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Critically

evaluate

the

neutrality

of

regulator in the power sector reforms of


India?
India after independence followed a socialist idea of governance influenced by USSR
where a lot of services and sectors were under the control of the government, power
sector being one of them. When India decided to follow the liberal path of development
and decided to privatize most of its sectors like the power sector (electricity). It was left
with no other choice but to form regulatory bodies for the smooth functioning of the
newly privatized sectors. The regulation is basically thought of being under government
horizon but there was a need of independent regulatory bodies which would assure the
investors of keeping check on governments authority even being under the hands of
government i.e. a totally apolitical body looking after their interests as well. In the
beginning after independence the electricity regulation was under the central gov and
state electricity boards (SEBS) under state energy ministries control which formulated
the policies and regulations for power generation, power distribution and power
transmission but were not efficient enough to sustain a decent returns of the resources
gone into power generation due to reasons like the non-payment of bills , and populist
subsidies to farmers, industries rejecting tariff hikes and huge amount of losses
electricity during transmission .

Electricity Reforms and Regulation in Orissa, A Experiment


There was also a lot of dissatisfaction in the urban and rural people due to improper
distribution of electricity and a lot of pressure from finance ministries of state and
central backed by international organizations (world bank) from demanding end to
these populist schemes and a push for the reforms in electricity regulation. Under the
indications of the world bank (1993) agenda for financial help to developing countries
helped introducing the reform in the electric power sector having set some basic set of
rules for the countries to implement to attain the fund. Firstly World bank wanted
countries to have a regulatory body independent of power suppliers and political class.
Secondly no interfere of the state in the working of the regulatory body. Orissa was the
first state in India to maximize on this chance leading to privatization of the electoral
bodies (SEBs), making tariff reforms and independent apolitical regulatory body in this
regard opening doors for the private investment and unbundling the rigid structure of
decision-making thus leading to formation of Orissa electricity regulatory commission
(OERC) which was expected to raise the tariffs in the state for cost recovery of private
investors but instead raised tariffs moderately thus leading the whole idea of
privatization to inflate as planned and expected by the world bank. There was lot of
pressure on the OERC by the world bank to increase the tariffs but the regulator was
stilled not to force the consumer to pay the high transmission and distribution losses.
Thus leading to the failure of the Orissa experiment based on the emerging factors of
unbiased approach to both investors and consumers but surprisingly indian central

government took regulatory approach of Orissa and added them to Electricity


Regulations Commission Act(1998) thus implying them to other states also and it
showed the importance of regulators role in the privatization because it not only thinks
about investor but also about broader stakeholders, which helped in explaining role of
regulatory behavior and its success. The whole idea of independent and apolitical
regulator failed in the Orissa experiment but it helped in understanding the important
basic rules of the game to keep the common interest of both the investors and the polity
at best interest coz ignoring anyone will jeopardize the project.

Electricity Regulation in Delhi under full-scale privatization.

In case of Delhi where the governments approach was more liberal for the investors
and had lot of political pressure onto making privatization in electricity a success in
Delhi giving a good signal to the investors as investors were the need of the hour. The
Delhi Electricity Regulatory Commission (DERC) was given the responsibility to
formulate policies to accommodate a successful privatization bid. It had lot of
constraints on the DERC on providing logistic and materialistic support to it. It could
not hire efficient staff and had to rely on advice of outside consultants thus endangering
its credibility. . The relationship between regulator and consultant was based on
different technical outputs that DERC staff didnt had familiarities on different models
that the consultants were performing thus resulting in consultants dictating terms of
regulation. The DERC separated transmission and distribution and gave the
distribution rights to TATA Powers and RELIANCE Power where Delhi government
was in joint venture with Tata power. The uniqueness of the tenders given was that the
company promising fewer reductions in technical and commercial losses was awarded
with the tenders. Rewards and incentives were based on their total performance in
reduction levels. The constrained DERC was expected to monitor and manage the
irregularities, lack of transparency and accountability issues. Regulator was further
boxed in by the Delhi government's declaration up front of a assumptions about the
total subsidy cap for the transition period, which necessarily included trajectory of
tariffs. High political pressure and influence led to policy capture of the DERC in terms
of performance targets control thus creating loophole for the discoms but it could decide
on the uniform tariffs rates across all discoms. The DERC was pressurized by Delhi
government to implement a Multiyear tariff. Lot of political interference in day to
day work of regulator made it weak and feeble and had assumed role of an auditor
instead of regulator. Not all stakeholders parallel interests were taken into
consideration while ignoring one or the other into the process.

Electricity Regulation in Andhra Pradesh by political will.


The privatizing in electricity regulation in A.P was commenced with the political
willingness of the then CM Nara Chandra Babu Naidu instead of opposition from
different sections of the political class. His efforts saw the light with the formation of
Andhra Pradesh Electricity Regulatory Commission (APERC) under guidance from
UK department for International development and loans from World bank. In A.P the
privatization in electricity regulation occurred under the umbrella of public ownership
where the focus was on reducing theft, threat of industrial shift to other states,
transmission losses, and corruption in the system of distribution, inadequate
infrastructure and populist subsidies. APERC was a totally apolitical regulatory body
which focused on proper service delivery to all regions, to reduce commercial loss
during transmission and distribution. It was also able to promote competition and
privatization because state government had promised to bear the losses incurred on the
whole process so relieving the pressure on the regulator. Three new institutions were
formed to look after the whole process of production, transmission and distribution
namely APGENCO, APTRANSCO and APCPDCL respectively. All these institutions
worked under separate managements but coordinated with each other efficiently to put
a proper efficient system of privatization. All the stakeholders interests were taken care
of by the regulatory body by increasing accountability, transparency and efficiency. The
APERC did not raise tariffs to accommodate private players interests but it maximized
profits on bringing theft losses down, efficient payment collection system forcing timely
payment. All these good efforts of the APERC resulted in increased industrialization in
the state.

Conclusion:
All the three states were able to regulate reforms acc to the priorties of the political
class, public and private companies. As an independent regulatory body is supposed to
have miniature influence on the regulatory body and its supposed to take care of
interests of all the stakeholders , I think both the DERC and OERC have failed in
attempt to have a independent regulatory bodies whereas APERC was successful
because it looked after the profits and also did not burden the public by raising tariffs.
A regulator should take hard steps when there is chance of endangering the whole
purpose of its existence like APERC will cut connections on default payments and fine
industries for over-usage.

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