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In the matter of
State Govt. subsidy for providing free electricity supply
to agricultural consumers.
Shri P. Subrahmanyam, Chairman
Dr Pramod Deo, Member
In
their Petition dated 11th August, 2004, Govt. of Maharashtra (GoM) through
Industries, Energy & Labour Department (IE&LD) have set out Cabinet's
decision that free electricity supply will be provided to all agricultural
consumers of the Maharashtra State Electricity Board (MSEB) and of the Mula
Pravara Electric Co-operative Society Ltd. (MPECS) w.e.f. 1st July, 2004. Citing the provisions of Section 65 of the
Electricity Act (EA), 2003, GoM have stated that they would compensate MSEB and
MPECS to the extent of revenue loss on account of this decision, estimated at
Rs 1590.74 crores for the period from 1st July, 2004 to 31st March, 2005. GoM have stated further that MSEB would be
compensated through adjustment of the dues payable by MSEB to GoM and the dues
payable by MPECS to MSEB, and have prayed that the Commission may allow them to
do so.
2. In
their Reply submitted on 16th August, 2004, MPECS have stated that their
average monthly bulk power purchase for agricultural requirements amounts to Rs
862.68 lakhs, whereas their average monthly receipts from sales to agricultural
consumers is only Rs 273.39 lakhs.
Thus, MPECS are incurring a loss of Rs 589.29 lakhs each month on the
agricultural component, for which also subsidy should be provided by GoM. MPECS have also pointed out that matters
relating to MPECS are already before the Cabinet in the context of the advice
and recommendations given by the Commission, and that this issue may also be
kept in view. MPECS have concluded with
the following prayers:
(i)
to direct MSEB not to charge electricity bill to MPECS to the
extent of the agricultural component, and that MSEB may be compensated by GoM
to that extent; OR
(ii)
to direct GoM to remit to MPECS the amount equal to their
agricultural revenue instead of adjusting against disputed arrears to
MSEB. The difference between MPECS'
agricultural power purchase and agricultural revenue should not be shown as
arrears due from MPECS to MSEB.
3. In
their supplementary submission dated 16th August, 2004 in continuation of their
earlier affidavit, GoM have stated that they would have to bear the financial
burden on account of revenue loss to MSEB/ MPECS due to concessional tariff/
free supply to agricultural pump sets in 2004-05 as follows:
|
Sr. No. |
Particulars |
Amount (Rs. in crores) |
|
1. |
Concessional rates tariff for
Agricultural Consumers (1st April 2004 to 30th June 2004) |
252 |
|
2. |
Free supply to Agricultural pump sets
(1st July 2004 to 31st March 2005) |
1180 |
|
3. |
Total amount payable to MSEB
(2004-2005) |
1432 |
|
4. |
Provision already made (2004-2005) |
587 |
|
5. |
Balance provision to be made for MSEB |
845 |
|
6. |
Provision to be made for Mula Pravara
Electric Co-operative Society |
50 |
|
|
Addl. provision to be made in the year
(2004-2005) |
895 |
GoM
have stated that a budget provision of Rs 587 crore has already been made
against subsidy for agricultural consumers in 2004-05, and provision for the
remaining amount of Rs 895 crore would be made through Supplementary Demand in
the next Legislature session. GoM have
further stated that Rs 237 crores have already been released on 18th June, 2004
to MSEB out of the budget provision of Rs 587 crores for the earlier concession
for the first quarter. GoM have
reiterated that they be allowed to adjust the amount of subsidy against the
dues payable by MSEB to GoM and by MPECS to MSEB.
4. The
matter was heard on 16th August, 2004.
At the outset, Shri R.N. Ambrit, Deputy. Secretary, IE&LD, cited the
provisions of Section 65 of EA, 2003 under which GoM had approached the
Commission, and reiterated the submissions in their Petition. He also cited the financial details
contained in GoM's supplementary submission furnished before the hearing.
5. Shri
Jayant Kawale, Chairman, MSEB clarified that the bill for agricultural
consumers for the 2nd quarter (starting 1st July, 2004) is likely to be Rs. 395
crores. The compensation required for
the other agricultural concessions payable for the 1st quarter is Rs 252 crores
against the existing budget provision of Rs 587 crores for agriculture for the
whole year. Thus, an additional budget
provision of around Rs 60 crores requires to be made even for the 2nd Quarter
by taking an advance from the Contingency Fund or by re-appropriation from out
of the budget provision for concessions against the powerloom tariff,
considering the fact that the next Legislature session will take place in
November / December 2004 and the Supplementary Demands could be passed only
then.
6. With
regard to GoM's prayer to allow them to pay compensation by adjustment of dues
payable by MSEB, Chairman, MSEB submitted that uptil now such adjustments have
been possible, as envisaged in the earlier Orders of the Commission, since
there were balance amounts due from MSEB to GoM. However, at present there are no such payments due. Thus, there being no scope for adjustment
left for the 2nd quarter, the required compensation of around Rs 395 crores
would have to be paid by GoM to MSEB in cash prior to the raising of bills,
according to the quarterly agricultural billing cycle, from the end of
September, 2004. If this is done, the
issue of the manner of compensation for the subsequent periods can be deferred
for later consideration. The Commission
observed that the Tariff Regulations notified on 10th June, 2004 are clear that
any shortfall in compensation would have to be reflected in the bills actually
raised and, in such an event, the question of free power would not arise.
7. Shri
R.V. Kulkarni, Managing Director, MPECS summarized the points made in their
Reply. He stated that the difference
between the amount which MPECS have to pay to MSEB for monthly power purchase
and the much lesser amount recoverable from the agricultural consumers should
be waived or otherwise provided for, and that the dispensation proposed by GoM
will not leave sufficient liquidity with MPECS to run their day-to-day
operations.
8. Dr.
Ashok Pendse of Mumbai Grahak Panchayat (MGP) submitted that, under Section 65,
payment of compensation has to be made 'in advance'. The Concise Oxford English Dictionary defines the term
"advance" as meaning 'before it is due'. The term 'due' is defined as 'what is owed to one'. Therefore, there is no provision under
Section 65 for payment of compensation by adjustment. He pointed out that, under the two-part tariff, fixed charges
apply as soon as a consumer is connected, and only the energy charges apply
upon actual consumption. Therefore,
there is also no provision for adjustment at a later stage and, thus, GoM's
decision cannot be effective from a past date, i.e. 1st July, 2004. Dr. Pendse also referred to the words
"the amount to compensate the person affected by the grant of
subsidy" in Section 65. He submitted that, firstly, in addition to
MSEB and MPECS, there are other organizations which are affected such as BEST,
Reliance Energy, Military Engineering Services, Maharashtra State Farming
Corporation and even the Railways which have agricultural pump sets. Secondly, all consumers are also affected
since the decision to provide free power will have an impact on T&D losses
and their computation. Even at present,
these losses had compelled the Commission in its last tariff Order to levy a
'Regulatory Liability Charge' on certain consumers who would have to bear an
even higher burden in future. The
Commission observed that it was a moot point as to whether Parliament had
intended the term 'person affected' to have such a wide ambit.
9. Shri
Shantanu Dixit of Prayas submitted that GoM's decision would vitiate the
repayment culture, and the adverse impact on MSEB's ability to recover would
affect all consumers. Therefore,
compensation would have to be paid for that also. Stating that, under Section 65, only the manner of payment is to
be decided by the Commission, he suggested that the Commission should call and
hear the compensation claims of all those who would thus be affected before
taking a decision. The Commission
observed that it seems that, under Section 65, the persons directly affected
are MSEB and MPECS considering the fact that GoM are proposing to provide their
agricultural consumers full concessions against tariff.
10. Chairman,
MSEB submitted that the payment of compensation to MSEB becomes due at the end
of the quarter and not at the beginning because recovery from agricultural
consumers by MSEB starts only then.
However, Dr. Pendse reiterated his contention regarding when fixed
charges become due.
11. Shri
Dixit submitted that this was the most regressive decision in the last 5 years
and would have a major impact on the power sector. It would also lead to wastage of power and water resources,
affect the water table and adversely effect the paying culture. He pointed out that in an earlier Order
dated 28th March, 2001 (para 4), the Commission had raised various issues which
had to be addressed. Shri Dixit
submitted that the Commission's responsibility is not limited to Section 65 and
urged the Commission to seek an affidavit from GoM on the above wider issues.
12. With
regard to payment of arrears, Chairman, MSEB drew attention to the Krishi
Sanjivani Yojana which has been extended.
Technically, for past arrears, MSEB are free to disconnect. Shri Dixit pointed out that arrears from
agricultural consumers are already to the tune of Rs 1500 crores. With the present decision, there is no
reason why defaulters should now make payment.
The wider impact of GoM's decision should be considered by the
Commission since it affects MSEB's liquidity and service performance and
impacts on all consumers. Thus, GoM should
compensate MSEB for these arrears, possibly by an interest free loan repayable
as and when dues are recovered. Shri
Dixit also urged that MSEB should file an affidavit regarding the position
consequent upon the Commission's earlier subsidy Orders passed under EA, 2003,
and the actual compensation paid by GoM vis-à-vis the requirements. Further, Shri Dixit pointed out that only
two Zones, viz. Nashik and Kolhapur, have a share of 60% of the total energy
consumption by agriculture, and queried whether the GoM's decision would meet
the test of the guiding principles under Section 61. He also drew attention to the serious concern expressed by the
Commission with regard to the impact on repayment culture at the end of its
Order regarding the Krishi Sanjivani Yojana.
The Commission observed that, whereas Section 86(1) refers to the
mandatory functions of the Commission, Section 86(2) was restricted to giving
advice to GoM on wider issues.
13. Shri
Dixit submitted that the Commission should at least look at the compensation to
be paid on account of arrears. The
Commission observed that the scope of Section 65 appears to be limited and
specific, whereas the Commission could advise the Govt. separately on the wider
ramifications under Section 86(2).
Under Section 65, it is the prerogative of GoM to provide subsidy
against tariff regardless of the indirect impacts provided they fulfill certain
conditions. Shri Dixit responded that
his contention was that the Commission should quantify the amount of compensation
taking into account both the direct and indirect impact as well as the arrears.
14. Dr
S.L. Patil of Thane Belapur Industries Association (TBIA) submitted that the
GoM's decision would have an impact on T&D losses since all such losses
could be ascribed to agriculture, and this would result in increase in tariff
through an increase in Regulatory Liability Charge or other means. Thus, the entire tariff determination
exercise conducted by the Commission will be vitiated, and the adverse impact
loaded on all other consumers in future.
15. The
Commission stated that the authorized consumer representatives should submit
the contentions made at the hearing in writing with a copy to the Principal
Secretary (Energy). Principal Secretary
(Energy) was advised to take the opinion of the Advocate General on points of
law and furnish GoM's response by 23rd August, 2004 with a copy to the consumer
representatives. An issue was also
raised as to whether MSEB would be bound by GoM's decision. Thereafter, a further hearing would be held
only if the Commission feels it necessary to do so. GoM should also separately submit how far it has complied with
the Commission's earlier Orders relating to subsidy.
16. In
their written submission dated 17th August, 2004, Prayas have reiterated their
contentions regarding the regressiveness of GoM's decision, the adverse impacts
of free power and the responsibility of the Commission in the light of EA, 2003
read as a whole. Prayas have urged as
follows:
(a) GoM and MSEB
should show how the proposal satisfies the criteria under Section 61(b), (c),
(h) and the objectives of EA, 2003; give evidence of the funds available with
GoM to compensate MSEB taking into account the arrears subsidy commitment; set
out the impact on MSEB's finances and operations and their ability to meet
consumers' service expectations; provide details of subsidies payable and paid
in the last five years and manner of payment; and furnish information regarding
arrears and recovery from agricultural consumers, as set out in their
submission.
(b) In any event,
GoM should pay in advance and in cash (or by book adjustments of net MSEB
payables to GoM, as per the Tariff Regulations) to compensate the loss of
revenue to MSEB. As mentioned above,
the loss of revenue to MSEB is not just on account of waiver of bills starting
from 1st July, 2004, but MSEB would also lose due to non-recovery of arrears
from agricultural consumers.
(c) In addition to
loss of revenue due to bill waivers, the Commission should direct GoM to
compensate MSEB to the tune of, say, Rs 100 crores/ month upto the amount of
agricultural arrears as interest free advance.
As and when MSEB recovers these arrears, the same should be refunded to
the GoM.
(d) MSEB should
urgently carry out the metering of all pumps and the cost of the same should be
paid by GoM. Without such a process,
the unaccountability of MSEB will continue.
17. In
their submission dated 18th August, 2004, Mumbai Grahak Panchayat (MGP) have
set down in writing their contentions at the hearing regarding the meaning of
advance payment under Section 65 in the context of when the fixed charges
apply. They have also reiterated that
the compensation amount cannot be restricted only to the extent of the subsidy
proposed, but has to include the effects on agricultural arrears (Rs 2200
crores), increased pumping resulting in further load shedding and loss of
revenue from paying consumers, increase in T&D losses and a culture of
non-payment. MGP have also pointed out
that agricultural pumps elsewhere would
also have to be covered. Therefore, MGP
have prayed as follows:
(a)
The Commission should give 15 days notice asking persons (and
MSEB) to file for compensation if they feel affected, and then determine the
amount of compensation.
(b)
Prescribe the manner of payment such that it meets the requirement
of payment in advance.
(c)
Inform MSEB that in case of any deviation in the manner of payment
laid down, recovery would be as per the approved tariff.
18. In
their submission dated 17th August, 2004, TBIA have stated that the entire
revenue mechanism of MSEB and the Tariff Order dated 10th March, 2004 would be
jeopardized on account of free supply to agricultural pumps. The compensation to the affected persons
needs to be computed "based on the losses incurred by supply of millions
of units on the cost of production, since the same has been accounted for while
fixing total revenue generation in addition to FOCA charges. This has to be calculated along with various
components to arrive at the amount of compensation to be paid to MSEB and
MPECS." TBIA have also reiterated
the other contentions made by them at the time of hearing.
19. In
his further affidavit received on 23rd August, 2004, on behalf of GoM Shri R.N.
Ambrit, Dy. Secretary has stated, inter alia, as follows:
(i)
"On the basis of the opinion of Advocate Generate, I
say that the EA, 2003 prescribes procedure for disconnection of electricity
supply. Section 56 of the EA, 2003
enables the MSEB to disconnect the electricity supply in case of default in
payment of bills. The relief provided
by Section 65 operates only in case of advance payment. It is, therefore, clear that in the event
the MSEB does not receive payment for energy supply and bill sent by it to a
Consumer, it is within its right to disconnect electricity supply."
(ii)
"I say that Section 65 of the EA, 2003 enables the
Government to grant subsidy to any consumer or class of consumers in the tariff
determined by the State Commission. The
tariff determined by the State Commission is in relation to the charges of the
energy supplied to the Consumer. It may
take into consideration indirect losses suffered by the MSEB. However, once the tariff determined or is
under consideration of the Commission, the subsidy granted by the Govt. can
only be in relation to the tariff. In
that view of the matter, the Advocate General opined that indirect losses and
culture of payment of dues as well as loss accrued thereby to MSEB need not be
compensated by the Govt. while providing subsidy to the Consumers."
(iii)
"I say (in view of the Cabinet decision) that the
State Government has issued the Government Resolution for providing free
electricity to the farmers subject to the approval of the Commission. The State Government has also taken a
decision to provide the necessary amount to MSEB and Mula Pravara Society by
way of subsidy for the quarter ending July to September 2004. I further state that the State Government
will move the State Legislature during its coming Winter Session for providing
necessary amount to be paid as subsidy to MSEB and Mula Pravara Society for
implementing this decision."
(iv)
"I say that the other issues raised by the Deponents
are peripheral and require some time to give detailed reply. However, so far the central issue of payment
of subsidy to MSEB and Mula Pravara Society is concerned, the opinion of the
Advocate General is clear and the commitment of the State Government is also
made hereinabove."
20. With
the above affidavit, GoM have submitted a copy of Govt. Resolution (GR) dated
17th August, 2004. Giving reference of
an earlier GR dated 21st February, 2004 regarding subsidy for the previous
concessional tariff decided upon for the period from 1st December 2003 to 30th
November, 2004, the GR states, inter alia, that GoM have decided to provide subsidy
to compensate MSEB and MPECS for the revenue loss on account of the decision to
fully subvent the agricultural tariff from 1st July, 2004, subject to the
Commission's approval.
21. The
Commission notes that Section 65 deals with compensation (in the present case
to MSEB and MPECS) for any subsidy against the tariff determined in respect of
any consumer or class of consumers, and reads as follows:
"If the
State Government requires the grant of any subsidy to any consumer or class of
consumers in the tariff determined by the State Commission under Section 62,
the State Government shall notwithstanding any direction which may be given
under Section 108 pay, in advance and in such manner as may be specified, the
amount to compensate the person affected by the grant of subsidy in the manner
the State Commission may direct, as a condition for the licence or any other
person concerned to implement the subsidy provided for by the State Government.
Provided
that no such direction of the State Government shall be operative if the
payment is not made in accordance with the provisions contained in this section
and the tariff fixed by the State Commission shall be applicable from the date
of issue of Orders by the Commission in this regard."
A fair reading
of Section 65 makes it clear that it is limited in ambit, and that the
compensation has to be equivalent to the extent to which the amount payable by
the subsidized consumers is to be reduced as compared to the approved tariff. This is also the thrust of the advice of the
Advocate General submitted by GoM. The
wider ramifications of GoM's decision that might also impact on future tariff
revisions are certainly a matter of serious concern which the Commission had
also expressed in its Order in the case of the Krishi Sanjivani Yojana. However, in the present matter, the
Commission is restricted to determining the manner in which the compensation is
to be paid for the direct impact on MSEB and MPECS. Since the subsidy against tariff becomes operational only when
the bills are actually raised and become due for payment by agricultural
consumers (in this case for the first time only at the end of the 2nd quarter
of 2004-05), the compensation has to be paid prior to the raising of such bills
to satisfy the requirement of payment in advance under Section 65. With regard to the principles governing
tariff cited by Prayas, the Commission notes that the tariff remains as
determined by the Commission, but the actual recovery is to be done net of the
compensation paid.
22. The
Commission has already passed several Orders after the coming into force of EA,
2003 on various GoM Applications for grant of subsidy against tariff to
different categories of consumers of MSEB and MPECS. Thereafter, on 10th June, 2004, the Commission has notified the
Regulations regarding the Terms and Conditions of tariff under the provisions
of EA, 2003. Regulation 8 reads as
follows:
"Grant
of subsidies by the State Government --
8.1
If the State Government requires the grant of any subsidy
to any consumer or class of consumers in the tariff determined by the
Commission, the State Government shall pay in advance the amount to compensate
the licensee/ person affected by the grant of subsidy in the following manner.
8.2
The amount of subsidy agreed to by the State Government may
be provided in the form of grant or by book adjustment of net dues payable by
the licensee to the State Government.
8.3
To the extent to which the subsidy is provided by book
adjustment of various dues payable by the licensee to the State Government,
such adjustment shall be done on the basis of cash in hand with the licensee
and not on accrual basis in respect of dues to be collected by the licensee
from consumers on behalf of the State Government, such as electricity duty:
Provided that
the total requirement shall be adjusted on this basis before the subsidy can be
operationalised and reflected in the bills issued by the licensee to the
eligible consumers.
8.4 The subsidy shall be passed on to
eligible consumers only in proportion to the extent to which the total
requirement of the licensee is paid by the State Government by financial
releases or by way of book adjustment:
Provided that in
case of shortfall in such adjustment and/or actual release of subsidy, either
because of errors in estimation or because of the difference between earlier
computations on accrual rather than cash basis, or any other reason, such
shortfall, shall be shown clearly in the consumers' bill and shall be
distributed on a pro rata basis between the concerned eligible consumers until
such time as it is reduced or eliminated.
8.5. The licensee shall clearly indicate in the
consumer's bill (a) the tariff determined by the Commission; (b) the amount of
State Government subsidy and the rate and period thereof; (c) the net amount
payable."
Thus,
under the Regulations, the compensation can be provided by GoM either by
adjustment of dues payable to GoM or by actual cash releases. In the case of adjustment, this has to be
done on the basis of payments actually due (i.e., instalments of principle and
interest due against loans from GoM and, in the case of Electricity Duty
collected by MSEB, to the extent only of the actual amount so collected but yet
to be remitted to GoM.) This has also
been the thrust of the recent Orders of the Commission passed prior to the
Tariff Regulations.
23. The
Commission has noted the initial statements made by GoM regarding the quantum
of budget provision made and additional provisions to be made by them. However, it seems that these budget
provisions were intended to enable adjustment of loans, etc. repayable by GoM
to MSEB, and did not envisage net cash provisions. The Commission notes in this context GoM's subsequent affidavit
received on 23rd August, 2004 and GR dated 17th August, 2004, which appear to
envisage net cash payments as compensation to both MSEB and MPECS. Chairman, MSEB had stated without rebuttal
at the hearing that not only are budget provisions inadequate to meet the
requirements of compensation even for the 2nd quarter starting 1st July, 2004,
but that there is in fact no balance of loans, etc. due for repayment by MSEB
to GoM during this quarter. In any
event, for the reasons cited above,
Commission directs that the compensation would have to be paid in cash
before bills are raised unless GoM can show that there is still scope for
adjustment since payments from MSEB are due.
Regulation 8.4 cited above already makes clear what is to be done if
there is any shortfall against the actual requirement, viz. that subsidy
against tariff will not be permitted to that extent.
24. In
view of the above, GoM are directed to compensate MSEB and MPECS by net cash
releases to the extent required for the 2nd quarter of 2004-05 well before
raising of bills for that quarter. With
regard to the subsequent period, GoM are free to approach the Commission when
they are able to show that they fulfill the requirements of the Commission and
of the Tariff Regulations for that period.
While doing so, or before that time, GoM should deal on affidavit with
those issues raised by the consumer representatives in their written
submissions which have yet to be addressed, along with the detailed information
asked for.
Sd/-
Sd/-
(Pramod
Deo) (P.
Subrahmanyam)
Member Chairman,
MERC
Sd/-
(A.M. Khan)
Secretary, MERC