August 03, 2011

Shunglu Committee draft report recommends State Regulatory reforms

Latest : Shunglu Committee recommends SPV headed by RBI

The Shunglu committee appointed by the Prime Minister made a presentation of its draft report to the Planning Commission on July 25th and highlighted the fact that all is not well in the appointment and functioning of the State regulators. The functioning of state regulators has come under a lot of criticism lately because of the mounting Discom losses and inability to supply power to the consumers who are ready to pay the price for it.  It is noteworthy that the independence of the regulator (CERC / SERCs ) is one of the pillars of Electricity Act which lays the foundation of power sector reforms in India. This independence and autonomy is reportedly being diluted by the State Governments for various political reasons. 

The report assumes special importance in the power sector after the demand for bailout of Discoms by states like Tamil Nadu which have asked for 40000 Cr bailout package from the Central government. The Shunglu committee on the financial health of state power distribution companies has slammed state governments for eroding independence of electricity regulatory commissions. It is expected to finalize its report by September. In its draft report, it has recommended implementation of wide-ranging reforms to strengthen the regulatory bodies including giving them more financial autonomy. The committee has studied functioning of electricity regulatory commissions in 15 states including Maharashtra, Andhra Pradesh, Tamil Nadu, Uttar Pradesh, Haryana, Punjab, Gujarat and Rajasthan, which together account for more than 90% of the assets and liabilities of the

The Shunglu panel has reported the following main findings in the draft report :

·         State governments should not have a major say in filling key vacancies in the commissions so as to protect their independence.
·         Shunglu committee found that states are misusing key provisions of the Electricity Act 2003 to influence determination of tariffs, which is meant to be the regulator's call
·         Moreover, states are also using budgetary support as a lever to make regulator fall in line.
·         The committee has also found that several states have misused the lax eligibility criteria and the loose selection procedure to fill top vacancies like chairman and members in regulatory commissions with compliant officials
·         The committee feels that there is a need for wide-ranging measures like delegation of financial autonomy to ensure functional independence of regulators.
·         It has also suggested tightening eligibility criteria and selection procedure to prevent state governments from filling key vacancies in regulatory commissions with officials of compromised integrity.
·         The committee has recommended that any individual who has worked with a state government, either directly or indirectly, during preceding five years should be disqualified for appointment as a regulator.
·         It has also suggested bringing on the selection panel independent authorities like sitting judge of the concerned High court, chairperson of the central electricity regulatory commission, chairman of public service commission of another state on the selection panel to improve fairness in the selection process.
·         To prevent further misuse of the public interest provisions of the act by states, the committee has recommended that the central government seek legal opinion on interpretation of section 108 and the same should be included in the national tariff policy. Section 108 of the Act deals with teh issuance of Directions by the State Govt to the Regulatory Commission

All this augurs well for facilitating the State Distribution reforms in the country which have been the bane of so many problems. Recently, the State power ministers also agreed in a meeting to go ahead with Distribution reforms by looking into regular tariff revisions and audits of State Discom accounts. The implementation on the recommendations of Shunglu committee would decide the fate of reforms to a large extent.

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