India - Orissa for Oriyas and So On

It is possible that in their pre-occupation with readying for Independence Day, few chief ministers paid attention to how just a couple of days prior to this, Justices Pasayat and Sathasivam in the Supreme Court disposed of Civil Appeal Number 5722 of 2006. On the face of it, all that the judgement does is to overturn the November 2006 ruling of the Appellate Tribunal for Electricity, which said the Orissa government-owned Gridco cannot make exorbitant profits while selling electricity to other states. So while the Tribunal ruled Gridco, which has monopoly rights over electricity transmission and distribution in the state, cannot buy power (more than a fourth of which is bought from central government-owned utilities!) at around Rs 1.1 per unit and sell it to other states in the country at around Rs 4.7 per unit, the Supreme Court said it could.
But the implications of the Pasayat/Sathasivam judgment are far more serious since it ratifies the principle of differential pricing of goods and services across states, indeed differential pricing that is sanctified by the state government and its agencies. So, if he likes, Bihar Chief Minister Nitish Kumar can say that steel producers using the state’s ore and coal should sell at one rate within the state and at three or four times that to “India”. Ditto for Punjab’s wheat, and so on.
The case actually began on March 10, 2005, when Gridco invited offers to sell power to various state electricity boards/power utilities and invited bids from power traders who could complete this transaction for it. While the power traders were to bid for what price they’d buy the power at, in a power-starved country like ours, prices can spiral out of control. In order to avoid this, the law has put in some safeguards. Power traders, for instance, are not allowed to sell to other traders, lest they collude to just execute fake trades to ratchet up prices. Second, the Central Electricity Regulatory Commission (CERC) has ruled that trading margins be restricted to just 4 paise per unit — that’s around 2 per cent, assuming electricity is sold at around Rs 2 per unit.
But clearly Gridco wouldn’t want to sell the power it bought at an average price of Rs 1.1 for just a profit of 4 paise when it knows that power-starved states are willing to pay even Rs 5 per unit and more. So how it managed the sale was interesting. While the CERC ruling applies only to trading across states (inter-state), it has no jurisdiction on sales within a state (intra-state) — so, Gridco sold its power to the Power Trading Corporation (PTC) within the boundaries of Orissa (the Orissa Electricity Regulatory Commission, OERC, did not fix any margin ceilings for traders selling within the state) at Rs 4.7 per unit and while selling it to state electricity boards/power utilities outside the state, PTC kept the 4 paise margin in mind!
That this was an elaborate charade to get around the rules was the substance of the petition filed by Gajendra Haldea in his capacity as a private citizen, not as an official in the Planning Commission. The CERC, while sympathetic to the petition, pleaded helplessness arguing it had no jurisdiction because Gridco was an intra-state trader — it, however, said that it hoped the OERC would fix a trading margin for Gridco. It also said Gridco’s trading activity went against the spirit of the Electricity Act (if Gridco was a trader, a trading margin had to be fixed) and, once again, asked the OERC to examine the issue. The CERC didn’t respond to Haldea’s suggestion that it could direct power traders like the Power Trading Corporation to not buy electricity from Gridco since this was prohibited under the Electricity Act.
Anyway, Haldea went to the Appellate Tribunal for Electricity and, on November 16, 2006, this ruled the Gridco move was illegal and even said that all those who’d bought the expensive electricity from Gridco should appear before the CERC on December 12, 2006, to file for refunds. After quoting various case laws to argue that the sale was always meant to be an inter-state one, the Tribunal also cited Gridco’s letter, which unequivocally said the sale was always meant to be made to users outside the state’s boundary — in other words, the sale within Orissa was merely to avoid the 4 paise rule. The Tribunal also quoted from the OERC’s tariff order, which said “the Commission, therefore, directs that the revenue earned from such transactions should be utilised to wipe out the past losses without burdening the general consumers of the state”. That is, the OERC felt it was okay to profiteer from non-Orissa customers! And profiteering it was since, as the Tribunal pointed out, the electricity wasn’t even surplus, given that just 22.83 per cent of households in the state had electricity.
This is the ruling that Justices Pasayat and Sathasivam have over-turned. While their judgment will, in turn, probably be appealed as well, the appeal needs to be a broader one. For what’s at stake are larger issues of competition policy in the sense of discrimination between users and the federal structure of the country in the sense of discrimination on the basis of statehood. Perhaps a Constitution Bench needs to look into the matter?
Postscript: While saying the Tribunal’s conclusions cannot be upheld, the Judgment says “they clearly establish inter-state nature of the transactions”. That’s an unfortunate typo that needs to be corrected at the earliest, for if the Gridco transactions are “inter-state” instead of being “intra-state”, the huge profiteering is clearly illegal.