The government bill to reform the electricity power industry began its passage through the Indian parliament Thursday and, if successful, will sweep away acts and amendments governing the power sector put in place during the last century, according to a government statement. The bill seeks to restructure the country’s electricity industry, doing away with mandatory state electricity boards, encouraging new generation projects and outside investment.

While introducing the Electricity Bill 2001, India’s Power Minister Suresh Prabhu said the bill was intended to facilitate the development of the country’s electricity industry through rationalization of power tariffs and ensuring transparent policies regarding subsidies and environment protection, according to the report.

The Electricity Bill, which seeks to replace the existing Electricity Act of 1910, 1948 and amendments passed in 1998, must be passed by a two-thirds majority in parliament before getting approval from at least half of the state legislatures. It needs therefore, to be widely discussed and thoroughly vetted by legal and power experts, to avoid minor amendments to the Act later.

The bill will separate generation, transmission and distribution companies and create independent commissions responsible for market regulation. Some states have already gone down the route of separating different interests but the federal government wanted a comprehensive reform law.

“It was felt necessary to bring a comprehensive legislation incorporating the progressive features and best industry practices,” the statement said.

The bill ends licensing for power plants except hydro projects and relaxes controls on distribution. “Distribution licensees would be free to undertake generation and generating companies would be free to take up distribution licenses.”

“The bill does not prescribe any model of reform. Instead it provides flexibility to the state government to choose the model suiting to their conditions.”

It requires states to meter all connections, make it mandatory to set up regulatory commissions and allow power trading with some restrictions.

“Trading, a distinct activity is being recognised with the safeguard of the regulatory commissions being authorised to fix ceilings on trading margins if necessary,” the statement said.

India produces about 100 000 MW of power, 12 per cent less than demand. The government wants to double the capacity by 2012, but analysts say this needs an investment of $200bn including large contributions from domestic and foreign firms.

Previous attempts to encourage outside investment in India’s electricity industry have met with limited success. The high-profile involvement by US power group Enron in the $2.9bn Dabhol power project has turned sour with the Enron and the Maharashtra State Electricity board locked in a bitter dispute over payments for power. Enron has given notice to withdraw from the project.

AES Corporation ahs also threatened to pull out of its involvement in generation and distribution in the state of Orissa.