Short circuit

Calcutta, Oct. 3: The Union finance ministry has strongly opposed two key policy proposals sent by the power ministry to the cabinet. The power ministry, which is trying to implement these policies, is upset with the development. It wants to curtail the power of the regulatory commissions in some amendments to the Electricity Act, 2003.

The finance ministry has termed this as an “extremely aggressive” move.

The second proposal is the crucial tariff policy, which the finance ministry says is not based on market principles. Sources in the power ministry said the finance ministry has referred back to the committee of secretaries by the cabinet.

Sources said even though the two proposals are separate, they have a bearing on the future of reforms in the power sector.

The proposed amendments replace some crucial words in the electricity act and require regulators to conform to government policies. This defeats the very purpose of setting up independent regulators, the finance ministry feels.

The finance ministry wants the general concerns raised on the functioning of the regulatory bodies to be clearly listed before an amendment is made. Power ministry sources, however, said the move to replace words that the regulator ‘‘shall be guided by...’’ with ‘‘shall act in conformity...’’ is based on the feedback from some regulators and the incumbents themselves. They said when it comes to statutory guidelines of the government, there should be no room for ambiguity. In any case, both the national electricity and tariff policies are finalised through a series of consultations with regulators and state governments.

On the tariff policy front, the finance ministry has questioned the basis on which the policy has been drafted. In a detailed note on the power ministry’s tariff policy, the finance ministry has raised issues clause by clause and has said power tariffs should be determined by market forces rather than the cost-plus approach. The finance ministry has even pointed out that the monopoly in power distribution be ended and that the tariff policy be based on the common carrier principle in distribution. This suggestion from the finance ministry is also based on the experience of the Delhi power reforms model.

Under the common carrier system, the consumer can use the distribution network to choose source of supply and the owner of the distribution network should provide access to various sources of electricity.