Privatisation of Power Distribution in India

The recent ruling by the Supreme Court of India on December 2, 2024, has furthered the government’s intent to privatise power distribution in Chandigarh. The court upheld the Punjab and Haryana High Court’s decision, allowing the government to proceed with its plans. This move is part of a broader initiative that began in 2021, aiming to privatise power distribution across all Union Territories. The first successful privatisation occurred in Dadra and Nagar Haveli and Daman and Diu in 2022.

Historical Context of Power Distribution Privatisation

Privatisation in India’s power sector began with Odisha in 1997. The state underwent another round of reforms in 2020. Delhi followed suit, becoming the first state to achieve complete privatisation. Other cities like Mumbai, Kolkata, and Ahmedabad have private utilities, but full state-wide privatisation remains limited.

Challenges to Privatisation

The path to privatisation has faced resistance. Employees of government utilities often oppose it due to fears of job losses and deteriorating service conditions. Political parties have also exploited these concerns for electoral gains. In Chandigarh, employees raised issues regarding profitability and legal requirements, arguing against the need for privatisation.

Case Studies – Odisha vs. Delhi

The outcomes of privatisation have varied . Odisha’s initial privatisation faced challenges due to a lack of transitional support, leading to operational difficulties. In contrast, Delhi’s privatisation is often cited as a success. Loss levels in Delhi decreased from over 50% in 2002 to single digits. The quality of power supply improved, and the government saved approximately ₹1,200 crore annually.

Financial Implications and Support Structures

Delhi’s success was boosted by transitional support of ₹3,450 crore over five years. This financial backing helped the new utilities manage their operations effectively. However, pension liabilities posed challenges, leading to a surcharge on consumers to cover these costs. In Chandigarh, the new distribution company will only be responsible for pension liabilities of current employees, while the government will handle those of retired personnel.

Future of Retail Competition

Debates continue over the merits of privatisation versus retail competition. The government has explored the idea of multiple retailers sharing distribution infrastructure. However, issues like accountability for high loss levels and uniform pricing have hindered progress. The complexity of the power supply chain raises questions about the effectiveness of competition in driving consumer benefits.

Conclusion on Government’s Direction

The government’s push for privatisation is seen as a progressive step towards improving efficiency in the power sector. The lessons learned from past experiences in Odisha and Delhi will likely shape future strategies for privatisation and competition in the electricity market.

Questions for UPSC:

1. Examine the historical context of power distribution privatisation in India and its outcomes.
2. Discuss the impact of employee resistance on the privatisation of utilities in India.
3. Critically discuss the financial implications of privatisation in the power sector using case studies.
4. Analyse the potential benefits and drawbacks of retail competition in the energy market in India.

Answer Hints:

1. Examine the historical context of power distribution privatisation in India and its outcomes.

1. Privatisation began in Odisha in 1997, with a subsequent reform round in 2020.
2. Delhi achieved complete privatisation, leading to reductions in loss levels from over 50% to single digits.
3. Other cities like Mumbai and Kolkata have private utilities, but full state-wide privatisation remains limited.
4. Experiences from Odisha highlight challenges like lack of transitional support, while Delhi’s model is often cited as successful.
5. Overall, the outcomes have varied, with some states succeeding and others facing operational difficulties.

2. Discuss the impact of employee resistance on the privatisation of utilities in India.

1. Employees of government utilities often oppose privatisation due to fears of job losses and adverse service conditions.
2. Political parties have exploited these fears, using them as tools for electoral gains.
3. In Chandigarh, employees raised legal and financial concerns, arguing against the need for privatisation despite profitability claims.
4. Employee associations often cite technicalities to challenge privatisation efforts.
5. The resistance has slowed down the privatisation process and complicated negotiations with stakeholders.

3. Critically discuss the financial implications of privatisation in the power sector using case studies.

1. Delhi’s privatisation benefited from ₹3,450 crore in transitional support, aiding operational stability.
2. The government saved approximately ₹1,200 crore annually post-privatisation due to reduced losses.
3. Odisha faced operational difficulties due to a lack of transitional support, impacting financial performance.
4. Pension liabilities emerged as challenge, leading to surcharges on consumers in Delhi.
5. In Chandigarh, the new utility will only handle current employee pensions, while the government covers retired personnel’s pensions, mitigating some financial risks.

4. Analyse the potential benefits and drawbacks of retail competition in the energy market in India.

1. Retail competition could enhance consumer choice and potentially lower prices through competition among retailers.
2. Challenges include accountability for high loss levels and uniform pricing, which may negate competitive advantages.
3. The complexity of the power supply chain complicates the implementation of effective retail competition.
4. Previous drafts for retail competition have stalled due to unresolved issues among stakeholders.
5. Ultimately, the effectiveness of retail competition in benefiting consumers remains uncertain amidst these challenges.