Combating Corruption in Power Sector

Corruption has emerged as a critical element in explaining electricity sector performance. The sector, with its complex mix of public and private sectors and often enshrined centers of monopoly power, is susceptible to corruption. Public auctions and open competitive bidding for contracts have often been compromised by secret, informal collusion. Typically, those with political connections and insider information are better able to secure lucrative contracts and such other business opportunities. Power operations remain vulnerable to corrupt activities. There remains a prospect of tie-in between corruption, the quality of electricity supply, utilities and end-users. In generic perception, corruption is the abuse of entrusted power for personal gain. It is the practice of offering, giving, receiving or soliciting, directly or indirectly, anything of value to influence improperly the actions of another party.

Forms of Corruption

Corruption in electricity sector is a problem that takes on many forms with varying degrees of incidence and damage. In high profile corruption a fixed sum or certain percentage of a contract, or any other favour in money of kind is usually paid to a State official or politicians who can make contracts on behalf of the State or otherwise distribute benefits to companies or individuals and business. These are payments or returns needed or demanded to make things pass swifter, smoother or more favourably through the private, State or government bureaucracies.

The abuse of favouritism and nepotism does not involve a direct personal benefit to an official but promotes the interests of those linked to the official. It may be through family, political influence, tribe or religious group.

Petty corruption refers to everyday abuse of entrusted power by jack-in-office at the interface with customers and is one of the reasons for the low payment collection rates. Kickbacks, gratuities, commercial arrangements, baksheesh, sweeteners, pay-offs, speed or grease money are taken for illegal connections, prevent disconnection of power lines,  procure proper power supply, correcting or reducing the bill, repairs, line faults, documentation of new connections, etc.

Practice

In the sector, there are several corruption “hotspots”. In planning and implementing capital projects by the electricity utility for additional generation capacity, a new transmission or distribution lines the officials who can influence award of construction and equipment contracts get a kickback of a percentage of the contract value and the project is executed by inflating the price or reducing the quality of the work. More payment is made to private contractors than the work is worth. In supplying the fuel to electricity utility, suppliers may pay a kickback to officials who could award the supply contract. To provide kickback the supplier inflates prices and provides fuel that does not meet requisite specifications, or supplies less fuel than was paid for. Officials who work in the sector may own companies that supply fuel, and use their influence and relationship to direct the contract award to their companies. Few suppliers receive most of the contracts and awards seem to be rotated among suppliers. Staff sent to disconnect a customer may accept payment for leaving the customer connected, while reporting back to the utility that the disconnection has been done. Meter readers frequently delegate the actual task of meter reading to informal operators and focus their own efforts on developing a business in illegal connections.

Effect

Corruption promotes inefficiencies in utilisation of resources, reduces labour productivity, increases the networks’ energy losses, constrain the efforts to increase access to electricity services, distorts the markets, compromises quality, destroys the environment and make the power expensive. Cost inflation from corruption in fuel procurement effects businesses and has a large impact on the cost of electricity to end-users. The poor may be too vulnerable to resist the capacity of the coalition of corrupt utility employees and their protectors and perhaps are the worst sufferers of brunt of corruption. Lofty corruption is seldom visible, however, when exposed gets media attention, but petty corruption is an everyday normal activity. It is a major source of harassment of consumers.

Counteraction

Corruption is a pervasive scourge; it cripples economic development by inhibiting the performance of the electricity sector. Thus, reducing corruption is at the heart of sustainable development goals and achieving the ambitious targets set for financing and development. Improving transparency, public participation, and accountability to advance governance from a public interest perspective is essential to curb corruption and opens up the possibility of unseating vested interests that may have a stranglehold over electricity decision-making. The fight against corruption and its relation to accountability and transparency in the public sector cannot be configured as a purely technical issue, but involves the government’s relationship with society and a need for greater citizen participation. Well-designed reforms can boost economic performance of the sector directly and can indirectly reduce the negative effects of macro-level institutional deficiencies and ameliorate micro indicators of performance. In a situation, the struggle to fight cancer of corruption has to go a long way.

Motif to Vanquish Corruption

Participatory governance is the touchstone of good governance. The Electricity Act of 2003 (EA-03) has enabling provisions for greater citizen participation in the control of the actions of public sectors and provides venues to redress grievances. The inclusive provisions for the quality of budgetary management and audit systems positively affect the perception of corruption. The statute envisages Central Electricity Authority (CEA) to be a subsidiary of the Ministry of Power (MoP), entrusted with a consultative role. CEA has the authority to seek information from stakeholders and make recommendations to MoP on key policy issues. Recent positive trends include posting of draft policy statements on the web for comment, and consultations in different parts of the country. Access to information by the public and disclosure of information by the utility is essential in ensuring high-quality comments are received to promote accountability and transparency in the functioning of the sector. Transparency is strongly associated with less corruption.

EA-03 paved the way, inter alia, for promoting competition and rationalisation of tariff. Section 62 of the Act provides the determination of tariff which will act as a ceiling tariff and Section 63 of the Act provides for determination of tariff through a competitive bidding process. The factors that guide the appropriate Commission while specifying the terms and conditions for determination of tariff have been prescribed under Section 61 of the Act. The statutory scheme provided under Sections 61 to 63 of the Act is intended to promote competition in the sector. In all cases competition decreases the magnitude of corruption with significance.

The revised Tariff Policy, 2016 envisages transparency, consistency and predictability in approach for tariff fixation with a specified object to promote transparency, consistency and predictability in regulatory approach across jurisdictions and minimise the perceptions of regulatory risks. Tariff Policy has emphasised the need for transparency in coal quality assessment of the coal supplied by the third-party sampling mechanism and fuel procurement through e-auction. The generating companies have been empowered to select suitable technology at competitive rates through the process of transparent competitive bidding.

Among institutions, the appellate authority that looks into appeals from regulatory orders has been established and has begun functioning. Electricity Regulatory Commissions (ERCs) in various States have notified regulatory guidelines on quality of service standards, complaint redressal mechanism and consequences of non-compliance. ERCs have adequate powers under EA-03 to enforce regulations concerning consumers’ interests including imposition of penalty under Section 43, compensation under Section 57 and invoking Section 142 whenever required. ERCs also appoint Ombudsmen in the first instance endeavours to settle the dispute by agreement between the parties and pass an award. Non-compliance of Ombudsman’s order constitutes violation and attracts penal action in terms of the relevant provision of EA-03. The State Governments for the purposes of providing speedy trial have constituted Special Courts for cases concerning theft or illegal abstraction of electricity, attracting the offence under Sections 135 to 140 and 150 of the EA-03. The provisions of Section 175 being in addition to and not in derogation of any other law could come into operation to make the provisions of the Prevention of Corruption Act, 1988, also prevail.

Government is attempting to focus on looking at corruption within a larger “good governance” paradigm and has initiated for the electricity governance initiative (EGI) which is a collaboration of civil society, policy-makers, regulators, and sector actors to promote the open, transparent and accountable decision-making processes. EGI is jointly collaborated by the World Resources Institute and Prayas Energy Group (India). EGI has developed a toolkit benchmarking best practice and promoting accountability in the electricity sector. The toolkit consists of more than 60 research questions that generate indicators of relative strength and weakness in electricity decision-making processes.

Government is ready for the next push of reforms to bring about a wholesale change in approach. There is plan for introducing time-of-the-day tariff and open access for large consumers by separating carriage and content. Utilities and generators are now at more flexibility to use their coal linkages at more efficient plants. Generators can supply from any plant of their choice instead of the plant designated in a power purchase agreement (PPA).

MoP has declared that power is not a free commodity and has mandated for letters of credit (LC) against power purchases. State power distribution companies will have to hand over electricity supply businesses to multiple licensees or franchisees to get Central Government assistance or loans from the Power Finance Corporation. In case if States are announcing subsidies, they have to give direct benefit transfer into the accounts of consumers. For theft control Government has announced giving part assistance to notorious States for setting up aerial bunch cables or underground cabling and setting up specialised police stations on power pilferage.

Government is proposing to do away with human interface in meter reading and billing of consumers for power consumption. Mandatory installation of prepaid meters for small consumers and smart meters for large ones, with every connection in the future in each State, would prevent corruption and increase compliance in bill payments. This will be a pro-poor step as it will give the poor consumers flexibility to recharge that prepaid meters online through mobile phones, as and when they want, with a small amount at any given point of time. This would do away with the human element in meter reading, billing and recovery of the amount from consumer and hence the corruption involved at the lowest level.

To Close Down

More corruption in the country is strongly associated with more inefficient firms, in the sense that they employ more inputs to produce a given level of output. Corruption, however neither lower nor raise profits of the utility. It is an obstacle to growth and development of electricity sector. The business case for countering corruption extends beyond complying with laws. A utility committed to counter corruption should communicate a strong message that management and board is prepared to forego contracts and accept sale loss rather than to adopt corrupt practices to increase probity and integrity. The primary audience for this guidance are persons charged with putting in place “‘adequate procedures” as those for compliance, risk, legal, audit, corporate responsibility or ethics department. Cooperation of the people has to be obtained for successfully controlling corruption. Public awareness is a must to combat corruption in India. Female participation within the ownership of a firm has a significant effect on maintaining a negative coefficient for corruption with significance in all cases. Regulator has to remain independent and out of all external influences. An effective strategy for detecting and deterring corruption has to be built on a solid understanding of what it involves, why it takes place, and how improvements in governance can reduce corruption. Punishments for such unwarranted behaviours must be more harsh and enforceable. Zero tolerance and a robust and consistent anti-corruption programme in the power sector can be the strongest pummel in a brawl against corruption.


*Harsha Rajwanshi is Assistant Professor of Law, Dean, External Relations and Centre Director, Gujarat National Law University & Faculty Advisor to GUVNL-GNLU Research Fellowship on Energy Law and Policy.

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