Transparency vital in power policy formulation

RECENTLY SOME newspapers have come out with the recommendations of the committee on power policy constituted by the Government headed by N. K. Singh, Member in charge of Energy, Planning Commission. It is understood that the committee recently submitted its report to the Government in February. But the report has not yet been made public. It is better to await the formal release of the report before comments are made on this important matter, instead of relying on the selective leaks by the media based on the information gathered by them. Meanwhile it is necessary to know the background leading to the constitution of the committee and the issues involved. This will help understand the implications as and when the report of the committee is made public. The committee was constituted to make recommendations on the national electricity plan and tariff policies.

It must be mentioned here that in almost all the Acts setting up the regulatory mechanism, it is generally mentioned that the Government would lay down the policy and the regulation would be confined within the parameters of the policy. Also, where there is a difference of opinion on what constitutes policy, the decision of the Government would be final. In the Electricity Regulatory Commissions Act, 1998 there were express provisions to this effect. These have not been repeated as such in the Electricity Act 2003 but in Section 79(2)(4) of the Act it is clearly mentioned that, "In the discharge of its functions the Central Commission shall be guided by the National Electricity Plan and Tariff Policy published under Section 3.''

The Government receives its mandate for its policy formulation from Section 3 of the Electricity Act 2003. The procedure for the preparation of the policy as well as the parameters are clearly defined in Section 3(l) of the Act which is worth reproduction: "3(l). The Central Government shall, from time to time, prepare the National Electricity Policy and Tariff Policy, in consultation with the State governments and the Authority for development of the power system based on optimal utilisation of resources such as coal, natural gas, nuclear substances or materials, hydro and renewable sources of energy.''

CERC's advice

This is as it should be as the Constitution places "Electricity'' in the Concurrent List (Entry 38, List III of Schedule VII) and recognises the Centre and the States as partners in the promotion of the electricity industry. The Electricity Act 2003 came into effect in June 2003. Soon after, the Ministry of Power posted a draft tariff policy on its website titled "Preliminary Discussion Paper on Tariff Policy (prepared with the assistance of CRISIL).'' A few weeks later, in July 2003, The Centre sought the statutory advice of the Central Electricity Regulatory Commission under the provisions of Section 79 (2)(i) of the Act. The commission gave the statutory advice immediately. The essence of the advice can be summed up as follows:

(1) The discussion paper covering the draft tariff policy has not been prepared in consultation with the State governments as provided in the Act; (2) The consultant, CRISIL, had not understood the parameters of tariff policy and "seemed to be unduly preoccupied with eliminating all regulatory discretion rather than with the formulation of a Vision Paper for the power sector.''

(Subsequently, CRISIL sought to clarify that it had no hand in the contents of the paper but functioned only as a technical secretariat of the Ministry of Power.) (3) Most of the methodologies and numbers included in the discussion paper are loaded in favour of the Central public sector utilities, which will lead to an increase in tariffs affecting the States and the consumers.

(4) The discussion paper had prescribed norms covering all the terms and conditions of tariff including project cost, return on equity, debt equity ratio, incentives, depreciation, target availability of the plant for recovery of the fixed charges and other related factors. By doing so, the Government had clearly intruded into the regulator's jurisdiction and such a micro management is not in consonance with the spirit of the Act or the rulings of the Supreme Court on the role of regulatory commissions.

The Central Electricity Regulatory Commission advised the Government to prepare the tariff policy within the scope and ambit of the Act and following the prescribed consultation procedure. The commission also advised the Government to forward the draft tariff policy as and when prepared for its statutory advice before its finalisation. It is against this background that the Government set up the N. K. Singh Committee for policy formulation in the power sector. The committee's report should be made public in the interest of transparency. Also, the draft policy should be made in consultation with the State governments and the Central Electricity Authority. The fact that the N. K. Singh committee has consulted all the stakeholders including the State governments should not be an excuse for avoiding formal consultation with them at the time of finalising the policy based on the committee's recommendations. Finally, formal consultation with the Central Electricity Regulatory Commission is mandatory. Of course, such far-reaching national policies should also be placed before Parliament.