Power play (Indian Express)

Mains Paper 3: Economy
Prelims level : Ujwal DISCOM Assurance Yojana
Mains level : Reforms in Power Sector

Context

• In a welcome move, public sector companies NTPC and Power Grid Corporation of India have formed a joint venture to set up a national electricity distribution company.
• The decision paves the way for a central public sector entity to enter the power supply business, which up until now has been largely the preserve of state distribution companies.
• Coming at a time when state discoms are struggling to contain their losses, the move is likely to have far reaching ramifications for the distribution segment.

Background

• Over the years, successive governments have tried to address issues plaguing the power distribution segment, but in vain.
• The segment is the weakest link in the power chain, and its poor health affects the entire power sector.
• In 2015, the NDA government had launched the Ujwal DISCOM Assurance Yojana (UDAY) to turn around the fortunes of beleaguered state discoms.
• But almost four years later, discoms continue to struggle, plagued by a host of issues ranging from inadequate tariff hikes, to high aggregate technical and commercial losses, inadequate and untimely subsidy disbursements, among others.
• Their flagging fortunes have not only affected power generation companies, but have also caused stress in the banking sector.
• The creation of a national electricity distribution company, which also serves as a central electricity buying agency, could potentially address several of these issues.
• It could bring relief to power producers, bring stranded capacity back to life, ensure timely payment and address the issue of stressed assets in power generation.
• The new entity could also procure electricity at competitive rates, the benefits of which could then be passed on to end consumers.

Implications from this move

• The move to create such an entity also signals the possibility of another round of reforms in power distribution, especially the separation of content and carriage: Carriage refers to distribution, while content refers to electricity supply.
• Separating them would allow consumers to buy electricity from a power company of their choice.
• In a market that is currently characterised by geographical monopolies, this would help usher in competition.
• Such measures along with the creation of a national distribution company also raise the possibility of rationalising the power tariff structure across the country.
• Currently, the power market in India is highly fragmented. Different state discoms charge different tariffs to different customers.

Conclusion

• These moves could potentially bring about a rationalisation in tariffs by providing national pricing benchmark across different categories of customers.
• However, these moves may face resistance from state discoms, as they could lose their better-paying customers to more competitive entities.

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Prelims Questions:

Q.1) With respect to “constructive vote of no-confidence”, consider the following statements:
1. It allows a parliament to withdraw confidence from a head of government only if there is a positive majority for a prospective successor.
2. It is followed in Germany and was also recommended by the Law Commission of India in 2018.

Which of the statements given above is/are correct?
A. 1 only
B. 2 only
C. Both
D. None

Answer: C
Mains Questions:
Q.1) How the creation of national electricity distribution company could help turn around the power distribution segment? Comment.