Tamil Nadu, one the States that has not moved towards electricity reforms? Tamil Nadu set up the ERC under the Central Electricity Regulatory Commission Act 1998. Thus, the judgment applies to the Tamil Nadu Government and the TNERC.
In terms of the judgment, the TNERC cannot unilaterally determine concessional tariff to any class of consumers, such as farmers, without the specific directions of the Tamil Nadu Government which, while issuing such directions, should confirm to the ERC that it would subsidise the licencee the Tamil Nadu Electricity Board fully for offering any concessions. This means that Tamil Nadu has to take serious financial burdens while offering any concessions to the agriculture consumers. Any tariff order passed by the TNERC, which offers concessions to any class of consumers that does not have the directions and commitment from the State Government for supporting the subsidy, is clearly violative of the Supreme Court judgment and, therefore, will be stayed by the courts.
Thus, unless Tamil Nadu starts moving towards reforms, the TNERC may not be able to pass a new tariff order, and the TNEB will have to operate without revising their present tariffs. In fact, even the present tariff offering concessions is violative of the Supreme Court judgment. Thus, the TNEB will be in a stalemate if the State Government does not come out with reforms. Cross-subsidisation, however, is an issue that merits consideration in order to support agriculture and the rural societies. States have over the last 50 years pampered the vote-bank by giving them free electricity, and passing the cost of providing the free power to the State Electricity Boards without reimbursing them.
The vote-bank did not ask for these favours; it would gladly pay for the power and collect the cost through higher procurement prices.
The State has to come out with a clear policy that wipes out all the subsidies over a period. Though the rural sector is heavily subsidised, it does not get stable power in most States. It serves no economic purpose to supply power for four-five hours a day and expect the farmer to pay at commercial rates.
The issue also has a larger dimension in terms of availability of water and the resources that the farmer has to use to bring it to his land, and the corresponding procurement price that he can command for his produce. Unless these issues are balanced, and the farmer gets his due share of the available resources the issue of charging the farmer for the supply of electricity will be met with violent reactions. Till then these subsidies will have to borne to an extent by the industries, urban population and other affluent communities. Today, the agriculture community is no position to seek better treatment as they get the electricity free of charge.
What is the answer then? Tamil Nadu will have to follow States such as Andhra Pradesh, Karnataka and Madhya Pradesh, which have gone ahead with reform packages.
The Supreme Court judgment is not applicable to these States as each has enacted separate Electricity Reforms Acts subsequent to the passage of the Central Act of 1998.
These reforms acts have clearly stated that the cross-subsidies will continue over the next few years, and the States would strive to remove all subsidies over a period, in the process unbundling the electricity sector from the State monopoly.
There is no reason why Tamil Nadu should refuse to come out with a reforms package before the ERC announces its views on the tariff revision.
Reforms in the electricity sector help everybody. It helps the system improve its efficiencies and reduce thefts and waste, it helps the governments plan its finances as well as the manner in which it wants to reduce its subsidy burden, it helps the weaker section, such as farmers, plan ahead. Most important, it helps the weaker sections outline their needs and requirements to the governments.
In the absence of the reforms package and a suitable legislation to affirm its commitment to the reforms, Tamil Nadu is moving towards a financial disaster. Will the powers that be in the State realise this?
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