Centre Abridging the States’ Autonomy

The Centre has recently introduced a Bill to amend the Electricity Act of 2003 which, among others, will imply abridging the States’ autonomy in the matter of renegotiating the existing Power Purchase Agreements (PPAs) and the terms and conditions of issuing licenses to private players in the electricity distribution segment.

“Electricity” is a subject listed among the Concurrent items in the Constitution (List III of the Seventh Schedule) and, historically, it is the States that have been instrumental in electricity development and taking electricity to the remotest areas of the country. Over the years, the Centre has progressively intruded into the State’s domain, curtailed its authority, cutting at the very foundation of a federal structure that is basic to our Constitution. India is far too diverse a country where excessive centralisation can be counterproductive and violative of the letter and spirit of the Constitution. Certainly, the latest electricity amendment Bill tabled by the Centre is one major step towards such excessive centralisation.

At no time did the Union Power Ministry explain to the States and the public at large the rationale of bringing out the Bill. The Centre ought to have made a public disclosure of the technical and socio-economic analyses of the issues arising, if any, that justifies the formulation of such a Bill. If no such analysis has so far been done, the States and their respective legislatures, as well as the Parliament can demand that the Centre should float a “white paper” on the subject for a public debate, before rushing into placing the Bill before the Parliament and getting it enacted in haste. In the absence of such a prior public disclosure, I feel that the Centre would be doing great injustice to the spirit of democracy and participative governance.

You are aware that one of the six important demands of the farmers associations who have been agitating against the controversial Farm Bills for more than a year around Delhi is that the Centre should withdraw the electricity amendments Bill. The electricity employees across the country have also launched a country-wide agitation against the Bill.They have valid reasons for resorting to such a peaceful agitation.

In this connection, governments in some States like AP have been trying to renegotiate PPAs entered into by their predecessors, in view of the exorbitant tariffs that such agreements will give rise to, adversely affecting the interests of the consumers. The previous governments had indiscriminately signed one-sided agreements with the private promoters of solar electricity generating plants, knowing well that solar technology is an evolving one with a declining trend in the unit costs. Surprisingly, instead of lending support to the States and protecting the consumers’ interests, the Union Power Ministry took sides with the private promoters and asked the States to put a stop to such renegotiation. While there is always the question of the sanctity of a contract and the legal implications of renegotiating contracts, it is for a State to decide on the course of action in the interest of the consumers. The States are well equipped in dealing with such contracts and finding legally acceptable ways to protect the interests of the consumers. In the spirit of upholding the federal balance between the Centre and the States, the Centre should allow the States to act on their own, without interfering with their authority.

A similar issue arises in the case of PPAs signed in the past by some States with the private promoters of thermal power plants with a highly regressive provision in the name of “deemed generation clause“: which mandated the State utilities compensating the private promoters for 100% of the fixed costs, irrespective of whether the plant has supplied electricity or not. It is the electricity consumer who pays for such malfeasance on the part of the State administration, which by any logic cannot be justified. In a way, the new Bill before the Parliament will also prevent the State from renegotiating such PPAs to safeguard the interests of the consumers.

The Punjab Government has faced public criticism in the matter of high tariffs resulting from such PPAs signed in the past. In order to protect the consumers’ interests, the Punjab government has since circulated a White Paper justifying the need for renegotiating the PPAs and introduced a Bill for that purpose (Punjab Renewable Energy Security, Reform Termination and Rederimination of Power Tariff Bill) in the Punjab Assembly. I have enclosed here copies of the White Paper and the Bill for your ready reference. It is an excellent initiative taken by the Punjab Government which inspires confidence among the people of the State.

I wish the Centre had emulated the example of Punjab and displayed the same sense of public accountability in dealing with electricity.

Perhaps, as Punjab has done, the States should similarly assert their authority under the Constitution and enact laws that preserve their autonomy in order to safeguard the electricity consumers’ interests. Such laws need to be State-specific. In those States where the consumers are unduly burdened by the “deemed generation clause” of the PPAs signed in the past with thermal power plants, the new law could extend to such PPAs also.

I suggest for your consideration that you may oppose the Bill on the subject now before the Parliament and also process your own State law aimed at protecting the electricity consumers’ interests. That will go a long way towards protecting the federal structure that governs the relations between the Centre and the States. It will inspire confidence among the consumers.

In the specific case of centralised solar power plants, since the technology is continuously evolving leading to higher efficiencies of conversion of light into electricity, long-term contracts tend to hurt the interests of the consumers. In my view, the States should move away from centralised solar electricity generation and encourage decentralised rooftop generation and solar irrigation pumpsets, which are more democratic and consumer-friendly. The consumers can then become generators of electricity in their own right and earn net incomes. Of course, simultaneously, efforts should be made to devise recycling technologies that prevent solar panel waste from polluting the environment.

The recent Central directive that the States must set apart a certain minimum proportion of their electricity needs to be met from solar electricity, in my view, is an intrusive mandate that has wide implications from the cost point of view and also from the point of view of grid stability. The States should take up this issue with the Centre.

I earnestly hope that you will give some thought to these suggestions and act before the Centre encroaches on the State’s domain.