Global India Policy Paper #3

Institutional dilemmas to address non-performance of contracts in the Electricity Sector

Shashwat Kumar
Executive Summary

Here we discuss a recent proposal by the Indian Ministry of Power to establish a new authority i.e. Electricity Contract Enforcement Authority, aiming to cope with the problem of non-performance contracts in the electricity sector. After introducing the case and its antecedents, different options to these challenges are considered, putting in place and pondering the recently launched proposal vis-à-vis alternative actions.

The Central Electricity Regulatory Commission (CERC) and State Electricity Regulatory Commissions (SERCs) were set up after Government of India had initiated structural changes in the electricity sector in 1998. Under section 79(1) and 86(1) of Electricity Act, 2003 (EA 2003), the CERC and SERCs perform a wide array of functions such as determining tariff, regulating electricity purchase and procurement process of distribution licensees, issue licenses, adjudicate on disputes etc. This Act envisaged participation of private sector to drive growth in the sector. As of April 2020, 47% of total installed generation capacity in India is by private players. However, non-performance of contracts and subsequent arduous litigation is an issue which is adversely affecting the sector. The Ministry of Power’s proposal of setting up of Electricity Contract Enforcement Authority attempts to centralize the function which at present is responsibility of respective SERCs.

This policy paper outlines the existing institutional arrangement, analyzes issues that can emerge from the proposed amendment and then suggest that the ministry should consider promoting the option of ARBITRATION as a mechanism to address the issue of non-performance of the contract, not necessarily creating a new agency. An alternate option could be to increase the strength of SERCs beyond what is proposed in the amendment bill and create a dedicated bench for resolution of non-performance of contract at the level of SERCs itself.


Policy Paper issue 3 - Shashwat