A strategic communication has been made by the Ministry of Power, Government of India on 17.06.2020 whereby Power Grid Corporation of India Ltd (PGCIL) is advised to immediately setup a Central Transmission Utility (CTU) as a 100% subsidiary of PGCIL with separate accounting and vote structure. The subsidiary would be responsible for carrying out statutory function as identified for the CTU under the Electricity Act, 2003 and also other functions assigned to CTU by the Central Electricity Regulatory Commission (CERC).
The move can be called a much-awaited shot in the designated direction, but still a misfire due to the government’s incorrigible habit of introducing change in a haphazard manner under the guise of reform. The subject of the communication is review of arrangement for operation of CTU, which would be reiterated or echoed at various corridors of power and policies as a reformative step, which of course is definitely a step but a futile one.
One Nation One Grid envisaged under the Electricity Act, 2003 as well as by the frontline thinkers and stakeholders of the sector, would only be possible with an independent, non-discriminatory and efficacious body called the ‘Central Transmission Utility’. A provision has been made under Section 38 of the Act which states that the Central Government may notify any Government Company as the CTU. Accordingly, the power and function of CTU was then vested in an existing Government of India undertaking — the Power Grid Corporation of India Ltd.
Nothing stopped the Government of India at that point of time to vest the power and function of CTU to a new entity of venture which would have acted exclusively as the CTU, instead of vesting the power and function in PGCIL which happens to be not only an existing company but also an entity engaged in commercial ventures pertaining to laying down transmission lines and associated assets across the length and breadth of the country. The commercial activities of PGCIL had all the trappings of conceiving a conflict of interest with that of the power, function and obligations of CTU. Without going in detail as to the criticism that such an arrangement has been put to by various stakeholders of the sector, the mistake is reiterated and refurbished under the guise of a review of the arrangement of CTU, wherein the Government of India has advised PGCIL to incorporate a 100% subsidiary to whom the power and function of CTU shall be vested.
Why this effort is a misfire:
(i) The objective behind divorce between PGCIL and CTU is not only optics but a parliamentary mandate which was subsided all these years by vesting the power and function of CTU in PGCIL. The objective is to ensure a separation between statutory bodies vested with power and function laid down under a statute and public sector undertakings having commercial venture/ interest. The manner in which the CTU has been functioning under the aegis of PGCIL, the same is tantamount to empowering a player in the electricity sector with statutory powers to undertake planning and co-ordination activities with one self and the other stakeholders. This is in violation of the mandate of the Constitution of India, Electricity Act, 2003 and the principles of natural justice.
(ii) The very basis of a departure of a statutory body discharging statutory powers and a public/ private player, is to ensure non- discriminatory open access as well as discharging the function without having any inkling of bias or conflict of interest. No amount of argument is going to defeat the issue of conflict of interest which has been persisting from the very moment of vesting of CTU function in PGCIL. When such conflict of interest is established then biasness is assumed which itself is antithesis to the principle of natural justice and the rule of law, which is engraved under the edifice of Article 14 of the Constitution of India. How could the power of a statutory body or the artificial/ fictional being called CTU reside in PGCIL, which is not only a commercial entity but also a subject of the area of interest of CTU’s functions.
(iii) Merely by hiving off CTU in a wholly owned Subsidiary of PGCIL, does not ipso facto denude PGCIL of its control over the day to day functioning of CTU, since the latter is going to become a wholly owned subsidiary of PGCIL. PGCIL being a commercial entity shall continue to be privy to all commercially sensitive information with regard to the planning of the laying down of transmission lines, priority of one corridor over the other, delaying the process of finalizing the decision of laying down a line so that it would automatically be of ‘strategic importance or time bound delivery’ and the same can be handed over to PGCIL on a nomination basis.
(iv) The entire transmission sector of the country has gone for an overkill due to such allocation of transmission projects to PGCIL on nomination basis, which itself amounts to denial of a level playing field amongst the private transmission licensees and PGCIL. It is unfathomable as to why the private entities are yet to challenge this flagrant violation of the Electricity Act, 2003 as well as the constitutional ethos whereby PGCIL, being a market player, is eligible for participating in Tariff Based Competitive Bidding (TBCB) projects.
(v) Bundling the characteristic of commercial interest with statutory or regulatory powers in one entity goes to the root of the fundamental tenets of ensuring a level playing field and the objectives enshrined under the preamble of the Electricity Act, 2003. It has always put the stakeholders to bewilderment for Government of India to vest the power and function of CTU in PGCIL which is a regulatory subject of CTU. PGCIL engages itself as a contractor for laying down the lines and assets and it also participates in various bids for laying down transmission lines under the Section 63 route of the Electricity Act, 2003.
(vi) In this scenario instead of finally having a completely independent entity to herald the flag of CTU, the Ministry of Power has committed a blunder by advising PGCIL to incorporate a wholly owned subsidiary under it which shall be vested with the power and function of CTU. The holding company shall have a controlling power over the activities of the subsidiary, therefore, by making separate accounts or Boards, the powers vested in a holding company over the activities of a subsidiary company under the Companies Act, 2013 remains intact, hence the review of arrangement is a mere eyewash.
(vii) The Ministry of Power in the said communication dated 17.06.2020 has indicated about creation of a separate revenue stream for the CTU by a new regulation to be issued by CERC and in the meantime, PGCIL shall take care of budgetary requirement of CTU. Even this cannot be a justification for making CTU a subsidiary, since, nothing stops the Government of India for allocation of funds to CTU till it generates independent revenue pursuant to the regulations to be made by CERC. By virtue of budgetary allocation to the subsidiary by PGCIL the latter shall have even more formidable control over the activities of CTU.
(viii) There is no protocol or any requirement of following the same procedure as was followed in hiving off Power System Operation Corporation Ltd (POSOCO), initially as a wholly owned subsidiary of PGCIL and then make the same as an independent one. There is no harm in creating a separate incorporation and vesting the same with power and function of CTU.
(ix) Post 1991, when the parliamentary democracy of India has been seeking, urging and consistently striving towards a complete departure between governance from adjudication and adjudication from commercial activities of the State, issuance of such communication by the Ministry of Power on 17.06.2020, is definitely worth criticizing as it is an effort to put the clock back. There is no need to re-sanctify the blunder that was committed in 2003 by vesting the power of CTU in PGCIL, with ornamental changes, under the guise of reform.
(x) This mechanism in the present form or in the contemplated form under the present communication dated 17.06.2020, requires to be put to the test laid down under Section 4 of the Competition Act, 2002, due to the position enjoyed by PGCIL with the vesting of the powers of CTU and yet function as participants in the market.
(xi) Reform is also required at the state level since mostly the State Transmission Utility (STU) functions are vested in the State undertaking which happens to be one of the transmission licensees of the State. Therefore, a complete bifurcation would establish the concept of an independent and impartial STU at the State level.
It is undoubtedly a move towards a very long-awaited reform to defeat the conflict of interest, but the manner suggested is nothing but a misfire.
Advocate Matrugupta Mishra is Partner at New Delhi-based Praxis Counsel that specialises in infrastructure-related litigation, including electricity matters, and arbitration matters.Disclaimer: The views or opinions expressed are solely of the author.