States use emergency provision to usurp power and plug shortages
Private sector investors in power generation projects have become jittery over the increasing use of the emergency provision in the Electricity Act by some state governments, directing generation firms to sell their entire output to the state grid.
And the Central Electricity Regulatory Commission (CERC) shares their concerns. It has told the Union power ministry that the rising use of this section is a major problem for investor sentiment.
This emergency provision, contained in section 11 of the Electricity Act, allows a state government to direct operations and maintenance of any generating station under “extraordinary circumstances.” Extraordinary circumstances are those arising out of threat to security of the State, public order or a natural calamity or such other circumstances arising in the public interest.
State governments are increasingly using this provision of the Act to disallow sale of power outside the state, in a bid to plug power shortages. The difference in price between power bought from a generation firm within the state and what is got from the spot market can be anywhere between 50 and 150 per cent.
A senior CERC official confirmed that Karnakata, Tamil Nadu, Andhra Pradesh and Orissa have used this provision heavily in the past year.
“Earlier, freedom to sell power to a buyer of choice was the main guarantee to an investor. Now, investors’ comfort level will not be the same It (this development) will send a very bad signal (for new investment),” the official said.
Currently, total installed generation capacity in India is 1,50,000 Mw and the private sector accounts for 15 per cent of this. In the current Plan period ending March 2012, the private sector is supposed to invest about a fourth of the total investment of Rs 2,25,000 crore in new capapcity.
“This misuse of the meregency provision is against the basic spirit of the Act, which is to allow free power transfer to generators. This severely limits the options for the private investor,” said Venkatesh Babu, managing director of Lanco, one of the lmajor private power generators.
Lanco has already been asked, he says, by governments of some states in which it is developing power stations to keep a higher share of generation within the state. The company has a current capacity of 500 Mw and plans to raise this to over 4,000 Mw by 2012, with a Rs 18,000 crore investment.
Karnataka is a recent case. It had a peak-time power deficit as high as 16 per cent in December and 10 per cent in January, according to data from the Central Electricity Authority (CEA). These two were among the highest power shortage months for the state in the entire year from April 2008 to March 2009, owing to less rainfall, said a state government official.
As a result, officials directed GMR to sell power at a lower price than the earlier agreed rate, citing a reduction in fuel charges sicne the time the rate was agreed on.
Analaysts say there are solutions to this issue. “Most parts of the country are reeling under power shortage. It is not an extraordinary situation. It does not happen overnight and state governments can well prevent it,” said Shubhranshu Patnaik, Executive Director, PricewaterhouseCoopers.
One solution could be amending the Act to give a clear definition of what constitutes “extraordinary circumstances”.
“The central government should issue guidelines to clarify what constitutes “extraordinary circumstances” in section 11 so that the investors do not lose the contracts they have got into. When you are going against the sanctity of the contract law, you should be sure that it is really an extraordinary situation,” Patnaik says.
A senior government official says banning sales outside the state boundary through section 11 cannot be considered right, but such measures are necessary to check profiteering, as power is being sold at rates much higher than the cost of generation.
