Energy Policy ] (]]]]) ]]]–]]] Impact assessment of the Electricity Act 2003 on the Indian power sector Tripta Thakur a, *, S.G. Deshmukh b , S.C. Kaushik a , Mukul Kulshrestha c a Centre for Energy Studies, Indian Institute of Technology, New Delhi 110016, India b Department of Mechanical Engineering, Indian Institute of Technology, New Delhi, India c Indo-French Unit for Water and Waste (IFUWWT), Department of Civil Engineering, Indian Institute of Technology, New Delhi, India Abstract This paper analyzes the likely impacts of the major policy reforms unveiled by the Government of India for revamping the country’s power sector. The provisions of the new enactment have recently come into force and seek a paradigm policy shift in the form of the Electricity Act 2003. The paper details out the key features of the Act and the likely power industry changes being brought about in the new regime. These changes comprise the structural changes in the power industry as well as the policy issues related to generation, transmission and distribution of power. Also discussed are the other major areas where transformation is sought and impacts are expected: power trading, role of regulator in the new regime, issue of open access, empowerment of the consumers and the environmental issues. r 2004 Elsevier Ltd. All rights reserved. Keywords: Policy shift; Electricity Act 2003; Impacts 1. Introduction The Indian Electricity sector remained a complete State monopoly with social objectives till the year 1991. The social objectives did help to serve the under- privileged domestic and the agricultural class but the results were undesirable in the long run as continued cross subsidies spelled disaster for the overall economy. The electricity prices rose in the industrial sector that bore the brunt of the subsidies provided to the domestic and agriculture sectors and by 1999–2000 the tariffs for the industrial sector became 15 times that in the agriculture sector and 2.1 times that in the domestic segment (Planning Commission, 2002a), forcing the industry to set up its own captive power plants. This resulted in dwindling power sales to the industrial sector (Industrial consumption going down from 67% in 1960 to 40% only by 1991 (TERI, 1993) and to nearly 30% by the year 1998–1999 (Planning Commission, 2002a)). The result was that the State Electricity Boards accumulated huge losses (Fig. 1) as the recovery of average financial cost of supply through average revenue realized has declined from 76.7% in 1996–1997 to 68.58% in 2001–2002. In 1995–1996 while 9 of the 19 SEBs incurred losses, by the year 2000–2001, all of them were in the red (IEA, 2002). SEBs were increasingly unable to pay for the electricity they purchased from the central public-sector power companies, or from inde- pendent power producers (IPPs). This coupled with the policies such as unmetered charges in agriculture (flat rates charged based on pump capacities) and often in the domestic sectors coupled with large scale thefts, resulted in deteriorating O&M status reflected in mounting T&D losses that became very high (Fig. 1). The power supply position as on March 2002, indicated a peak deficit of 12.6% and energy deficit of 7.5% at the All India level as against a peak deficit of 18% and energy deficit of 11.5% during 1996–1997 while the gap between average financial cost of supply and average revenue realized increased from a level of 50 paise/kWh in 1996–1997 to 110 paise/kWh in 2001–2002. (Planning Commission, 2002a). Reforms in India, introduced since 1991, did not result in significant improvement in the financial creditworthiness of the SEB’s and could not induce capacity addition in the sector. For example, there were ARTICLE IN PRESS *Corresponding author. Tel.: +91-11-26581612; fax: +91-11- 26581117. E-mail address: tripta thakur@yahoo.co.in (T. Thakur). 0301-4215/$ - see front matter r 2004 Elsevier Ltd. All rights reserved. doi:10.1016/j.enpol.2003.11.016