Maharashtra Electricity Regulatory Commission (MERC) is the nodal body for regulations in the power sector in the State. MERC chairman VP Raja speaks to Moneylife’s Amritha Pillay on the key issues that the State faces on the electricity front
Amritha Pillay (ML): Industries in Maharashtra are currently not allowed to trade on the power exchange. By when can we see a change in this? Wouldn't allowing industries to trade on the exchange help Maharashtra access more power at competitive rates?
VP Raja (VP): What you are saying is true; one can say there is reluctance on the part of MAHADISCOM (Maharashtra State Electricity Distribution Co Ltd) to allow open access. But the law clearly provides a provision for open access. The reluctance perhaps comes from the fact that MAHADISCOM has a lot of social responsibility and there is a huge amount of cross-subsidy, which is a historical legacy of taking power to agriculture and residential customers at lower rates. The law mandates that we have to progressively bring down subsidies. Historical realities cannot be written off overnight. We are trying to bring down the subsidies.
However, open access has been allowed to certain people, who have pursued the case. There are industries that have appealed and got an approval. If someone comes to us with a petition, we will look into it.
ML: Given that MERC is aware of this issue, what steps are being taken to solve the problem?
VP: Yes, there is a provision for open access; people are welcome on that front. We agree that there are certain issues; we are looking into it to try to expedite the open access process for people with 1 megawatt (MW) or more power. We have tasked ICRA to find out at the generic level what can be done. The law is clear-it is a question on how to transform the law into reality.
ML: Isn't a change in the cross-subsidy (which is zero at present) another alternative that can be considered? Aren't certain modifications planned in the policy?
VP: The cross-subsidy has been kept at zero, because there is a shortage of power, so any additional power that comes in is welcome and we would like to encourage more power coming into the State. There is a good logic supporting the zero surcharges. However, certain representations have been made to us to revisit this matter.
ML: What is your view on the current power shortage situation in the State?
VP: Today, the State is facing a power shortage because the investments that ought to have taken place in the public sector did not take place. These investments went wrong from around ten years back-with the start of the Enron episode. There was hype that with the private sector taking up the power-generation task, public sector investments could be directed towards social issues like rural development, health, education, social welfare, etc. Both the Centre-through the National Thermal Power Corporation (NTPC) and MAHAGENCO (Maharashtra State Power Generation Co), failed to undertake investments that were required. The effect of these mistakes is now being experienced ten years down the line. But now having learnt that lesson, investments are taking place in the public sector also, in addition to the private sector.
ML: What changes do you expect in the State's power situation in the next three to five years?
VP: Today we have the national grid. Electricity can flow from one place to the other. In the 11th Five Year Plan the target is to generate more than 78,000MW ofpower. The country may end up with more than 55,000MW or 60,000MW. In the 12th Five Year Plan, the target is to have around 1 lakh MW of generation, around 60% of this is expected to come from private generation.
In Maharashtra, private sector plants are coming up. There is one by JSW Energy in Ratnagiri, which is on schedule. There are power plants by Adani Power coming up at Gondia district. The company has managed coal linkages for this project. Indiabulls Power Ltd plans to put up facilities at Nashik and Amravati. These are the three major private players. All these will certainly have some power purchase agreements signed with Maharashtra. In the next year, Adani's two power units will be ready (660MW each); the first unit will come up really soon.
ML: What about the public sector power generation plans in Maharashtra?
VP: On the public sector side again, there are a lot of generation capacities planned. NTPC has put up a power plant in Solapur, for instance. MAHAGENCO is putting up new generation units at its existing power plants.
ML: According to you, when is Maharashtra likely to turn self-sufficient in its power requirements?
VP: For the State to become power sufficient, there are enough projects on the table at present, but the original ground-level issues like land acquisitions are a concern. Everybody wants power, but nobody wants a power plant in their backyard. These kinds of contradictions exist. You cannot put up a power plant without land. There are a lot of projects on the shelf, but how many of them fructify (is to be seen).
ML: The Central Electricity Act (2003) favours competition. However, MERC is currently caught in the crossfire between two competitive utilities-RInfra and Tata Power. What seems to be the way forward to encourage competition in the consumer interest? Is there lack of clarity in the process and rules involved?
VP: That (competition) is natural; the sector is turning really dynamic. But there is now a choice given to customers. They can now choose amongst utilities. Competition is good, because it gives choice to customers. With the power to choose, all competing providers will have to look inwards (as to) what is the cheapest method of procuring power.
ML: Then, don't you think State intervention could be something which is uncalled for?
VP: No, I don't think that (State intervention) is killing competition. The State has certain social responsibilities. It cannot be a silent spectator. A distinction needs to be drawn between electricity as a necessity and as a commodity.
ML: What is your view on this whole power fight?
VP: This whole thing is happening because of the following issue-the fact that tariff is dependent on two important factors, the power purchase cost and the consumer mix, both are different for the three utilities in question. At the end it is the consumer's choice. Once somebody starts losing customers, they start looking for cheaper power. There are various options available for procuring cheaper power. The transition from a monopoly to a duopoly is what has taken place. We will be quite happy to have many more (players).
ML: What kind of thrust has been given for renewable energy sources?
VP: A considerable amount is expected to come up in renewables, where Maharashtra is doing really well. After Tamil Nadu, Maharashtra has the highest investments in renewable energy. We do expect some generation from bagasse from sugar factories. We have given fairly attractive tariffs, so investments have taken place in a number of sugar factories on a co-generation basis. It is a similar case with biomass. On the solar power side, 1MW has already come up. There are a large number of such projects in the pipeline. However, solar energy projects will take some time to stabilise.
SEBI chairman suggests that AMFI should seriously examine playing the role of a self-regulatory organisation. This idea was first mooted in 1994 and is of dubious merit because the concept of SRO does not quite work in India
The capital markets regulator, Securities and Exchange Board of India (SEBI) has asked the industry body Association of Mutual Funds in India (AMFI) to don the hat of a self-regulatory organisation, instead of acting as a plain-vanilla industry body as it is doing currently. This comes close on the heels of a rash of rapid-fire changes made by the regulator over the last one year. However, this is one idea that dates back all the way to the tenure of GV Ramakrishna.
Speaking on the occasion of the CII Mutual Fund Summit 2010 in Mumbai today, SEBI chairman CB Bhave did not mince words while discussing the current state of the mutual fund industry. After introducing a series of game-changing initiatives over the past one year, that have virtually shaken the very foundations of the mutual fund industry, the SEBI chief came up with the proposition that AMFI take up more responsibility and consider playing the role of a self-regulator for the industry.
Mr Bhave said, "One thing we would strongly suggest is to examine the role of AMFI and SEBI. All this while, AMFI's stand has been that it is not a self-regulator, but an industry body. You need to examine for yourself whether this is the right way to go. The advantage of being a self-regulator is that you can have your own rules about how the industry will operate, without having to turn to statutory laws which are so much more difficult to change. Because this is an industry, you can take this route. But for that we need some commonality of purpose and a certain coming together of minds. This is not criticism but an examination of where we need to go. You need to ask whether in order to reach where you need to be by 2015, the organisation needs to take on a self-regulatory character." It is interesting to note that this 'proposition' from SEBI has come after various attempts on its part at micro-managing the industry, which have mostly led to a lot of confusion.
The truth is that this concept of self-regulatory organisations (SROs) has never worked out well in India. Similar attempts in the past have been in vain. There are no SROs of investment bankers, brokers, depositories or stock exchanges. At one point, there was a vague idea of brokers forming an SRO but this not happened. In practice, the stock exchanges, which wield substantial powers of their own, are not willing to take on the role of even minimal regulation. They prefer instead to pass on the buck to the regulator. When asked about price-rigging in illiquid scrips, the BSE keeps mum. The concept of SRO is really on paper.
The bigger question is, is SEBI, in allowing AMFI to play the role of an SRO, willing to pass on some of its powers to AMFI for that purpose? And if it does, will the regulator stop micro-managing AMFI?