Indians like to be verbose. We like to pack in as much as possible lest we realise later that something has been left out that can create ambiguity. Conveying as much as possible with minimum words is an art and requires some amount of ingenuity and command over the language. Our policy documents suffer from the same malaise, at least some of them. Policy documents should be pithy and crisp and should be able to convey the direction we intend on taking. The policy documents that I have in mind are the National Electricity Policy (NEP) and the Tariff Policy (TP). Both the NEP and the TP emanate from Section 3 of the Electricity Act 2003 (henceforth EA 2003) and are formulated after consulting the Central Electricity Authority and state governments.
Both these documents run into pages and on several occasions, speak of issues that strictly do not lie within their respective domains, thus depriving themselves of clarity and sharpness. Moreover, the documents are complex, not reader-friendly and difficult to assimilate and retain. In the TP, we have sections that actually should be taken up in the NEP and vice-versa. A perusal of the TP reveals that it is wavering when dealing with the issue of competition since there are far too many caveats. There is a strong case that both these documents not be dealt with separately and be merged into a single one for harmonious construction.
Let’s deal with the TP first. Though the preamble of the EA 2003 speaks of competition, the TP has several caveats and provisos when it comes to competitive procurement of power by distribution companies. It mentions that competitive procurement need not be done in the case of extension projects, be it in the public or private sector. Further, competition can also be bypassed if a state government formulates a specific policy to seek investments in the power sector whereby tariff for 35 per cent of the capacity can be fixed through the cost-plus route instead of bidding. In the very next section, it is mentioned that for public sector projects, tariff may be determined on a cost-plus route on a case-to-case basis. These unnecessary caveats and provisos distort a policy statement and dilute the basic intent of EA 2003 — competition.
How difficult the policy can be when it comes to implementation can be best seen when reading the section related to determination of hydro tariffs. The policy states that tariff for all hydro projects can be determined on a cost-plus basis provided a two-stage transparent process has been followed for identifying the developer (details of the two stages are not being elaborated since they are exhaustive by themselves), the concurrence of the CEA has been obtained before August 2022, long-term power purchase agreement has been firmed up for at least 60 per cent of the capacity, and the award of contract for supply of equipment and construction are done through the international competitive bidding route. The project will have to be completed in four years unless otherwise decided by the regulatory commission. In case of delay attributable to the developer, he shall not be eligible for interest during construction and finance cost. The entire process is thus very cumbersome and can cause considerable headache to the regulator apart from being prone to litigation.
The bulk of the TP document can be substantially pruned by removing several sections which actually do not add any substance but aim at only educating the consumer. Space in a policy document is precious and should not be wasted in this fashion. Of course, educating the consumer is important. But a different forum should be used for this purpose. Moreover, portions of the TP actually speak of issues that have nothing to do with tariffs but relate to standards of performance, such as quality, continuity and reliability of power supply. There is also the issue of presentation where portions should be relegated to annexes to make the document more reader-friendly.
Turning to the NEP, the first thing which comes to mind is should the NTP and NEP continue as two separate policies? Can matters related to tariff be segregated with electricity policy in general? The answer is no and it is precisely for this reason that we find inter-mingling of objectives in both policy statements. Both policies speak of providing power at reasonable rates, ensuring commercial viability of the sector, and protecting consumer interests. Thus, it would be appropriate to subsume the TP into the NEP since tariff is one of the several issues which is a matter of electricity policy.
Recently, the government had indicated its intention to amend the EA 2003 and also the tariff policy and that being so, this is the appropriate time to revise various sections of the EA 2003 for having an integrated electricity policy which will have tariff as one of its constituents. Further, it would be in the interest of stakeholders to have a crisp and concise policy that speaks of only policy and nothing else.
This column first appeared in the print edition on December 28, 2021 under the title ‘Saying it sharply’. The writer is Senior Visiting Fellow, ICRIER and former, Member (Economic & Commercial), CEA