Reorganisation of Power Sector in Maharashtra
The Electricity Act, 2003 (‘the Act’) has been
notified on June 10, 2003.
As per the provisions of Section 172 (c) of the Act,
the undertaking of the State Electricity Boards (SEB) established under section
5 of the Electricity (Supply) Act, 1948 are to be transferred
in accordance with the provisions of Part XIII of the Act
within a period of one year of notification of the Act, unless
the State Government, by notification, authorizes the SEB
to continue to function as a State Transmission Utility (STU)
or licensee for such further period beyond one year
as may be mutually decided by the Central Government and the
State Government. Hence, unless MSEB is authorized
to continue as per the provisions of Section 172 (a), restructuring
of MSEB in accordance with the provisions of Part XIII of
the Act will be a legal necessity.
The emphasis of the Act is to improve access to
electricity, customer service and efficiency in operations
through competition. The
Act implicitly recognises the scope for competition in several
segments of the industry, including in generation, supply/trading
and also distribution of electricity.
The need for restructuring of the sector emanates from
the above objectives of the Act. Traditionally the electricity
sector has been considered to have considerable economies
of scale and scope that made vertical integration necessary. However recent advancements in technology, particularly in information
and communication technology, have considerably diminished
the advantages of vertical integration.
Information Technology has ensured that the sector
participants can make quick and informed decisions on their
operations. It is now recognized that the disadvantages of vertically integrated
monopoly operations in the form of operational inefficiency
and poor customer service, outweigh the benefits of scale
and scope economies.
The Commission is vested with important responsibilities
in promoting the objectives of the Act and implementing its
various provisions. As
per the provisions of Section 86 (2) (iii) the Commission
is mandated to advise the State Government on matters relating
to reorganization and restructuring of the electricity industry
in the State. The
Act requires the Commission to introduce open access, facilitate intra-state transmission and wheeling, foster development of power markets, and also advise the State Government on promotion
of competition, efficiency and economy in activities of the
electricity industry.
The Maharashtra State
Electricity Board (MSEB) is the dominant utility in the State
of Maharashtra. The
manner in which MSEB is restructured will greatly influence
the future operations of the power sector in the State and
the attainment of the objectives of the Act. The State Government, through its consultants,
made a presentation to the Commission on the restructuring
options being considered for MSEB.
This was followed by a letter dated April 13, 2004
whereby the State Government sought advice of the Commission
on specific issues relating to restructuring of MSEB.
The State Government also requested the views of the
Commission on other matters that may be of relevance in the
restructuring process. This
letter from the State Government is provided as Annexure I
to this document. In
response to this reference from the State Government, the
Commission is advising the State Government in accordance
with the provisions of Section 86 (2) (iii) on the important
issues and considerations. The Commission is keen that the
statutory deadline of June 9, 2004 for restructuring of the
sector is met, and hence is basing its views on the information
presently available to it.
It needs to be recalled
that MSEB is one of the few among the large State Electricity
Boards that has not restructured its operations.
Several State Electricity Boards have shown appreciable
improvement in operating performance and service standards
after restructuring, primarily on account of greater focus,
accountability and administrative convenience that results
from horizontal and vertical disaggregation of monolithic
institutions. In the
absence of restructuring the operations of MSEB have shown
only marginal improvement in the past few years.
The Electricity Act, 2003 offers the State Government
and MSEB an opportunity to set matters right through structural
and organisational reforms. This opportunity must be seized to ensure that henceforth the consumers
get a better deal, while simultaneously safeguarding the interests
of the successor entities of MSEB by equipping them adequately
to face competition on a level playing field.
