According to sources, the Union Power Ministry has dropped the proposed plan to provide electricity subsidies to eligible user’s including farmers and households through the direct benefit transfer (DBT) system.
The development comes after a bunch of farmers — the group of consumers which receives the most subsidies out of all electricity users — voiced concerns that the DBT mechanism would result in them paying higher power bills.
While the national average cost of electricity supply is around 6 per unit, average tariffs for domestic and agricultural customers are 27 percent and 87 percent lower, respectively. Commercial and industrial users partially cross-subsidize these sections by paying bills at rates that are 52% and 23% higher than supply costs, respectively.
The government proposed to launch the DBT mechanism by amending the Electricity Act to prevent electricity distribution companies (discoms) from making arbitrary subsidy claims in order to recoup the money from their respective state governments.
There are slim chances of the amendments being tabled in the ongoing Parliament session as they have not yet been approved by the Cabinet.
The Union Power Ministry introduced two earlier drafts of the amendments in 2014 and 2018, but they were rejected by Parliament.
The 2014 draft even went to the Lok Sabha for discussions, but eventually could not be finalized.
The government intends to introduce competition in the power distribution business through the proposed amendments, with state-owned monopolies identified as the weakest link in the power chain, hobbling the whole sector. To provide customers more options and increase efficiency in the sector, the power ministry suggests de-licensing the distribution business and allowing any organization to run discoms wherever in the country.
Other important reforms proposed by the government in the Act include provisions to boost cross-border electricity trade, strengthening payment security mechanisms, and the inclusion of penalty mechanisms for noncompliance with Act provisions.
After several states protested to the proposed amendments, claiming that they weakened states' authority to appoint electricity regulators, the Union government also decided to abandon its earlier proposal to form a national committee comprised of two members from the Central government and one representative from each of two states.
According to the current system, every time there is a vacancy in a state electricity regulatory commission, separate selection committees must be formed, interfering with their ability to perform their regular functions.
