A grab by the Adani Group for power-transmission licences in Mumbai and a satellite of new Delhi is part of a wider push for privatisation of the power-distribution sector, according to electricity unions. Industrial action in January 2023 prompted government officials to consider this concern. However, the ultimate decision-making authority lies with a regulatory body. Unions protesting about Adani's move are concerned the company will 'cherry pick' its customers, creaming profits from major consumers and leaving poorer consumers to the financially challenged public sector.
Over the past two months, the Adani Group has made a play for electricity distribution licences in the cities of Mumbai, India’s financial hub, and Noida, a satellite city of New Delhi.
While this might seem like a typical move by a big corporation to expand its market and acquire new customers, the move has been met with a hostile reaction by employees of government-owned electricity distribution companies (discoms). Electricity workers unions in both regions have protested, and in the case of Mumbai won an assurance by the state government to support their demands to stave off Adani’s efforts to enter the electricity distribution market. To them, the move is a precursor to the feared privatisation of the discoms for which they work.
In much of India, electricity distribution is a government monopoly – in line with much of the world in which electricity distribution is considered a ‘natural’ monopoly. Typically, it makes sense for there to be only one power grid – that is the network of wires, transformers and substations that makes up the electricity distribution system – and the company that operates it is therefore a monopoly player. Competitive electricity prices are achieved in such a system through a multiplicity of electricity generators – each of which seeks to offer a more competitive electricity tariff, but all of which ultimately deliver power to customers through the same grid. (An explanation of this convoluted system appears at the end of this story)
In 2003, India’s Parliament passed the Electricity Act of 2003 permitting there to be parallel licensees across the country. A parallel licensee regime allowed for new players to try and enter electricity distribution markets in any part of the country – provided they set up their own, parallel, distribution network.
This provision has gone unused up until now, explained an electricity sector expert who spoke to AdaniWatch on condition of anonymity. Unused, that is, until Adani and another power company named Torrent Power, applied to electricity regulators seeking distribution licences in places that are already served by government owned discoms. While the parallel licence regime was intended to facilitate expansion of electricity infrastructure to areas that are not yet served by the grid, this has not happened, they explained. A research report by a consumer advocacy group in the electricity sector has found that in areas of Mumbai where multiple distribution licensees have been allowed to operate it has led only to higher tariffs.
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Electricity Workers Protest in Mumbai
Adani’s application to the Maharashtra Electricity Regulatory Commission (MERC), made in November 2022 by the group company Adani Electricity Navi Mumbai Limited (AENML), sought a distribution licence for the north-eastern suburbs of Mumbai. This region is the only part of the city that is served by the Maharashtra State Electricity Distribution Company Limited (MSEDCL), the state’s government-owned discom. An Adani Group company already holds a distribution licence for Mumbai’s north-western suburbs, a business that it acquired from Reliance Infrastructure in 2017. It competes for customers in this region with Tata Power Limited, another private discom.
As the MERC took up Adani’s application, a clutch of trade unions representing MSEDCL workers rose in protest against the prospect of a parallel licence being granted to Adani, saying that Adani hadn’t provided documentation proving that it has adequate capital for the purpose of building an independent distribution network.
A letter to the state’s chief minister by the All India Power Engineers Federation pointed out that ‘AENML [Adani] has presently no network infrastructure in the area of supply which is a requirement [under the Electricity Act] and they want to supply electricity in the said area by using the already existing network of MSEDCL’.
Further, the letter continues “AENML’s proposal to establish its distribution backbone over a period of five years with a view to cater only for ‘future growth load’ in the proposed area of licence, is demonstrative of an inclination to cherry pick only.” This statement pointed to a crucial issue at the heart of the objections to Adani’s proposal. ‘Cherry picking’ customers is the practice of choosing only high-revenue power consumers.
The proposed licence area would include the upcoming Navi Mumbai International Airport (that another company in the Adani Group is developing), the government-owned Jawaharlal Nehru Port Trust, which is India’s largest port, and a host of lucrative industrial consumers. Together, these high-value consumers account for nearly half of MSEDCL’s revenue across its power-supply business in the whole of the Maharashtra state.
The letter urged the Chief Minister to look at the issue ‘in the larger public interest to avoid huge loss of revenue and cross subsidy on account of migration of existing consumers of MSEDCL and prospective consumers in the said area’. This points to another impact when discoms cherry pick high-revenue customers. Power tariffs in India operate on a system of ‘cross-subsidies’ – commercial and industrial consumers pay higher rates to subsidise the rates paid by domestic and agricultural consumers. Should AENML poach the high-revenue customers from MSEDCL, consumers who are less well-heeled would lose out.
This, in turn, would lead to weakening finances and performance by the MSEDCL, explained Krushna Bhoyar, who is the general secretary of the Maharashtra State Electricity Workers’ Federation. This is part of a wider push for privatisation of the electricity distribution business by the central government, he said, through its efforts to pass amendments to the Electricity Act, under pressure from private sector companies in the electricity sector, led by the Adani group.
‘Over the years, we could see conditions being created for MSEDCL to be side-lined or even privatised,’ he continued ‘and this is why we chose to strike.’
On 4 January 2023, electricity workers across the state began a planned 72-hour strike, leading to widespread power outages. Within half a day, the state government responded, promising to meet the striking workers and consider their demands. The strike was called off and a meeting was convened on the same day by Deputy Chief Minister Devendra Fadnavis, of the BJP, with Bhoyar and other union leaders. At the meeting, Bhoyar said, ‘the Deputy CM assured us that the government is not planning to privatise the government-owned discom’. Fadnavis ‘accepted our demand to oppose Adani’s proposal’, he continued.
However, while the state government can state its opposition to the proposal before the MERC, the decision ultimately lies with the regulatory body, which is meant to be an autonomous institution.
An Adani play for Noida as well?
Padamjit Singh, convenor of the AIPEF, explained that the application by Adani for the Mumbai licence appears to be a part of a wider play by the Adani Group to seek distribution licences in key urban areas around the country.
A second instance of this, he said, is in the city of Noida, next to New Delhi, and part of India’s National Capital Region. A similar application to the one in Maharashtra has been made by Adani Group company Adani Jewar Electrical Company Limited to the Uttar Pradesh Electricity Regulatory Committee, which is the relevant regulatory body covering Noida, seeking a distribution licence for the city.
At present, he explained, the Noida licence is held by another private company, whose term is expiring in August 2023.
‘By default, once the licence expires, the network would automatically be taken over by the Uttar Pradesh government’s discom,’ Singh said. ‘By applying for a licence at this stage, Adani is seeking to muscle its way in.
‘We have conveyed to the government that a repeat of the scenario in Maharashtra is on the cards, and electricity workers will go on strike in Uttar Pradesh as well, unless the government assures us that our demands [opposing Adani’s proposal] will be considered.’
When asked why such proposals are being made by the Adani Group at this juncture, Singh said ‘they [the Adani Group] are seeking to maximise their opportunities while there is a government that supports them at the centre. After acquiring Reliance’s distribution business in Mumbai, this represents an ‘easy’ avenue for expansion. Government discoms are already under severe financial stress, and Adani has smelled blood.’
The power sector expert mentioned earlier expressed a similar view.
‘While we haven’t seen such attempts [by private companies to seek distribution licences] before, the provision exists in the [Electricity] Act, and they [the private companies] may have sensed an opportunity in the current climate, with state-owned discoms overburdened with debt and a government that is looking to meet disinvestment targets.’
While the striking electricity workers may be successful in staving off the current wave of proposals for parallel licences, it remains to be seen how long such resistance will prevail. The Adani Group has grown into a behemoth by precisely the kind of government support that the electrical workers fear. Countries that formed a part of the erstwhile Soviet Union have seen the growth of massive oligarchies in the past two decades, as those countries’ governments sold off vast government-owned enterprises to private companies. Is electricity distribution in India headed in the same direction?
A convoluted system
The case of Mumbai in particular is exceptional and a peculiarity of its history. Mumbai has three regions - south, western suburbs, and central-north east. To begin with, the Tata Power Company generated electricity from its power plant outside Mumbai for the first two regions, and directly supplied a handful of large consumers as their discom, but also supplied the Bombay Electricity Supply and Transport (BEST) Undertaking - which was the discom for the south region, and the Bombay Suburban Electricity Supply Limited (BSES) - the discom for the western suburbs. Both BEST and BSES were government owned.
In the early 2000s, India’s Supreme Court interpreted this arrangement to mean Tata Power also had the right to supply directly to all customers in south Mumbai and the western suburbs. This instituted a “parallel license” regime – with multiple discoms licensed to distribute electricity in the same market – as an outcome of that litigation.
So now, south Mumbai has two parallel licensees, Tata Power and BEST, and the western suburbs also have two parallel licensees Tata Power and what used to be BSES (BSES was sold to Reliance Infrastructure in 2003 and then Reliance sold it to an Adani group company in 2017). The two regimes are different - in South Mumbai Tata Power is a parallel licensee only in name, it still only supplies its original large consumers and BEST supplies the rest of the market. In the western suburbs, all BSES customers were given the option to change over to Tata Power, and a significant section have done so. This change over option was not provided in south Mumbai.
Meanwhile, the central and north-eastern suburbs of Mumbai have always been outside this convoluted structure - they were simply an extension of the rest of Maharashtra all of which is served by a Maharashtra government owned discom. This is the region Adani is seeking a parallel license for - and this attempt is a new development in the Indian electricity sector. It is the first time the parallel license regime of the Electricity Act is actually being sought to be used as intended, by private companies applying for parallel licenses.
Separate from this legal process that was taking place in the Mumbai electricity market, in 2003, India’s Parliament passed the Electricity Act of 2003 permitting there to be parallel licensees across the country. This parallel licensee regime allowed for new players to try and enter electricity distribution markets in any part of the country – provided they set up their own, parallel, distribution network.