Update Regarding Distribution of Electricity License Rules, 2005

On September 8th 2022, the Ministry of Power, Govt. of India issued the Distribution of Electricity License (Additional Requirements of Capital Adequacy, Creditworthiness, and Code of Conduct) (Amendment) Rules 2022 whereby, the explanation to sub-rule (2) of Rule 3 of the Distribution of Electricity License (Additional Requirements of Capital Adequacy, Creditworthiness, and Code of Conduct) Rules 2005 has been amended

As per the amendment, the area under the ambit of either a municipal corporation (as laid down in Article 243Q of the Indian Constitution) or three adjoining revenue districts or a smaller area (as may be notified by the appropriate government) will now be considered the minimum area of supply for grant of license. In the earlier version of this act, the aspect of ‘smaller area’ and ‘three adjoining revenue districts’ was not present.

This step is aimed at broadening/relaxing the definition of the ‘minimum area of distribution’ to be eligible for the license. It, in turn, makes the act more flexible in terms of allowing private players into the electricity domain. The amendment has come about following an indication given by the central government earlier this year that it would be presenting an amendment to make room for private companies.

It is noteworthy that this amendment has been made amid strong objections by various state governments as well as major power distributors in the country which are mostly state government-owned companies. In fact, on August 5th 2021, a resolution opposing the plan to privatize the electricity distribution network was unanimously approved by the Kerala Assembly. The move has also been opposed by the West Bengal government.

The said amendment might be a step towards encouraging competition and capital investment in the electricity distribution sector by breaking the monopoly of the state energy boards on the distribution of power. However, it would be interesting to watch how a sector, which has been under the absolute control of public sector bodies to date, would react to the increased competition and improvise strategy.