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Study on imapct of Restructuring of SEBs
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CONTENTS
EXECUTIVE SUMMARY...............................................................................................1
CHAPTER - 1
BACKGROUND................................................................................................................91.2 Objectives of the Study........................................................................................131.3 Terms of Reference..............................................................................................131.4 Methodology Adopted.........................................................................................14
CHAPTER - 2
POWER SECTOR REFORMS AND RESTRUCTURING........................................172.2 Component of Reforms........................................................................................182.3 Chronology of Indian Power Sector Reforms and Restructuring...................192.4 Status of Reforms and Restructuring.................................................................21
CHAPTER - 3
OVERVIEW OF THE POWER SECTOR IN INDIA.................................................233.1 Five Year Plan Targets and Allocations.............................................................233.2 Performance of Generation Sector (All 2005-06 figures are provisional).......273.2.1 Installed Generating Capacity.............................................................................273.2.2 Electricity Generation..........................................................................................283.2.3 Plant Load Factor.................................................................................................293.2.4 Energy and Peak Shortages.................................................................................293.2.5 Metering, Billing and Collection Efficiency.......................................................303.2.6 Aggregate Technical and Commercial Losses....................................................303.3 Rural Electrification............................................................................................313.4 Rural Electrification at a Glance........................................................................323.5 Investments made in Power Sector.....................................................................353.6 Financial Requirements for Eleventh Plan........................................................363.7 Accelerated Power Development and Reforms Programme............................383.8 International Experience.....................................................................................41
CHAPTER - 4
RESTRUCTURING MODEL AND PROGRESS........................................................454.2 First Phase of Restructuring...............................................................................454.3 Second Phase of Restructuring...........................................................................474.4 The Process of Restructuring..............................................................................474.5 Important Factors for Successful Restructuring of SEBs................................474.5.1 Political Commitment and Support....................................................................474.5.2 Champions for the Reform..................................................................................484.5.3 Competent Consultancy Support........................................................................484.5.4 Securing Cooperation of Employees...................................................................494.5.5 Financial Restructuring Plan..............................................................................49
4.6 Restructuring Models..........................................................................................504.6.4 Models of Restructuring......................................................................................514.6.5 Retaining SEB as a Holding Company...............................................................524.6.6 Distribution Mix...................................................................................................544.7 State-level Planning and Coordination..............................................................544.8 Outcome of Restructuring of SEBs....................................................................554.8.1 Group-1 States......................................................................................................554.8.2 Group-2 States......................................................................................................634.9 Regulatory Mechanism and its Impact on Restructuring of SEBs..................654.10 Impact of Restructuring on Rural Electrification.............................................664.11 Impact of Restructuring on Investments...........................................................684.12 Conclusions: Restructuring Model.....................................................................69
CHAPTER - 5
IMPACT OF RESTRUCTURING....................................................................................715.2 Impact of Restructuring on Technical and Financial Performance................715.3 Reduction in Estimated Losses...........................................................................725.4 Technical Parameters..........................................................................................745.5 Financial and Commercial Parameters.............................................................825.5.1 Revenue Improvements........................................................................................825.5.2 Profit/Loss without Subsidy.................................................................................835.5.3 Profit/Loss with Subsidy......................................................................................845.5.4 Commercial Losses as a Percentage of Revenue (without Subsidy).................845.5.5 Incidence of Subsidy.............................................................................................845.6 Energy and Peak Shortages................................................................................885.7 Per Capita Consumption.....................................................................................895.8 Rural Electrification............................................................................................905.9 State Power Sector Outlays.................................................................................945.10 Metering, Billing and Collection efficiencies.....................................................975.11 Overall Performance.........................................................................................100
CHAPTER - 6
FINDINGS AND RECOMMENDATIONS....................................................................1036.1 Political Commitment and Support..................................................................1036.2 Detailed Policy Statements................................................................................1066.3 Communication Strategy...................................................................................1066.4 Consultancy Support.........................................................................................1106.5 Human Resources Development Issues............................................................1116.5.7 Right-sizing of the Staff and Strengthening the Managerial Cadres.............1136.6 Financial Restructuring Plans (FRPs).............................................................1146.7 Managing the Reforms Process........................................................................1146.8 Role of the Electricity Regulatory Commissions.............................................1156.9 Establishing a Power Sector Reform Fund......................................................1236.10 Access to Central Institutional Funds by Privatised Utilities.........................1236.11 Reconstitution of the Board of Directors.........................................................1246.12 Memoranda of Agreements...............................................................................1256.13 Better Management Practices...........................................................................125
ii
6.14 Capacity Building and Developing Management Cadres...............................1276.15 Centre for Manpower Planning and Development.........................................1296.16 Accountability and Corporate Governance.....................................................1296.17 Participation of Civil Society Organisations....................................................1306.18 Citizens’ Charter................................................................................................1326.19 Universal Metering of Service Connections.....................................................1336.20 State Government Initiative and Support to Prevent Theft of Electricity....1346.21 Energy Accounting and Auditing.....................................................................1366.22 Reducing Cross-Subsidies.................................................................................1376.23 Fostering Competition Through “Open Access”.............................................1406.24 Data Management Systems...............................................................................1416.25 Adoption of Information Technology in Power Sector...................................1426.25.1 Computerised Online Information System......................................................1426.25.2 Other IT-related Applications...........................................................................1426.26 Outsourcing of Works/Services........................................................................1436.27 Encouragement to Non-Conventional Energy Sources..................................1436.28 Rural Electrification..........................................................................................1446.29 State-level Planning and Coordination............................................................146
CHAPTER - 7
WAY FORWARD...............................................................................................................1477.1 Steps to be taken by the Ministry of Power.....................................................1477.2 Steps to be taken by the State Governments....................................................1497.3 Steps Suggested for Implementation by the Utilities......................................152
iii
List of Annexures
Annexure-I : TERMS OF REFERENCE - Ministry of Power, GOI 154Annexure-II : List of Experts Detailed for the Study 156Annexure-III : Issues raised in the Interim Report of Study on the
Experience of Power Sector Reforms by the “National Coordination Committee of Electricity Employees and Engineers (NCCEEE)” and comments thereon of the ‘Group of Experts’
157
Data TablesTechnical, Financial, Commercial and other Parameters of States Before and After Restructuring
Annexures-IV to X : BlankAnnexure-XI : Performance of Generating Companies A-1Annexure-XII : Performance of Transmission Companies A-4Annexure-XII(A) : Year-wise Targets vs. Achievements Ninth and Tenth
Plans for Transmission LinesA-5
Annexure-XII(B) : Year-wise Targets vs. Achievements Ninth and Tenth Plans for Sub-Stations
A-6
Annexure-XII(C) : Transmission Sub-Stations Capacity Additions (State Sector) -1997-98 to 2011-12
A-7
Annexure-XIII : Performance of Distribution Companies A-8Annexure-XIV : T&D Losses A-12Annexure-XV(A) : Commercial Profit/Loss (without Subsidy) A-14Annexure-XV(B) : Commercial Profit/Loss (with Subsidy) A-15Annexure-XV(C) : Losses of SEBs/Utilities (without Subsidy) A-16Annexure-XV(D) : Business as Usual Continues vs. Effect of Restructuring
(Total Losses Without Subsidy) (Chart )A-17
Annexure-XV(E) : Cash Profit/Loss (With Subsidy) (Chart ) A-18Annexure-XV(F) : Percentage of Losses of Group-1 States Compared to all
the States (Chart )A-19
Annexure-XV(G) : Commercial Losses as a Percentage of Turnover A-20Annexure-XV(H) : Commercial Losses as a Percentage of Turnover (Chart) A-21Annexure-XV(I) : Subsidy Booked & Received and Percentage of Subsidy
Booked & Received to Total RevenueA-22
Annexure-XV(J) : Percentage of Subsidy Booked to Total Revenue A-23Annexure-XV(K) : Percentage of Subsidy Received to Total Revenue A-24Annexure-XVI(A) : Percentage of Energy Shortage - Group-1 States (Chart) A-25Annexure-XVI(B) : Percentage of Peak Shortage - Group-1 States (Chart) A-26Annexure-XVII : Per Capita consumption of Electricity (kWh per year) A-27Annexure-XVIII : Consumer Category-wise Average Tariff (Paise/kWh) A-28
Abbreviations………………………………………….…………………………….… A-30
iv
EXECUTIVE SUMMARY
A. BACKGROUND
A1 The pre-eminent role of ‘electricity’ in the growth of a nation’s economy
is well-established. To sustain the envisaged GDP growth rate of more than
eight per cent, electricity generation has also to grow at about the same rate.
The Tenth Five Year Plan aims at a generating capacity addition of 41,110
MW. However, the achievement is likely to be about 75 per cent of the target.
The total installed generating capacity in the country at the end of 2005-06 was
1,24,287 MW. Though India ranks fifth in the world in terms of the electricity
generated, the annual per capita consumption is a miniscule, 631.5 kWh (2005-
06 provisional figure), one of the lowest in the world. The world average of
annual per capita consumption in 2003 was 2,429 kWh.
A2 The current Five Year Plan emphasises the need for power sector
reforms through ‘restructuring’ of the State Electricity Boards (SEBs), by
establishing regulatory mechanisms, and by effecting overall improvement of
the physical and financial attributes of the SEBs. The enactment of the
Electricity Act, 2003 (EA, 2003) was a milestone in the development of the
power sector, and aims at, inter-alia, supply of electricity to all citizens at
reasonable tariff, provision of transparent subsidies, establishment of
Electricity Regulatory Commissions and Appellate Tribunal, and promotion of
policies conducive to the growth of the electricity sector. The EA, 2003 has, in
particular, made ‘restructuring’ of SEBs, on functional basis, mandatory.
A3 SEBs have been in existence for over 40 to 50 years, and have had
several achievements to their credit. However, on the whole, SEBs had become
unviable and unprofitable, with heavy accumulated losses and liabilities. They
were blamed for poor service delivery, mainly due to inefficient planning and
sluggish execution of capital works, inadequate maintenance, low generation
[low Plant Load Factor (PLF)], high Transmission and Distribution (T&D)
Losses, erratic supply to consumers, and perennial financial losses. Such inept
and consistently sub-optimal performance on all fronts by the SEBs in general
convinced the planners and policy-makers about the need to reorganise the
SEBs into smaller, viable, uni-functional Utilities, with clearly defined
jurisdictions and tasks, as part of the power sector reforms. This hypothesis
followed the realisation that the earlier attempts at reforming the generation
segment of the electricity value chain had not achieved the desired results; and
National Report (Vol.-I)Study on ‘Impact of Restructuring of SEBs’
reforming the distribution segment was considered essential for improving the
technical and financial performance, increased consumer care, corporatisation
of distribution segment and attracting significant private participation in the
power sector.
A4 Starting with Orissa, which restructured its SEB in the mid-1990s, 12
more States (including NCT of Delhi) have ‘reorganised’ their SEBs till now.
Some of them had restructured their SEBs prior to the enactment of the EA,
2003 whereas some others have done so after the enactment of the Act. The
remaining SEBs are legally obliged to do so in the near future. It is in this
context that the Ministry of Power (MoP) entrusted the Indian Institute of
Public Administration (IIPA) with the task of evaluation of the impact of the
restructuring of SEBs with reference to the time-frame, pattern, process and the
methodology adopted, as well as the overall performance of the restructured
Utilities. This Report, presented in four volumes, contains the findings and
recommendations of IIPA, which had enlisted the services of a Group of
Experts to carry out the Study.
A5 The Group of Experts had the benefit of discussions on several issues
relating to the power sector in the following important meetings:
Sl.
No.Date Participants Issues Discussed
1. 21.07.2006
Shri. E. Balanandan, Chairman, ‘National Coordination Committee of Energy Employees and Engineers and other representatives of the Committee.
Issues and concerns relating to employees of the electricity sector. Points raised by them and responses of ‘Group of Experts’ are at Annexure-III.
2. 24.08.2006
Shri R.V. Shahi, Secretary (Power), Govt. of India, Senior officers of MoP and officials of MNES, REC and CEA.
It was decided that meetings be held with Principal Secretaries (Power) of States, Chairpersons/ CMDs of State Power Utilities and with Electricity Regulators to fine tune the Recommendations.
3. 13.09.2006Principal Secretaries (Power) of States, Chairpersons and MDs of State power Utilities.
3600 feedback was obtained on the preliminary Report.
4. 14.09.2006Shri A.K. Basu, Chairperson, CERC and Chairpersons of six SERCs.
Issues pertaining to the institution of Electricity Regulators. For details, please refer to Para 6.8, Chapter-6.
2
National Report (Vol.-I)Study on ‘Impact of Restructuring of SEBs’
A6 The valuable inputs and suggestions offered by the above-mentioned
persons are gratefully acknowledged.
B. Overview of the Sector
B1 Capacity additions as a percentage of targets during the Eighth, Ninth and
Tenth Five Year Plans are 54, 47 and 75 per cent respectively. However, the
shortfall in the Tenth Plan has been partly offset by improved plant
performance and reduction of T&D losses. Growth in electricity generation
during the Ninth Plan period was three per cent per annum. During the last
three years, growth in electricity generation has been consistently above five
per cent. During the period April to October 2006, the growth rate recorded
was 7.1 per cent.
B2 Energy and peak shortages in 2005-06 were still as high as 8 per cent and 12
per cent respectively. In order to reduce these shortages, and to meet the
increasing demand in the coming years, during the Eleventh Plan, another
62,475 MW of generating capacity will have to be added. As per the estimation
of the CEA, this will have to include 13,500 MW from the private sector.
Capacity addition of such a magnitude will call for an additional investment of
approximately Rs 5,00,000 crore, to be sourced from both the public and
private sectors. The World Bank estimates also are more or less similar.
B3 The above projection of massive investment requirements in the sector
underscores the need for intensive sector reforms, since on the one hand, the
Utilities in the public sector will have to work more efficiently and improve
their performance to create more investment resources, while on the other, the
sector will have to attract adequate private investments to supplement the
efforts of the public sector. Inevitably, this will call for a change management
involving reorganisation and restructuring, and fostering competition, to
improve productivity, efficiency and transparency in the sector.
C. Restructuring Models and Progress
C1 The restructuring of SEBs (which have been performing one of the most
essential and basic public service, but had become monopolist, monolithic,
unviable and large organisations) would tend to be a huge exercise, calling for
careful and meticulous planning and execution. The review of the seven States
where the restructuring was completed has led to a finding that “the process is
highly sensitive to several factors; and calls for unstinted political
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National Report (Vol.-I)Study on ‘Impact of Restructuring of SEBs’
commitment and support, public sensitisation on the issues involved, highly
placed champions for the reform, excellent consultancy support, cooperation
of the employees and an efficient FRP which would free the newly-formed
Utilities from the burden of past liabilities”.
C2 An important finding is that the untimely withdrawal of political support
before the restructured Utilities stabilise in their working would jeopardise the
reform process. Similarly, consultants should not only assist to frame the
models and chalk out the process of restructuring, but must also provide
handholding support to the new Companies during the initial years. Further, it
would be of prime importance to enlist the support and cooperation of the
employees at various levels, and instill identity and loyalty with the new
restructured entities through change management efforts to bring forth an
attitudinal change amongst them. It should also be ensured that the service
interests and career advancement of the employees under the new set-up are
fully protected so that their loyalty and commitment to the new companies
remain intact.
C3 The States, which restructured their SEBs, have in general adopted a
more or less similar model for the process, with a few modifications to suit
their individual requirements. Orissa completed the entire restructuring
exercise in one go, and subsequently allowed private sector participation in the
distribution segment. In other cases, initially, one or two Generating
Companies (GENCOs) and a combined Transmission and Distribution
Company were formed as successors to the SEB; and the former was, in the
second stage, restructured into one Transmission and two or more Distribution
Companies. In yet a third model, the SEB itself was not dissolved, but was
retained as a Holding Company to look after the residual and coordination
functions, while forming one Transmission and different Distribution
Companies. The analysis leads to the conclusion that the second model,
adopted by States like Andhra Pradesh, Haryana, Karnataka and Uttar Pradesh
is more appropriate and practical, and is, therefore, recommended for adoption
by the remaining States, which are mandated under the law to restructure their
SEBs.
C4 A related issue is the ideal mix of zones for determining the jurisdiction
of the new DISCOMs. In the cases reviewed, States have adopted an urban-
rural mix as the basis, which appears logical. However, States will have to
review this model at later stages so as to introduce more competition. Similarly,
4
National Report (Vol.-I)Study on ‘Impact of Restructuring of SEBs’
there is also a need to make the Transmission Company in each State
responsible for statewide planning and coordination, for which these Utilities
would need to be strengthened by inducting experts in energy planning.
D. Outcome of Restructuring of the Power Sector
D1 The extensive Statewide survey and analysis carried out for this study
discloses that on the whole, in majority of the States, there are considerable
improvements in the performance of the Utilities after the restructuring. The
broad conclusion is that, despite some shortcomings, the overall impact of
restructuring has been positive and in the right direction. Overall
improvements were noticed in Andhra Pradesh, Haryana, Karnataka and Orissa
in the following areas:
(i) Trend towards reducing AT&C losses;
(ii) Increased and more focused investments;
(iii) Capacity additions and strengthening of the power systems;
(iv) Localisation and reduction of inefficiencies;
(v) Improved customer care;
(vi) Progress in metering, billing and collection, etc.;
(vii) Increased accountability of the Utilities;
(viii)Establishment of Regulatory Mechanism;
(ix) Empowerment of consumers; and
(x) Reporting and reviewing of performance of the Utilities on a regular basis.
D2 However, inadequate measures to control thefts, pilferages, unregulated/
unmetered supplies to the agriculture sector, and unreliability of service emerge
as areas of concern and reflect on management inadequacies and future
challenges for the power sector.
D3 The position in Rajasthan and Uttar Pradesh, however, leaves much to
be desired, while the progress in Madhya Pradesh is partial. One factor that was
noticed in most States mentioned above was the need to make the restructured
companies more autonomous and independent, and to inculcate
professionalism amongst the staff. A number of recommendations to effect
these changes are included in this report at appropriate places.
5
National Report (Vol.-I)Study on ‘Impact of Restructuring of SEBs’
D4 The States of Assam, Gujarat and Maharashtra have restructured their
SEBs after the enactment of the EA, 2003 and require special mention. The
process followed in Assam and Gujarat appears to be quite comprehensive and
could be termed as good. However, the model followed by Maharashtra, with
only one Distribution Company in position, does not offer the best option from
the angle of efficiency and customer interest. Besides, the political support and
commitment displayed in the initial stages of the restructuring was not
sustained. There is a need to review and reinforce the process in Maharashtra.
E. Regulatory Commissions
E1 The State Electricity Regulatory Commissions (SERCs) have played a
positive role in the power sector reform process. Their functions, especially
those related to tariff matters, have brought about a refreshing change in the
working of the sector.
E2 However, there is need to assign a more effective role in the changing
environment after the enactment of the EA, 2003 to introduce greater
transparency and public participation in the proceedings before the
Commissions so as to make their functioning free of political influence.
E3 SERCs have to become more proactive, and ensure uniformity in their
approach to issues that would promote competition through non-discriminatory
Open Access and determine efficiency-based surcharge, review of plans for
new capacity additions and in implementation and enforcement of the codes
and standards of performance, etc., to enhance efficiency of the Utilities as part
of their accountability against the stated objectives.
E4 It would also be desirable for the SERCs to work with stakeholders in
evolving new rules and regulations. This Report includes recommendations
regarding capacity building and strengthening of the SERCs and making them
more independent and autonomous.
F. Rural Electrification
F1 Although fund flow to restructured companies from REC sources has
improved, since the restructured Utilities are now commercial concerns, they
are not likely to display adequate attention to rural electrification and supply of
sufficient power to rural areas, unless effectively monitored for their
performance in this area. Hence, it is necessary to keep a close watch on this
programme so as to avoid possible shortfalls in the achievement of national
6
National Report (Vol.-I)Study on ‘Impact of Restructuring of SEBs’
targets. Rural Electrification Programme should not be seen as adding yet
another burden of losses on the Utilities through conventional technical system
extension.
G. Other Findings
G1 One of the major gains of the process of restructuring is the improved
commercial performance of the Utilities. The losses which were on the increase
until 2001-02, started diminishing after that, and came down from Rs 29,252
crore in 2001-02 to Rs 21,998 crore in 2004-05. (The losses may have been of
the order of Rs 38,000 crore if allowed to continue in a ‘business as usual’
mode.) Similarly, the States (excluding Uttar Pradesh) that have restructured
their SEBs have registered profits (with subsidy), after 2003-04. Further,
excluding Rajasthan and Uttar Pradesh, these States together have substantially
reduced their ratio of commercial losses (without subsidy), to revenue. The
percentage of subsidy as a ratio of respective revenues has also come down in
some restructured States, which is a positive indication.
G2 In the performance ratings secured by the Utilities for 2005, several
restructured States occupy fairly high rankings. It is pertinent that three such
States have been assigned top positions. However, the lower than expected
performance of some others highlights the need for improving the working of
the restructured Utilities by securing strong political commitment, improved
management practices and better financial and management controls, etc.
H. Findings and Recommendations
H1 Based on the extensive Statewide reviews and analyses, a large number
of important recommendations have been included in this Report for necessary
follow up by the Ministry of Power, Government of India, and the concerned
State Governments. These have been categorised separately for the use of the
intended stakeholders as ‘Way Forward’ in a subsequent chapter. The major
recommendations are as follows:
(i) Need for sustained political commitment and support for the reform;
(ii) Need to issue Detailed Policy Statements (DPS) to spell out the future
policy and programmes;
(iii) Need for an effective and forceful communication strategy;
(iv) Need to make available excellent, competent consultancy support to the
State Governments;
7
National Report (Vol.-I)Study on ‘Impact of Restructuring of SEBs’
(v) Need to develop a forward-looking and transparent HRD policy after taking
the staff representatives into confidence;
(vi) Suggestions for managing the reform process;
(vii) Suggestions to make the regulatory mechanism more effective;
(viii)Need for the Central Government to support Power Sector Reform Funds;
(ix) Strengthening the boards of directors and management cadres of the
restructured Utilities;
(x) Increasing the accountability and autonomy of the Utilities by
private/employee participation in the equity base, appointment of
independent directors, etc.;
(xi) Reducing cross-subsidies through political commitment; and
(xii) Introducing various measures, which would improve efficiency and
productivity of Utilities.
I. This Report is divided into four volumes. The details are as follows:
Volume No. DetailsVolume-I 7 Chapters focusing on common issues on the ‘Impact of the
Restructuring of SEBs’, which will be relevant and of interest to the MoP, State Governments and the restructured Utilities in general
Volume-II Executive Summary, Findings and Recommendations and the Way Forward of Volume-I.
Volume-III Detailed State-wise chapters covering each of the 12 States studied
Volume-IV Summarised versions of individual State Reports on the impact of restructuring of SEBs, relating to 12 States covered in this study.
8
CHAPTER - 1
BACKGROUND
1.1 The thrust area for the power sector in the Tenth Five Year Plan (TFYP), 2002-
07, was sector reforms, which included the restructuring of vertically integrated
State Electricity Boards (SEBs); establishing independent regulatory regimes,
both at the Central and State levels; improving the financial stability and
viability of SEBs and improvement in the quality and reliability of power
supply through specific, target-oriented and coordinated development and
augmentation of power infrastructure facilities through initiatives like
Accelerated Power Development and Reforms Programme (APDRP). The
TFYP also aimed at encouraging competition in the power sector through
increased private sector participation and introducing Open Access in
transmission and distribution systems. On the generation side, the TFYP
envisaged a capacity addition of 41,110 MW.
1.1.1 According to the Ministry of Power, the Government has taken up reforms in
the power sector in order to turnaround the financial health of the power sector
and ensure gradual reduction of losses.
1.1.2 Energy has a critical role to play in the sustainable development of the
economy. Elasticity ratio between the growth rates of GDP and electricity
generation for the country is taken as 1:1. Growth of the Indian economy is
projected to be over eight per cent per annum during the Eleventh Plan. For
achieving a robust growth rate of such a magnitude, the generation of
electricity must also grow commensurately.
1.1.3 In order to take forward the Power Sector reforms, the EA, 2003 lists the
following in its preamble1:
(a) Consolidation of laws relating to generation, transmission, distribution,
trading and use of electricity;
(b) Taking measures conducive to develop the electricity industry;
(c) Supply of electricity to all consumers;
(d) Protecting consumer interest;
(e) Rationalisation of electricity tariff;
(f) Transparency in policies regarding subsidies;
1 Ministry of Power website
(g) Promotion of efficient and environmental-friendly policies; and
(h) Constitution of Electricity Regulatory Commissions (ERCs) and the
establishment of an Appellate Tribunal at the national level and defining a
clear role for the Central Electricity Authority (CEA).
1.1.4 Another way of looking at the objectives of power sector reforms2 could be as
follows:
(a) To reduce reliance on Government support and expand the power
sector by attracting private investment;
(b) To foster a climate of fair-play and transparency in all spheres
relating to the sector so as to reassure private investors of a fair return; and
(c) To improve the efficiency of the system through competition and to
provide assured and quality power to all categories of consumers.
1.1.5 The EA, 2003 has made restructuring of the SEBs mandatory. It was widely
recognised that SEBs were monolithic, multi-disciplinary and unviable
organisations, which, though providing a crucial and vital service to the public
at large, had failed to perform optimally on all fronts - physical, financial and
functional and also in consumer care. It was also generally accepted that SEBs
were subject to political manoeuvring, interference, and bureaucratic controls,
and, over a period of time, paid scant attention to commercial sustainability and
customer care. The commonly perceived reasons for the poor performance of
SEBs are:
(a) Inefficient planning and implementation of capital works, entailing
delays, cost overruns, inadequate capacity additions and lack of
accountability;
(b) Poor maintenance of assets, leading to frequent break-downs, low
plant load factor (PLF), high T&D losses, energy and peak shortages,
frequent interruptions, regular power trippings and poor quality of supply;
and
(c) Perennial financial losses due to low cash coverage and predominant
dependency on subsidies caused by unrealistic tariffs; poor metering,
billing and collection efficiency, poor inventory management, etc.
1.1.6 It was in this context that the concept of restructuring of SEBs into smaller,
functionally-oriented, viable organisational units (which would have clear
visions and be mission-aligned to serve the cause of economic and social
development) came to be accepted. However, questions were also raised about
2 Indian Power Sector Reforms: Prayas
the wisdom and real-time benefits of restructuring of the Utilities, especially in
the context of the resistance from large sections of employees of the SEBs.
There was also an apprehension among some sections of stakeholders that the
restructuring of the SEBs was taken up at the instance of multinational and
bilateral agencies (who were prompted more by international practices and
trends), not reflecting the true and fair appreciation of the local conditions.
1.1.7 The first State in India to undertake a restructuring programme for its
Electricity Board was Orissa (in April 1996), where the reforms strategy
included the privatisation of the restructured DISCOMs. The Orissa experiment
was followed by similar restructuring exercises in several States including
Haryana, Andhra Pradesh, Karnataka, Uttar Pradesh, Rajasthan and Madhya
Pradesh, the difference being that their DISCOMs were Government owned
and managed companies. Subsequently, as mentioned above, with the
enactment of the EA, 2003, restructuring of the SEBs has become mandatory
under the law.
1.1.8 The first wave of reforms in the power sector focused on generation.
Subsequently, in the mid-1990s, the need and inevitability of reforming the
distribution segment of the supply chain came to be accepted at the policy-
making level, which gave shape to the second wave of reforms and includes
restructuring of the SEBs. The restructuring of the SEBs has so far been
completed in 13 States (out of which 10 States were selected for the instant
study. Of these, seven States figure in Group-1 and three States in Group-2 in
this Report3); these exercises were carried out during the last decade. The other
States are yet to initiate (or are in) the process of restructuring. Out of these,
two States, namely Tamil Nadu and West Bengal, have been covered under the
category of Group-3 States.
1.1.9 The restructuring of the SEBs into a number of smaller corporate entities with
separate missions, functions, board of directors, and managements is an
intricate and complex task. The new functionally-oriented independent
corporate bodies, carved out of the Electricity Boards, have been in operation
in the Group-1 States for quite some time; but not long enough to ensure their
complete stabilisation. The Electricity Boards have been in existence for more
than four decades and their restructuring into corporate entities by different
States is a significant event in the development of the power sector in India. A
comparative analysis of the process which the States adopted, together with an
independent evaluation of the gains and shortfalls arising out of such an
exercise would indeed be of considerable practical value to the States which 3 Refer to Table 1.1 for details of States.
undertook the exercise, as also to the Group-3 States which are about to start
the process. It will also be useful to other stakeholders of the sector, including
the policy makers at different levels.
1.1.10 The Ministry of Power entrusted the study on the “Impact of Restructuring of
SEBs” to the Indian Institute of Public Administration (IIPA) in November
2005. This Report is the result of an in-depth review of the developments
which led to the restructuring of SEBs (Groups 1 and 2) in 10 selected States in
India, the methodology adopted, merits and demerits, the overall outcome, and
the current status in 2 States (which are yet to undertake the exercise), by a
group of experts detailed by IIPA4. This Report attempts to capture the various
developments relating to and subsequent to the restructuring of SEBs in the 10
States and analyses the impact of restructuring of SEBs in these States
objectively with a view to assess the progress made in achieving the targeted
benefits of the exercise or reasons for under-achievement, wherever applicable.
The Report also compares the position prior to the restructuring with that after
the exercise, by taking stock of the gains and accomplishments against set
targets, and aims to assess the extent of success or otherwise of the reform
efforts in the States concerned. It also provides an overview of the lessons
learnt and the way forward. This Report should be read in conjunction with the
individual Reports on the selected States included as Volume-III of this Report,
which deals in detail with issues and developments relating to the concerned
States.
1.1.11 The criteria of categorising the States into various groups and Region-wise
distribution of these States are given in Tables 1.1 and 1.2 respectively.
Table 1.1: States Covered in the Study
Group-1 (7 States)The States in which SEBs were reorganised on the basis of the respective State Reforms Acts prior to the enactment of the EA, 2003.
Group-2 (3 States)The States in which SEBs were reorganised after enactment of the EA, 2003.
Group-3 (2 States) The States in which SEBs are in the process of restructuring.
Table 1.2 : Region-wise Distribution of the States
RegionNo. of States
SelectedState
No. ofDISCOMs
Classificationof Category
Southern 3Andhra Pradesh 4 Group-1Tamil Nadu * Group-3Karnataka 5 Group-1
4 Refer to Annexure II for a list of experts and the States covered by them.
Western 3Maharashtra 1 Group-2Madhya Pradesh 3 Group-1Gujarat 4 Group-2
Northern 3Uttar Pradesh 5 Group-1Haryana 2 Group-1Rajasthan 3 Group-1
Eastern 2West Bengal * Group-3Orissa 4 Group-1
North Eastern 1 Assam 3 Group-2*Not yet restructured
1.2 Objectives of the Study
1.2.1 The objectives of the study were to:
(a) Critically analyse the impact of reorganisation of SEBs and bring out the details of difficulties, shortcomings and suggestions;
(b) Bring out overall trends in the performance of the power sector, starting five years before reorganisation and thereafter, wherever relevant;
(c) Make suggestions for effective implementation of restructuring of the SEBs;
(d) Document the restructuring process in SEBs flagging successes and failures;
(e) Provide explanation for the above performance through a series of outcome indicators and a contextual analysis;
(f) Identify the policies and other factors that contribute to the outcome; and
(g) Identify the best practices that could be replicated elsewhere.
1.3 Terms of Reference
1.3.1 The Terms of Reference (TOR) of the study agreed to with the Ministry of
Power were as follows:
The study should bring out the trends in respect of the following parameters
starting five years before the reorganisation exercise and thereafter:
(a) Exercise of Restructuring: Time-frame, status, organisation patterns, etc.
(b) Generation Company’s Performance Analysis: Physical and financial
performance in terms of capacity addition programmes, management
practices, etc.
(c) Transmission Company: Improvement in physical and financial
performance, including the reduction of losses.
(d) Distribution Company: Overall performance improvements in all areas of
activity, especially in matters of commercial operations, customer care,
enhancement of revenue and reduction of losses, restructuring, financial
health, etc.
(e) Recommendations: Provide suggestions and recommendations for
effective implementation of the restructuring of SEBs by all the States, to
derive maximum benefits. (Please refer to Annexure-I for detailed Terms
of Reference).
1.4 Methodology Adopted
1.4.1 In order to carry out the State-wise review in depth and with objectivity, IIPA
selected a team of experts with significant experience and domain expertise in
the working of the power sector. The team was headed by Shri P. Abraham,
formerly Secretary (Power), Government of India and Ex-Chairman
Maharashtra State Electricity Board (MSEB). The list of the experts who
carried out the review and the States reviewed by them is given at Annexure-
II.5
1.4.2 The methodology adopted for the review included:
(a) Eliciting information and data from the State Governments, SEBs and
Power Utilities through detailed questionnaires (Schedules).
(b) Interviews/interactions with officials and other stakeholders at different
levels.
(c) Discussions among the Group of Experts and their interaction with policy
makers and other senior functionaries.
1.4.3 The Central Electricity Authority (CEA) and Power Finance Corporation
Limited (PFC) provided considerable relevant material and data required for
the review. However, the flow of information and responses from the State
Governments and the Utilities were slow except for a few, which has hampered
the progress of the review.
1.4.4 IIPA specially wishes to thank Shri R.V. Shahi, Secretary, Ministry of Power,
who kindly pursued the matter by addressing the State Governments and
Utilities several times. But for his interventions, this review would not have
been possible. IIPA is also grateful to the other senior officials of the Ministry
of Power for extending all cooperation.
1.4.5 IIPA received a request from S/Shri A.B. Bardhan, Hon’ble Member of
Parliament and General Secretary, CPI and E. Balanandan, Chairman, the
National Coordination Committee of Electricity Employees and Engineers
(NCCEEE), through Ministry of Power, seeking a meeting with the ‘Group of
Experts’ to express their views. Ministry of Power also forwarded to Director,
5 Refer to Annexure II for a list of experts and the States covered by them.
IIPA a copy of the Interim Report of the High Level Committee on
Government Policy on Reforming/Restructuring of SEBs for the information
and use of the Group of Experts. Director, IIPA and the Group of Experts met
Shri Balanandan and other leaders of the Power Sector Employees’ Unions and
Groups6 on 21 July 2006 in IIPA and discussed the relevant issues with them.
IIPA and the Group of Experts are grateful for the views and suggestions made
by them during the meeting. A brief account of the major concerns expressed
by Shri Balanandan and representatives of NCCEEE and the views of the
Group of Experts thereon are at Annexure-III.
1.4.6 The Group of Experts had the benefit of the considered view and useful
suggestions on the developments of the Sector reforms expressed by Shri R.V.
Shahi, Secretary, Ministry of Power, his officials, representatives of the
Ministry of Non Conventional Energy Sources, CEA and the REC in an
interactive session held on 24 August 2006. Further, the members of the
‘Group of Experts’ met and discussed with a number of States’ Principal
Secretaries (Power) and Chairpersons/Managing Directors of State Power
Utilities on 13 September 2006 on the ongoing reform process and
developments in their States. The Group also met the Chairman of the Central
Electricity Regulatory Commission, Shri A.K. Basu and the Chairpersons of
six State Electricity Regulatory Commissions on 14 September 2006 at IIPA
and held interactive sessions with them on the status of the reform in the
respective States, compliance of the directives of the Commissions by the
Utilities, role played by the Commissions to achieve the objectives of the EA,
2003, National Electricity Policy (NEP) and National Tariff Policy, etc. IIPA
and the Group of Experts place on record their appreciation and gratitude for
the cooperation extended by the Secretary (Power), Chairperson, CERC,
Chairpersons of SERCs, Principal Secretaries and CMDs of the concerned
States and other participants.
1.4.7 The Group of Experts met in IIPA, New Delhi, and discussed on a number of
occasions the objectives, methodology and findings of the study. The Group
also jointly analysed the findings and recommendations arising from each State
reviewed and compiled findings and recommendations, which have a bearing
on the sector as a whole after detailed analyses. These have been incorporated
into this Report in Chapter-6. This Report gives a macro-view of the progress
of restructuring of SEBs by 10 States, soundness of the procedure adopted,
outcomes, shortcomings and difficulties encountered and an overview of the
current status. It also brings out the lessons learnt from the exercise and the
6 List of the leaders and important issues raised by them are at Annexure-III
way forward. Finally, it includes a roadmap for future reforms to make the
restructuring a success (Chapter-7).
1.4.8 This Report is presented in four Volumes. Volume-I contains the Expert
Groups’ findings and recommendations, relating to national issues, analysis of
the performance of the restructured Utilities, together with findings and
recommendations and the roadmap to take forward the reforms. Further, for
facility of reference and wider dissemination a separate volume (Volume-II)
contains the Executive Summary, Findings and Recommendations and Way
Forward of Volume-I is also presented.
1.4.9 Volume-III is State-specific. It contains 12 comprehensive chapters, each
consisting of detailed reviews of similar issues of Volume-I, pertaining to the
individual States selected for the study. These reviews have been prepared by
the concerned Member(s) of the ‘Group of Experts,’ who was/were allotted that
State. IIPA is grateful to the policy-makers, Power Secretaries, CMDs of the
power Utilities and other officials of all the 12 States for extending all
cooperation and providing the inputs as per the comprehensive schedules
specially designed for the study. Volume-IV includes summarised versions of
individual State Reports on the impact of restructuring of SEBs, relating to 12
States covered by this study.
1.4.10 IIPA hopes that Ministry of Power and other stakeholders will find this Report
extremely useful in their efforts to revitalise the power sector.
CHAPTER - 2
POWER SECTOR REFORMS AND RESTRUCTURING
2.1 Under the Constitution of India, electricity figures as a “Concurrent” Subject at
Entry 38 in List III of the Seventh Schedule. According to this, the States,
rather than the Central Government, are primarily responsible for providing
electricity to consumers and fixing electricity tariff. The Central Government
power companies own and operate about one-third of the power generating
capacity and inter-State exchanges of power. At the State level, SEBs own and
operate most of the remaining two-thirds of the power generation capacity with
almost the entire distribution network under their control. According to an
International Energy Agency (IEA) Report7, “India ranked fifth in the world in
total electricity generated in 2003, between Russia and Germany with about
633 TWh (3.8 per cent of World total)”. However, because of India’s large
population, gross annual consumption of electricity per capita was only 631.5
kWh during 2005-06, (provisional figure, Source CEA) among the lowest in the
world. The world per capita annual average consumption is 2,429 kWh. The
annual per capita consumption in India has increased from 592 kWh during
2003-04 to 612.5 kWh in the year 2004-05. Thus annual growth of per capita
consumption in the last three years was 4.46 per cent, 3.46 per cent and 3.10
per cent respectively. The National Electricity Policy (NEP) envisages annual
per capita availability of electricity to be increased to about 1,000 Units by
2012.
2.1.1 One of the important problems being faced by the Indian power sector is the
pricing of electricity. Current retail prices of electricity do not cover the actual
average costs. There is a large amount of cross-subsidisation among consumer
categories. The agricultural and household sectors are cross-subsidised by the
above-cost tariffs levied for commercial and industrial customers and the
Railways. In addition, it has been estimated that only 55 per cent of the total
electricity generated is billed and about 41 per cent is regularly paid for. Theft
of electricity is another area of concern. The poor cost-recovery, very low
tariffs for small and agricultural consumers and very high tariffs for bulk
consumers and the widespread non-payment of electricity charges to the
Utilities discourage investment, both public and private, aggravating the
situation further. Most SEBs were unable to pay the electricity dues to the
Central public-sector power companies as well as to the independent power
producers (IPPs). SEBs, either supported through the budgetary process (which
7 IEA (2005) – Key World Energy Statistics
imposes a serious burden on the fiscal health of the State), or by unsustainably
high tariff on select categories of consumers, pose a serious threat to economic
development. The below-cost sale of electricity by the SEBs and the
widespread theft of electricity had become clearly unworkable by the mid-
1990s and had assumed alarming dimensions in many States. These
investment-inhibiting practices had, in fact, caused a serious infrastructure
problem, constricting the growth of the Indian economy. Indian industrial
consumers had to pay much higher tariff as compared to their competitors in
other countries. This had put the Indian industry at a cost disadvantage and, in a
globalised economy; this has affected our manufacturing sector significantly.
2.1.2 The continuing energy and peak shortages had to be overcome by creating
additional capacity as well as by adopting demand side management (DSM)
measures.
2.1.3 Without adequate cost recovery and investible surpluses, there is no sustainable
way by which the growing demand for additional electricity can be met.
Reform and restructuring of the SEBs had thus become inevitable.
2.2 Component of Reforms
2.2.1 Power sector reforms generally involve operation of the utilities on commercial
lines; setting up of independent Electricity Regulatory Commissions (ERCs)
and restructuring of the SEBs; ensuring that power sector reforms are designed
to benefit the poor and marginal sections of the society as well is vital both for
social equity and sustainability of the reform process itself. Three main types of
reform processes are in vogue in the developing nations. The first option is for
Governments to maintain the ownership of their Utilities under
commercialisation, but operating them on a cost-recovery basis. The second
option is privatisation, which can include purchase of power from private
power producers, selling of existing facilities to private firms, and private
financing of new facilities. Finally, there is the option of restructuring the
electricity sector through the restructuring of generation, transmission and
distribution into separate entities, to foster competition, efficiency and
innovation.
2.3 Chronology of Indian Power Sector Reforms and Restructuring
Table 2.1: Chronology of Events
1991 The Electricity Laws (Amendment) Act, 1991
Private Sector participation (including 100 per cent FDI) allowed in Generation.
1995-96 First Reform Model: Orissa Electricity Reform Act, 1995 (Orissa Act No.2 of 1996)
Establishment of OERC, OSEB restructured into OPGC, OHPC and GRIDCO.
1996 Chief Ministers Conference: Common Minimum National Action Plan for Power: Recommended policy to create CERC and SERCs
Licensing and other related functions to be delegated to SERCs,
SERC to determine retail tariffs, including wheeling charges, etc.,
States to allow maximum possible autonomy to the SEBs, which are to be restructured and corporatised and run on commercial basis.
1998 The Electricity Laws (Amendment) Act, 1998 and the Electricity Regulatory Commissions Act, 1998
Establishment of CERC and SERCs,Rationalisation of electricity tariffs,Transparent policies regarding subsidies,Promotion of efficient and environmentally benign
policies.
Haryana Electricity Reforms Act, 1997 (Haryana Act No.10 of 1998)
Andhra Pradesh Electricity Reforms Act, 1998 (AP Act No. 30 of 1998)
SERCs constituted in Haryana, Madhya Pradesh, Uttar Pradesh and Gujarat
1999 Karnataka Electricity Reforms Act 1999 (Karnataka Act No. 25 of 1999).
Rajasthan Electricity Reform Act, 1999 (Rajasthan Act No. 23 of 1999).
Uttar Pradesh Electricity Reform Act, 1999 (UP Act No. 24 of 1999).
Private sector participation in distribution segment in Orissa (four DISCOMs established).
SERCs constituted in Andhra Pradesh, Karnataka, Rajasthan, Delhi, Maharashtra, Tamil Nadu, West Bengal and Punjab.
HSEB restructured into HVPNL and HPGCL, subsequently UHBVNL and DHBVNL established.
APSEB restructured into APGENCO and APTRANSCO (for transmission and distribution).
KEB transformed into new companies: KPTCL and VVNL.
2000 Power Ministers' Conference and Electricity Bill, 2000 (draft): Reorganisation and restructuring of the State Electricity Boards in accordance with the model, phasing and sequencing to be determined by the respective State Governments. States to determine the extent, nature and pace of privatisation. (Public sector entities may continue if the States find them sustainable);
Restructuring of SEBs in the States of Uttar Pradesh and Rajasthan.
UtPCL and UtHPCL formed in Uttaranchal
2001 Delhi Electricity Reform Act, 2000 (Delhi Act No. 2 of 2001).
Madhya Pradesh Vidyut Sudhar Adhiniyam, 2000 (MP Act No. 4 of 2001).
SERCs constituted in Himachal Pradesh, Chhattisgarh and Assam.
2002 SERCs constituted in Uttaranchal, Goa and Kerala. Restructuring of SEBs in the States of Delhi and Madhya
Pradesh. Private sector participation in distribution segment in Delhi
(three DISCOMs established).
2003 Enactment of the EA, 2003. This landmark Act repeals all previous Acts [The Indian Electricity, 1910, The Electricity (Supply) Act, 1948 and The Electricity Regulatory Commissions Act, 1998].
The Act consolidated the laws relating to:
Generation, transmission, distribution, trading and use of electricity,Recognising the electricity sector as an industry and taking measures conducive to its development,Promoting competition therein,Rationalisation of electricity tariff,Ensuring transparent policies regarding subsidies,Establishment of Appellate Tribunal.
SERC constituted in Jharkhand. Gujarat Electricity Industry (Reorganisation and Regulation)
Act, 2003 (Gujarat Act No 24 of 2003).
2004 SERC constituted in Tripura and Jammu and Kashmir Restructuring of Assam SEB
2005 Notification of National Electricity Policy. SERCs constituted in Bihar and Sikkim. Restructuring of SEBs in Maharashtra and Gujarat. Tripura State Electricity Corporation Limited carved out from
Tripura State Electricity Department.
2006 Notification of National Tariff Policy. Notification of Rural Electricity Policy. SERC constituted in Meghalaya.
2.4 Status of Reforms and Restructuring
2.4.1 As on 30 June 2006, 13 States (about two-third of all major States) have
restructured their State Electricity Boards. Only in 8 major States, the SEBs
have not yet been restructured. These States have since committed to the
Ministry of Power that they would reorganise their SEBs latest by December
2006.
2.4.2 Twenty States have already issued Tariff Orders (T/Os) with Andhra Pradesh
issuing the maximum, i.e., seven T/Os, followed by Orissa (six) and Uttar
Pradesh, Madhya Pradesh and Karnataka five each.
2.5 In the Indian context, it is probably too early to evaluate the final outcome of
the reform efforts in the power sector. The movement from a command-and-
control public provisioning to a more market-determined approach is clearly
discernible. A lot remains to be done. This study makes a sincere effort to
document the reform process.
2.5.1 It is hoped that this study will expedite the process of introducing appropriate
policy interventions that will impact policy-making through better interaction,
participation and involvement by the SEBs, Restructured Utilities, as well as all
other Stakeholders.
CHAPTER - 3
OVERVIEW OF THE POWER SECTOR IN INDIA
3.1 Five Year Plan Targets and Allocations
3.1.1 The Tenth Five Year Plan (TFYP) underscores the fact that due and diligent
performance of the power sector is a sine-qua-non for achieving the 8 per cent
GDP growth rate projected in the Plan. The TFYP, therefore, called for an
integrated energy policy, based on acceleration of the reforms process and
substantial increase in the installed capacity and production in the power sector
(Medium Term Review). Ministry of Power is fully alert to this need and has
been taking path-breaking initiatives to push forth its power sector reforms
agenda.
3.1.2 Energy is the prime determinant of economic growth and social development
of a country. Indeed, the extent of economic development of the country could
be gauged by the intensity and efficiency of its energy use; as also by the scale
of operation, state of technology, extent of competition and regulatory control
in the energy sector. In view of this, The Tenth Five Year Plan had allotted as
much as 17.72 per cent of the total outlay, amounting to Rs 2,70,276 crore to
the power sector. Table 3.1 gives the Outlays and expenditure on power during
the various Plan periods:
Table 3.1: Plan wise Outlays and Expenditure for Power Sector
Plan PeriodOutlays
(Rs crore)
Outlay onPower as a %
of Total Outlay
Expenditure on Power(Rs crore)
Expenditure onPower as a % of
Total Expenditure
VI Plan (1980-85) 19,265.44 20.13 18,298.68 16.74VII Plan (1985-90) 34,273.46 19.04 37,895.30 17.33VIII Plan (1992-97) 79,589.32 18.33 76,677.38 15.79IX Plan (1997-02) 1,24,526.00 14.49 1,10,113.93 12.81X Plan (2002-07) 2,70,276.35 17.72 *1,60,918.06
*Likely Expenditure (Source: Planning Commission)
3.1.3 Percentage of Power Sector Outlays to Total Plan Outlays has gradually come
down from 20.13 per cent (Sixth Plan) to 14.49 per cent (Ninth Plan).
Moreover, actual expenditure on power during Ninth Plan was only Rs
1,10,113.93 crore, as against the outlay of Rs 1,24,526.00 crore. Although,
approved Outlay for the Power Sector in the Tenth Plan was 217 per cent more
than that of the Ninth Plan, the likely expenditure for the Tenth Plan is
anticipated to be less than 60 per cent of the Outlay. Likely expenditure on
power by the central sector is anticipated to be only 53.34 per cent (refer Table
3.2).
Table 3.2: Financing of Investment of MoP during Tenth Plan (All figures at 2001-02 Prices)
(Rs crore)
YearIEBR*
GBS#Outlay at 2001-02
Price LevelsIR** EBR
X Plan approved Outlay 14,138 10,4261 25,000 1,43,3992002-03 (actual) 1,690 5,129 1,830 8,6492003-04 (actual) 2,287 6,607 1,847 10,7412004-05 (actual) 4,274 6,386 2,288 12,9482005-06 (actual) 4,221 9,623 2,692 16,536First four years (actual) 12,472 27,745 8,657 48,8742006-07 (B.E.) 5,424 16,700 5,500 27,624Likely investment during X Plan 17,896 44,445 14,157 76,498Investment as per cent of X Plan approved Outlay
126.58 42.63 56.63 53.34
*IEBR : Internal and Extra Budgetary Resources (Source: Planning Commission)**IR : Internal Resources #GBs : Gross Budgetary Support
Table 3.3: Expenditure-Outlays of State Sector (Power) (Rs crore)
State2000-01(Actual)
2001-02(Actual)
2002-03(Actual)
2003-04(Actual)
2004-05(RE)
2005-06(Approved)
All States/UT 15,334.26 13,555.19 14,876.36 15,725.73 16,465.67 18,676.15(Source: Planning Commission)
High AT&C Losses – Bane of India’s Power Industry
High AT&C Losses – Bane of India’s Power Industry
3.1.4 For a generating company, the major operating cost is on account of fuel.
Fuel
8per
6per
7per
35per
6per
8per
5per
25per
100per cent
Fuel O&M Return& Dep.
O&M AT&C Interest TotalReturn& Dep.
Interest
8%cent
6%
7%%ce
35%
6%cent
8%cent
5%cent
25%r
100%
-------------- Generation ---------------------- ---Transmission & Distribution ---
(Source : NTPC)
cost is around 25 per cent of the cost break up of the total power system operation. An abnormally high level of AT&C losses (i.e., 35 per cent of the total cost of power system operation) is a cause for alarm since it is far more than the input required (25 per cent) to generate electricity itself (which is a major component of generation expenditure). The cost of generation is about 43 per cent of the total expenditure in operating the power system in India. This has been possible due to continued improvement in technical performance, viz., PLF, secondary oil consumption, auxiliary consumption, plant availability, etc. The introduction of incentives in the field of thermal generating stations and focus of Government on the generation sector has contributed to the success of this sector. Such a focussed attention was not available in the distribution segment to the desired extent. Consequently, the high level of AT&C losses has made this segment unviable and unattractive for fresh investments. There has been a huge backlog of much needed investment in the distribution segment, which has hampered the growth of the power sector itself.
3.1.5 One of the main reasons for increase in losses in the power sector is low investment in distribution compared to the investment made in generation. The figures of Expenditure on generation and transmission & distribution along with Rural Electrification are shown in Table 3.4.
Table 3.4: Ratio of Expenditure between Generation and T&D plus RE(Rs crore)
Plan PeriodExpenditure incurred on Ratio between
Generation and (T&D plus RE)
Generation(T&D) +
(RE)I Plan (1951-56) 105 140 1 : 1.33II Plan (1956-61) 250 190 1 : 0.76III Plan (1961-66) 777 454 1 : 0.58Three Annuals (1966-69) 676 528 1 : 0.78IV Plan (1969-74) 1505 1386 1 : 0.92V Plan (1974-79) 4467 2963 1 : 0.66Annual Plan (1979-80) 1429 1098 1 : 0.77VI Plan (1980-85) 12116 6320 1 : 0.52VII Plan (1985-90) 24528 12392 1 : 0.51Annual Plan (1990-91) 7003 2930 1 : 0.42Annual Plan (1991-92) 10373 3250 1 : 0.31VIII Plan (1992-97) 49424 26281 1 : 0.53IX Plan (1997-2002) 59537 47011 1 : 0.79X Plan (2002-07) * 172254 78258 1 : 0.45
*Outlays
3.1.6 The total addition to the installed generating capacity during the Tenth Five
Year Plan period, which more or less corresponds to the period of accelerated
reforms efforts, is given below (Tables 3.5 and 3.6):
Table 3.5: Capacity Addition During the Tenth Plan(Capacity in MW)
Sector Hydro Thermal Nuclear TotalOriginal Plan Targets
Central 8,742 12,790 1,300 22,832State 4,481 6,676 0 11,157Private 1,170 5,951 0 7,121Total 14,393 25,417 1,300 41,110
MID–Term ReviewCentral 6,177 11,070 2,570 19,817State 4,248 7,991 - 12,239Private 700 4,199 - 4,899Total 11,125 23,260 2,570 36,955
(Source: CEA)
Table 3.6: Anticipated Capacity Additions at the End of the X Plan(Capacity in MW)
Mid-Term Appraisal
Target
UnitsCommissioned
UnderExecution
Overall Capacity Addition now Anticipated
SectorCentral 19,817 10,865 6,360 17,225State 12,239 4,948 6,953 11,901Private 4,899 1,931 2,968 4,898
Total 36,955 17,743 16,281 34,024TypeThermal 23,260 9,709 11,521 21,230Hydro 11,125 6,854 3,320 10,174Nuclear 2,570 1,180 1,440 2,620
Total 36,955 17,743 16,281 34,024 (Source: CEA)
Table 3.6(A): Capacity Addition during VIII and IX Plans (Capacity in MW)
SectorVIII Plan IX Plan
Target ActualPercentage
achievementTarget Actual
Percentageachievement
Central 12,858 8,157 63 11,909 4,504 38State 14,870 6,835.2 46 10,747.7 9,450 88Private 2,810 1,430.4 51 17,588.5 5,061 29
Total 30,538 16,422.6 54 40,245.2 19,015 47(Source: CEA)
3.1.7 As can be seen from Tables 3.5, 3.6 and 3.6 (A), the position regarding
capacity additions during the Eighth, Ninth and Tenth Plans is as under:
Table 3.6(B): Capacity Addition Achieved (as % of Targets)
Five Year PlanAchievement as
percentage of targetEighth 54
Ninth 47Tenth* 75
* Anticipated
The shortfall during the Tenth Plan has, however, been partly offset by
improved plant performance and reduction of T&D losses. (Source: Agenda
Papers, Conference of Power Ministers)
Table 3.7 : Availability of Additional Capacity During the Tenth Plan (MW)
Particulars Utility RES* Utility+ RES Captive# TotalAlready commissioned
14,342.24 4,650 18,992.24 2,350 21,342.24
Likely in 2006-07
19,682.02 1,367 21,049.02 2,000 23,049.02
Grand Total 34,024.26 6,017 40,041.26 4,350 44,391.26*RES=Renewable Energy Sources (Source: CEA)#1 MW and above size
3.1.8 Likely addition to installed generating capacity during the Tenth Plan on
account of Renewable Energy Sources and captive plants will be of the order of
10,367 MW.
3.2 Performance of Generation Sector (All 2005-06 figures are provisional)
3.2.1 Installed Generating Capacity
Table 3.8 : Installed Capacity (as on 31.8.2006) in MW
Sector Thermal Hydro Nuclear RES* Grand Total State 42,379.33 25,502.62 - 2,567.53 70,449.48 Central 30,891.49 6,422.00 3,900.00 - 41,213.49 Private 10,501.52 1,206.15 - 3,623.33 15,331.00All India (Utilities) 83,772.34 33,130.77 3,900.00 6,190.86 1,26,993.97*RES=Renewable Energy SourcesCaptive Generating Capacity (MW) connected to the GRID 14,636.00
Installed capacity has increased by 4.46 per cent, 5.10 per cent and 4.95 per
cent in 2003-04, 2004-05 and 2005-06 respectively compared to figures of the
immediate preceding years. Concerted efforts have to be made to achieve the
Plan targets.
3.2.2 Electricity Generation
Table 3.9: Generation during 2005-06 (MU)
Sector Thermal Hydro Nuclear RES* Grand Total
UtilitiesState 2,40,799.92 63,857.45 184.28 3,04,841.65Central 2,082,82.04 33,967.75 17,312.85 2,59,562.64Private 50,762.27 2,057.04 5,996.56 1,09,578.14All India 4,99,844.23 99,882.24 17,312.85 6,180.84 6,23,220.16
Captive Power Plants (1 MW and above size) 74,130.54Total All India Generation 6,97,350.70
*RES=Renewable Energy Sources
Growth in electricity generation during the Ninth Plan was three per cent per
annum. As shown in the following chart, during the last three years, increase in
electricity generation has been consistently above five per cent. During the
period April to October 2005, 5.2 per cent growth was recorded. As against
this, in the corresponding period, during 2006-07, the growth has been 7.1 per
cent.
Growth in Electricity Generation (%)
3.2.3 Plant Load Factor
(a) Plant load factor (PLF) of the thermal power generating stations has
progressively increased over the years. It was 57.1 per cent in 1990-91, 69
per cent in 2000-01 and 74.80 per cent in 2004-05 at national level.
(b) Annexure-XI indicates the way SEBs/Utilities have managed their
PLF in the recent years. For facility of comparison, the PLF is given
separately for periods before and after restructuring.
3.2.4 Energy and Peak Shortages
(a) The power supply position in the country is characterised by
shortages both in terms of demand met during peak time and overall
energy supply. The peaking shortage is experienced in every region of the
country and it is about 12 per cent on all-India basis. The energy shortages
on regional basis vary in magnitude, with the overall shortage on all-India
basis being about 7-8 per cent.
Table 3.10: Percentage of Energy and Peak Shortages
Particulars 1990-91 2000-01 2004-05 2005-06
Energy Shortages (%) 7.9 7.8 7.3 8.3
Peak Shortages (%) 16.7 12.3 11.7 12.3
(b) The last five years data of growth of GDP, desired growth rate of
electricity generation (taking elasticity ratio of 1:1) and actual annual
growth rate of electricity generation has been indicated in Table 3.11.
Table 3.11: Desired vs. Actual Annual Growth Rate of Electricity Generation (%)
YearGDP
Growth(%)
Annual Electricity Generation Growth rateCommensurate
with GDP*Actual over the
Preceding Year (%)2001-02 5.8 5.8 3.12002-03 3.8 3.8 3.22003-04 8.5 8.5 5.12004-05 7.5 7.5 5.22005-06 8.4 8.4 5.2
*Elasticity Ratio for Indian conditions taken as 1:1
(c) Parity between growth rate of GDP and that of electricity generation
has not been achieved in the country over the years, which resulted in
deficiency of the power available in terms of both quantity and quality.
The situation can only be improved by taking concerted efforts such as by
giving more emphasis on capacity additions as per Plan targets, and
bringing efficiency in the Power Sector.
(d) According to Government of India infrastructure gap is costing India
between 1.5 and 2 per cent of GDP growth every year. RBI’s Annual
Policy Statement for the year 2006-07 points out that sustaining the
growth of manufacturing sector which is the key driver of industrial
recovery, would depend critically on bridging the large gaps in physical
infrastructure.
3.2.5 Metering, Billing and Collection Efficiency
(a) The billing efficiency at national level has improved from 68.37 per
cent during 2002-03 to 69.87 per cent during 2004-05. The average
collection efficiency at the national level has also improved from 92.68 to
94.72 per cent during the same period. With this improvement in billing
and collection efficiency, the national average AT&C loss of the
DISCOMs has reduced from 36.63 to 33.82 per cent. The details are
shown in Table 3.12.
Table 3.12: Metering, Billing and Collection Efficiency
Year
11 kVFeeder
Metering (%)
No. ofConnections
(in lakhs)
MeteringEfficiency
(%)
BillingEfficiency
(%)
CollectionEfficiency
(%)
AT&CLosses
(%)
2000-01 68 1,013.13 752001-02 81 1,070.70 78 68.12 90.75 38.182002-03 967.04 88 68.37 92.68 36.632003-04 - - 68.80 94.80 37.782004-05 98 1,315.11 87 69.87 94.72 33.82
(Source: Draft Report of The Task Force on Restructuring of APDRP, MoP, GoI)
(b) In 2005-06, the number of connections increased to 1,983.22 lakhs
and metering efficiency increased to 93 per cent. The number of 11 kV
feeders increased to 79,869 in 2005-06 and 96 per cent of feeder metering
has been completed in the country. The number of distribution
transformers (DTs) increased to 24,49,343 and metering has been
completed in respect of 13 per cent of DTs till now.
3.2.6 Aggregate Technical and Commercial Losses
One of the serious challenges in the post-restructuring period for the
Distribution Utilities is the high level of AT&C losses. Before restructuring,
estimates of T&D losses were largely unrealistic. However, after restructuring,
more accurate loss level figures have emerged. Efforts in the post reform
period have been focussed on AT&C loss reduction, yet the picture is uneven
in all States covered under the study. However, AT&C losses for Utilities
selling directly to the consumers which stood at 38.18 per cent at the national
level in 2001-02, declined by 4.36 percentage points which brought down the
losses to 33.82 per cent in 2004-05. While it may appear that the reduction of
losses by 1.5 per cent point per year is too little considering the national level
goal of 15 per cent AT&C losses to be achieved by 2011-12, yet a number of
initiatives have been taken by the States, which have restructured their SEBs, to
reduce the losses more aggressively. (Please refer to Para No 5.2, Chapter-5).
3.3 Rural Electrification
3.3.1 Rural Electrification is the responsibility of State Governments/State Power
Utilities, which own and operate the distribution system in the respective
States. The funds for Rural Electrification programme are provided by the
Planning Commission under various schemes and supplemented by financial
institutions like REC, etc.
3.3.2 As per the Rural Electrification Policy notified on 23 August 2006 by the
Ministry of Power, REC is to be the nodal agency at Central Government level
to implement the rural electrification programme. Its role includes coordination
with the State Governments, State Utilities and other concerned agencies for
effective implementation of the schemes. Also, the Ministry of Power would
put in place a coordination mechanism between the agencies/ministries
implementing the various schemes to ensure that the villages are selected for
coverage in different schemes in a manner to ensure attainment of the
objectives of the Rural Electrification Policy. The Ministry of Panchayati Raj
will also be associated with this coordination mechanism.
3.3.3 According to the new definition of Rural Electrification, which has come into
effect from the year 2004-05, a village would be declared as electrified if:
(a) Distribution transformer and distribution lines are provided in the
inhabited locality as well as a minimum of one Dalit Basti/hamlet
where it exists;
(b) Electricity is provided to public places like Schools, Panchayat Office,
Health Centres, Dispensaries, Community centres, etc., and
(c) The number of households electrified is at least 10 per cent of the total
number of households in the village.
3.4 Rural Electrification at a Glance
3.4.1 Achievements of village electrification, recorded in the past, have been revised
as per 2001 census and as a sequel to the change in definition of an ‘electrified
village’. As a result, the figures have undergone changes as under:
(a) Total number of inhabited villages in the country has increased to
5,93,732 from the earlier 5,87,258 as per 1991 Census, i.e., an increase of
6,474 in the number of inhabited villages.
(b) Out of a total of 5,93,732 inhabited villages, 4,39,502 villages have
been electrified. As such, 1,54,230 villages are still to be electrified (as on
30 June 2006).
(c) Number of villages to be electrified may further increase after
revised figures regarding the achievement of village electrification, as per
new definition, are received from the States of Bihar and Uttar Pradesh
(d) National average of village electrification as on March 2006 has
come down to 73.9 from 85 per cent.
(e) Only five States namely Goa, Haryana, Kerala, Punjab and Delhi
have achieved 100 per cent village electrification as per the new
definition. Earlier, as per the then extant definition, Andhra Pradesh,
Gujarat, Maharashtra, Nagaland, Sikkim and Tamil Nadu were also
shown as having achieved 100 per cent rural electrification.
(f) Only 29,156 villages, i.e., 5 per cent of total villages, have been
electrified during the last ten years. To electrify 25 per cent of the
remaining un-electrified villages (which are mostly in difficult
geographical terrain) in the next five years would be a Herculean task.
Unless adequate funds are provided and all out efforts are made in the
right direction, providing electricity to all rural households will be a
difficult task.
3.4.2 As against the target for electrification of 30,000 villages, only 13,409 villages
were electrified during the Ninth Plan. During the Tenth Plan, till June 2006,
12,923 villages have been electrified against a Plan target of 40,000 villages.
The progress achieved in household electrification from 1991 to 2001 is given
in the Table 3.13.
Table 3.13: Percentages of Households Electrified
Particulars 1991 2001Households access to electricity (%) 42 56Rural households coverage (%) 31 43.52
(Source: MoP)
3.4.3 To accelerate the pace of rural electrification and also to evolve commercially
sustainable models in rural areas, the following provisions for Rural
Electrification have been made in the EA, 2003, Part II (sections 4, 5 and 6),
National Electricity Policy and Plan: “Notification/formulation of a national
policy permitting stand-alone systems and rural electrification and for bulk
purchase of power and management of local distribution in rural areas
through Panchayati Raj Institutions, users' associations, co-operative
societies, non-governmental organisations or franchisees. The Appropriate
Government shall endeavour to supply electricity to all areas including
villages and hamlets.”
3.4.4 Central Government has launched a new scheme, “Rajiv Gandhi Grameen
Vidyutikaran Yojna” (RGGVY) of Rural Electricity Infrastructure and
Household Electrification on 4 April 2005 for the attainment of the National
Common Minimum Programme (NCMP) goal of providing access to electricity
to 1,25,000 un-electrified villages and the remaining 78 million rural
households in the country in five years. Details of the scheme are as follows:
(a) Implementation through REC, with the assistance of Central Public
Sector Undertakings (CPSUs).
(b) 90 per cent capital subsidy would be provided towards overall cost of
the project for provision of:
(i) Rural Electricity Distribution Backbone (REDB) with at least one
33/11 kV (or 66/11 kV) sub-station in each block;
(ii) Village Electrification Infrastructure (VEI) with at least one
distribution transformer in each village/habitation; and
(iii) Decentralised Distributed Generation (DDG) systems where grid
supply is not feasible or cost-effective.
(c) Stress is being laid on sustainable rural power supply through deployment
of franchisees and provision for ensuring quality of supply and revenue
sustainability.
(d) The scheme also aims at providing adequate electricity for enterprises in
the rural areas.
(e) Electricity connection to Below Poverty Line (BPL) households, free of
charge.
(f) In the management of rural distribution, franchisees would be associated.
(g) Rs 5,000 crore for capital subsidy in Phase-I during the Tenth Plan period.
(h) Total estimated cost of the scheme (including Eleventh Plan) is Rs 16,000
crore approximately.
3.4.5 Target for the year 2006-07 under RGGVY: Electrification of 40,000 villages
and providing electricity access to 80 lakh rural households (including 40 lakh
BPL households), seems to be difficult to achieve and is also subject to
availability of funds to the tune of Rs 3,900 crore. It is also important to note
that the number of villages electrified during the last four years was 2,626
(2002-03), 2,781 (2003-04), 3,884 (2004-05) and 2,614 (2005-06).
Table 3.14: Cost Estimates of RGGVY Scheme
S.No. DETAILS Rs crore1 Electrification of 1,25,000 un-electrified villages 8,125
2Rural Households Electrification (RHE) of population under BPL, i.e., 30 per cent of 7.8 crore un-electrified Households
3,510
3Augmentation of backbone network in already electrified villages having un-electrified inhabitations
4,620
Total (1+2+3) 16,255(Source: MOP)
3.4.6 It is important to provide electricity to rural areas from the angle of
conservation of petroleum products to address the key issues of oil and energy
security of the country and environmental aspects to an extent. It appears that
the Utilities may be competing with each other for establishing distribution
network in rural areas including the remotest villages since 90 per cent grant
component is available under RGGVY.
3.4.7 However, the key issue is sustainability of electricity supply to remote areas,
which would depend on the following:
(a) Ensuring the main stated objective of RGGVY to provide access to
electricity to cater to the requirement of agricultural, small and medium
enterprises, cold storage chains, khadi and village industries, health care,
education and ICTs to facilitate rural development, employment
generation and poverty alleviation.
(b) Sustaining the operational aspect of power supply after reckoning with
factors like very high T&D losses.
(c) Ensuring availability of low cost additional power.
(d) Guaranteeing reliability of supply to the intended beneficiaries.
(e) Productive use of power supplied to rural enterprises and other consumers
(which can facilitate charging of remunerative tariffs).
(f) The hours of supply can be fixed and notified well in advance through
proper communication so that the rural enterprises can make necessary
operating arrangements accordingly.
(g) Local expertise needs to be developed and consumer awareness increased
so as to take care of the small repairs of electrical facilities.
3.4.8 The electrification programme in remote locations, where it is not feasible to
extend the conventional electricity grid, may focus on non-conventional
sources of energy by planning and developing a loop of local areas.
3.4.9 For State-wise analysis of Rural Electrification, please refer to Para No 5.6 in
Chapter-5.
3.5 Investments Made in Power Sector
3.5.1 There has been a quantum increase in the investments made in the power
sector. At present, 88 generation power projects totaling 43,713 MW with a
total estimated cost of Rs 2,03,143.64 crore are under implementation, as
against projects worth Rs 92,000 crore under implementation at the beginning
of Tenth Plan. The sector-wise details are given in Table 3.15:
Table 3.15: Projects Under Implementation (Generation)
ParticularsAt the Beginning of X Plan At Present* Capacity
(MW)Estimated
cost (Rs crore)Capacity
(MW)Estimated cost
(Rs crore)Central 14,055 59,616.79 23,376 1,15,112.84State 6,810.64 19,415.54 14,020 59,051Private 3,012 12,925.40 6,317 28,979.8Grand Total 23,877.6 91,957.73 43,713 2,03,143.64
*As on 1 November 2006 (Source: MoP)
3.5.2 Investments in transmission sector are as follows:
Table 3.16: Funds Requirements for Transmission Schemes (Rs crore)
Particulars2002-03 2003-04 2004-05 2005-06 2006-07 X PlanActual Actual Anticipated Proposed Proposed Total
Total (State sector) 3804.33 4399.25 4674.60 6532.39 9102.80 28513.36
Total (All India) 6598.77 6884.15 7956.06 10634.05 14346.58 47342.60
3.6 Financial Requirements for Eleventh Plan
3.6.1 According to Agenda Papers for Conference of Power Ministers held on 16
November 2006, the targeted capacity addition for the Eleventh Plan, would be
of the order of 66,463 MW. Preparation for capacity addition programme has
been well planned as can be seen from Table 3.1.7. Projects totaling 30,834
MW are already under construction.
Table 3.17: Target Capacity Addition for Eleventh Plan (MW)
Sector Hydro Thermal Nuclear TotalCentral 11,289 25,860 3,160 40,309State 2,637 16,152 0 18,789Private 3,263 4,102 0 7,365All India 17,189 46,114 3,160 66,463
Projects Under ConstructionCentral 7,722 7,200 3,160 18,082State 2,107 5,852 0 7,959
Private 2,191 2,602 0 4,793All India 12020 15,654 3,160 30,834
Projects where LOA is being PursuedCentral 3,567 18,660 0 22,227State 530 10,300 0 10,830Private 1072 1,500 0 2,572All India 5169 30,460 0 35,629
3.6.2 Capacity addition of 6,000 MW is anticipated from non-conventional energy
sources in the Eleventh Plan.
3.6.3 Likely capacity addition of captive plants in Tenth and Eleventh Plans are
4,350 MW and 12,000 MW respectively. As on 31 March 2005, installed
capacity of captive plants (1 MW and above) was 19,103 MW, which
generated a total of 71,582 MU with 42.8 per cent PLF. To facilitate harnessing
of surplus power from these plants, issues relating to cross-subsidy surcharge,
banking of power, transmission and wheeling charges, cess and duties on
captive generation, etc., need to be addressed. Further, according to Ministry of
Power, in order to achieve the objective of “Power on Demand” (POD) by the
year 2012, it would be necessary to add an additional generation capacity of
1,00,000 MW, major part of which would have to come up in the Eleventh
Plan.
3.6.4 There will of course be need to meet the corresponding additional capacity
enhancement in the value chain, namely, transmission and distribution. The
Expert Committee under Shri Uddesh Kohli, constituted by Ministry of Power,
to work out the funds requirement for the power sector for the Eleventh Plan has
projected a requirement of about Rs 5,00,000 crore. The estimates are given in
Table 3.18.
Table 3.18: Eleventh Plan Investment Requirements for Power Sector(Rs crore)
ResourceRequirement
CentralSector
StateSector
PrivateSector
Total
Generation 1,66,360 64,000 75,000 3,05,360Transmission 28,252 30,000 11,200 69,452Distribution NA 50,000 - 50,000Rural Electrification NA 60,000 - 60,000R&M - 15,000 - 15,000
TOTAL 1,94,612 2,19,000 86,200 4,99,812Note: To the extent distribution/generation system, etc., are privatised, the fund requirement shown under State sector will shift to the private sector column.
3.6.5 Given the present financial position of the SEBs, it is obvious that, without
restructuring, it will not be possible for the SEBs to raise around Rs 2,00,000
crore on their own to meet the requirements of the Eleventh Plan.
3.6.6 The World Bank has estimated an investment of about US$ 100 billion for the
power sector needs of the country for the period 2007-12. The sector-wise
break-up is as follows:
Table 3.19: World Bank Estimation of Fund Requirement for thePower Sector for the Period 2007-12
Segment Estimate of Funds RequirementGeneration US$ 60 billion (Rs 2,70,000 crore)Transmission & Distribution US$ 40 billion (Rs 1,80,000 crore)
3.6.7 In addition to the above, about 20,000 MW of existing thermal power
generating capacity is required to be taken up for Renovation and
Modernisation.
3.6.8 It is worth mentioning that CEA has projected a total private sector
contribution of 13,500 MW out of the envisaged capacity addition of 66,463
MW during the Eleventh Plan (21.61 per cent). In the case of funding
requirements for the Eleventh Plan, the Expert Committee (under Shri Uddesh
Kohli) estimates that the private sector requirement would amount to Rs 86,200
crore out of Rs 5,00,000 crore, i.e., approximately 17.24 per cent.
3.6.9 The projections lead to the following conclusions:
(a) It will not be possible for the State Government owned Power
Utilities/Central Power Undertakings to bear the burden of meeting the
“Power on Demand” by 2012 on their own. Hence, active involvement
and support of the private sector is inescapable. To attract private sector
investment, drastic reform efforts and providing a competitive
environment would be essential. The restructuring of SEBs has to be seen
in this context as an inevitable objective, apart from the fact that it has
become legally mandatory.
(b) The Power Utilities will have to gear up, through earnest and dedicated
efforts, to improve upon their performance in all respects to meet the
objectives of the power sector reform initiative.
(c) State Governments will have to devise means and methods to bring in
competition and demonstrate their commitment to the reform objectives,
as outlined in the EA, 2003.
3.7 Accelerated Power Development and Reforms Programme
3.7.1 The Accelerated Power Development and Reforms Programmes (APDRP) was
launched in 2002-03 as additional Central assistance to the States for
strengthening and upgradation of sub-transmission and distribution systems and
to reduce AT&C losses through technical, administrative and commercial
interventions. The programme is well structured and commits the States to
implement the reforms in an earnest manner.
3.7.2 The main benefits envisaged under APDRP in a five-year time-span were:
(a) Reduction of AT&C losses to around 15 per cent.
(b) Bring about commercial viability.
(c) Reduce outages and interruptions.
(d) Increase consumer satisfaction.
(e) Quality of supply and reliable, interruption-free power will encourage usage
of energy efficient equipments/appliances, which will further lead to
improvement in availability of energy.
3.7.3 Distribution reform as envisaged above will help States to avoid heavy
subsidies, which are given to SEBs/State Utilities by the State Governments.
3.7.4 The programme has two components namely:
(a) Investment component (90 per cent grant for special category States and
25 per cent for others): This is intended to provide assistance for
strengthening and upgradation of sub-transmission and distribution
systems.
(b) Incentive component: This component is to incentivise the
SEBs/Utilities to reduce their financial losses. Funds are released to the
Utilities for actual cash loss reduction. For every Rs 2 cash loss reduction,
Re 1 is given as grant.
3.7.5 The programme has made considerable impact in some Utilities in terms of
reduction of losses, ensuring quality power supply and increasing customer
satisfaction. A lot more has to be achieved by the Utilities to reach the targeted
levels of improvements in the distribution system and operations. It is
understood that the Task Force constituted by the Ministry is reviewing the
programme. It is felt that the funds under APDRP may be continued as the
programme is new and increased investments are needed in the distribution
sector.
Table 3.20: Funds Allotted Under APDRP since 2002-03
(Rs crore)
Year BE REActual Expenditure
Investment Incentive Total2002-03 3,500 1,089 1,755.52 379.28 2,134.802003-04 3,500 3,300 2,356.51 503.30 2,859.812004-05 3,500 1,700 1,428.73 73.00 1,501.732005-06 1,172 1,172 590.94 581.06 1,1722006-07 650 175.17 175.17
Table 3.21: APDRP-Financial Status
Description Rs croreProject outlay 19180.46 No. of Projects 583.00
APDRP Component - Grant 6990.43 - Loan 2274.23 - Total 9264.65
Release - Grant 3857.47 - Loan 2274.23 - Total 6131.70
Counter Part Fund - Sanctioned 7100.19 - Drawn 4560.12Utilisation (including Counter Part Funding) - Up to March 06 9507.20 - During 2006-07 438.84 - Total Utilisation 9946.04Percentage of Utilisation 51.86%
3.7.6 It is, however, felt that in order to ensure effective utilisation of funds under
APDRP, Ministry of Power should insist that the Distribution Utilities
function as fully autonomous and corporate bodies and introduce financial
accountability.
3.8 International Experience
3.8.1 T&D Losses
(a) At the outset, it may be stated that power systems of any two countries
can never be identical since factors like geographical spread, socio-
economic status of the citizens, the political system obtaining there and
various complex technical issues associated with the power systems (like
pattern and nature of demand, load density, capability and configuration
of the system and equipment used) differ from country to country.
However, to gain some idea of the extent of theft and consequent
additional amount of technical losses due to overloading of the system
(separate estimate of losses exclusively on account of power theft in India
is not available) T&D losses, as obtained from the World Bank
publications World Development Indicators (1997 to 2006), have been
considered for the analysis. The World Bank has defined Electric power
transmission and distribution losses as “losses in transmission between
sources of supply and points of distribution and in distribution to
consumers, including pilferage”.
(b) The year-wise T&D losses as a percentage of output in the top 50
electricity-generating countries of the world are shown in Table 3.21.
(c) It may be reasonably assumed that India has a more or less similar
power infrastructure and consumption pattern (in terms of quality of T&D
network) as that of low and middle-income group countries. However, the
figures of T&D losses are 27 per cent in respect of India and 10 per cent
for low and middle-income group of countries. It is also pertinent to state
here that as per the CEA publication, Energy Accounting and Audit in
Power Systems, the admissible technical losses should be in the range of
8.25 to 15.5 per cent. It can be inferred that the T&D losses in the country
are at least to the tune of 15 per cent on account of theft and consequent
additional amount of technical losses due to overloading of the system.
(d) As per Table 3.21, the percentage T&D losses in India have risen from
18 per cent in 1998 to 27 per cent in 2003. However, in reality the T&D
losses may be considered to have come down during that period. Earlier it
was not possible to realistically assess the extent of losses, since the SEBs
had a tendency to hide T&D losses under the garb of subsidised sales to
the agricultural sector. However, due to greater transparency introduced
after restructuring of SEBs in some States and emphasis on energy audit
and accounting by the SERC, a more-or-less realistic picture of T&D
losses is now emerging. (For a detailed explanation of the phenomenon,
please refer to Para 5.2 in Chapter-5.)
Table 3.22: Year-wise T&D Losses as Percentage of Output in the Top Electricity Generating Countries of the World
Country 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Change*
Argentina 18 18 18 17 15 15 13 14 17 15 -3
Australia 6 7 7 6 6 8 8 7 7 7 1
Bangladesh 32 32 30 15 16 16 16 18 21 12 -20
Belgium 5 5 5 5 5 5 4 5 5 4 -1
Brazil 16 17 17 17 17 17 18 17 17 17 1
Canada 6 5 7 4 7 7 8 8 8 6 0
China 6 7 7 8 7 7 7 7 7 6 0Czech Republic 8 8 8 8 8 8 7 7 6 6 -2
Egypt 0 12 12 12 12 12 13 12 12
Finland 5 2 4 4 4 4 4 4 4 4 -1
France 6 6 6 6 6 6 6 6 6 6 0
Germany 4 5 5 4 4 4 4 4 5 5 1
India 17 18 18 18 18 21 27 27 26 27 10
Indonesia 12 12 12 12 12 12 11 13 16 16 4
Iran 14 20 20 22 15 15 16 16 16 17 3
Israel 3 4 4 9 6 3 3 3 3 3 0
Italy 7 7 7 7 7 7 7 7 7 7 0
Japan 4 4 4 4 3 3 3 4 5 5 1
Kazakhstan 14 15 15 15 17 17 17 17 16 16 2
Korea rep. 5 5 5 4 7 4 5 6 6 3 -2
Malaysia 10 10 11 9 7 8 8 6 6 5 -5
Mexico 14 14 15 14 15 14 14 14 15 15 1
Nepal 25 26 28 28 23 23 21 21 20 19 -6
Netherlands 4 4 4 4 4 5 5 4 4 4 0
New Zealand 13 9 11 11 13 12 10 11 10 13 0
Norway 8 7 8 8 8 8 8 7 7 9 1
Pakistan 19 23 23 24 25 30 24 26 26 25 6
Poland 13 13 13 12 11 10 10 10 10 10 -3
Romania 9 11 12 12 12 13 13 13 13 9 0
Russia 9 10 9 10 11 11 12 12 12 12 3
Country 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Change*
Saudi Arabia 13 9 8 8 8 8 8 8 8 5 -8
South Africa 7 6 8 8 8 8 8 8 8 10 3
SPAIN 9 10 9 9 10 10 9 9 8 9 0
Sri Lanka 18 18 17 17 19 21 20 18 18 18 0
Sweden 6 6 7 7 7 7 8 7 8 8 2
Switzerland 5 6 7 6 6 6 6 5 6 6 1
Thailand 10 8 9 9 9 8 8 9 7 7 -3
Turkey 15 16 17 18 19 19 19 19 18 17 2
Ukraine 10 10 10 16 17 18 18 20 19 18 8
UK 8 7 9 7 8 8 8 8 8 8 0
USA 7 7 7 6 7 8 6 6 6 7 0
Venezuela 15 21 20 21 23 23 24 25 25 26 11Low & middle income group 13 15 10 12 10 10 10 11 11 10 -3
World** 8 8 8 8 9 9 9 9 9 9 1 (Source: World Bank Publication, World Development Indicators)
*Increase/decrease in T&D losses from 1994 to 2003**Weighted Average
(e) To attract investment, it is a must and quite critical to clear any doubt in
the minds of the investors regarding system conditions, baseline data,
policy and other issues in any sector. Accuracy of system data and
consumption pattern are essential for precise physical and financial
projections and market scenario in the power sector. To cite an example,
some critics have felt that one of the main reasons for the initial setback of
Orissa power sector restructuring model was improper assessment of
T&D losses. Although Power figures in the Concurrent List of the
Constitution of India, it is desirable that demand projections, extent of
technical and commercial losses and all other relevant data of all the states
and as well as the entire country are readily available with a designated
central agency (single source of truth) for effective and proper utilisation.
3.8.2 India’s Competitiveness and Energy
(a) India’s performance indices vis-à-vis other countries as given in the
IMD World Competitiveness Yearbook, 2005 are compiled in Table 3.22.
(b) To be competitive in the international market, Indian industry must be
assured of adequate and quality power at affordable rates. However, it can
be seen that India ranked 42nd in the World in electricity cost for industrial
clients (which was higher than that of most of the competing countries)
and 54th in energy infrastructure (poor quality of power compared to other
competing countries).
Table 3.23: Some Key Performance Indices of India vis-à-vis other Countries
Indices UnitIndia’s Highest Rank Lowest Rank
Value Rank Value Country Value Rank CountryEnergy Intensity - Commercial energy consumed for each dollar of GDP (2001)
Kilo-joules
30478 54 2905Hong-Kong
82402 60 Russia
Electricity cost for Industrial Clients (2004)
US$per kWh
0.08 42 0.021 Argentina 0.147 55 Lombardy
Energy infrastructure (2005) 3.6 54 9.07 Iceland 2.59 60 ArgentinaTotal Indigenous energy production (2002)
Millions MTOE*
440.97 4 1666.6 USA 0.05 Hong Kong
(Source: IMD World Competitiveness Yearbook 2005)*Metric Tonnes of Oil Equivalent
CHAPTER - 4
RESTRUCTURING MODEL AND PROGRESS
4.1 It is difficult to arrive at a uniform picture of the reform process undertaken by
the States covered under this study, as the restructuring has been undertaken in
different time-lines and on different models. It was noted that there were
differences across the various restructured Utilities in terms of mode of their
functioning and the level of performance. In the post-restructuring period,
systemic problems such as lack of commercial and financial management
practices, lack of autonomy, governmental interference and low level of
commitment of the employees, etc., have impacted their functioning. The other
problems encountered include inadequate availability of power, insufficient
upgradation and strengthening in the distribution network, and the lack of
awareness among the customers about the reform efforts. These systemic issues
and concerns, which have not been adequately addressed, are dealt with in the
report.
4.1.1 In the above background, the analyses of the reform process undertaken by the
States figuring in Group-1 and 2, their design and the progress in
implementation, are discussed among other things, in the succeeding paras.
4.2 First Phase of Restructuring
4.2.1 The review of the seven Group-1 States indicates that the progress of the
restructuring of SEBs differs from State to State. Basically, however, the
models for restructuring adopted by all these States (other than Orissa) were
similar with only marginal variations. The first endeavour in regard to
restructuring of SEBs, as is well known, came from Orissa, which pioneered
the reforms in 1996. Orissa went for not only restructuring of the SEB - with
separate Generation, Transmission and Distribution Companies but also for
privatisation of the restructured DISCOMs. Orissa adopted an urban-rural mix
of zoning structure for its DISCOMs. All six States, which followed the
restructuring process, have adopted similar functional structures, forming
separate Generation and Transmission Companies and a number of DISCOMs
ranging from two (in Haryana) to five (in Karnataka and Uttar Pradesh). One of
the main objectives of restructuring is to create a competitive environment,
which would promote efficiency and increased accountability in all segments
of the electricity supply chain. In fact, restructuring and the introduction of
Box 4.1: Restructuring Helps in Competition
A Case Study of Transport Undertakings in Tamil Nadu
The departmental organisation, responsible for bus services in Tamil Nadu till 1972, had the usual bureaucratic problems regarding getting approvals for funds, purchases, staff, etc., that rendered its functioning inefficient. Fortunately, a number of private operators were also operating, and therefore, the public had choices. After nationalisation of the bus services in 1972, however, the Government could not afford to continue to allow the transport sector perform poorly. The transport department was therefore reorganised into four transport corporations with independent boards under the Companies Act. This gave the new entities a lot of operational freedom, and the quality of services improved. The new corporations were able to maintain a high level of efficiency.
The creation of four units made it possible for the Government to compare their operational performance and parameters such as bus utilisation, tyre utilisation, consumable per km, collections, profits, etc. This put pressure on the poorly performing corporations, leading to overall improvement. The quality of public service improved. The improved performance led to demands for more corporations, and the Government went to the extent of creating one corporation for each district. By 1990, the number of corporations rose to 18, each competing with the other for routes and passengers. The Government further set up a monitoring cell to closely monitor the performance of these corporations. Poorly performing corporations were under constant pressure to improve. Although profitability varied from area to area, based on local factors, operational parameters were comparable, and such comparisons led to improved operational performance. The performance of the Tamil Nadu Transport Sector soon won recognition at the national level, and was even quoted in the World Development Report by the World Bank.
The 18 corporations were subsequently consolidated into a more manageable 7 undertakings in 2002. This measure helped further to improve the overall performance by evening out certain local factors affecting profitability. All along, private operators have been operating in the State – the share of the private sector now hovers around 40 per cent.
The Government had retained the power to fix tariff; and although political considerations had led to low level tariff, the transport corporations are able to survive and serve the public well, thanks to their superior operational performance, based on inter se competition and better management practices.
The success story of Tamil Nadu Transport Undertakings provides a clear illustration of ‘restructuring’ leading to inter se competition and a high level of productivity and efficiency, because it gives the management an opportunity to look at operational parameters of competing entities, and take corrective steps. A win-win situation for the customers and the management.
competition in generation, transmission and distribution were the main features
of successful reform programmes in the power sector of many countries.
Although restructuring has been completed in the seven States covered in the
review, competition amongst the DISCOMs is yet to be introduced.
4.2.2 In this study, the analysis deals with the developments associated with the
restructuring of SEBs, the overall performance since restructuring and its
impact on the electricity supply business in the concerned States.
4.3 Second Phase of Restructuring
In the second phase of restructuring, i.e., after the enactment of the EA, 2003,
the States of Gujarat, Maharashtra and Assam undertook the reorganisation
exercise. The method adopted by them, being of recent vintage, would be
especially valuable to the remaining States. In this context, we observe that the
process followed by Assam and Gujarat was particularly meticulous and
worthy of emulation by the States, which are yet to take up the exercise.
4.4 The Process of Restructuring
The review of the restructuring process followed by the seven States included
in Group-1 and three States in Group-2 brings out more or less identical, and
conclusive findings. The matter has been discussed in more detail in the
individual reports relating to the States included in Volume-III. Brief snapshots
of the review are also included in this Chapter as well as in Chapter-6 (Findings
and Recommendations).
4.5 Important Factors for Successful Restructuring of SEBs
We observe that the success of the restructuring process is highly sensitive to
the following important features:
(a) Political commitment and support/Policy Statement.
(b) One or two highly placed champions for the reform.
(c) Competent and professional consultancy support.
(d) `Buy-in’ of the employees and staff.
(e) Financial Restructuring Plan (FRP).
4.5.1 Political Commitment and Support
(a) It is well known that the restructuring of OSEB was successfully pushed
through by the then Chief Minister of the State with a high level of
conviction and commitment. Likewise, it has been observed that the
political leadership in Andhra Pradesh, Haryana and Karnataka, fully
backed the restructuring exercise. Thus a positive and proactive role by
the political leadership is imperative for the success of the restructuring
process.
(b) It has been observed that the abrupt withdrawal of Government support
in Orissa after the privatisation and the change of Governments in a few
other States had slowed down the process of reform substantially or
affected their success. It is felt that the most important lesson to be learnt
by the States, which are yet to effectively carry out the restructuring
process, would be that there should be total and unreserved political
commitment for the restructuring exercise, which must be sustained
regardless of the changes in the Governments. Further, such commitment
and support should continue till the entire restructuring process is
completed, without being intercepted or withdrawn at an interim stage.
4.5.2 Champions for the Reform
This is an issue closely related to the one discussed above. During the course of
review of the different States, it was found that those, which had one or two
powerful champions for the reform at the highest echelons of the
administration, had achieved substantial progress in a shorter timeframe. It is
felt that this is something, which cannot be achieved through prescriptions, but
is critical to the success of the reform process any way. It is very convenient to
let things remains as they are, the “business as usual scenario”; but it needs one
or two committed and dedicated champions at the top political and
administrative levels to take forward the reform on the desired path, braving
the consequences. It is also necessary that the guidance and the encouragement
of such champions for reform are available to the process during its entire
progress, till completion.
4.5.3 Competent Consultancy Support
Another feature noticed was the need to engage competent professional
consultants to assist the reform process. This topic has been dealt at length in
Chapter-6 ‘Findings and Recommendations’. In brief, however, the availability
of highly professional and competent consultancy support, during and after the
restructuring process, through a hand-holding process, had helped significantly
in achieving success in some of the Group-1 States.
4.5.4 Securing Cooperation of Employees
(a) We have extensively dealt with the Human Resource Development
Issues in Chapter-6 of this Report. The review in different States indicates
that in order to make the restructuring process successful, it would be
essential to get the cooperation of the generality of officers and employees
belonging to different disciplines, cadres and ranks. They would, on
restructuring of the SEBs, have to move to new undertakings with totally
different work culture, objectives and service conditions. It is natural for
them to have valid apprehensions about their future career prospects, as
well as about their past and future terminal benefits.
(b) The study brings out that even where tripartite agreements were signed
with the staff representatives, and transfers of staff were affected to the
new Utilities, the work culture has not changed significantly. Inadequate
attention was paid by the State Governments and the new companies to
assure the employees, through adequate communication channels, of their
career advancement plans and safeguarding of service conditions. These
are issues on which all SEBs, which are either undergoing the process of
restructuring or are yet to initiate the process, should focus with the help
of specialists in the field.
4.5.5 Financial Restructuring Plan
(a) Most SEBs are burdened with considerable past liabilities including
heavy amounts of recoverables (from Government Departments and other
agencies), debt and interest obligations, huge pension liabilities of retired
and current staff, etc. In order to enable the restructured companies to
work on commercial lines on a sustainable basis, it is necessary to allow
them to ‘start on a clean slate’. This would necessitate the development
and implementation of competent, practical and concise FRPs. In this
connection, a reference is invited to Chapter-6, ‘Findings and
Recommendations’, where this issue has been dealt with in detail.
(b) What needs to be emphasised here is the importance and the need for the
FRP, not only at the time of restructuring the SEBs, but over a pre-
determined stabilisation period, during which the State Governments will
have to provide unstinted support to the restructured companies through a
handholding exercise. The financial impact arising from the variations in
the basic assumptions used for the restructuring must also be factored into
the FRP. Thus, the past, current and future liabilities in the books of the
SEBs concerned must be assessed realistically with the help of financial,
accounting, and actuarial experts and these (including the pension and
terminal liabilities) should be taken over by the State Governments at the
time of restructuring itself. The FRP must also commit itself to provide all
payables and dues to the restructured companies (including subsidies
payable on account of Governments’ policies) on time and on a structured
basis. It should also include financial goals and targets to be achieved by
the new companies for the entire duration of the pre-determined
stabilisation period.
4.6 Restructuring Models
4.6.1 The EA, 2003 has obligated restructuring of SEBs and does not offer any
options to the States so as to achieve the objectives of the Act. Since the
vertically integrated SEBs, which had been in existence for 40 to 50 years, had
failed to deliver quality power to all at reasonable cost, and had become
commercially unsustainable, the restructuring of those organisations is only
logical.
4.6.2 It is envisaged that the restructuring of vertically integrated SEBs on functional
basis would enable the owners (State Governments) and stakeholders to devote
the required attention to more focussed policy formulation and implementation,
as also to bestow closer and purposeful oversight on their performance.
Similarly, the managements of the restructured Utilities would be able to focus
on improving the performance of functionally- oriented and clearly demarcated
business enterprises against established goals and targets, which would make
them more accountable and customer-oriented.
4.6.3 Generation Companies: Except in Gujarat and Karnataka, where separate
generating companies existed even prior to the restructuring, all States have
vested the generation units of the former SEBs to separate Generation
Companies8.
4.6.4 Models of Restructuring
(a) Based on the assessment and advice of their consultants, State
Governments have adopted three distinct models to accomplish the
restructuring of SEBs, as detailed below:
(i) Model–I: (Orissa)
8While Orissa sold 49 per cent share capital of Orissa Power Generation Company (OPGC) with 420 MW thermal generation capacity having a face value of Rs 240.21 crore to a private power generator (AES Trans Power) along with management control as a cost of Rs 603.20 crore, another unit (TTPS with 460 MW) was sold to NTPC (in 1995) which resulted in substantial gains to the State exchequer and more power supply to the customers at a reasonable cost. The first exercise in restructuring itself was thus a gainful venture.
Exhibit No. 4.1: Orissa
Reorganise the SEB into separate Generation, Transmission and four
DISCOMs, through a simultaneous exercise. Initially, GRIDCO was the
holding company of the DISCOMs. Thereafter, 51 per cent shares of these
DISCOMs were transferred to private companies.
(ii) Model-II: (Andhra Pradesh, Haryana, Karnataka and Uttar Pradesh)
Exhibit No. 4.2: Andhra Pradesh, Karnataka, Haryana and Uttar Pradesh
Initially, on reorganisation of the SEB, create one or more separate generating
companies and a combined Transmission and Distribution Company, which, in
the second transfer scheme, is divided into one Transmission and different
Distribution Companies. Karnataka (5 DISCOMs), AP (4 DISCOMs), Haryana
(2 DISCOMs), UP (5 DISCOMs) followed the above model with minor
variations; Karnataka had a generation company even before restructuring.
(iii) Model-III. (Assam, Madhya Pradesh and Maharashtra)
Exhibit No.4.3 : Retaining SEB as a Holding (Shell) Company
Retain SEB as a shell (holding) company to manage the residual and
coordinating functions, but create separate Generation, Transmission and
several Distribution Companies. Gujarat has formed a separate company
(GUVNL) to act as an asset-holding company.
(After enactment of the EA, 2003, the power trading function has been
separated, and vested in a new company in Madhya Pradesh. Similarly,
SLDCs’ functions, which were part of Transmission Companies, have also
been separated in some States.)
4.6.5 Retaining SEB as a Holding Company
(a) It may be mentioned that in the third model given above, the SEB
has been retained as a Holding Company to manage the residual functions
and to ensure coordination between the newly formed restructured
companies. These include tasks such as the management of debt services
of the former SEB, uninterrupted payments of pension/family pension of
the retired employees of the SEB, providing a link between the
managements of the new companies and funding agencies, State
Government departments and agencies, etc. The holding company, with a
senior civil servant at the helm of its affairs, is also expected to provide
the required guidance to the newly-formed entities in their management
during the stabilisation period.
(b) In the second model, which the Group of Experts feels to be the most
suitable, the residual functions and coordination during the initial period
of restructuring is entrusted to the Transmission Company. In Para 4.7, it
has been recommended that the statewide planning and coordination task
should be entrusted to the Transmission Company. In line with, and
considering the disadvantages of retaining the SEBs as a relic of the past,
it is recommended that the residual and coordination functions during the
stabilisation period (of the restructured Utilities) may be entrusted to the
Transmission Company. This may be done, subject to the following:
(i) A separate Coordination Cell may be constituted in the Transmission
Company to look after the residual and coordinating tasks.
(ii) The Coordination Cell may be operational for a given maximum
period of up to three years only.
(iii) The tasks and functions of the Cell may be kept distinctly separate
from the normal functions of the Transmission Company and not
allowed to be merged.
(iv) The Cell may be staffed, among others, by retired senior officials of
the SEB/power sector professionals on contract basis.
(c) The restructuring of SEBs was not undertaken as a one-shot
operation in most States (except Orissa). Considering the large capital
base, employee population, customer base and multifarious functions of
SEBs, the stage-wise approach adopted by Andhra Pradesh, Haryana and
Karnataka appears to be more judicious. What is relevant would be to
have a carefully designed plan with a specific roadmap in position so that
impromptu decisions and procrastination are avoided. Care should also be
taken to implement the plan on the basis of the pre-designed model,
without undue variations and avoidable delays. Since the details such as
the ideal number of DISCOMs etc., are State-specific, these aspects have
been separately examined in the State Reports (Volume-III), where
appropriate.
(d) It is felt that the model recommended above and adopted by Andhra
Pradesh, Haryana, Karnataka, and Uttar Pradesh is appropriate and would
offer scope for introducing competition in the sector. However, it is
necessary for the State Governments to draw up plans on how they
propose to take forward the restructuring process since half-hearted or ad-
hoc measures would only produce sub-optimal results. Such plans must
include FRP, not only at the time of restructuring, but also during an
entire pre-determined stabilisation period. This is all the more important
since the assumptions made prior to the restructuring might be at variance
with ground realities, requiring sustained financial support during the
transition period.
4.6.6 Distribution Mix
The distribution zones with urban-rural mix were adopted as the basis for
formation of the DISCOMs in the States, which was logical. However, this will
require further review when the State Governments concerned wish to take the
reform process to the subsequent stages of creating competition in the industry.
Meanwhile, efforts should be dedicated to perfect the adopted model by
strengthening the organisational pattern by making the restructured units
sufficiently autonomous and independent with added focus on
commercialisation and customer-care, for which we have included several
recommendations in this Report.
4.7 State-level Planning and Coordination
4.7.1 In the model for restructuring adopted by the seven States of Group-1, there are
three separate functionally-oriented entities, each responsible for a separate
mandate. Prior to the restructuring, the SEBs used to undertake the overall
State-wise electricity planning for which the required coordination was
possible internally within the organisation. The EA, 2003 requires the CEA to
prepare short-term and perspective plans once every five years. Under Section
73(a) ibid, CEA is responsible for coordinating the activities of various
planning agencies for the optimal utilisation of resources to sub-serve the
interests of the national economy. The National Electricity Policy advocates
that the plan prepared by CEA and approved by the Central Government could
be used by ‘prospective’ Generation, Transmission Utilities and transmission/
distribution licensees as a reference document.
4.7.2 One concern, which might arise from the restructuring model, is about the body
or authority within the States, which would undertake the responsibility for
medium-term and long-term planning for the power sector in the State as a
whole. Currently, in many States, the Transmission Companies, formed after
the restructuring, are carrying out the planning and coordination function,
especially with regard to transmission and distribution systems (Model-2).
However, as and when the DISCOMs become more autonomous and
independent, the role being played by the Transmission Companies will get
eroded in course of time. Further, it has been noticed that the Transmission
Companies are not fully involved in the generation planning exercise, to the
extent required. Thus at least during the initial period of restructuring of SEBs,
there is a need to have a mechanism in the Transmission Company for
performing the functions in regard to State level planning and coordination.
4.7.3 Sub-Section (2) of Section 39 of the EA, 2003 defines the functions of State
Transmission Utilities (STU). According to Clause (b) ibid, the STU shall be
responsible for all functions of planning and coordination relating to intra-state
transmission system with various players including State Governments,
generating companies, licensees, Regional Power Committees, etc. Although
the Act refers only to planning and coordination of transmission system, and in
the absence of references to planning and coordination by any other agencies at
the State level, it is implied that the STU would be the appropriate agency for
undertaking Statewide long-term and perspective planning for the power sector.
Moreover, as the single carriage of power in the State from the generating units
to the distribution levels, connecting both ends, the STU will undoubtedly be
the most appropriate and eligible agency to undertake all functions related to
Statewide planning and coordination.
4.7.4 In order to enable the Transmission Companies to perform Statewide planning
and coordination functions efficiently and with wider perspective, it is essential
to induct experienced and competent planners and support staff into these
companies. State Governments, through their Departments of Power/Energy,
should also provide adequate support and guidance to the STUs to enable them
to perform this task competently.
4.8 Outcome of Restructuring of SEBs
4.8.1 Group-1 States
(a) The review establishes that on the whole there is general
improvement in the performance of the Utilities after the restructuring,
though much more needs to be done in some States. In the succeeding
chapter(s) of this Report, a comparative analysis of the performance of the
restructured companies belonging to Group-1 States against several
technical and financial parameters has been provided. The analysis
attempts to compare the above performance during the post-restructured
period vis-à-vis the performance for three years prior to the restructuring.
The analysis shows that there have been steady and appreciable
improvements in the performance of the power sector in majority of the
Group-1 States with marginal improvements in the case of others.
(b) It is, however, mentioned that the above findings are in some way
tentative. SEBs had, over the past 50 years, accumulated heavy financial
losses (in spite of the mandatory legal provisions that they should earn 3
per cent return on their net fixed assets) and were also performing poorly
in respect of technical parameters. Converting them into efficient and
professional companies to achieve the objectives of the EA, 2003 would
be a long-drawn process. This would call for not only a change in the
organisational structure, but a complete transformation through ‘business
process re-engineering’ and requisite investments for modernisation and
strengthening of their systems and operations. Performance of the
restructured Utilities has to be judged not in isolation, but in the
background of systemic problems as mentioned above. A brief account of
restructuring exercise in Group-1 States is given below:
(i) Andhra Pradesh: Throughout the reform process, the State
Government, backed with competent restructuring policy and professional
consultants, extended unflinching support to the new companies formed
after dissolving the APSEB. This has helped these companies to more or
less stabilise in a relatively short period. A key factor for the success of
the reform process was the cooperation of the employees and public
support for the reform won through an effective communication strategy.
Prior to restructuring, APSEB was one of the largest power Utilities in the
country and had become unwieldy to manage effectively. With the
creation of separate corporate Utilities to replace the APSEB, six
independent entities (one each for generation and transmission and four
for distribution) have come into existence, which offer scope for
decentralisation, quality upgrading, and inter-se competition for
excellence in performance. The inefficiencies are localised and largely
identified within the DISCOMs, thereby offering scope for closer and
better remedial action. As the analysis in Chapter-5 will show, there have
been significant efforts for the reduction of the distribution system losses
after the restructuring exercise. Further, unlike in the past when the focus
of investment was targeted to capacity addition in generation, now, equal
attention is being paid to expand and improve the transmission and
distribution network. And the transition from a situation when APSEB
was functioning more or less as a Government department with little
commercial orientation to a customer-focussed commercial entity has
begun. The decentralisation has also helped in liberalising and speeding
up the process of project sanctions and approvals.
The major gains of reforms in Andhra Pradesh are:
Establishment of the Electricity Regulatory Commission to regulate
the functioning of the Utilities and to rationalise the tariffs;
Efficiency improvements have been brought in the operations of the
Utilities and better service is being provided to the customers;
Regular annual tariff adjustments are being made from 2000-01
onwards;
The State Government started providing cash subsidies on a regular
basis, based on tariff orders of the Commission;
The transmission losses have been brought down from 8.98 to 4.91
percent by strengthening the transmission network;
Distribution losses have been brought down from 27.92 to 16.89 per
cent in the last five years, i.e., a reduction of 11 percentage points;
The Utilities have made substantial investments to augment the
capacities and to modernise and upgrade the infrastructure;
Billing and collection efficiencies have improved; and
Revenues have improved substantially and the DISCOMs achieved
turnaround. Three DISCOMs started making profits from 2003-04
and the fourth, from 2004-05.
In view of the above, the reform and restructuring could be regarded as very
successful in Andhra Pradesh.
(ii) Haryana: The State Government adopted a reform model for
reorganisation of the HSEB on functional basis and it restructured the vertically
integrated electricity sector in to separate Utilities. Accordingly, one
Generation, one Transmission and two DISCOMs were incorporated in July
1999.
At the time of restructuring, in 1998, the installed capacity under the Haryana
Power Generation Corporation Limited (HPGCL) was only 863 MW, mostly
thermal, which accounted for 95 per cent of the total installed capacity in the
State sector. Prior to restructuring, the State had been observing energy deficit
of 25 to 33 per cent, which has now come down to 9.30 per cent. PLF of the
stations has substantially improved. The average plant availability has
improved from a low of 31.96 per cent in 1998-99 to 78.11 per cent in 2004-05.
HPGCL has reduced the coal consumption and the secondary oil consumption
by about 8 per cent and 6.7 per cent respectively.
The achievement of Haryana Vidyut Prasaran Nigam Limited (HVPNL) of 98
to 99 per cent availability of most of its transmission network in the State is
commendable. There has been a reduction in the overall losses in the
transmission system in the State. The inter-State losses are around 1.45 per
cent, even the intra-State losses have come down to 3 to 4 per cent.
However, the losses in the distribution system have shown an increasing trend
in the post-restructuring period. On account of poor collection efficiency of the
DISCOMs, AT&C loss levels are as high as 38.26 per cent and 42.59 per cent
for DHBVNL and UHBVNL respectively. The amount of receivables has been
increasing substantially for both the DISCOMs. While it was pegged at around
Rs 1,119 crore for the two DISCOMs as on 31 March 2000, it has shot up to Rs
2,852 crore by 31 March 2005. This is despite an increasing level of subsidy
provided by the State Government, i.e., from Rs 532 crore in 1999-2000,
it has grown more than three fold and has reached a level of Rs 1,686 crore for
2006-07.
The investment in the distribution sector during the entire post-restructuring
period has been stepped up from 10 per cent in 1999-2000 to 44 per cent in
2001-02 of the total investments made in the State power sector. However,
subsequently it has remained at around 21 per cent. Out of a total investment of
Rs 5,016.44 crore in the power sector during the period 1998-99 to 2005-06,
the investment in the distribution sector was Rs 1,055.70 crore.
The State Government maintains that it is fully committed to implement the
reforms. It has also taken steps to implement provisions of the EA, 2003.
However, the measures regarding anti-theft legislation appear inadequate for
want of sustained support from the State administrative machinery. There has
been delay in setting up of the special courts to deal with anti-theft cases as
required under the EA, 2003.
Even after the reforms in the State for the last seven years, organisational
autonomy in terms of administrative, technical and commercial decision-
making has not been fully transferred to the restructured Utilities by the State
Government But on the whole, the sector reforms have remained on course
with appreciable results in the Generation and Transmission Utilities.
(iii) Karnataka: Another State, where the restructuring has proved to be
generally successful is Karnataka where the initiatives for sector reforms
started in 1997. There was a high level of political commitment and
Government support for the reforms, which had the then Chief Minister and the
Chief Secretary as champions for the reform. Karnataka had a separate
generating company established in 1971 and hence the restructuring of the
Karnataka Electricity Board (KEB) was mainly into one Transmission and four
Distributions Companies. The State Government provided substantial financial
support to enable the new companies to start on clean slates. There was
excellent consultancy support and the procedure followed, like in the two
States mentioned above, was very methodical and systematic.
The newly formed Transmission Company has reduced its transmission loss
from 6.83 to 4.2 per cent and is investing substantial amounts (Rs 1,700 crore)
for augmentation and expansion of the transmission system. Two of the four
(presently five) DISCOMs have been showing improved results in terms of
technical and financial performance.
There is an appreciable reduction in AT&C losses, to the level of 31.17 per
cent, and except for the agricultural segment, there are considerable
improvements in metering, billing and collection of revenue. The restructured
companies offer scope for far more improved managerial control and
supervision and professionalism. The overall quality of service has also
improved and the managements of the restructured companies are paying more
attention to customer care and customer satisfaction. However, the non-
integration of the staff with the respective DISCOMs continues to be a matter
of concern. The DISCOMs also need to be strengthened with better delegation
of powers and more autonomy as also by induction of professionals to the top
positions in these companies.
(iv) Orissa: As mentioned earlier, Orissa was the first State in the country to
undertake the restructuring of its Electricity Board, and one of the two States,
which allowed private sector participation in a major way in the distribution
segment. The review brings out that although the State Government extended
its full support for the reform at the beginning, this was lacking in the
subsequent stages. Further, though there was extensive consultancy support
available to carry out the process, there were also certain inherent problems
such as over-valuation of the assets and the lack of adequate evaluation before
deciding to form four separate DISCOMs. Nevertheless, and in spite of the fact
that one licensee has withdrawn from the scene, there are several gains to be
noted, such that the generation performance has significantly improved. On the
distribution side, T&D losses have come down steeply in respect of all the
companies, and the collection efficiency has improved significantly. In
particular, the State Government has saved an overall subsidy element of above
Rs 3,000 crore which would have been otherwise payable, after 1996. More
importantly, the quality of service and customer care has improved
considerably in certain areas. This has happened despite the fact that there has
been no upward revision in retail tariff during the last five years.
The turnaround achieved in Orissa after the restructuring of SEB establishes
that, in spite of the several shortcomings and transitory problems, the reform
was substantially successful.
While the above four States represent successful accomplishments of
restructuring, the following States have not registered improvements to the
desired level. They are analysed below:
(v) Rajasthan: The reform initiatives were started in Rajasthan way back in
1993, but the restructuring had to wait till July 2000 when the transfer scheme
was notified. The SEB was accordingly restructured into five Companies with
three Utilities for distribution. The generation and transmission wings were
performing well even before the restructuring and continued to do so after the
restructuring as well. However, due to a number of factors, DISCOMs have
been unable to put up commensurate performance.
(vi) Madhya Pradesh: Madhya Pradesh had the distinction of being one of the
few States, which had an efficient SEB. However, the working of the SEB
started deteriorating on account of inefficiencies from its monolithic structure,
distortions in tariffs, defaults in payment to Central Power Sector Undertakings
(CPSUs) and other suppliers, increasing gap between demand and supply and
high level of receivables. The State Government was forced to heavily
subsidise the SEB, which strained its fiscal resources. The State Government
had little option but to go in for the comprehensive reforms in the power sector.
The State Government adopted a reform model for reorganisation of the
MPSEB on functional basis and it restructured the vertically integrated
electricity sector into separate Utilities. Accordingly, one Generation, one
Transmission and three Distribution Companies were incorporated in July
2002. Government of Madhya Pradesh has notified a separate company called
MP Power Trading Company (TRADECO), which will handle power purchase
agreement on behalf of DISCOMs. The new Utilities initially started
functioning under operation and management (O&M) agreement with MPSEB
from 1 July 2002 and were made independent companies with effect from 1
June 2005.
In this model, the MPSEB exercised control over the revenues from the
business of the five companies, which was to be utilised as per the special
mechanism (Cash Flow Mechanism) laid down in the transfer scheme. It had
been indicated that this arrangement was intended to last during the transition
period.
In the generation sector, technical performance by MPPGCL has improved
with higher PLF of its generating stations (from 46-66 per cent during 1997-98
to a level of 70-73 per cent). Similarly, availability of generating stations
increased from the level of 75 per cent in 1995-96 to 87 per cent during 2004-
05. There is also a reduction in specific oil consumption in thermal power
stations from 4.57 ml/kWh in 2001-02 to 2.44 ml/kWh in 2004-05. The
auxiliary consumption has also reduced from 10.8 per cent in 1998-99 to
around 9.9 per cent in 2004-05. After the reorganisation of the State, however,
the installed Generating Capacity left in the State was about 2940 MW. The
State faced a peak deficit of 28 per cent and energy shortages of 23 per cent
during 2005-06. There was only a marginal increase of about 50 MW Hydro
capacity and 770 MW of thermal capacity under construction after the
restructuring. In the transmission network, however, improvements have been
achieved in reduction of transmission losses from 6.12 to 5.62 per cent, and an
improved system availability with not a single failure of Power Transformers
for two consecutive years, 2003-04 and 2004-05.
Investments in the post reforms period in the distribution sector have picked up
since 2001-02. The investments had been more than doubled from Rs 124 crore
in 2001-02 to Rs 302 crore in 2004-05. The three DISCOMs functioned under
O&M agreement with MPSEB till 31 May 2005 and started their independent
operations from 1 June 2005. In terms of performance in key areas during the
period DISCOMs functioned as management agents of the MPSEB, the
achievements were not as anticipated. The failure rate of distribution
transformers increased by 4.75 percentage points (18.13 per cent in 2001-02 to
22.88 per cent in 2004-05). Further, the collection efficiency in respect of
agriculture and domestic consumer categories has suffered after restructuring.
Reduction in AT&C Losses, after the restructuring, have come to only less than
3 percentage points in four years. The positive development is the close
monitoring of the performance of the Utilities by the SERC.
The State support for the reform process has been positive. But in the interest
of the reform process moving forward, there are some structural issues,
including the role of the MPSEB for cash management of Utilities that would
need to be addressed. It is necessary that the DISCOMs are allowed full
functional autonomy in financial and revenue management.
(vii) Uttar Pradesh: Uttar Pradesh State Electricity Board (UPSEB) was
restructured into three corporations (with one separate subsidiary for
distribution of electricity in Kanpur City) in 2000. Assets relating to
Uttaranchal were transferred to that State in the same year. Subsequent to the
EA, 2003, four separate DISCOMs were formed on regional basis. Since these
are recent developments, it might be premature to judge their performance.
However, the energy and peak shortages have increased as compared to the
earlier period and no capacity addition has taken place on the generation front.
However, plant load factor has gone up significantly by 10 percentage points
by 2004-05, as compared to 1999-2000, with improvement in plant availability
and reduction in secondary oil consumption.
There are no improvements, however, in respect of transmission network; the
corporation has failed even to maintain the existing capacitor banks.
Investments in transmission segment are getting neglected. Further, there is no
improvement in metering and the distribution losses remain an area for
concern. AT&C losses are over 50 per cent.
Like in other States discussed above, excessive governmental interference in
organisational and operational matters has undermined the autonomy of the
restructured companies. On the whole, the experience of restructuring of SEB
in Uttar Pradesh projects a picture of neglect and despair, calling for urgent
attention.
4.8.2 Group-2 States
(a) The States of Assam, Gujarat and Maharashtra have been grouped
together for the purpose of this study since they have undertaken the
restructuring of their SEBs, subsequent to the enactment of the EA, 2003.
(i) Assam: This was the first State in which the Electricity Board was
restructured after the enactment of the EA, 2003. After detailed analysis,
and with the help of multilateral institutions, a clear roadmap was
established through the reform policy. Financial assistance of 250 million
US$ from the ADB was a key factor in enabling the new companies to
start on clean slates, and for the development of transmission and
distribution network. Competent professional consultants were appointed
to render advise at every stage of restructuring, as also to provide hand-
holding assistance to the new entities. The entire past liabilities for
pension of the staff was taken over by the Government, which helped to
address the concerns of the employees. The study brings out that the
procedure followed for restructuring in Assam is a good model, which
could be adopted by other States.
(ii) Gujarat: The noteworthy feature of the restructuring process of
Gujarat Electricity Board (GEB) was the total commitment at the political
and administrative level for the restructuring operation. The Government
passed the Gujarat Electricity Reform Act in May 2003, which paved the
way for the transfer of generation, transmission and distribution assets to
separate companies. For the distribution sector, four DISCOMs, each
based on a composite zone, were formed. It should be mentioned that
Gujarat had already established a separate generating company in 1990
and a Transmission Company some time towards the end of 1999.
Competent consultants were appointed to prepare the financial
restructuring plan, human resources development plan, etc., and a
Tripartite Agreement was signed with the employees in October 2003,
which paved the way for a smooth transition to the restructuring of the
Board. The striking feature was that there was no political interference in
the management of the restructuring process and the entire issue was
handled in a professional manner. The Government not only allowed the
new companies to start on clean slates, but also put in place a Financial
Restructuring Plan in 2005, providing for targeted and goal-bound
objectives and for the turnaround of the Utilities by the year 2011. The
new structure of the Sector was operationalised from April 2005, within
two years of the enactment of the EA, 2003. The entire process was
supported by an excellent communication strategy, which also assisted in
securing the full support of the staff.
The study has brought out that the Government has consistently been
giving full support for anti-theft measures of SEB/DISCOMs, which has
resulted in realisation of an average revenue of Rs 190 crore per year
through these measures during the past six years.
It was also noticed that the Generation and Transmission Companies have
professionals inducted into the board of directors. On the whole, the
approach of the State Government, and the methodology adopted for
restructuring in Gujarat were well designed and totally goal oriented.
(iii) Maharashtra: Even though the reform process was initiated in
Maharashtra prior to the enactment of the EA, 2003, the actual
restructuring took place in June 2005. The study has brought out that the
restructuring process was on course till about 2002 when a White Paper
was presented in the State Legislature, detailing the reform policy.
Nevertheless, the Government did not display adequate political will to
take forward the restructuring process and was also unable to win the
cooperation of the staff. The Electricity Board has since been restructured
into three separate companies, one each for generation, transmission and
distribution, with a fourth company created to function as a holding
company. At the time of restructuring, the Government extended
considerable financial support to take over the past liabilities. However,
no long-term financial restructuring plan was put in place. The transition
period for stabilisation of the restructured companies is critical and
restructured companies would need financial support of the Government
in this period. Though Maharashtra is a large State with about 1.4 crore
electricity consumers, including heavy industrial and agricultural
consumers, only one DISCOM has been formed. There is a need to
review whether two or more DISCOMs would be a better option than the
existing set-up to promote competition and ensure more focussed
attention, etc. On the whole, the process has not been smooth, in the
absence of political commitment and support, coupled with lack of
cooperation of the staff.
4.9 Regulatory Mechanism and its Impact on Restructuring of SEBs
4.9.1 The EA, 2003 provides an enabling framework for accelerated and more
efficient development of the power sector. The Act seeks to encourage
competition with appropriate regulatory intervention. Competition is expected
to yield efficiency gains and, in turn, result in availability of quality supply of
electricity to consumers at competitive rates (Para 1.6 of National Electricity
Policy). The EA, 2003 and the NEP entrust the Regulatory Commissions with
several tasks and responsibilities. The objectives of restructuring of SEBs
include the promotion of fair-play and transparency in all spheres relating to
the sector and improvement of efficiency of the system through competition
(among and between the licensees) and provision of assured and quality power
with access to all consumers. Regulators have to play a key role in the reform
process to achieve the aforesaid goals.
4.9.2 Efforts to establish a regulatory mechanism at national level in the power
industry started in the early nineties with the MoP taking the initiative, but
materialised mainly with the passing of the Electricity Regulatory
Commissions Act, 1998. However, several States like Orissa (1996), Haryana
(1998), Andhra Pradesh (1998), Uttar Pradesh (1999), Karnataka (1999),
Rajasthan (1999), Delhi (2000) and Madhya Pradesh (2000) had included
provisions for establishing Regulatory Commissions as part of their respective
Electricity Reform Acts. It was evident that efforts to restructure and reform
the power sector would need the oversight of a strong regulatory mechanism.
4.9.3 The transparency in tariff fixation and related issues by introducing public
hearings, issue of standards and codes to improve the quality of delivery, etc.,
implemented by the Regulatory Commissions have brought a refreshing change
in the working of the power sector all over the country. The functions
earmarked for the Central and State Electricity Regulatory Commissions under
the EA, 2003 are manifold and include both regulatory and advisory roles.
However, it is noteworthy that the Act places considerable responsibilities,
apart from tariff related functions, on the State Commissions (as compared to
the Central Commission), these include, for instance, licensing, Open Access,
co-generation and generation of electricity from non-conventional sources of
energy, and to specify supply codes and standards with respect to quality,
continuity and reliability of power supply. The advisory role of the State
Commissions is also extensive and includes promotion of competition,
efficiency, economy and investments, as also ‘reorganisation and restructuring
of power sector in the State’.
4.9.4 The impact of the working of the Electricity Regulatory Commissions in
various States has been, on the whole, very positive and encouraging. In
Chapter-6 of this Report, we have mentioned certain areas requiring attention
from the Commissions themselves and from the Governments concerned to
enhance the role of the Commissions in the restructuring and reforms process.
4.9.5 The review, while appreciating the role played by the Commissions in
safeguarding the interests of the restructured companies and the consumers at
large, brings out that there is a need for (i) bringing about greater transparency
and public participation in the proceedings of the Commissions, (ii) uniform
pattern in the approach to issues that would promote competition such as Open
Access, surcharge, etc., and (iii) effective implementation of codes and
standards of performance more vigorously to enhance efficiency in the working
of the newly formed Utilities. It is felt that Forum of Indian Regulators needs to
play a more proactive role in taking forward the reforms objectives. It is
strongly felt that the effectiveness of the Commissions will be enhanced by
improving capacity building and ensuring greater financial autonomy to them.
4.10 Impact of Restructuring on Rural Electrification
4.10.1 An understandable apprehension about the possible adverse impact of
restructuring of SEBs relates to rural electrification. According to one source,
“what is left unanswered is, if the SEBs disappear as envisaged under the EA
2003, what would happen to rural electrification after the restructuring? If all
the DISCOMs run commercially, and make profit as their primary objective,
obviously they would not supply power to non-viable rural areas”.9 In this
context, the experience of South Africa is often quoted: ‘Facing a looming
power shortage, driven by concerns about rural electrification for the
historically disadvantaged black population, South Africa reportedly scaled
back its reform efforts’. 10
9 Report of High Level Committee on Government Policy and Reforming/Restructuring/Unbundling of SEBs (2005).
10 Alternating currents: Introduction to an International Review of Electricity Restructuring, Navroz K. Dubashi and Daljit Singh.
4.10.2 The NEP acknowledges that about 56 per cent of rural households have not yet
been electrified even through many of these households are willing to pay for
electricity. The NEP therefore affirms that determined efforts should be made
to ensure that the task of rural electrification for securing electricity access to
all households and also ensuring that electricity reaches the poor and
marginalised sections of the society at reasonable rates is completed within
the next five years. The established target is to complete rural electrification by
2009 and to ensure 100 per cent household electrification by the year 2012.
4.10.3 During the review of restructuring in Orissa, it was observed that rural
electrification had suffered in the recent years for lack of initiatives and
finance. Appropriate recommendations have been included in this Report to
reactivate the efforts. It is seen that the business plans of the restructured
Utilities include targets for rural electrification, and these are being monitored.
After the restructuring of SEBs, the flow of funding from REC to the
DISCOMs has improved since they have started on clean slates, without
carrying forward the past liabilities.
410.4 The performance table in Para 5.7, Chapter-5 gives an overview of the
progress in rural electrification in the recent years in different States.
Nevertheless, it is necessary for the State Governments to keep a close watch
on the progress of rural electrification by the DISCOMs, to achieve the national
targets. It is also necessary to ensure that the DISCOMs do not get into the
syndrome of perpetual losses due to extension of the network and non-payment
of dues by the consumers. The Governments concerned should pay subsidies
due to the DISCOMs on account of rural electrification, in advance, to
accelerate the programme.
4.11 Impact of Restructuring on Investments
4.11.1 In the post reform period, investments in the sector have significantly
improved although these are still far below the level required for system
improvement and upgradation. In the distribution sector, which is the most
critical area of the power sector reforms, investment has steadily shown
improvement after the restructuring. The following investments have been
made in the sector during 2004-05:
(a) Andhra Pradesh Rs 1,243 crore;
(b) Haryana Rs 921 crore;
(c) Rajasthan Rs 804.48 crore;
(d) Karnataka Rs 640.14 crore (generation and transmission sectors);
(e) Uttar Pradesh Rs 739 crore; and
(f) Madhya Pradesh Rs 721 crore.
4.11.2 However, the level of investment required in the distribution sector needs to be
considerably stepped up. In this connection, the initiative of the Ministry of
Power for promoting investments in selective areas under the APDRP is
noteworthy.
4.11.3 AT&C Loss Reduction Efforts
Closely linked to the loss reduction efforts by the Distribution Utilities, the
collection efficiency by these Utilities for all the States (which have undertaken
the power sector reform) taken together showed significant improvement. This
is one of the positive outcomes of the distribution reforms. Across the
restructured Utilities in the post reform period, metering, billing and collection
efficiency has shown perceptible improvement. As a result, commercial losses
of all Distribution Utilities, taken together at the national level, have come
down to Rs 22,126 crore (without subsidy but including tax) in 2004-05 from
Rs 29,331 crore (without subsidy but including tax) in 2001-02. (Source: PFC).
This is also reflected in the overall reduction of AT&C loss from 38.18 per cent
in 2000-01 to 33.82 per cent in 2004-05.
4.11.4 Subsidy Burden
One disconcerting area is the level of subsidy burden borne by the States,
which have undertaken reforms of their power sector. One of the objectives of
the power sector reforms is that the burden of subsidy on the States would be
reduced to enable them to release much-needed funds to the social sector. With
the EA, 2003, State Governments have been mandated to provide and release
subsidy to DISCOMs upfront unlike in the case of erstwhile SEBs. For an
appreciation of the impact of subsidies on the sustenance of the power sector, it
may be noted that the total subsidy booked in 2001-02 was around Rs 14,595
crore, which came down to Rs 11,016 crore in 2004-05. However, subsidy
received by the power Utilities on All India basis, was Rs 9,617 crore in 2001-
02 and Rs 11,753 crore in 2004-05. For State-wise details, please refer Para
5.5.5, Chapter-5.
4.12 Conclusions: Restructuring Model
4.12.1 The recent examples of Assam and Gujarat re-establish how important it is to
have the total political commitment and support at the highest level, coupled
with excellent consultancy assistance, and an efficient communication strategy
to implement the restructuring model. The need for cooperation of the
employees and a forward-looking FRP are also to be underscored.
4.12.2 As brought out in Chapter-6 on “Findings and Recommendations”, there are
still some shortcomings in the functioning of the restructured Utilities which
only highlight the need to address the shortcomings and managerial
deficiencies expeditiously. These include the inadequate autonomy granted to
the DISCOMs, inadequate delegation of powers to different levels of managers
and the consequent deficiency in accountability on the part of the management,
omission to devote time and attention to capacity-building in the human
resources area, and continuing Governmental and bureaucratic interventions in
the affairs of the companies.
4.12.3 The broad conclusion coming out of the review of restructuring models of
the States is that, despite some shortcomings, the overall impact has been
positive and in the right direction.
4.12.4 Further, among the three distinct models adopted by the States, which have
completed the restructuring process, the model followed by Andhra Pradesh,
Haryana, Karnataka and Uttar Pradesh emerges as the most suitable one. The
States, which are yet to undertake the process, are advised to adopt the
above model subject, of course, to their own analysis, based on local
conditions and consultants’ advice.
CHAPTER - 5
IMPACT OF RESTRUCTURING
5.1 As mentioned in Chapter-1, this study relates to 12 States coming under the
following three Groups:
Table 5.1: Categorisation of States
Group Description States included
Group-1States in which SEBs were restructured prior to the enactment of EA, 2003.
Andhra Pradesh Haryana Karnataka Madhya Pradesh Orissa Rajasthan Uttar Pradesh
Group-2States in which SEBs were restructured after the enactment of EA, 2003.
Assam Gujarat Maharashtra
Group-3States, which are in the process of restructuring the SEBs.
Tamil Nadu West Bengal
5.2 Impact of Restructuring on Technical and Financial Performance
5.2.1 Reform and restructuring exercises have a significant impact on the technical
and financial performance of the Utilities in the following areas:
(a) Reduction in estimated technical and commercial losses;
(b) Reduction in energy and peak demand/shortages;
(c) Improvement in technical parameters relating to:
(i) Generation;
(ii) Transmission;
(iii) Distribution;
(d) Improvement in financial and commercial parameters:
(i) Enhancement of revenue collection (without subsidy);
(ii) Profit/loss with and without subsidy;
(iii) Percentage of commercial losses to revenue (without subsidy);
(iv) Subsidy booked/received and percentage of subsidy
booked/received to total revenue;
(e) Investments in transmission and distribution; and
(f) Rural Electrification.
5.2.2 The performance of the SEBs and the restructured entities in Group-1 States
are analysed, based on data collected in respect of the above parameters.
5.2.3 The restructuring of SEBs in Assam, Gujarat and Maharashtra was taken up
only recently and hence the impact could not be assessed at this stage.
However, there are indications of improved performance of the restructured
Power Utilities in these States.
5.3 Reduction in Estimated Losses
5.3.1 The percentage T&D losses of the SEB at the time of restructuring and of the
restructured Utilities after restructuring in the Group-1 States are given in
Table 5.2.
Table 5.2: T&D Losses
State Year ofRestructuring
T&D losses (%) during the yearsYear of
Restructuring2000-01
2001-02
2002-03
2003-04
2004-05
AP 1999-2000 37.65 36.63 26.81 30.11 27.73 23.96Haryana 1999-2000 38.28 39.82 39.22 37.65 32.07 32.11Karnataka 1999-2000 37.31 34.93 33.83 24.57 23.29 26.08MP 2002-2003 43.31 46.07 44.55 43.31 41.44 41.30Orissa 1996-1997 50.38 44.91 47.34 45.36 57.09 44.02Rajasthan 2000-2001 29.76 29.76 43.06 42.61 43.74 44.68UP 1999-2000 40.37 36.94 37.62 34.16 35.17 34.39All India 32.86 33.98 32.54 32.53 31.25
(Source: CEA)
5.3.2 It may be mentioned here that, prior to the restructuring, the practice in many
SEBs was to inflate the figures of agricultural supplies (which were not
metered) so that the actual extent of commercial losses could not be assessed
realistically. Partly due to the controls put in place by the subsequently
installed Electricity Regulators in various States and partly so as to reflect the
actual position in the tariffs proposals for their own advantage, SEBs and
Utilities have started reflecting a more realistic picture of T&D losses in the
recent years. According to Shri S.L. Rao, the first Chairman of the Central
Electricity Regulatory Commission (CERC):
“In cases where the numbers appear to be rising, it is more of a reflection of
better information, since the T&D losses (mainly theft) that were hidden by
SEBs under subsidised sales to agriculturists has now been properly restored
to T&D losses.”11
5.3.3 The losses indicated before the restructuring are mostly based on abstract
estimates of consumption by the un-metered services, mainly under agricultural
and domestic categories. On the insistence of the Regulatory Commissions to
validate the assessed consumption of un-metered services, the loss estimates
were modified to an extent by the Utilities themselves bringing them closer to
realistic figures. The percentage AT&C losses in respect of Group-1 States is
given in the Table 5.3:
Table 5.3: AT&C Losses
StateYear of
Restructuring
AT&C losses (%) during the years2001-
022002-
032003-
042004-
05Andhra Pradesh 1999-2000 32.09 36.14 22.62 27.19Haryana 1999-2000 50.60 47.62 42.85 44.55Karnataka 1999-2000 40.50 45.68 35.82 34.72Madhya Pradesh 2002-2003 48.60 49.42 41.52 52.79Orissa 1996-1997 52.64 40.88 47.40 54.07Rajasthan 2000-2001 60.38 47.13 50.84 46.73Uttar Pradesh 1999-2000 46.92 32.21 58.38 51.05
(Source: PFC)
5.3.4 The present method adopted to assess the aggregate technical and commercial
losses (AT&C losses) is by using the formula indicated below:
AT&C losses (%) = (Units input – Units realised) x 100 Units input
Units realised = Units billed x Collection Efficiency (%) 100
Collection Efficiency (%) = Revenue realised x 100 Revenue billed
5.3.5 The performance of the restructured Utilities in the AT&C losses reduction for
four years ending 2004-05 is captured in Table 5.3. It could be seen that there
is reduction in losses in Haryana, Andhra Pradesh, Karnataka and Rajasthan. In
the case of Orissa, the losses had come down in 2002-03 but again increased in
the subsequent years. In the case of Madhya Pradesh and Uttar Pradesh also,
the losses initially had come down but again increased. The Distribution
Utilities in these States need to pay more attention to bring down the loss
levels.
11 S.L.Rao: Governing Power, TERI; page 230.
5.4 Technical Parameters
The restructuring of SEBs has resulted in the functional separation of State
power industry into three segments, i.e., generation, transmission and
distribution. The improvements brought out by the restructured entities in
respect of some of the key technical parameters are reviewed hereunder.
5.4.1 Generation
(a) The performance of the generating companies in the seven States
(Group-1) is reviewed considering the key parameters of:
(i) Installed generation capacity (MW);
(ii) Energy generated/delivered (MU);
(iii) PLF of thermal power stations;
(iv) Availability of thermal power stations;
(v) Auxiliary consumption;
(vi) Secondary oil consumption; and
(vii) Heat Rate.
(b) The data collected is shown at Annexure-XI.
(c) It may be seen that in Andhra Pradesh, 954 MW of installed capacity
has been added by APGENCO after restructuring, of which 900 MW
comes from the Srisailam Left Bank Power Station. There is no
substantial increase in the energy generated due to poor inflows into the
hydel reservoirs, in spite of the thermal stations delivering increased
energy every year. During this period, the State had to depend on
additional procurements from the central power sector Utilities,
Independent Power Producers (IPPs) and other States. The PLF and the
availability of the thermal power stations have increased from 83.2 to 89.7
per cent and from 89.7 to 92.5 per cent respectively in the four years after
restructuring. The secondary oil consumption has come down from 3.45
ml/kWh in 1995-96 to 0.49 ml/kWh in 2004-05. Auxiliary consumption
continues to be at around 9 per cent and there is scope to reduce the same
substantially.
(d) Karnataka has added 518 MW of generation capacity in five years.
The PLF and the plant availability of the thermal stations has been
consistently more than 80 per cent. Secondary oil consumption has been
brought down from 2.41 ml/kWh in 1999-2000 to 0.73 ml/kWh in 2005-
06.
(e) Rajasthan has achieved a maximum capacity addition of 1059 MW
in the four years after restructuring, whereas Madhya Pradesh has not
added new capacity in the two years since the separate generation
company came into existence.
(f) The PLF of the stations has increased to 80 per cent and above in
Orissa and Rajasthan. There is increase in the PLF of the stations in the
States of Haryana, Madhya Pradesh and Uttar Pradesh as well after the
reforms. However, there is still scope for further improvement. There is
reduction in the secondary oil consumption in all re-structured entities,
over the years. However, the oil consumption level in Haryana was 3.73
ml/kWh in 2005-06 and there is still scope for further reduction. Efforts
are also needed to reduce the auxiliary consumption levels in all GENCOs
of Group-1 States.
(g) The overall performance of the GENCOs in the States under Group-1 has improved on account of the following factors:
(i) Willingness of financial institutions to extend financial support to the restructured Utilities;
(ii) More focussed attention on the part of the management for achieving results; and
(iii) Increased accountability for managers at different levels.
5.4.2 Transmission
(a) The restructured Transmission Utilities are in-charge of the
transmission network development, in addition to the regular operation
and maintenance of the existing transmission systems. Presently, the State
Load Despatch Centres are also under the control of the Transmission
Companies. The bulk supply trading activity, which was managed earlier
by the Transmission Companies, is now transferred to separate trading
licensees or the DISCOMs to directly purchase power from the
Generating Companies. The performance of the Transmission Companies
after the restructuring is analysed with reference to the following technical
parameters:
(i) Total length of transmission lines (ckt km);
(ii) No. of EHV sub-stations; and
(iii) Transmission losses (per cent).
(b) The data collected on the above parameters is shown at
Annexure-XII(A) to XII(C).
(c) It is observed that there is considerable transmission network
expansion in the States after the restructuring. Efforts are also made to
improve the existing systems in operation as evidenced from the reduction
in the transmission losses recorded in these States. The transmission
network augmentation after restructuring in the Group-1 States is shown
in Table 5.3(A).
Table 5.3 (A): Augmentation of Transmission Network
StateYear of
Restructuring
Transmission lines (ckt. km.)
added after restructuring in the last 5 years
No. ofYears
Average Addition (ckt. km.) per year
AP 1999-2000 6,706 5 1,341Haryana 1999-2000 2,273 5 455Karnataka 1999-2000 4,387 5 878MP 2002-2003 1,705 2 853Orissa 1996-1997 2,721 5 544Rajasthan 2000-2001 2,542 4 636UP 1999-2000 2,539 5 508
(d) The network expansion is appreciable in all the States except
Uttar Pradesh, where it is comparatively low considering the size of the
State. UPPCL should take steps to accelerate the network expansion
activity.
(e) The network expansion should normally bring down the
transmission losses. The losses data in the last 4/5 years is shown in Table
5.3(B)
Table 5.3(B): Transmission Losses
StateTransmission losses (%)
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
AP 8.98 8.94 8.18 7.55 6.11 4.91Haryana - 6.78 7.17 6.78 7.18 5.67Karnataka - - 6.76 4.88 4.23MP 8.25 8.17 8.20 7.93 6.12 5.62Orissa 5.00 5.17 5.11 4.15 3.92Rajasthan - 4.10 4.17 3.68 4.72 4.59UP 5.50 5.50 5.50 5.92 5.67 4.97
(f) In all the States, there is a gradual reduction in losses in the
transmission system. The trend of losses indicates that there is a scope for
further reduction in the years ahead with additional investments made for
strengthening the transmission network.
(g) Funds mobilisation for the new projects is not a constraint
now, as was the case before implementation of reforms.
5.4.3 Distribution
(a) Distribution is one of the most important segments of the power
industry. It is also the problematic segment, since the Utilities have to deal
with millions of end-users of electricity. The health of the power industry
is dependent on the health of the distribution Utilities. Under the
integrated SEBs set-up, the distribution function did not get adequate
attention of the top managements, as priority was usually given to the
generation function. In the restructured Distribution Companies, with
limited areas of operation, the company managements are able to improve
operational performance and devote more focussed attention to resolve the
problems of customers at large.
(b) In order to examine how the restructured Distribution Companies in
the Group-1 States have brought about technical improvements in respect
of distribution network, the following parameters were considered:
(i) Length of 33 kV lines;
(ii) Length of 11 kV lines;
(iii) Length of LT lines;
(iv) LT/HT Ratio;
(v) Number of distribution transformers; and
(vi) Number of cases of DTs failures.
(c) The progress achieved by the restructured entities of the Group-1 States
on the above parameters is shown in Annexure-XIII. The data reveal
that:
(i) There is a steady growth in the network expansion in these States;
(ii) There is a reduction in DTs failures year-by-year in Andhra Pradesh,
Haryana, and Orissa but increase is noticed in the DTs failure rate in
Madhya Pradesh and Rajasthan;
(iii) The LT/HT ratio of distribution lines has come down in the
restructured Utilities in the last five years in almost all States (except
Madhya Pradesh), which is an indication of the healthy growth in the
network. In the case of Madhya Pradesh the ratio increased from
1.88 to 2.12 and the DISCOMs need to take steps to correct this
negative trend; and
(iv) There has been appreciable reduction in distribution losses in Andhra
Pradesh (from 28.05 to 11.19 per cent) and Haryana (from 33.04 to
26.93 per cent) during the period 2000-01 to 2004-05. In Uttar
Pradesh there is a reduction in the distribution system losses from 40
per cent in 1999-2000 to 31 per cent in 2004-05. For other States, the
distribution losses are either increasing or varying (increasing in one
year and decreasing in another year). Steps need to be taken by the
Distribution Utilities to get the losses reduced to a reasonably
acceptable level.
(d) A case in point is Andhra Pradesh, where distribution transformer
metering was provided in respect of 36,313 transformers by the end of
March 2005. All the 11 kV feeders (8528 Nos.) and all categories of
services (147 lakh) other than agricultural are provided with meters. Out
of the 23.74 lakh agricultural services existing as on March 2005, 1.59
lakh services are metered.
5.4.4 Separation of Composite Rural Feeders
(a) The rural loads comprising of agricultural pumps and other loads in
villages are served through composite HT feeders. Supply to agricultural
pumps is
Box 5.1: Gujarat Shatters a MythThe village electrification schemes in the country have adopted a common pattern of supplying electricity for irrigation pumpsets as well as for residential and small industrial/commercial consumers in the nearby villages, through a common 11 kV feeder. The component of load of the pumpsets on such composite feeders is much larger as compared to the load of consumers in the villages. The supply to pumpsets is not available for 24 hours and is generally provided in off-peak hours for smaller duration. Further, whenever there is a need to restrict the peak demand, these composite feeders are disconnected, resulting in loss of power supply to villages. Thus the rural population is deprived of continuous supply of electricity and this adversely affects the quality of life in villages.To provide three-phase power supply to villages for 24 hours a day, Gujarat initiated a scheme of delinking village supply from agricultural pumping loads by providing separate 11 kV feeders for villages, under ‘Jyoti Gram Yojna’ (JGY). The scheme was launched in September 2003. In less than 3 years, 1324 Nos. of new 11 kV feeders involving more than 46,000 km of 11 kV line, 7,000 km of LT lines and 11,200 distribution transformers were provided in the scheme and three-phase power supply to 17,773 villages which are served with conventional energy (out of a total of 18,065 villages in the State), is now made through these new JGY feeders for 24 hours a day. This has resulted in a sea change in the quality of life in villages.The success of the scheme has dispelled the myth that investments in improving services in rural sector are not cost effective and do not pay back financially. Through investments of Rs 1,097 crore in JGY scheme, the Utility has been benefited by Rs 499 crore by saving 1750 MU of energy, and reducing 600 MW demand. In less than 3 years, more than 45 per cent investment of the scheme is paid back. In addition to better cost benefit ratio of the scheme, and improvement in the quality of life in villages, the revenue of the Utility will grow on account of continuous power supply to the villages. Industrial growth prospects have increased in the rural area with the availability of 24 hours electricity supply.Apart from the financial gains, the Utility can now aggressively pursue energy accounting procedures with correct assessment of agricultural consumption. Agricultural tariff structure could be modified so that it is lower where the consumption in kWh per HP of connected load is lower and goes on increasing as the energy consumption per HP increases, leading not only to reduced tariff for agriculture and conservation of energy used for pumping but also to conservation of water which in the near future is likely to be an important issue on the National Agenda.This deep concern for needs of villages in improving the most important infrastructure of availability of 3-phase power supply for 24 hours a day and action to provide the desired solution through the JGY scheme, is solely attributable to the political initiative and foresight.
regulated and is generally available for a few hours in a day. To serve
other rural loads on the feeder in the remaining hours of the day single
phase supply is made available by altering circuit arrangements.
Separation of such composite feeders into separate feeders for agricultural
loads and other village loads should be considered to facilitate providing
three phase power supply to villages as is successfully done in Gujarat.
(See Box 5.1).
(b) Annexure-XIII gives details of the growth of distribution system in
various States and an all-India picture of the same in terms of ckt km of
33 kV, 11 kV and LT lines. To get a general idea of the extent of coverage
of electricity on spatial consideration, some data of ckt km of HT and LT
lines per 1,000 sq km of the geographical area is also indicated. It is,
however, to be noted that these figures only represent the extent of
penetration of distribution lines and do not lead to any qualitative
assessment. The parameter of LT/HT ratio given in Annexure-XIII could
be indicative of the related cause of technical distribution loss of the
network. The loss (technical) would be lower where the LT/HT ratio is
lower and vice versa. All restructured Utilities are taking steps to reduce
this ratio to as low as is financially and commercially feasible. The
measures such as locating distribution transformers as near the load centre
as possible, increasing the 33/11 kV sub-stations, increasing 11 kV
lines/feeders, etc., are adopted by the Utilities in upgrading the
distribution system.
(c) High Voltage Distribution System (HVDS) aimed at the replacement of
the low voltage network by high voltage three phase network with
installation of large number of smaller capacity (16 kVA and 25 kVA) 11
kV/400 V transformers, is under implementation in various States. In case
of Andhra Pradesh by the end of the year 2004-5, supply to 1.41 lakh
irrigation pumpsets was extended through the HVDS. Schemes covering 3
lakh pumpsets are under implementation. A project proposal covering
18.74 lakh pumpsets under the high voltage distribution system has been
sent to Japan Bank for International Cooperation (JBIC) for funding. The
system is best suited to meet the scattered low-density agricultural loads,
observed in the rural areas. It reduces the scope of electricity thefts by
way of direct tapping from LT lines by the unauthorised consumers and
also helps in reduction of LT line losses.
Box 5.2: High Voltage Distribution System
One of the challenges in the Distribution System Management is the reduction of
system losses – both technical and commercial. Realising the fact that the low
voltage network of the distribution system contributes maximum to the system
losses, Andhra Pradesh has started implementing High Voltage Distribution
System (HVDS). The aim is to gradually replace the low voltage network with
high voltage network by erecting small capacity distribution transformers to cater
to the needs of a limited number of customers under each unit. Initially single
phase H.V. Distribution is introduced with 10 kVA and 16 kVA distribution
transformers. It has limited success in implementation on agricultural feeders for
security reasons and on account of the general reluctance of the consumers for
conversion/replacement of their motors.
At present, the DISCOMs have started implementing three-phase HVDS by
erecting 16 kVA and 25 kVA three phase distribution transformers on agricultural
feeders. By the end of 2004-05, over 1.4 lakh pumpsets were covered under the
HVDS. Projects at a cost of Rs.797 crore covering 3,05,183 pumpsets under
HVDS are under implementation. Another scheme covering about 19 lakh
pumpsets under HVDS, at a cost of Rs. 5,651 crore, has been sent to JBIC for
funding.
The benefits of HVDS are:
Reduction of system losses,
Prevention of unauthorised connections,
Reliable supply to farming sector,
Pumpset efficiency improvement,
Reduction in transformer failures.
The model can be beneficially implemented by other States.
(d) Billing and collection activities are outsourced in Andhra Pradesh,
Karnataka, and Orissa to bring in the improvements in revenue.
(e) Multi-year tariff has been introduced in the States of Andhra Pradesh,
Madhya Pradesh and Rajasthan, where reform and restructuring has taken
place. In Karnataka, the ERC has initiated action for introducing multi-
year tariff.
(f) Another feature is that better consumer service is rendered through
creation of grievance redressal forums and consumer care centres in all
the Group-1 States.
(g) Overall, there is evidence of improvement in the functioning of the
DISCOMs of Group-1 States. However, the results may vary on account
of factors like extent of firm political support, appropriate and effective
managements established to guide the companies, regulatory control
mechanism, implementation measures taken, motivation of the
employees, etc.
(h) The restructured DISCOMs are have received the benefit of support of the
Government of India under APDRP for system improvements. There is
also scope for accelerating the process of system expansion and rural
household coverage under RGGVY.
5.5 Financial and Commercial Parameters
5.5.1 Revenue Improvements
(a) Improvement in revenues could be achieved by increased quality
metering and with improved efficiency in both billing and collection.
Increases in revenues also occur due to addition of new services and
consequent additional consumption of energy, as well as periodical tariff
increases. The trend of revenues by sale of energy (without taking subsidy
into account) of the power Utilities in the seven States under study for the
last four years, ending 2004-05, is shown in Table 5.4.
Table 5.4: Trend of Revenues (Group-1 States)(Rs crore)
StateAnnualRevenue2001-02
AnnualRevenue2002-03
% increase over the previous
Year
AnnualRevenue2003-04
% increase over the previous
Year
AnnualRevenue2004-05
% increase over
previousYear
AP 5912 7393 25.1 7679 3.9 8571 11.6Haryana 2712 2911 7.3 3240 11.3 3378 4.3Karnataka 4451 4489 0.9 5910 31.7 6532 10.5MP 3618 4296 18.7 4857 13.1 5130 5.6Orissa 1667 1882 12.9 1982 5.3 2144 8.2Rajasthan 3850 4017 4.3 4140 3.1 4539 9.6UP 6286 5990 -4.7 3937 -34.2 6492 64.9
(Source: Power Finance Corporation)
(b) There is gradual improvement in the revenues in the last four years in
almost all the States. In the case of Uttar Pradesh, however, there was
sharp decline in revenues during the years 2002-03 and 2003-04; but a
sudden upward jump of about 65 per cent in 2004-05. In Andhra Pradesh,
the increase in 2003-04 was not substantial since it was the first year of
operation of the new distribution companies (prior to 2003-04, DISCOMs
were subsidiaries of the Transmission Company). Karnataka recorded the
maximum revenue improvement of 31.7 per cent during 2003-04.
(c) Although a steadily increasing trend is yet to emerge, and part of the
variations may be due to the availability factor, it is logical to conclude
that after the restructuring process, there is network expansion and
additional efforts have been made to provide fresh connections, which are
reflected in the revenue enhancement. Obviously, there are more
investments in the sub-sector, and better billing and collection. The
DISCOMs are generally focussing more on enhancing revenue
collections, partly because of closer management controls put in place and
probably also due to inter-company competitions.
5.5.2 Profit/Loss without Subsidy
The best indicator of the commercial performance of the sector is the
profitability of the undertakings. Annexure-XV(A) and Annexure-XV(C) will
show that the overall commercial performance of the power sector has been
improving in the recent years, though much more needs to be done. As will be
seen from Annexure-XV(D), the losses were on the increase until the year
2001-02 when they stood at Rs 29,252 crore. In the normal course (‘business as
usual’ scenario), the losses would have further increased to around Rs 38,000
crore by the year 2004-05, estimated by employing multiple regression
technique. However, the year 2004-05 actually registered a loss of only Rs
21,998 crore. For the Group-1 States (excluding Uttar Pradesh)12, the losses
could have been of the range of Rs 17,000 crore in the normal course; but they
actually registered a loss of only Rs 7,239 crore. Major chunk of the loss
reduction was achieved by the restructured States, which is a noteworthy
achievement.
5.5.3 Profit/Loss with Subsidy
Another parameter for analysis would be cash profit or loss with subsidy,
which is depicted in Annexures XV(B) and XV(E). It will be noticed that,
after 2003-04, Group-1 States (excluding Uttar Pradesh), taken together, have
started registering profits with subsidy. In the year 1999-2000, when the
restructuring process was initiated, the losses were of the magnitude of Rs
4,953 crore, which has since turned into an overall profit of Rs 1,482 crore in
2003-04. In the corresponding timeframe, the overall performance of the other
States (excluding Uttar Pradesh), had registered a reduction of loss from Rs
7,539 crore to Rs 2,746 crore. This is in spite of the fact that most of the States
where restructuring had not taken place had released substantial amounts of
subsidies to their SEBs (like Tamil Nadu - Rs 2,212 crore during 2002-03,
12 Due to bifurcation of the State and also inconsistency in a few Revenue figures, e.g., for almost same level of energy sold for the FYs 2002-03 and 2003-04 revenue realised has a variation of 50 per cent (Source: PFC)
Kerala - Rs 1,016 crore in 2002-03, and Gujarat - Rs 1,527 crore in 2002-03
and Rs 2,017 crore in 2003-04).
5.5.4 Commercial Losses as a Percentage of Revenue (without Subsidy)
A review of the commercial losses of the Utilities as a ratio of their Revenue
would be relevant, since comparison of the losses of the States with varying
Revenues may not give the correct picture. The percentage of losses to
Revenue (sale of Power) gives a more realistic picture of the extent of losses
and the sustainability of operations of the Utilities. The review reveals that in
this aspect, the restructured Utilities, but for Rajasthan and Uttar Pradesh, have
done reasonably well [refer Annexure-XV(G) and (H)]. For instance, Andhra
Pradesh has reduced the ratio from 69 to 14 per cent during the period 1999-
2000 to 2004-05, whereas Haryana has brought this down from 65.3 to 42.9 per
cent during the same period. It is relevant that the ratio of losses to Revenue for
the restructured Utilities put together has come down from 50.5 to 20.2 per cent
(excluding Uttar Pradesh) against the All India average of 42.9 to 22.6 per cent
during the given period.
5.5.5 Incidence of Subsidy
(a) Percentage of Subsidy Booked to the Total Revenue: The
extent of subsidy booked by Utilities to the total Revenue [refer
Annexure-XV(I) and (J)] reveals their dependence on Government
support for their sustenance, and is an indicator of their general
commercial health. All India ratio of subsidy booked by Utilities to the
total Revenue for the year 2001-02 was 20.75 per cent which has come
down to around 11 per cent in 2004-05, which clearly indicates the fact
that the Utilities are becoming less dependent on State Governments for
financial support. The percentage of subsidy booked to the revenue has
come down drastically, in case of Andhra Pradesh (61.4 per cent in 2000-
01 to 15.2 per cent in 2004-05) and Karnataka (50.27 per cent in 2000-01
to 24.02 per cent in 2004-05) although these States are predominantly
agricultural States. It is also seen that the ratio is gradually coming down
in the case of Uttar Pradesh. On the other hand, the ratio has increased in
the case of Haryana and Rajasthan, and continues at a high level.
Although there may be several contributory factors for variations in the
subsidy booked, such as higher composition of agricultural consumers
etc., the important issue is whether the Utilities are able to bring down the
ratio by prudent management practices. In this respect, it is pertinent to
note that the privatised Utilities of Orissa have saved the State
Government a subsidy burden of Rs 300 crore per year for the last ten
years.
(b) Percentage of Subsidy Received to Total Revenue: The amount of
subsidy received as compared to subsidy booked on all-India level is
almost the same during the years 2002-03 to 2004-05 [refer Annexure-
XV(I) and (K)]. The ratio of subsidy received to total revenue has
gradually come down during the above period, which may be partly
attributed to the rationalisation of tariff and improvement in performance
of the Utilities. In case of Rajasthan, the amount of subsidy received is
very low as compared to subsidy booked during the above period. But
during the years 2000-01 and 2001-02, at all-India level, the amount of
subsidy received was very low as compared to subsidy booked.
5.5.6 Gap between ACS and ARR
(a) Figures of GAP between Average Cost of Supply (ACS) and Average
Revenue Realised (ARR) without subsidy in respect of Group-1 States are
shown in Table 5.5. Increasing GAP is a cause of concern and indicates
that either adequate measures have not been taken towards tariff
realisation or the operational efficiency has been quite poor.
(b) The figures reveal that on all-India level there is an improvement in the
GAP. Appreciable improvements have been made by Andhra Pradesh,
Orissa and Madhya Pradesh. Except Haryana, Rajasthan and Uttar
Pradesh, other Group-1 States are moving towards tariff rationalisation.
However, they have to make more efforts to reduce the GAP by
improving their collection efficiency and other operational measures. For
details regarding average tariff applicable to various categories of
consumers, please refer to Annexure-XVIII. In case of Haryana, Uttar
Pradesh and Rajasthan, the trend is not steady and as brought out under
the Income vs. Expenditure figures, these States have to bring in more
improvements.
Table 5.5: Gap (ACS-ARR) (Paise per kWh)
State 2000-01 2001-02 2002-03 2003-04 2004-05Andhra Pradesh 77 67 37 38 27Haryana 101 58 45 49 72Orissa 43 44 31 21Karnataka 98 73 52 50 46Madhya Pradesh 52 31 23 25Uttar Pradesh 98 54 59 35 84Rajasthan 57 66 68 68
All India 64 43 37 42(Source: PFC)
5.5.7 Ratio of Income to Expenditure: Utilities of Group-1 States.
(a) The ratio of income to expenditure is a key performance indicator to
assess the efficiency of commercial operation of any sector. Once this
ratio crosses ‘1’, it can be inferred that the Utility has achieved some
degree of commercial viability. The analysis shows that the Generation
and Transmission Companies are functioning satisfactorily after the
restructuring, as they are now more autonomous. The ratio of income to
expenditure in case of both Generation and Transmission Utilities has
already crossed ‘1’ or is nearing ‘1’.
(b) It can be seen from Table 5.6 that among the Group-1 States, positive
results have been noticed during the last five years. It is also worth
mentioning that except for the DISCOMs of Uttar Pradesh, Haryana and
Rajasthan the said ratio is showing an improving trend for all Power
Utilities in all the seven States.
(c) Based on the data, it now becomes quite clear that huge losses of the
distribution system is the root cause of the various ills of the power sector.
The analysis of respective States brings out the salient details, which have
a direct or indirect impact on the operational as well as financial
performance of the Utility. It is evident that the long-standing issue of
dismal performance of power sector in general and distribution system in
particular will need some more time to be resolved.
(d) Financial Institutions (FIs) were earlier reluctant to finance the projects of
SEBs due to their poor financial health. However, since restructured
GENCOs and TRANSCOs are now commercially viable, this could
facilitate enhanced investments in the power sector and also open new
vistas for the cash rich FIs to park their funds. Table 5.6 provides the
indices in respect of Group-1 States.
Table 5.6: Ratio of Income to Expenditure
Sector 2000-01 2001-02 2002-03 2003-04 2004-05
Andhra PradeshDistribution - 0.70 0.85 0.84 0.88Generation 0.96 0.98 1.01 1.00 1.02Transmission 0.62 0.97 1.03 1.01 1.00
KarnatakaDistribution - - 0.78 0.81 0.82Generation 0.95 1.14 1.14 1.11 1.11Transmission 0.68 0.68 0.91 0.99 1.02
Sector 2000-01 2001-02 2002-03 2003-04 2004-05
HaryanaDistribution 0.72 0.76 0.80 0.79 0.72Generation 1.00 1.00 1.00 1.00 1.00Transmission 1.00 1.00 1.00 1.05 1.00
OrissaDistribution - 0.79 0.80 0.85 0.90Generation 1.12 1.25 1.31 1.30 1.43Transmission 0.96 1.05 0.74 1.17 1.14
Madhya Pradesh- 0.77 0.85 0.89 0.89
RajasthanDistribution - 0.78 0.75 0.74 0.73Generation - 1.00 0.98 1.00 1.00Transmission - 0.99 0.99 0.99 0.99
Uttar PradeshDistribution - - - 0.77 0.69Generation 0.88 0.92 0.93 0.93 0.93Transmission 0.73 0.75 0.75 0.92 0.97All India * - 0.74 0.82 0.84 0.83All India(GENCOs and TRANSCOs)
- 1.00 0.97 0.98 1.00
* Utilities directly selling to consumers
5.6 Energy and Peak Shortages
5.6.1 The energy and peak demand shortages in Group-1 States are shown in Tables
5.7 and 5.8, respectively [please also refer to Annexures XVI(A) and XVI(B)].
It could be seen that the peak shortages have come down in most of the States,
except Haryana, Rajasthan and Uttar Pradesh. Efforts are needed in these States
to install additional generating capacity.
5.6.2 Although the actual growth of annual electricity generation at all-India level has
not been matching the corresponding GDP growth rate over the years, (which
results in energy shortages) considerable improvement in meeting the energy
requirement has been noticed in the majority of Group-1 States. However,
concerted efforts need to be made to reduce the energy shortages in Haryana,
Madhya Pradesh and Uttar Pradesh where the shortfall is 8.9 per cent, 14.2 per
cent and 20.1 per cent respectively. The shortfall can be reduced by
implementing measures like efficiency improvements, capacity additions and
efficient energy exchange with other Utilities.
Table 5.7: Energy Shortages (per cent)
States1998-1999
1999-2000
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005
2005-2006
Requirement(MU) 2005-06
AP 8.70 6.60 7.80 8.50 6.80 2.90 0.70 1.10 52721
Haryana 2.10 2.10 2.80 1.60 3.00 4.60 5.70 8.90 23749Karnataka 13.20 8.30 9.10 12.50 9.80 13.90 4.20 0.70 34578MP 5.80 7.10 12.40 15.40 16.40 13.20 13.50 14.20 36851Orissa -3.30 -2.80 -3.10 0.10 2.30 1.70 0.80 1.30 15208Rajasthan 2.50 4.50 3.60 1.00 2.10 0.50 0.80 3.50 30883UP 14.60 9.90 16.67 13.20 20.10 20.9 55614All-India 5.76 5.34 8.06 7.76 9.00 7.27 7.48 8.30 631024
Table 5.8: Peak Shortages (per cent)
States1998-1999
1999-2000
2000-2001
2001-2002
2002-2003
2003-2004
2004-2005
2005-2006
Demand (MW)2005-06
AP 9.30 11.70 14.60 19.90 19.20 10.50 2.30 2.00 8716Haryana 8.30 0.00 3.30 3.30 2.50 5.40 10.30 9.30 4333Karnataka 15.50 15.50 13.20 17.00 21.50 12.40 5.30 9.80 6160MP 25.20 29.70 25.30 12.50 14.20 22.10 18.50 21.70 6558Orissa 2.00 5.20 -2.20 7.30 6.40 6.50 0.00 1.70 2437Rajasthan 4.20 0.00 2.50 1.20 1.50 0.00 7.80 13.70 5588UP 15.00 9.20 14.20 16.50 20.40 19.4 8175All-India 12.85 13.64 12.27 12.60 12.69 12.39 11.70 12.30 93214
Table 5.9: Anticipated Power Supply Position at the end of X and XI Plans
State
At the end of X Plan (March 2007) At the end of XI Plan (March 2012)Power Supply (MU) Peak (MW) Power Supply (MU) Peak (MW)Require-
mentSurplus/Deficit
DemandSurplus/Deficit
Require-ment
Surplus/Deficit
DemandSurplus/Deficit
AP 68,797-7,424
(-10.8%)1,1219
-1,523(-13.6%)
93,289-12,426(-13.3%)
15,213-3,078
(-20.2%)
Haryana 25,7505,252
(20.4%)4,899
1892(38.6%)
37,80010,785(28.5%)
7,192320
(44.5%)
Karnataka 44,748-9,722
(-21.7%)7,740
-1,886(-24.4%)
60,478+4,686(+7.7%)
10,460-876
(-8.4%)
MP 42,354-8,387
(-19.8%)7,052
-1,384(-19.6%)
55,914+91
(0.2%)9,310
-226(-2.4%)
Orissa 17,997-2,127
(-11.8%)2,977
+22(0.7%)
23,377+,5201
+22.2%)3,869
+1,004(+25.9%)
Rajasthan 40,341-10,029
(-24.9 %)6,772
-2302(-34 %)
56,132-8,286
(-14.8%)9,423
-2,596(-27.5%)
UP 66,917-15,514
(-23.2% )10,645
-3,340(-31.4%)
94,565-28,367(-30%)
15,055-4,948
(-32.9%) (Source: CEA)
5.6.3 As already noted, the capacity addition during the current Five Year Plan has
fallen short of the targets during the first four years of the Plan. Keeping in
view the ongoing peak and energy shortages, it is imperative that the capacity
addition programme be boosted and measures taken to evenly distribute the
targeted achievements over the five years of the Plan period, as far as possible.
Another factor to be kept in view is the adequacy of monsoon, which impacts
hydel power generation. Notwithstanding the above, the conditions regarding
energy and peak shortages at present (2005-06) in respect of restructured States
indicate that energy shortages are as low as 0.7 per cent in Karnataka and peak
shortages of 1.70 per cent in Orissa, compared to all India figures of 8.3 and
12.30 per cent respectively.
5.7 Per Capita Consumption
5.7.1 The per capita consumption is calculated on gross generation basis from 2001-02
onwards. It would be appropriate to compare the per capita consumption
improvements between the years 2001-02 and 2004-05. Andhra Pradesh,
Haryana and Karnataka had per capita consumptions above the national level
of 559.18 kWh/year in the year 2001-02. By 2004-05, Orissa had also joined
the States having per capita consumption above the national level. Rajasthan
has recorded gradual increase in the per capita consumption and has reached
583.32 kWh/year by 2004-05, which is very close to the national figure of
612.50 kWh/year. In the case of Madhya Pradesh and Uttar Pradesh, there are
ups and downs in the per capita consumption year after year and the
consumption levels are lower than the national figures. Per capita consumption
is one indicator of the progress achieved by the power Utilities of the States.
The per capita consumption of Uttar Pradesh is far below the national average
and it may take a long time for the State to reach the national level.
5.8 Rural Electrification
5.8.1 Rural electrification is an essential ingredient for economic development of the
country. Drawing long transmission and distribution lines to remote villages,
not having adequate load, is often un-remunerative for the Utilities. Hence the
Ministry of Power, Government of India has taken special initiatives to give a
boost to rural electrification through the RGGVY, which has a large element of
grant.
5.8.2 The number of villages electrified in the twelve States including those where the
restructuring was done (Group-1) is shown in Table 5.10. The percentage of
villages electrified year-wise from 1996-97, shown in Table 5.11, gives an
indication of the efforts made for rural electrification in these States by the
restructured companies.
5.8.3 In view of the limited number of villages to be covered in Karnataka and
Madhya Pradesh, it would be possible for them to achieve 100 per cent
electrification within the targeted period established in the National Electricity
Policy, 2006. However, considering the very high percentage of villages yet to
be electrified in the States of Uttar Pradesh, Orissa and Rajasthan and also
having regard to their past performance in this regard during the last decade (as
shown in Table 5.11), it will be very difficult for these States to achieve the
target of electrification laid down in the National Electricity Policy, 2006. It is
obvious that most of the villages yet to be electrified would be located in
difficult geographical terrain (far from the conventional grid) which would
make the task of electrifying these villages even more difficult.
Table 5.10: State-wise Village Electrification as on 31-03-2006
States/UTTotal inhabited villages as per 2001 census
Villages electrified as on 31.03.06
Numbers Percentage
AP 26,586(*) 26,565 100.0(*)
Assam 25,124 15,657 62.3
Gujarat 18,066 17,836 98.7
Haryana 6,764 6,764 100.0
Karnataka 27,481 27,018 98.3
MP 52,117 50,213 96.3
Maharashtra 41,095 35,541 86.5
Orissa 47,529 26,235 55.2
Rajasthan 39,753 25,385 63.9
Tamil Nadu 15,400 14,621 94.9
UP 97,942 56,977 58.2
West Bengal 37,945 32,861 86.6(*) Ten. villages are submerged, nine villages are un-inhabited and two villages are occupied by NTPC
Table 5.11: Percentage of Villages Electrified (Year-wise)
State(**)
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
2003-04
2004-05
Total No. of Villages
(*)
Villages yet to be electrified
No. (%)Karnataka 0 0 0.05 0.05 0.22 0.05 0.01 0.02 0 27481 463 1.68Orissa 1.55 1.68 1.72 1.57 0.09 3.8 0.57 0.08 0 47529 21294 44.80MP 0.77 0.89 0.58 0.17 0.03 0.04 0.18 0.14 0.12 52117 1904 3.65Rajasthan 1.65 1.76 1.72 1.28 1.17 1.24 1.21 0.93 0.51 39753 14368 36.14UP 1.45 0.87 0.73 0.49 0.27 0.37 0.28 0.24 1.55 97942 40965 41.83All-India 0.65 0.54 0.47 0.35 0.21 0.69 0.44 0.46 0.65 593732 154230 25.98
(*) Census 2001 (Source: CEA) (**) Haryana and Andhra Pradesh have achieved 100 per cent village electrification.
Table 5.12: State-wise Rural Households Electrification
State/UTTotal No. of House-holds (*)
Rural Households
TotalNo.*
per cent of Electrified as per 2001
Census
Electrified (CEA data)
Total No.
As onper cent
AP 1,68,49,857 1,26,76,218 59.65 97,38,392 31.03.06 76.82
Assam 49,35,358 42,20,173 16.54 10,94,715 31.03.05 25.94
Gujarat 96,43,989 58,85,961 72.12 39,12,361 31.03.06 66.47
Haryana 35,29,642 24,54,463 78.50 19,93,655 31.12.05 81.23
Karnataka 1,02,32,133 66,75,173 72.16 54,58,021 30.11.05 81.77
MP 1,09,19,653 81,24,795 62.32 24,01,559 31.03.06 29.56
Maharashtra 1,90,63,149 1,09,93,623 65.17 58,16,346 31.03.05 52.91
Orissa 78,70,127 67,82,879 19.35 16,96,200 01.04.04 25.01
Rajasthan 93,42,294 71,56,703 44.02 22,60,895 01.04.04 31.59
Tamil Nadu 1,41,73,626 82,74,790 71.18 59,29,379 31.05.05 71.66
UP 2,57,60,601 2,05,90,074 19.84 40,84,288 (*)
W. Bengal 1,57,15,915 1,11,61,870 20.27 30,68,071 31.10.05 27.49
All-India 19,19,63,935 13,82,71,559 43.52 4,88,51,632 41.64* Census 2001
5.8.4 An analysis of Tables 5.11 and 5.12 shows the following:
(a) Several States, which claim to have achieved significant Rural
Electrification, have the percentage of electrified rural households at a
very low figure.
(b) There is a disparity in the number of households shown as
electrified as per Census, 2001 and those shown by the CEA.
5.8.5 The NEP has made it mandatory to provide access to electricity to all rural
households by 2012. As electrification of remote villages is commercially
unviable, it is suggested that the RGGVY may be extended to private
Distribution Utilities as well. In the absence of attractive incentives, the private
Distribution Utilities are unlikely to expand their network to rural areas.
5.8.6 For instance, the percentage of villages electrified in Orissa (where private
sector participation in distribution segment was in existence since 1998), comes
to only 55.2 per cent against the national average of 73.85 percent. Hence,
extending RGGVY to Orissa is a must in order to ensure a level playing field.
5.8.7 Uttar Pradesh is also far behind the national average, with only 58.2 per cent
villages electrified (the number of villages yet to be electrified will increase
further substantially after the updated data of achievement of village
electrification, according to the new definition is received).
5.8.8 The Power Utilities will have to embark on accelerated programmes and take
special measures to achieve complete rural household electrification by 2012,
as contemplated by the Government of India. Concerted efforts and substantial
inputs will be needed to electrify all villages and to achieve 100 per cent
electrification of all households in accordance with the proposed time schedule
of 2012. The recently announced initiative to encourage franchisee models
would have to be pursued. The restructured Utilities must be required to devote
special attention to the rural electrification programmes in their territories,
since this is a vulnerable area.
5.8.9 As far as the quality of supply to rural areas is concerned, Gujarat and Andhra
Pradesh have taken certain measures to extend 24 hours supply for domestic
and other non-agricultural connections. In Gujarat, separate 11 kV feeders have
been laid at an investment of about Rs 1,000 crore for other than agricultural
connections to facilitate 24 hours supply. Agricultural pumpset feeders are
provided with fixed hours of supply as per the pre-determined schedules. It has
provided a big boost to the growth of rural industry in the State.
5.8.10 In Andhra Pradesh, the rural domestic and other non-power loads are fed
through single phase transformers, which will have single-phase supply
extended for 24 hours. This work has been completed for more than 90 per cent
of the villages so far. All Mandal headquarters are covered by separate three-
phase lines, and are extended 24 hours three-phase supply so as to facilitate the
utilisation of supply for the power loads also, in addition to the domestic and
other non-agricultural categories. REC has provided financial assistance for
these schemes in Andhra Pradesh.
5.8.11 In West Bengal, the ‘Franchisee Model in Distribution Management’,
engaging Self-Help Groups, mostly BPL, devised on the pattern suggested by
REC is reportedly performing well. The objective is to promote decentralised
management of distribution system in remote and rural areas with the
involvement of the local people for arresting pilferage of power and providing
service on call.
5.8.12 The above models of Gujarat, Andhra Pradesh and West Bengal could be
replicated by other States, with advantage.
5.9 State Power Sector Outlays
5.9.1 The State Power Sector Outlays are given in Table 5.13.
Table 5.13: Plan Expenditure in the States
(Rs crore)
State2000-01(Actual)
2001-02(Actual)
2002-03(Actual)
2003-04(Actual)
2004-05(RE)
2005-06(Approved)
AP 3,034.79 2,639.08 2,167.96 2966.31 2,125.86 515.51Assam 82.98 116.23 82.77 40.96 290.48 586.29Gujarat 745.66 942.31 571.39 1108.18 635.45 830.49Haryana 356.46 35.85 202.97 221.6 380 445Karnataka 924.94 766 860.06 1273.75 1623.44 1849.73MP 508.28 284.21 566.11 1145.03 889.42 1322.97Maharashtra 1,170.06 460.47 1,260.49 300.37 382.43 711.63Orissa 360.69 347.34 322.16 429.26 344.25 795.71Rajasthan 1,016.57 1,151.19 1,220.07 2,102.88 1,872.18 1,905.76Tamil Nadu 1,221.92 1,286.48 1,197.78 1,002.61 1,255.53 1,362.36UP 848.13 862.67 1046.31 1037.97 625 710.09West Bengal 1,791.92 917.42 754.92 652.02 1,288.25 2,078.55Total of 12 States
12,062.4 9,809.25 10,252.99 12,280.94 11,712.29 13,114.09
All States/ UTs
15,334.26 13,555.199 14,876.36 15,725.73 16,465.67 18,676.15
(Source: Planning Commission)
5.9.2. Table 5.13 would indicate that the trend of plan expenditure in State power
sector was inadequate during the last six years as compared to the approved
plan outlay. While the total expenditure has marginally increased from Rs
15,334.26 crore to Rs 18,676.15 crore over the five years, it actually decreased
in the second and third years. In order to realise the Plan target and to derive
the benefits of ongoing power sector reforms, it is necessary to increase the
allocation substantially to the State power sector in the Eleventh Plan and
ensure its full utilisation. The allocations in individual States should follow the
pattern of the FRPs established for each restructured Utility.
Table 5.14: Sector-wise Ninth and Tenth Plan Outlays and Year-wise
Expenditure (Rs crore)
State IX Plan 1997-98 1998-99 1999-00 2000-01 2001-02 X Plan 2002-03 2003-04 2004-05
GenerationAP 1985.22 529.66 387.69 274.73 141.10 214.06 1116.01 294.31 66.91 66.91Haryana 780.00 59.12 68.82 96.47 60.24 56.99 687.22 142.00 165.54 165.54Karnataka 1931.75 422.00 521.50 628.00 409.00 515.00 790.77 395.00 614.00 614.00MP 1286.11 315.99 328.08 397.13 58.34 134.71 2203.78 220.66Orissa 1472.88 290.00 217.46 220.65 162.70 48.30 271.61 80.32 25.58 144.50Rajasthan 932.76 350.08 350.90 394.00 461.37 506.77 1420.00 244.25 169.00 169.00UP 1151.70 465.82 622.50 493.25 291.50 172.82 2211.29 54.82 109.84 84.57States &UTs 27310 6077 6206 6293 4747 3994 26403 4086
Transmission and DistributionAP 3496.78 354.75 467.69 399.28 703.00 430.00 2699.16 1018.17 586.57 586.57Haryana 1208.53 148.33 386.60 365.79 381.88 334.72 874.11 107.67 110.03 110.03Karnataka 1044.00 87.00 238.61 246.50 223.19 224.62 796.79 334.75 414.26 414.26MP 1598.50 209.80 198.33 352.80 159.66 178.40 2560.00 545.00Orissa 2038.45 149.08 332.96 659.90 280.00 328.60 1100.22 746.97 506.55 275.68Rajasthan 2556.89 239.83 321.33 321.19 395.60 651.23 4488.72 743.75 911.00 911.00UP 3968.16 715.81 1060.20 967.89 830.82 565.05 4721.38 655.87 587.37 550.43States &UTs 31433 4465 6135 6385 6427 5976 45946 8845
(Source: Planning Commission)
5.9.3 As compared to an allocation of Rs 27,310 crore for generation in the Ninth
Plan, the Plan allocation for transmission & distribution segments was only Rs
31,433 crore. This anomaly was rectified to some extent in the Tenth Plan
when the allocation for transmission & distribution was raised to Rs 45,946
crore against Rs 26,403 crore allocated for generation. It is hoped that State
Utilities would substantially increase their investments in the transmission and
distribution sub-sectors of the value chain in the coming years so that there is
better quality of power supply and aggregate losses are reduced.
5.9.4 One feature to be noted regarding the Ninth Plan performance is the lower level
of actual expenditures, as compared to the allocation, in the case of several
States. In respect of generation, Andhra Pradesh, Haryana, Madhya Pradesh
and Orissa had all achieved lesser expenditure than allocated. On the other
hand, Karnataka, Rajasthan and Uttar Pradesh had turned out substantially
higher expenditure than allocated under the Ninth Plan for generation activities.
5.9.5 The Plan performance of the States in respect of transmission and distribution
during the Ninth Plan is indicative of the inadequate attention paid to these
areas under the pre-restructured regime. For instance, only two States, namely
Haryana and Uttar Pradesh had significantly exceeded the allocations whereas
Karnataka utilised almost the entire allocations in the Plan for transmission and
distribution. On the other hand, there were significant under-utilisation in the
case of most States including Andhra Pradesh, Madhya Pradesh, Orissa and
Rajasthan. It is relevant that during the Tenth Plan, the total State sector
requirement for transmission segment alone is of the order of Rs 28,513 crore
with the total all-India figure projected at Rs 47,342 crore. Out of the total State
Sector outlay of Rs 28,513 crore, restructured Transmission Utilities of Group-
1 State sector have been allotted Rs 15,693 crore. After the restructuring of the
SEBs, Utilities in the States concerned are seen to bestow more attention to
investments in the transmission and distribution sub-sectors, which is a healthy
trend. Details are shown in Tables 5.15 and 5.16.
5.9.6 Investment in Transmission Sector is as follows:
Table 5.15: Funds Requirements for Transmission Schemes for X Plan Period(Rs crore)
Utility2002-03 2003-04 2004-05 2005-06 2006-07 X Plan
Actual Actual Anticipated Proposed Proposed Total
APTRANSCO 452.33 265.97 333.15 315.42 474.38 1841.25
HVPN 199.74 259.96 266.47 301.00 111.55 1138.72
KPTCL 308.33 515.24 474.63 592.66 450.00 2340.86
MPPTCL 137.26 394.84 189.39 442.50 698.46 1862.45
OPTCL 841.73 911.07 971.34 1026.43 1178.03 4928.60
RVPN 276.23 337.64 266.27 353.78 443.07 1676.99
UPPCL 168.32 217.40 297.00 625.00 596.76 1904.48
Total (State Sector) 3804.33 4399.25 4674.60 6532.39 9102.80 28513.36
Total all India 6598.77 6884.15 7956.06 10634.05 14346.58 47342.60
Table 5.16: Investment Required in XI Plan in Transmission System State Sector (Rs crore)
State 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12AP 935.18 716.84 963.87 741.19 504.39 436.12Karnataka 1,342.74 561.85 382.4 505.75 196.38 349.7Haryana 85.42 282.26 663.23 709.03 713.63 1,086.7Rajasthan 390.99 435.47 633.75 847.5UP 99.5 106.16 81.18 189.26 69.96 269.21
5.10 Metering, Billing and Collection efficiencies
5.10.1 The status of the feeder metering and the distribution transformer metering in the restructured Utilities is indicated in Table 5.17.
Table 5.17: 11 kV Feeder and Distribution Transformer Metering
State 11 kV Feeder Distribution Transformer2000-01 2001-02 2004-05 2005-06 2004-05 2005-06
No. % No. % No. % No. % No. % No. %AP 4,907 92 4,907 100 7,401 100 9,239 94 2,62,000 21 3,51,751 11Haryana 2,834 2,557 100 3,888 100 3,888 100 1,33,364 1,33,364 Karnataka 3,022 62 3,518 100 4,570 100 4,570 100 1,44,000 24 1,44,000 24MP 10,779 18 5,498 54 5,660 100 5,660 100 1,60,000 2 1,60,000 2Orissa 1,359 10 1,858 27 1,792 95 1,792 95 22,000 93 22,000 93Rajasthan 5,822 71 7,321 45 8,411 100 8,411 100 1,88,170 1,88,170 UP 8,929 90 8,124 100 8,507 100 8,507 100 3,30,000 2 3,30,000 2All India 63,451 68 67,058 81 77,885 98 79,868 96 24,56,422 13 24,35,798 10
(Source: MoP)
5.10.2 The very fact that the Utilities have achieved almost 100 per cent in the feeder
metering is indicative of their awareness to carry out the energy audit in a
qualitative manner. Distribution transformer metering started by the utilities
helps in not only better evaluation of the losses in the unmetered agricultural
sector, but also helps in identifying the areas of high-line losses for taking
corrective measures.
5.10.3 Consumer metering: 6.5 lakh consumer meters have been installed in Orissa
after the restructuring. Consumer metering is an area in which improvements
have been brought about in almost all the restructured Utilities. For instance, in
Madhya Pradesh, agricultural services metering has been increased from 1 per
cent in 2001-02 to 30 per cent in 2003-04.
5.10.4 In Andhra Pradesh and Karnataka also, there is a substantial increase in
metering. The Distribution Utilities in Andhra Pradesh have installed electronic
meters for industrial and all high value services of other categories. All the new
services released are also provided with electronic meters.
5.10.5 There is an overall improvement in the consumer metering in the recent years,
as indicated in Table 5.18.
Table 5.18: Percentage of Consumer Connections Metered *
(in lakh)
State2000-01 2001-02 2004-05 2005-06No. % No. % No. % No. %
AP 108.57 70 113.20 80 198.60 91 157.46 96Haryana 36.14 73 35.11 93 39.17 92 39.17 92Karnataka 82.93 90 85.00 57 128.89 82 128.89 82MP 87.56 53 63.29 56 64.92 72 64.92 72Orissa 13.57 - 14.50 79 21.49 81 21.49 81Rajasthan 50.74 71 53.05 82 58.45 94 58.45 94UP 71.27 52 78.10 59 88.06 91 88.06 91All-India 1,013.13 75 1,070.70 78 1,315.11 87 1,969.29 92* Other than agriculture
5.10.6 Billing efficiencies of the restructured Utilities of Group-1 States in the last
four years are shown in Table 5.19. State DISCOM 2001-02 2002-03 2003-04 2004-05
Andhra Pradesh
APCPDCL 72.96 77.12 79.12 80.21APEPDCL 85.06 84.98 86.33 86.12APNPDCL 76.71 78.76 79.75 80.80APSPDCL 78.11 78.77 80.66 81.88
HaryanaDHBVNL 66.14 64.97 66.67 67.33UHBVNL 64.34 64.98 67.64 69.47
Karnataka
BESCOM
65.11
75.47 73.56 77.92GESCOM 64.46 61.29 62.96HESCOM 68.39 70.86 72.50MESCOM 76.88 79.13 78.50
Madhya Pradesh 58.06 56.89 56.69 56.52
Orissa
CESCO 51.19 56.99 60.23 58.51NESCO 48.98 58.61 56.35 60.58SOUTHCO 59.53 60.86 57.56 59.52WESCO 53.58 61.70 60.99 63.61
RajasthanAVVNL 65.93 60.10 54.49 52.95JDVVNL 60.39 59.05 57.44 54.35JVVNL 61.49 60.76 60.15 58.46
Uttar Pradesh
DVVN
63.01 67.79
59.18 67.41MVVN 73.07 73.24PaVVN 65.38 73.12PoVVN 71.55 71.80
All-India 68.12 68.37 68.80 69.87(Source: Draft Report of The Task Force on Restructuring of APDRP)
Box 5.3: Grama Vidyuth Pratinidhi
Electricity supply companies in Karnataka have successfully implemented a
scheme of appointing local unemployed youths as Grama Vidyuth Pratinidhies
(GVP) to carry out important commercial functions related to supply of
electricity in Gram Panchayat (GP) areas. GVPs are selected on the basis of
established qualification criteria and are trained by the Utilities. They are given
a fixed monthly honorarium and additional incentive payments linked to
performance. The scheme was developed with the help of Xavier Institute of
Management, Bhubaneswar. GVP’s role and responsibilities include:
Meter reading, bill distribution, collection of revenue and depositing with companies.
Facilitating grievance redressal of LT consumers.
Providing feedback to the management on ground realities on regular basis.
According to BESCOM, collection increased by 20 to 25 per cent in areas
where the scheme was implemented. GVPs scheme not only result in better
revenue recovery, but also promotes better rapport between the Utility and its
consumers. GVPs could also be trained to educate the public about the need
and merits of the sector reform, as also on the need for energy conservation
measures and other relevant issues.
BESCOM started the scheme in August 2003 in two Talukas with 22 GVPs. At
the end of Mach, 2004, it had 778 GVPs in position and planned to extend the
scheme to all GPs in its territory.
5.10.7 While the majority of the DISCOMs have improved their billing efficiencies,
there is a negative trend in the following Companies
GESCOM of Karnataka.
DISCOMs of Madhya Pradesh.
SOUTHCO of Orissa.
DISCOMs of Rajasthan.
5.10.8 Another observation in the billing efficiency is that 14 out of the 24
restructured Distribution Utilities are below the national average at the end of
2004-05. Even in the Utilities, where the billing efficiencies have improved,
some are still below the all-India level. Overall, there is an urgent need for the
Companies to focus their attention to improve the billing. They should aim to
achieve more than 90 per cent efficiency in billing by fixing time-bound
targets.
5.10.9 The collection efficiencies in the seven States of Group-1 are indicated in
Table 5.20.State 2001-02 2002-03 2003-04 2004-05
Andhra Pradesh 97.50 92.39 102.92 96.47Haryana 86.77 89.33 91.88 88.61Karnataka 91.38 83.76 95.44 92.98Madhya Pradesh 88.52 88.92 103.16 83.52Orissa 100.00 108.40 95.79 82.00Rajasthan 73.63 98.29 96.85 96.22Uttar Pradesh 84.24 100.63 84.33 75.46All-India 90.75 92.68 94.80 94.72
(Source: Ministry of Power/PFC Reports)
5.10.10 There is a fluctuating trend in the collection efficiencies of most of the
Utilities. Only Andhra Pradesh and Rajasthan have achieved collection
efficiencies above the national average of 94.72 per cent in 2004-05, whereas
five out of the seven States recorded above the national average in 2003-04.
Uttar Pradesh achieved 100.63 per cent in 2002-03 and then fell back to 84.33
per cent and 75.46 per cent in the subsequent years. The Companies need to
strive hard to achieve the increase in the receivables.
5.11 Overall Performance
5.11.1 The Ministry of Power, Government of India, has got the performance rating
of the power Utilities in various States carried out for the last four years. The
rankings of the Utilities in the twelve States under study now are as shown in
Table 5.21.
Table 5.21: Overall Performance Ratings of Power Utilities under Study
StateOverall Performance Ratings
Aug. 2002 Aug. 2003 Dec. 2004 Dec. 2005AP 1 2 1 1Assam 21 16 17 11Gujarat 7 5 2 2Haryana 3 6 14 19Karnataka 2 4 4 4MP 17 17 19 20Maharashtra 5 13 12 8Orissa 14 19 23 21Rajasthan 4 10 11 12Tamil Nadu 9 12 5 10UP 11 9 9 18West Bengal 13 11 8 5
Note: The data is as per the study conducted by M/s CRISIL and ICRA for the MoP, GoI.
5.11.2 It can be seen from the above, that three of the States (covered in this study),
which have gone for restructuring have been in the first four of the latest
rankings. The other State is Delhi (3rd rank), which has also gone for the
restructuring of the Delhi Vidyut Board. The following conclusions can be
drawn from the overall performance ratings:
(a) While the first four ranks are occupied by the States, which have
restructured their power Utilities, some other Utilities, after restructuring,
are still to improve their performance.
(b) Tamil Nadu and West Bengal (Group-3), which have not yet
restructured their SEBs, are in the first ten in the latest rankings. Of the
two, West Bengal improved its ranking from 13 in 2002 to 5 in 2005,
whereas Tamil Nadu, after improving to 5th rank in 2004, has again
slipped to the 10th position in 2005.
(c) Assam (in Group-2), which has recently gone through the
restructuring process, has shown progress in its performance by moving
from 21st rank to 11th in the last 4 years.
(d) Maharashtra (in Group-2), originally in 5th rank, has slipped in
the next two years (ranks 13th and 12th) but shown improvement and
moved to 8th rank. This State also has gone through the reform process
recently.
(e) Among the restructured entities (of Group-1States), Haryana has
slipped from 3rd position to 19th position, Rajasthan from 4th to 12th
position and Orissa from 16th to 21st position.
5.11.3 The above analysis will show overall improvement in the performance of the
restructured entities. However, the ranking of Haryana, Orissa and Rajasthan,
where there is a need for continued political support, would reveal that it is not
enough to undertake the restructuring of SEBs alone to produce results. This
will have to be supplemented with firm political commitment and dedicated
efforts by the Utilities to improve commercial and managerial practices.
CHAPTER - 6
FINDINGS AND RECOMMENDATIONS
6.1 Political Commitment and Support
6.1.1 The most important lesson emerging from the review is that the progress of the
reforms is dependent on the strong commitment of the Governments at the
political level and their unreserved support. In a democratic set-up, reforms are
not merely bureaucratic exercises. The reforms could be sustained only with
political commitment starting from the top level to right down the line. Unless
the political leadership is duly sensitised, reforms cannot take deep roots and
may become unsustainable in the subsequent phases.
6.1.2 The review of the restructuring process indicates that the political support for
reforms in our country was not spontaneous. For decades, Governments thrived
on populist policies, and, faced with the choice between populist policies and
reforms, the reforms tended to take a back seat. In a democratic set-up,
decision-making obviously lies with the public representatives. Unless they are
genuinely brought on the reform wavelength, very little could be achieved. In
Orissa the political support, though very substantial and was the driving force
during the initial restructuring process. However, such a support was virtually
non-existent once the major shareholding of the Distribution utilities was
disinvested to private companies. The hasty withdrawal of the Government
from the scene adversely affected the progress of the reform process. In
Karnataka, the proactive and the enthusiastic support extended by the
Government in developing the Detailed Policy Statement (DPS) for reform, in
devising an efficient methodology for the reform, and in taking the reform
forward seems to have declined after the restructuring was completed in 2002-
03. The strong commitment and support extended by the then Government of
Karnataka was evident from the taking over of past loan liabilities of the
Electricity Board and the writing-off of the doubtful receivables as also in
taking over the past pension liabilities so that the new companies could start on
a clean slate. However, the political commitment waned after the change of
Government. Similarly, the drivers for the ongoing reform and restructuring
process in Assam have been the strong and genuine political commitment for
introducing efficiency and financial viability of the Utilities. The power policy,
announced in January 2003 by the Government of Assam for the reform and
restructuring of the power sector, established the road map for various
initiatives for restructuring of the ASEB. The Government has taken positive
steps by cleaning up the financial liabilities of the Electricity Board and
ensuring that the Utilities start on a clean slate, and receive financial support
during the transition period.
6.1.3 The experience in Andhra Pradesh, which stands out as an example of firm
commitment of political leadership both during and after the restructuring of
SEBs, was equally refreshing. The Government, under the initiative of
successive Chief Ministers, extended full support for the reform efforts, and
brought out a policy statement, which spelt out the steps that would be taken.
The statement reflected the strong political support for sector reforms, even in
the face of prevailing opposition from employees’ unions. The State
Government had extended full support to the Regulatory Commission and the
Utilities during the restructuring as well as the transition period. However, in
Haryana, the extent of political commitment for the reforms, shown in the
earlier stages was not continued afterwards.
6.1.4 In Gujarat, which has recently undergone the restructuring process, the political
commitment and support extended to the sector reforms by the political set up
was a major contributory factor for the progress of reform. In a comparatively
short span, the Government has signed a Tripartite Agreement with the
employees’ union after enlisting its cooperation and has formed four
DISCOMs. The Government has also approved the FRP, which extends up to
2011 and identifies the extent of Governmental support to be provided as also
the savings to be achieved by the restructured companies during the control
period.
6.1.5 From the above it is clear that reform efforts in the politically sensitive power
sector would succeed only with the strong backing and support of the
political hierarchy. It is also necessary to get the ‘buy-in’ of all political parties
and other vocal groups for the reform efforts through a political consensus and
an appropriate communication strategy. Since it is convenient to let the reform
take a back seat in the face of populist programmes and policies, it would
appear that the necessary magnitude of political commitment and support
for power sector reforms could be won only at the national level. In order to
speed up the objectives of the sector reform, including the restructuring of
SEBs, and in line with the purpose and intent of the EA, 2003, it is necessary
for the Central and State Governments to demonstrate their political
commitment and support for the reform efforts. No doubt, Memoranda of
Agreements (MOAs) are being signed by the State Governments with the
Ministry of Power for implementation of the EA, 2003 and establishment of
roadmaps for power sector reforms. However, all these efforts should be
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consolidated through a national level political commitment. Ministry of
Power should take initiative in securing such a commitment and for this
purpose the following twin-track approach may be adopted.
(a) Convene a conference of Chief Ministers and State Power
Ministers early to review the impact of the reform and to take
forward the reform process in the light of this Report, among other
things.
(b) A special meeting of States which have not yet
restructured their SEBs to persuade them to restructure their SEBs
in compliance with the provisions of the EA, 2003.
6.1.6 Further, in the MOAs to be signed with the State Governments, the
following may be incorporated:
(a) As soon as the restructuring is completed, the State Governments
should appoint suitable and technically competent officers to hold the
post of the CMD in each of the new companies and give them a fixed
tenure of at least three years.
(b) The States should grant full autonomy for the functioning of the new
companies and should enforce the principle of corporate
accountability.
(c) A FRP to be formulated for the controlled transition period, not
exceeding five to six years, to enable the new companies achieve
financial turnaround.
6.1.7 It is also recommended that Ministry of Power may consider not granting
any further extensions of time to States for completing the restructuring
process (since continuing such extensions would go against the spirit of the
EA, 2003).
6.1.8 Accelerated Power Development and Reforms Programme: Further, funds
under APDRP may be made available subject to the conditionality of
restructuring the SEBs and allowing the DISCOMs to function as fully
autonomous corporate bodies.
6.2 Detailed Policy Statements
6.2.1 As part of the political commitment and support, State Governments, which
are yet to undertake the restructuring of SEBs should bring out a DPS
which should clearly spell out the objectives and the level and the nature of
financial and administrative support during the reform process to the
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Utilities after the restructuring. The policy should, inter alia, provide for
the financial turnaround of the Utilities within a defined period.
6.2.2 The experience of Andhra Pradesh, Assam and Karnataka is worth recalling in
this context. The Government of Andhra Pradesh came out with a policy
statement on reforms and restructuring of the power sector, which paved the
way for future activities. Similarly, in Assam, a power sector policy was
announced in January 2003 for undertaking the reforms and restructuring of the
Electricity Board. The policy established the objectives of the reform in clear
terms and also outlined the strategy for the reforms. In Karnataka also, the
State Government brought out a DPS in the year 2001, which was a
comprehensive and definitive document, covering major issues relating to the
reform process, and attempted a SWOT analysis (strength weakness
opportunity and threats) of the sector with proposed steps to bring about a
turnaround including the disinvestment of the shares in the State power
companies.
6.2.3 It is recommended that the State Governments should be encouraged to
bring out DPS detailing the objectives, goals, methodology and process,
covering all important issues related to taking forward the reform,
especially the policies and programmes for human resources development
and communication strategy, based on the political commitment arrived at
to implement the reform measures. The DPS should also include all
important events and milestones to be achieved, together with definite time
frames.
6.3 Communication Strategy
6.3.1 It transpires from the review that a major omission in the methodology for
reform adopted by many States was the absence of a well-conceived and
effective communication strategy. The external consultants appointed by the
Government of Karnataka had advocated an effective communication strategy,
which was not put into effect adequately. In Haryana, there is some lack of
synergy with the public at large with regard to the objectives, traditional
problems of the sector and the interplay of all stakeholders in the reform
process. Here also, communication strategy was part of the power sector
reforms, but it was confined to the commencement of the reforms, and the
communication requirements of the different phases of the reforms did not
materialise. This has resulted in lack of understanding and poor response from
the public to the crucial issues of theft, and inefficiencies in the public hearings
held by the Regulatory Commission.
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6.3.2 Andhra Pradesh Government carried out a successful publicity campaign by
bringing home to the public at large the raison d ệtre of the sector reform and
the problems faced by the SEB on various fronts such as unsustainable T&D
losses, financial crisis, etc. The Government also gave presentations on the
reform agenda to all major stakeholders, including legislators, media
representatives, employees’ associations/unions, and consumer groups
including industry associations. A short feature film and ‘jingles’ were telecast
on the television (TV) channels to sensitise the people on the need and merits
of the proposed reform. A similar pattern was followed in Orissa as well.
6.3.3 In Rajasthan also, more than a year prior to the restructuring, the Chairman,
SEB had started extensive dialogue with the officers and workers to prepare
them for restructuring. Elaborate interactive sessions were organised in every
district. As a result, the restructuring process, when implemented, did not
generate any labour unrest.
6.3.4 A major reason for the less than envisaged success of the reform efforts in
several States, whether it be the lack of morale and involvement of the staff in
the affairs of the restructured company, or the lack of political commitment and
support or the refusal of the agricultural lobby to allow installation of meters on
the irrigation pumpsets, could be attributed to the apparent failure of the
communication strategy.
6.3.5 Power sector reforms and the planned restructuring of SEBs stand a good
chance of success if the Governments secure the requisite “buy-in” of the
stakeholders such as employees, consumers, NGOs, press and media,
politicians, etc. Communication strategy should establish the relevance and the
benefits of the reforms from the point of view of the consumers and the
inevitability of reforms for the development of the State as a whole.
6.3.6 A phased communication strategy based on the needs and aspirations of
stakeholders can help in creating the optimum level of public awareness and
the benefits that would accrue to them through the sector reforms. An effective
communication strategy would also help in persuading the stakeholders to
extend their cooperation for the reforms process. Most of the consumers
basically require reliable and affordable quality power and would opt for it
even if it costs a little more.
6.3.7 Consumers constitute the key audience of an organisation. As an integral part
of the marketing strategy relations, consumer relations reinforce the message
aimed at target audience and involve innovative presentation of consistent
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message in editorial and broadcast form. Consumer relations also entail
comparatively low cost marketing practices like direct mailing, advertising or
sales promotion.
6.3.8 The contact programme with consumers and community-based organisations
including residents welfare associations, women’s groups, and students
should be worked out. Agricultural extension workers could carry messages
about energy conservation to farmers in furthering the cause of power
reforms.
6.3.9 Since employees are an important internal audience, successful interaction
between organisations and the employees is an essential element of corporate
communications. Company employees reflect the company’s image outside the
organisation and, at the same time, serve as representatives of the corporate
culture.
6.3.10 An internal communication strategy involving face-to-face meetings of the
employees with the CEOs, publication of newsletters, designing of a
corporate identity programme, employees’ suggestions schemes, etc., must be
drawn up as part of the strategy.
6.3.11 In general, the communication strategy should have the following
components, among others:
(a) The need, advantages and essentiality of the power sector reform and its
rationale;
(b) Likely benefits such as quality power supply, consumer care and
grievance redressal that would be available to the consumers at large;
(c) Positive impact on public finance due to reduction of subsidy burden on
the Government, and the resultant availability of additional resources
for social development programmes;
(d) Impact on industrial and economic development of the State;
(e) Measures proposed to safeguard the service interests of employees,
including past and future terminal benefits; and
(f) Involvement of the civil society to launch a campaign against theft and
misuse of electricity. Mobilising eminent citizens to endorse through
media the need to put a restraint on prevalent wrong practices in the
power sector and promote voluntarism in helping the law enforcement
agencies.
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6.3.12 In order to take forward the reform to success, therefore, it is imperative
to put in place a competent, practical and target-oriented communication
strategy, to be developed with the help of media experts. Encouraging
consumer advocacy groups and sharing of information would create better
participative space and lead to better understanding of the reform,
including the regulatory process, by the civil society at large.
6.3.13 Role of the Media
(a) The media, particularly the electronic media, needs to be
effectively involved in the sector reform by highlighting success stories.
Similarly, the objectives, the process, merits and gains, and measures
taken to safeguard the interests of stakeholders should be highlighted for
sensitising the public and all other stakeholders. The ills of electricity
theft and its impact on the society and on the health of Utilities are other
areas where the publicity campaigns should focus on. Electronic media
will be a powerful source to be tapped for an effective communication
strategy. Gram Panchayats and other local bodies too need to be involved
in the communication strategies.
(b) Systematic and regular interactions with both the print and
electronic media through press releases, media visits, press conferences
and one-to-one meetings with the CEOs will go a long way in spreading
the message of the reform. Establishing a long-standing partnership with
the media, both print and electronic, through regular media partnership
workshops will help disseminate relevant information to the stakeholders
and facilitate a favourable public opinion. These workshops help in
presenting the right perspective to the media and shall persuade them to
cover positive stories also, instead of highlighting only the negative
aspects. It has also been observed that the detractors of the power sector
reforms are generally more successful than the advocates of reforms in
getting media attention. Hence, a suitable strategy needs to be devised to
address this problem in the interest of the sector. Since the media is a
powerful tool for sensitising the public, besides being an opinion builder,
it is imperative that its total cooperation is enlisted for obtaining public
acceptance of the reform initiatives.
(c) Ministry of Power would do well to coordinate the
campaign to be carried out jointly with the State Governments and
Distribution Companies and target all stakeholders, both in the urban
and in the rural areas.
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6.4 Consultancy Support
6.4.1 It has been noticed during the review of the restructuring of the Electricity
Boards in Andhra Pradesh and Assam that the State Governments and the SEBs
received excellent support from competent national and international
consultants to carry out restructuring. The restructuring was preceded by
comprehensive analysis and modeling by the consultants, whose terms of
reference included organisational, technical and personnel issues. The
consultants were also enlisted to assist in the process of the transfers and re-
distribution of the staff to the new companies. The consultancy support was
generally funded by multilateral agencies.
6.4.2 The experience of restructuring in Andhra Pradesh and Assam highlights the
vital role played by well-known management and financial consultants in
designing the structure, and in helping in the formulation of financial
development/restructuring plans (FDP/FRP) for starting the work by
restructured Utilities on commercial lines. The support in the implementation
of the reform process gives confidence to the managers and to the staff who
have to work in a totally different milieu.
6.4.3 In Andhra Pradesh, a comprehensive analysis of all issues emerging from the
DPS was carried out by the specially created Reform Cell with the active
support of the Government. Consultancy support from experienced national
and international consultants was enlisted to chalk out the planning and
implementation of the various steps in the reform process. The ‘technical
assistance’ support provided by multilateral and bilateral agencies was also of
great help.
6.4.4 More or less similar procedures were followed in Gujarat, Haryana and
Karnataka as well, and the results were encouraging. In Karnataka, the
Government had the support of excellent international and national consulting
firms to advice on financial issues, institutional strengthening, power market
development, environmental assessment and social impact assessment,
including the communication strategy to be followed.
6.4.5 Good consultancy support in the initial and transition phases of the
restructuring process is an essential requirement for its success. The States now
engaged in the restructuring exercise should take recourse to such
consultancy support.
6.4.6 The major findings and recommendations of consultants of Group-1 States,
would be useful as guidance material for the senior officials of the State
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Governments and Utilities of both Group-2 and Group-3 States. Accordingly,
these may be made available through a designated agency for use of such
officials, subject to the confidentiality clauses and agreements stipulated by
the authors of such Reports.
6.4.7 Since States may find it difficult to mobilise the required finance for
availing such assistance, it is only appropriate that the Ministry of Power
must help to find resources for the same.
6.5 Human Resources Development Issues
6.5.1 Another key to the success of reform is the formulation and implementation of
a forward looking and pragmatic HRD Policy. The restructuring of the
Electricity Boards into different entities, based on functional jurisdiction,
would indeed have its impact on the thousands of employees who were mostly
working as a composite group in each Electricity Board. No organisation can
function successfully unless it is able to ensure the highest level of morale and
motivation of its entire staff working at different levels. Neither the State
Governments nor the restructured companies appear to have paid adequate
attention to this vital area.
6.5.2 The dimension of the problem would, of course, be State specific. In
Maharashtra, for instance, the technical staff was borne on separate generation,
transmission and distribution cadres even before restructuring of MSEB. In
Andhra Pradesh, the transfer of the staff initially to APTRANSCO and
subsequently to the DISCOMs was accomplished in line with the agreements
(tripartite) with the staff representatives, which was systematic and cordial. In
Karnataka also, the transfer scheme evolved by the State Government provided
for the integration of the staff with the restructured Utilities based on their
preferences and options. Among other reasons, this could not be implemented
due to staff resistance and judicial intervention even though the Government,
the Utilities and the staff unions had entered into a Tripartite Agreement under
which the staff had accepted the transfer scheme. As a result, the entire staff
continues to be borne on the roll of the Transmission Company, which was the
successor to the Electricity Board. Because of this development, the
managements of the restructured companies either do not have control or have
limited control over the staff working with them. This is an unsatisfactory
situation. Given the circumstances, the personnel working in the restructured
companies are unlikely to develop the required attitudinal changes, company
loyalty and professionalism.
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6.5.3 The situation in Rajasthan seems to be different. The industrial relations in the
pre-restructured regime was reportedly exemplary with the management taking
the initiative for evolving a collective decision-making process. Political
interventions in the personnel administration of the Board were limited.
However, the situation seems to have deteriorated to some extent after
restructuring of the Board. Flexibility is not available to the management to re-
deploy the surplus staff from one company to the other, depending on actual
needs. It appears that the administrative control of the top management over the
subordinate staff has also been adversely affected, with the consequential
impact on the performance of the respective Utilities. An innovative and result-
oriented HRD policy is, therefore, imperative.
6.5.4 The State Governments/SEBs in both Assam and Gujarat have taken special
care to ensure that an appropriate environment is created for the smooth
transfer of the staff from the Electricity Board to the restructured companies. A
Tripartite Agreement among the State Government, Electricity Board and the
staff associations and unions was concluded which reassured the staff that there
would be no retrenchment as a sequel to the restructuring and that their service
interests would be fully protected. The Governments in both the States had
engaged well-known, competent consultants to advise on HR issues. On the
whole, the efforts of these State Governments/SEBs in this regard seem to be
progressing well.
6.5.5 The important conclusion arising from the above discussion is that the
restructuring process and methodology should devote adequate attention to the
various sensitive issues likely to arise in the course of reorganisation of the
cadres and should provide for elaborate manpower planning. There is a need to
take the staff representatives into confidence and educate them on the
imperatives and merits of restructuring the Electricity Board and the
opportunities, which would be thrown open for their career advancement.
Apart from entering into well-structured tripartite agreements with the
staff representatives, the restructuring scheme should also provide
adequate incentives to encourage the staff to get integrated with the
restructured companies. Competent consultancy support from HRD
specialists should be provided to the managements of the restructured
companies to put in place appropriate personnel policies, which would
enhance productivity.
6.5.6 In developing the HRD Policy, representatives of staff associations/unions
should be taken into confidence. The objective of the policy should be to
enhance the morale and motivation of the employees at all levels by
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inculcating professionalism and by securing the loyalty of the staff through
training and confidence building measures. The policy should safeguard
the past and future terminal benefits and also the career progression of the
staff of the restructured companies.
6.5.7 Right-sizing of the Staff and Strengthening the Managerial Cadres
In most of the restructured companies, there is a shortage of professionals at
middle and top management levels in the areas of technical, financial,
commercial and human resources. At the same time, there is surplus staff in
certain categories, mainly attributable to the liberal norms that prevailed in the
erstwhile SEBs. The poorly managed Utilities should adopt the norms as
followed in better-managed companies in the power sector. Simultaneously,
middle and top management levels should be strengthened by induction of
professionals. This right-sizing exercise should be undertaken without
hardship to any employee.
6.6 Financial Restructuring Plans (FRPs)
6.6.1 The study brings out that some restructured entities are still financially
unviable and continue to survive on subsidies provided by the Government. It
is, therefore, essential that during the transition period, the State Governments
extend the requisite financial and administrative support to address areas like
universal metering, delays in setting up special courts to try electricity theft
cases, etc. The restructured companies should supplement these efforts by
adopting optimal management policies and developing appropriate
management cadres, work culture and supervisory controls.
6.6.2 The problems and shortcomings arising from the above developments need to
be tackled at the macro level. The State Governments should establish
medium term plans (if they are not already in place) to target a gradual
reduction and eventual elimination of the subsidy (except for life-line
support for clearly defined categories like BPL families etc.) over a defined
period, and spell out clearly in their respective Medium Term Expenditure
Frameworks (MTEFs) the maximum subsidies that would be made
available to each restructured company, on a reducing scale, during the
defined period. The objective should be to target subsidy only to the deserving
categories as per the definition of ‘poverty line’ as laid down by the
Government of India and also to reduce the subsidy to the barest minimum
required for agricultural sector by overt measures. The FRPs may be finalised
as far as possible, in consultation with the respective Regulatory Commissions.
FRPs should clearly identify the components of financial assistance to be
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provided by the Government at the time of restructuring as also during
the transition period for stabilising the restructured companies. Further,
FRPs should be given wide publicity and should be subjected to regular
monitoring and review at the highest level every year.
6.6.3 The State Governments should be requested to include the FRPs in their
performance budgets and also highlight the progress in the Annual Plan
documents. Also, the Planning Commission should review the
implementation status of FRPs during the Annual Plan discussion of the
respective States.
6.7 Managing the Reforms Process
6.7.1 Managing change, or change management, is an intricate process involving
several functions and disciplines. Change management calls for expertise,
sympathetic treatment, and adept handling of all human resources related
problems. The success of the reform no doubt depends on the support and
guidance from the highest echelons of the administration and the political
leadership.
6.7.2 In Andhra Pradesh, Assam, Haryana and Karnataka the State Governments
had adopted a well-conceived and meticulous process of oversight for
restructuring of SEBs. For example Andhra Pradesh took the following
initiatives, which helped the process substantially:
(a) Creation of a separate cell headed by a Chief Engineer of APSEB for
directing the reforms process;
(b) Formation of working groups in the Reforms Cell by pooling resources
from serving and retired officers of the Board;
(c) Oversight by a Steering Committee under the Chief Secretary.
In Karnataka, the Government established a ministerial group to oversee
the reforms process and constituted a Steering Committee under the Chief
Secretary to monitor the reforms and to take prompt decisions. Similarly
in Assam, the formation of a Steering Committee under the Chief
Secretary to oversee the sector reform is showing results.
6.7.3 The model adopted by the Government of Andhra Pradesh for managing
the reform may be followed after customisation, by other States. (Model
No. II, as mentioned at Para 4.6.4, Chapter-4).
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6.7.4 It is recommended that each State should establish/reactivate a high-level
Empowered Committee under the Chief Secretary of the State to guide
and direct the reform process. The Committee should not only meet
regularly and monitor the progress but also should bring out periodical
‘comprehensive progress reports’ on the achievements and shortfalls and
take remedial actions in line with the agreed path. These reports should
also be available in the public domain.
6.8 Role of the Electricity Regulatory Commissions
6.8.1 One of the most significant innovations introduced, as part of the power sector
reform, has been the establishment of the regulatory mechanism in the power
sector. Notwithstanding the teething troubles and occasional inroads into their
authority, setting up of the Electricity Regulatory Commissions has made tariff
determination more rational and brought issues of efficiencies into the public
domain in a transparent manner. Due to the strict energy audit measures put in
place by the Regulators, a greater degree of transparency, accountability and
discipline is now prevailing in the electricity sector. Earlier, there was a
tendency to hide T&D losses under the garb of supplies to the agricultural
sector etc. Today, a more focussed and realistic picture is being presented.
Establishment of the regulatory mechanism has also insulated the power sector
from the populist tilts of the changing Governments to some extent.
6.8.2 A great deal, however, depends on the regulatory policy and approach to
promote reforms in the sector. Regulatory process in the power sector has
helped in safeguarding consumer interests and is engaged in achieving the
desired objectives of competition and enhanced viability of the distribution
Utilities. Regulatory process has led to promoting consultations with the
stakeholders and formulation of important regulations relating to consumer
satisfaction and Utilities’ performance. The development of the regulatory
institutions and the regulatory practices has brought up a few important issues
that will impact the sector growth and provide competition and choice to
consumers of electricity. These issues would require review of regulatory
policy and regulatory approach to reflect the needs of the regulated utilities and
their customers and the changes taking place in business and technological
environment. This Report has tried to flag them and make suggestions as far as
possible, for appropriate action, namely:
(a) The process of tariff determination is fairly well established but the filing
of ARR and tariff revision not only become time consuming and tends to
get delayed for reasons attributable to Utilities and sometimes consumer
groups. This impacts the efficiency of the regulatory process. It was
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observed in the case of some States that the ARRs and tariff applications
were either withheld or delayed indefinitely by the Utilities concerned,
which defeated the objectives of annual filings before the Regulatory
Commissions. In some other States, tariff applications have not been filed
before the Commissions, which impacts the financial viability of the
restructured companies, and also goes against the spirit of the Act. Such
actions limit the jurisdiction of the Commissions to rationalise the tariff.
To overcome these problems, fixing multi-year tariffs and efficiency goals
for the Utilities might be effective. MYT frameworks have been
developed and are under implementation in some States. This is a good
development and it is felt that MYT approach consistent with the EA,
2003 and NTP, should be adopted by all the ERCs within the next two
years, wherever this has not been adopted so far.
(b) The measures taken so far are not adequate for achieving the desired
objectives. This is further compounded by Utilities not complying with
the regulatory directives issued to them. This has in a few cases assumed
serious dimensions even affecting the credibility of the regulatory process.
Regulatory determinations and orders/directions are issued after due
deliberations and benefit all stakeholders equitably. They should,
therefore, be given the due sanctity. A convention should be developed by
the States, who are the owners of majority of the Utilities in the country,
that orders and directions issued by the Electricity Regulatory
Commissions are invariably honoured, like those of the High Courts.
Wherever there is a difference of views or difficulties in implementation,
consultations with the Regulator should be held to iron them out the
differences. Further, Utilities should be discouraged from adopting
dilatory tactics to delay or avoid implementing the orders and directives
issued by the Regulators. More importantly, there is a need to make
the provisions for penalty for non-compliance (or delayed
compliance) more stringent.
(c) In the course of the study, it was observed that in some important areas,
such as phasing out of subsides/cross-subsides, elimination of electricity
thefts, etc., the Regulators have displayed different perceptions and have
adopted varying approaches. Similarly, in respect of the stated objective
of introducing Open Access under the EA, 2003, the Regulators have not
been able to find a common ground for achieving this goal. The benefits
of non-competitive external environment accrue to the Utility, which has a
vested interest to prevent competition or give customers a choice of a
supplier. In order to overcome this, it would be appropriate for the
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Government of India to issue fresh guidelines in this regard. It is
recommended that new guidelines should be issued by the
Government giving broad principles for fixation of surcharge
applicable to ‘Open Access’. Because of the range of differences and
the depth of the problems in each State, a uniform rate for all the
states is not practicable. It is therefore sufficient if basic principles
alone are prescribed by the Government of India.
(d) In some States, in the absence of availability of alternative model, the
Regulators have taken recourse to the ‘cost to serve’ model as the basis
for tariffs for agricultural pumpset consumers. But uncertainty about the
regulatory issues relating to reasonable tariffs for this category of
consumers persists. If any subsidies are to be given to low income or poor
category consumers, it should be so ensured that the benefits go directly
to only such consumers. Therefore, creating political consensus on the
principles for determining prices and subsidies for the agricultural
consumer category is necessary which should be in line with the objective
of ensuring fairness in regulatory determination.
(e) However, in addition to acting as quasi judicial bodies, the Commissions
will have to play a more proactive role in implementing the provisions
relating to Open Access, Multi-Year Tariffs and standards of
performance (SOP), as envisaged in the EA, 2003, the National
Electricity Policy and the National Tariff Policy.
(f) In Orissa, there was no retail tariff revision during the last five years. Only
recently, Bulk Supply Tariff (BST) has been revised upwards by 15 per
cent; but no increase has been allowed by the Commission in respect of
the retail tariff on the ground that the DISCOMs should collect old arrears
to the tune of Rs 2,000 crore and also reduce losses. In Karnataka, the
Government reportedly instructed the Transmission Company to hold up
the implementation of the tariff directives of the Commission without
informing the Commission. This is in violation of the law. Further, the
Transmission Company even objected to the need for its officials to
appear before the Commission as often as they had done, and accused the
Commission of micro-managing its affairs.
(g) Regulations should have regard not only for the stakeholders but also to
the wider social objectives. It is felt that the Regulators should not only
formally consult among themselves more often in relation to the
regulatory decisions and their impact and implications on the Utilities
but also to bring in a more harmonious approach to common issues
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such as competition, Open Access, etc., in the larger interest of the
sector growth. For this purpose, the Forum of Regulators (FOR) and
the informal institution of Forum of Indian Regulators (FOIR) should
become effective consultative platforms for bringing better
understanding through sharing of information and experience. It is
also recommended that these two bodies should find new ways of
interacting with the user groups and representatives of the Utilities.
6.8.3 It is well recognised that the regulatory mechanism is making significant
improvements in the working of the power sector. To further strengthen this
mechanism and to ensure autonomy and independence of the Commissions,
the following issues need to be addressed urgently:
(a) Providing Publicity for the Decisions of the Commissions and
Tribunals:
(i) The Regulatory Commissions are issuing several directives, intended
to: Achieve the objectives of the EA, 2003, National Electricity Policy
and National Tariff Policy; and Promote the interests of the consumers at large.
However, these are not getting adequate publicity. Wider
dissemination of the orders and directives of the Commissions would
bring additional pressure on the State Governments and Utilities to
implement these and also help in increasing consumer awareness. The
Regulators need to interact, as frequently as possible, with civil society
groups and the media on important issues relating to power Utilities
and consumers’ interest in order to create adequate public awareness
and support.
It is felt that timely interaction on vital issues with the media and civil
society organisations could mobilise public support, and sensitise the
public on the crucial issues, which would facilitate the acceptance and
implementation of regulatory judgements.
(ii) MoP/CERC/SERCs/Appellate Tribunal may devise a suitable
mechanism to ensure the publication of important orders and
directives of the Central and various SERCs on the pattern of the
publications of the higher judiciary, and to give adequate publicity to
them through DAVP or other agencies, as required.
(b) Staffing Requirements of the Commissions: At present, in many States,
the staff of the Commissions is mostly drawn on deputation from the
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power Utilities and other organisations. Capacity building within the
Regulatory Commissions is essential for creating a better-informed and
effective regulatory process for the Sector. Accordingly, Regulatory
Bodies should be vested with the authority to appoint the required
specialised staff or experts on regular basis. This would obviate the
problems arising from the repatriation of deputationists to their parent
departments. Therefore, the Commissions should have full autonomy
in matters relating to staffing pattern, organisational structure and
adequate powers to recruit staff, as required. An overall ceiling on
expenditure could, however, be fixed.
(c) Funds for the Commissions: Section 103 of the EA, 2003 envisages the
constitution of ‘State Electricity Regulatory Commission Fund’. In order
to ensure independence and autonomy of the Commissions, they should
be allowed to have their own funds for meeting their expenditure. For this
purpose, the above Fund needs to be operationalised, if not already done.
In view of the inordinate delay in making the Fund operational, it
may be desirable to fix appropriate time limit for the same.
(d) Powers of Civil Courts for the Commissions: While the Regulatory
Commissions have been given the same powers as those vested in the
civil courts in proceedings before them, and also in respect of matters
specified under section 94 of the EA, 2003, their orders do not have the
same force as those of the Appellate Tribunal. Under Section 120(3) of
the EA, 2003, an order of the Appellate Tribunal shall be executable as a
decree of a Civil Court; but analogous powers have not been conferred
upon the Commissions. Measures should be taken to confer analogous
powers to the Commissions, as have been provided to the Appellate
Tribunal, under Sections 120(3) and (4) of the Act to enable the
Commissions to enforce their Orders regarding imposition of fines, award
of compensation, etc., without having to approach a Civil Court.
(e) Capital/Revenue Subsidy: In case the State Government requires any
reduction in tariff for supply of electricity to any consumer category, as
determined by the State Regulatory Commission under Section 62, the
State Government has to provide subsidy under Section 65. However, in
respect of any such reduction effected in the charges specified under
Sections 46, 47 or 50 through policy directives under Section 108, the
State Government does not appear to be under any obligation to
compensate the Utility/Utilities through subsidy. This does not appear to
be the intention of the Act nor is it justifiable, since both have similar
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financial implications for the licensee/Utility. Appropriate steps may,
therefore, be initiated to rectify this anomaly.
(f) Policy Directions (Section 108(2)): If a question arises as to whether any
direction of the Government relates to a matter of policy involving public
interest, the decision of the CERC, to whom a reference could be made
either by the SERC or by the State Government or an aggrieved party,
should be final.
(g) Strengthening the Selection Committee for State Commissions
(i) Independence and autonomy of the Regulatory Commissions are
very crucial for the credibility of the regulatory process and the
balanced growth of the power sector. Some States do not seem to have
accorded the due importance to the Regulatory Commissions. In some
instances, even the tariff petitions have not been filed by the Utilities
before the Commissions for two to three years at a stretch.
(ii) Under Section 85(1) (c) of the EA, 2003, the Chairperson of either the
CEA or the CERC is one of the members of the Selection Committee
for appointing Regulators to SERC. It is felt that both of them should
be members of the Selection Committee so as to strengthen the
Selection Committee and to ensure greater independence to the
selection process. It is desirable that the role of the state bureaucracy
may be limited to assist the Selection Committee in processing of
applications.
(h) Term of Appointment for Chairperson/Members of the Appellate
Tribunal: Section 89(1) specifies a five-year term for
Chairperson/Members of the Regulatory Commissions with no provision
for a second term. The condition regarding in-eligibility for second term
was obviously laid down to ensure the total independence of the
Regulators. On the other hand, Section 114 stipulates a term of three years
for the Chairperson and the Members of the Appellate Tribunal, with a
provision for a second term of three years. The logic that provision for the
second term may dilute the independence of the Regulators, applies with
equal force in respect of such appointments to the Appellate Tribunal also.
It is, therefore, recommended that the Chairperson and the Members of
the Tribunal should also be appointed for terms of five years each, with no
provision for a second term.
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(i) Recourse to the Ombudsman
(i) There should be only one channel to be crossed before the
consumer can approach the Ombudsman. In order to check
deliberate delays at the level of DISCOMs, it should be clearly laid
down that if an impugned matter is not resolved within 30 days from
the date of submission of the grievance, the Ombudsman could
directly take cognizance of such matters. In emergent cases,
particularly where the disputed amount is substantially high (may be
Rs one lakh and above), the consumer should have the right to seek
interim stay orders from the Ombudsman directly.
(ii) Section 42(5) of the EA, 2003 provides for the establishment of
consumer grievance redressal forum to redress public grievances in
respect of distribution of electricity. Under Section 42(6), the Office of
Ombudsman has been created as per regulations of the SERC; and its
appointment and functions are governed as per the regulations issued
by the SERCs.
At present, the following procedure is in place for redressal of consumers’
grievances:
Step-I: The aggrieved can approach the Consumer Grievance Redressal Forum.
Step-II: If the consumers are not satisfied with the action taken by the
Grievance Redressal Forum, they could approach the Ombudsman.
Step-III: In cases of consumers still remaining unsatisfied with the decision of
the Ombudsman, the following scenarios have emerged:
(a) In some States, the Regulatory Commissions have issued
Regulations permitting the filing of appeals before them against the
orders of the Ombudsman13.
(b) In some other States, the Regulatory Commissions have reserved
such appeals to the High Courts.
The anomaly in this regard needs to be rectified by providing for a uniform
procedure for filing appeals against the orders of Ombudsman before the State
Electricity Regulatory Commissions.
6.9 Establishing a Power Sector Reform Fund
6.9.1 The Expert Committee on State-Specific Reforms (2002) had recommended
the establishment of a Power Sector Reform Fund (PSRF) with an appropriate
13 Wherever the Commissions had reserved the powers to themselves, such regulations have been quashed by the Appellate Tribunal.
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corpus. The objectives of the Fund were to “support the reforms process, to
consolidate past liabilities and to finance them through agreements for write-
downs and future sector surpluses”. The Committee proposed “in order to
enhance the creditability and mitigate the risk of policy reversals, it is
necessary to ring-fence both the liabilities and the inflows earmarked for the
sector restructuring. In order to do this, the State Government should establish
a Power Sector Reform Fund (PSRF)”. Recently, the Orissa Electricity
Regulatory Commission (OERC) has recommended the setting up of such a
fund. The above recommendations are endorsed and it is urged that all
States should establish adequate PSRF.
6.9.2 The PSRF should also be used to meet specified expenses such as providing
consultancy support to the new companies for institutional strengthening,
capacity building and exceptional assistance to meet situations arising out of
natural calamities etc.
6.9.3 The corpus of the Fund should be built up by appropriating substantial part of
the collections of the Electricity Duty (where applicable) and other allocations.
Moreover, a part of the corpus, say up to 50 per cent, on an equal
contribution basis should be given from the Central Government resources.
6.9.4 The regulations and guidelines to administer the PSRF should be
formulated in consultation with the respective SERCs.
6.10 Access to Central Institutional Funds by Privatised Utilities
6.10.1 Orissa and Delhi are two States where the restructured Distribution Utilities
have disinvested their major equity to private companies. The super cyclone of
1999 caused severe damage to the distribution infrastructure in the coastal
areas of Orissa; but no relief was granted from the Calamities Relief Fund
(CRF) to reconstruct the systems. In the recent past, DISCOMs in Orissa have
neglected the task of rural electrification, causing a great deal of dissatisfaction
among the affected population. Unless funds are made available from the
Central sources to overcome the current shortcomings, there is no possibility of
improvement.
6.10.2 The philosophy of restructuring of the power sector was to provide a level-
playing field to all, whether the Utilities are in the State sector or in the private
sector. In order to accelerate the reforms process, Central Financial
Institutions like PFC and REC should be requested to extend their
assistance also to the Distribution utilities, whose major equity has been
disinvested to private companies, by relaxing the funding norms. For
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instance, such assistance should be provided without insisting on State
Government’s guarantee; but on requirement of mortgaging the assets to
be created with such financial assistance.
6.10.3 Moreover, similar assistance from Central funds earmarked under
APDRP, RGGVY, etc., should also be made available to the Utilities,
whose major shareholding is held by private sector companies. This is
being recommended because such an assistance would directly benefit the
consumers and would be in the nature of a subvention to the Utilities and
do not attract any returns; eventually this subvention goes to the
consumers by way of lower tariff.
6.11 Reconstitution of the Board of Directors
6.11.1 Currently, most of the restructured companies have the board of directors
drawn exclusively or predominantly from serving Government officials, along
with a few functional/executive directors drawn from the companies
themselves to represent technical and financial disciplines. Majority of
directors on the boards are Government nominees from different departments.
6.11.2 In order to professionalise the board of directors, it is recommended that at
least 50 per cent of the directors should be independent directors, drawn
from a panel of experts with experience in the disciplines of management,
human resources development, power technology, finance, commerce, etc.
It should also be ensured that adequate number of functional directors
representing major disciplines of technical, finance and human resources
management are inducted into the boards of all Utilities. Further, no
political personnel or political decision makers including the Ministers of
the State should hold any position on the boards of the restructured
companies.
6.12 Memoranda of Agreements
6.12.1 The practice of signing MoUs/MoAs between public sector undertakings and
nodal ministries have helped to foster accountability and autonomy of the
former at the national level. It is also recommended that the instrument of
MOA with firm, specified annual performance targets for achievements,
as existing in the case of Central Public Sector Undertakings (CPSUs),
should be institutionalised between the restructured companies and the
Departments of Power/Energy of the respective State Governments. The
MOA should also include the commitments and obligations of the State
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Governments vis-à-vis the Utilities to facilitate the fulfilment of the targeted
level of performance.
6.12.2 The MOAs will also help to improve the autonomy of the companies since
they preclude the micro-management of the companies by the Government
Departments, and envisage only periodical reviews of performance under the
agreements, at pre-determined intervals.
6.13 Better Management Practices
6.13.1 It was expected that the creation of separate Distribution Companies would
result in better management of the ‘distribution end’ of the value chain of the
power sector. The State Government’s role was to provide broad policy
framework and to allow Regulatory Commissions to bring about efficiencies
through annual approvals of the revenue requirements and expenditures of the
Utilities. However, in actual practice, the involvement of the State
Governments in the day-to-day activities of the Utilities is continuing, which is
affecting the authority of the Commissions to effectively monitor the
performance of the Utilities.
6.13.2 The State Governments’ role should primarily be facilitating and handholding,
which should not result in limiting the autonomy and functioning of the
Utilities as corporate entities. In order to ensure that the Utilities become
adequately prepared to function in a competitive and regulated environment in
the sector, all possible steps should be taken by the Government to grant
maximum managerial and financial autonomy to them and to make them fully
accountable to achieve targets and goals relating to benchmarked efficiencies in
performance.
6.13.3 Frequent changes of CMDs/MDs of the restructured companies have created
uncertainty and confusion, which has led to the decline in the performance of
these companies. Since the power sector is a highly specialised area, officers
posted to senior positions in the Utilities should have reasonably long tenures
so that they could closely grasp the myriad problems and intricacies of the
power sector. But with frequent changes, the top managers remain and function
as generalists since acquisition of specialisation is possible only through
training, work experience and long tenures.
6.13.4 In Karnataka, the managing director of the Transmission Company (KPTCL)
acts as the chairman of all DISCOMs. The Chief Minister has traditionally held
the post of the chairman of the Generation Company (KPCL). The
Transmission Company has since discontinued power trading activities as
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required under the law, a common power purchase committee takes decisions
in that regard on behalf of all DISCOMs. The managements of DISCOMs are
unable to implement the universal metering programme due to political
interventions. More or less similar situations exist in several other States like
Haryana, Rajasthan, Assam, etc. The Chairman of the Karnataka Electricity
Regulatory Commission (KERC) has openly stated that the restructuring was a
failure because the DISCOMs do not have the required financial and
functional autonomy to take decisions. It is to be mentioned here that the
practice is contrary in letter and spirit to the DPS in which the Government had
assured that the restructured companies would have freedom and autonomy to
function on commercial lines; but it is yet to be implemented.
6.13.5 Similarly, in Haryana, all purchases of a value of above Rs 50 lakhs are to be
referred to a Purchase Committee consisting of a group of ministers, which also
deals with procurements for other Government departments and agencies. The
Utilities have no autonomy in commercial management, which militates against
their autonomy.
6.13.6 The newly-formed companies after the restructuring of the Electricity Boards
should be empowered to work on commercial lines. A major objective of the
restructuring of the SEBs was to distance the State Governments from the day-
to-day decision-making process and to enable the Utilities to function entirely
on commercial lines. It is essential to achieve this goal expeditiously by
empowering the restructured companies to be fully autonomous.
6.13.7 In order to empower the restructured companies with autonomy, the
State Governments should allow the Utilities to function without any
restrictions and management controls, as would apply to corporate bodies
under the Companies Act. Further, the management cadres of the new
companies must be strengthened by inducting competent and experienced
middle and top-level functionaries who will be able to work more
independently and professionally. The CMDs/managing directors and
functional directors of the companies should be appointed for a minimum
tenure of three years and made accountable for achieving set targets and
may be given incentives for higher achievements.
6.13.8 The selection process for the posts of CMDs, managing directors and
functional directors of the restructured companies should be strictly based
on professional excellence. Putting in place a selection process through a
search committee of experts would be an effective method to identify competent
professionals for these positions. The criteria for selection should be based on
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established job descriptions/specifications, requisite qualifications, professional
background and experience of the candidates. Further, the policy of not
allowing a person to hold more than one post should be strictly followed
and the practice of appointing the CMD/MD of one company (or the
Principal Secretary/Secretary of the Government department) as the
Chairperson of any other company should be discontinued.
6.14 Capacity Building and Developing Management Cadres
6.14.1 Power Sector all over the country has many common features, common
problems and common interests. During the era of Electricity Boards, States
used to produce a large number of technically proficient and highly capable
engineers to man senior technical positions. However, other senior managerial
positions in the Boards were held by senior administrative and accounts
services personnel with experience, brought from outside.
6.14.2 The restructuring of the Boards into several smaller functionally carved out
companies has exposed the weakness in the human resources area of the sector.
While there are generally no shortages in the cadres of senior technical
personnel, there are acute shortages at the middle and lower levels. The
shortages are more acute in the areas of finance, human resources, Information
Technology, commerce and management, costing and cost audit, for which
skills are not generally available internally. The situation is somewhat similar
to what existed in the CPSUs before the Central Government started
developing specialised management cadres for CPSUs in the seventies and
eighties. It is important to develop general management skills in the middle and
senior level technical personnel of the restructured companies to equip them to
manage the top-level positions in the future.
6.14.3 In view of the large-scale restructuring operations taking place in the power
sector all over the country, priority should be given to capacity building of
human resources in the restructured Utilities. Developing competent cadres of
managers with multi-disciplinary skills is a formidable task, but it is necessary
to draw up a national plan for capacity building in the power sector by
involving professional and academic institutions of national repute.
6.14.4 The NEP offers appropriate guidance for training and human resources
development. According to this policy, concerted action would be taken for
augmenting training infrastructure so that adequate well-trained human
resources are available as per the needs of the industry. Special attention would
need to be paid by the Governments and the Power Utilities for establishing
training infrastructure in the field of electricity distribution, regulation, trading
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and power markets. Indian Institutes of Management (IIMs) should, for
instance, be encouraged to devise customised management development
programmes and Executive MBA programmes with specialisation in
power sector management, and the Utilities should be encouraged to
nominate their middle level managers for such intensive programmes
based on selection criteria to be evolved jointly with IIMs, who may also be
associated with such selections. Training and Academic Institutes like
Administrative Staff College of India (ASCI) and Indian Institute of Public
Administration (IIPA) could also play a major role in the management
development initiatives for the power sector by evolving appropriate
training modules.
6.14.5 Pending the development of a nation-wide competent cadre of power sector
managers to man the restructured companies, State Governments should
explore the availability of competent executives from the industry/CPSUs to
take over the senior positions of the restructured companies on contract
basis/deputation for fixed terms (as is being done in Utilities of Gujarat
where professionals from the open market are inducted at Executive
Directors level, on fixed tenure basis, with compensation packages linked to
targeted performance achievements). It is necessary to provide attractive
compensation packages to such appointees without being constrained by the
State Civil Services pay structures. Further, CPSUs should be encouraged to
make available their competent personnel who volunteer for such assignments
in the restructured Utilities.
6.15 Centre for Manpower Planning and Development
6.15.1 Considering the huge task of training the required number of power sector
management personnel within the medium-term period, and in line with the
objectives laid down in the NEP, it would be desirable to establish a ‘Centre
for Manpower Planning and Development’ (CMPAD) as part of an
existing Institutes of excellence like IIPA, National Power Training
Institute (NPTI), ASCI, etc. The CMPAD should be tasked not only with
manpower planning and development, but should also act as an agency to
collect and collate data and information about various issues related to
HRD. The CMPAD could also act as a knowledge bank to provide
information to Utilities by circulating through its websites and other
Internet options on important developments and successful projects in
different States (like Akshay Prakash Yojana in Maharashtra) for use by
others.
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6.15.2 Ministry of Power should provide funding support to the CMPAD in the
initial years. However, over a period of time, the CMPAD should become
self-sustaining by pricing its services to the Utilities.
6.16 Accountability and Corporate Governance
6.16.1 There is a perception among the various stakeholders that even after the
restructuring of the Electricity Boards, nothing has really changed, except that
the new Utilities operate under new names but with hardly any perceptible
improvements in performance. This is partly because the newly created
companies are fully owned by the State Governments and their management
culture remains the same. The need to implement an effective communication
strategy to create awareness of the objectives and merits of the reforms has
already been discussed. To improve Corporate Governance, it would be
desirable to supplement and strengthen reform efforts with a parallel strategy
to involve the public in the affairs of the companies through participation in
their equity base.
6.16.2 There may be conflicting views on the wisdom or otherwise of a privatisation
strategy for the power sector, and the power sector reform need not necessarily
start with or end with privatisation. However, there is no denying that the
public participation is different. It is certainly not Privitisation. Public
participation in the equity base of the new companies would accentuate the
autonomy and the accountability of these public corporate bodies to the
public, which is certainly desirable. It will also make the managements of
these undertakings more responsive to corporate objectives, needs and
public perceptions. Viewed from this angle, there is a strong case for
offering part of the shareholdings of the restructured companies to the
public and financial institutions, with a portion earmarked for allotment
to the employees of each company at attractive rates. To start with, such
public offerings could be restricted to 26 per cent of the shareholdings,
which would ensure that these companies retain their status as
Government companies. This will also enable the companies to mobilise
funds for their expansion. Any such measure will, however, have to be
preceded by a suitable FRP, which would make the companies sufficiently
attractive for the market to respond to equity participation and also enable
them to absorb market borrowings.
6.16.3 Meanwhile, the initiative should commence with offering part of the
shares of the separate generation companies (as in the case of CPSUs),
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which are making profits. Shares of these companies will be attractive
enough for the market to respond positively to any public issue.
6.17 Participation of Civil Society Organisations
6.17.1 Through active participation of consumers in rural areas, Maharashtra State
Electricity Distribution Company Ltd. (MSEDCL) has successfully
implemented a scheme named ‘Akshay Prakash Yojana’ (see Box 6.1) whereby
a village opts to voluntarily participate in the scheme and ensures that no
motive power would be used during the period between 5 p.m. to 5 a.m. and
the load on the feeder will be restricted to 20 per cent of the full load. The
villagers also take action to remove all unauthorised high consumption
equipment such as heaters and hot plates and agree that meters be fixed in
all households. The villagers form a ‘Village Dakshata Committee’ and ensure
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Box 6.1: Students Show the Way
Akshay Prakash Yojana (APY) initiated in Maharashtra is a voluntary scheme, which
supports the Demand Side Management. If adopted on a large scale, APY can provide
better quality of supply to villages. The principle of APY is to regulate the rural feeder
loads through citizen participation by eliminating theft, removing power-inefficient
appliances and by better load management.
APY was triggered by children of a remote village in Maharashtra who were finding it
difficult to prepare for their examinations due to frequent load sheddings. These
children confronted an employee of the Maharashtra State Electricity Distribution
Company Limited (MSEDL) and demanded restoration of power. He, in turn,
explained to them that the load shedding was caused due to their parents overdrawing
the power supply through pilferage, by using inefficient appliances, etc. This
prompted the students to approach the local Gram Panchayat along with the employee
concerned and the following interaction gave rise to the voluntary implementation of
APY in that village. Gradually, other neighbouring villages followed suit.
Under APY, villagers voluntarily do not use any 3-phase load during 5 p.m. to 5 a.m.;
and load is restricted by the villagers to 20 per cent of the full load. Villagers also
remove all illegal and inefficient heavy consumption appliances like water heaters,
cooking heaters, etc., adopt energy saving lightings, pumps and devices, as also
capacitors. The villagers also form surveillance committees for monitoring electricity
use and to remove unauthorised connections. Gram Sabhas pass resolutions to carry
out the above activities.
APY has brought about a significant change in the power scenario of villages in
Maharashtra - enhanced quality of supply, avoidance of unplanned load shedding,
reduction of transformer breakdowns and improved voltages. Villagers are happy,
their children no longer fret about poor preparations for examinations and the cottage
industries are also improving.
The lesson from APY is that social awareness and citizen’s participation could make a
world of change to the electricity scene in rural areas. So far, 4,611 villages in
Maharashtra have reportedly adopted APY. Electricity officials claim that there is an
overall load relief of about 770 MW. A win-win situation for the Utilities as well as
for the villagers!
that there is no theft of electricity from the transformers serving their area. On
its part, MSEDCL ensures that there is no load shedding in these villages and
ensures supply for about 23 hours a day.
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6.17.2 Presently over 3,400 villages have voluntarily participated in this scheme and
MSEDCL has achieved a load relief of over 770 MW. More important than the
load relief, however, is the participative spirit of people from rural areas to
ensure that this important service of electricity supply caters to their needs and
is controlled by them. The dialogue between villagers and the concerned staff
of MSEDCL at the grassroots level leading to understanding of each other’s
concerns and the will to address these jointly, are indeed, the major gains. This
participative spirit of rural consumers is laudable and no effort should be
spared in the future in nurturing the same against all odds.
6.17.3 The engagement of ‘Grama Vidyuth Pratinidhis’ in Karnataka (see Box
5.3) to augment the billing and collection has resulted in improved
collections. The active involvement of the customers and customers’
advocacy groups in the reforms efforts will indeed produce beneficial
effects, as evidenced from the Maharashtra and Karnataka experience.
State Governments and the restructured companies should evolve policies
and procedures for increasing public participation in chosen areas of
interface with DISCOMs, which would surely go to increase the customer
satisfaction levels, apart from resulting in improved performance of the
Utilities. Such initiatives should be encouraged and appropriate incentives
provided to sustain these efforts.
6.18 Citizens’ Charter
6.18.1 Department of Administrative Reforms and Public Grievances, Government of
India has issued comprehensive instructions and detailed guidelines to all State
Governments to frame and implement Citizens’ Charters by all public service
providers. However, many power Utilities are yet to establish and implement
them effectively. Citizens’ Charters establish service standards and
commitments of the service providers to the consumers at large and describe,
among other things, the prescribed procedures to apply for the services. They
further include the citizens’ duties and rights including compensations
receivable for shortfalls in the delivery of services. Citizens’ Charters are
effective tools to increase the accountability of the DISCOMs and to create
awareness of the rights and duties of the customers.
6.18.2 It is recommended that all restructured companies, especially the
DISCOMs, should establish Citizens’ Charters in consultation with
consumer advocacy groups and civil society organisations expeditiously
and display the major components of the charters in all their offices and
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outlets prominently. Nodal officers should be appointed to implement the
charters and to monitor the customer satisfaction level.
6.19 Universal Metering of Service Connections
6.19.1 Absence of metering of all connections is a critical area affecting the
performance of Utilities. The EA, 2003 mandates all connections to be metered
within two years. However, the Report brings out that the percentage of
metered supply is generally low even after the restructuring. For instance, in
Karnataka, despite all efforts, the level of metered connections comes to only
82 per cent whereas in Madhya Pradesh and Orissa it comes to only 72 per cent
and 81 per cent, respectively. The Universal Metering Programme, initiated as
part of the APDRP, has not succeeded mainly because of the resistance from
the agricultural consumers, as happened in Karnataka. It has been observed that
in some States, even though meters were installed and exist as per records, they
are not available or do not work in actual practice, due to poor quality,
improper installation, or inactivation by interested consumers. It is obvious that
the objective of universal metering cannot be achieved unless there is a
political commitment at the national level as advocated under Para 6.1
(Political Commitment and Support).
6.19.2 The performance of Rajasthan in regard to metering of service connections is
worth mentioning. Except for agricultural supply, the State had achieved 100
per cent metering in respect of all categories of supplies even before the
restructuring of its SEB. In the case of agricultural supply also, there is a steady
progress in metering, especially after the restructuring and has increased from
36 to 61 per cent during the last four years. Incidentally, Rajasthan was one of
the first States to introduce electronic meters for domestic supplies, which
helped to control theft of electricity significantly. The emphasis on tamper-
proof and reliable meters continues during the post-restructuring period as well.
6.19.3 It is recommended that the Ministry of Power and State Governments
should give full support to implement the Universal Metering Programme,
to be completed within a definite time-period, in line with the provisions of
Section 55 of the EA, 2003 which stipulate that metering should be done in
respect of all consumer connections (including agricultural). It should also
be ensured that after the meters have been installed, they are checked
regularly and defective meters are replaced. Further, minimum charges
may be levied in case meters are not found working, so as to compel the
consumers to get them replaced promptly. (The minimum charges may be
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higher than the average consumption by the consumer, so that the consumers
are discouraged from attempting to damage and tamper with the meters).
6.20 State Government Initiatives and Support to Prevent Theft of Electricity
6.20.1 In most of the States, the AT&C losses remain at unacceptably high levels
despite marginal improvements effected through implementation of the projects
under APDRP and Utility’s own efforts. There are as many as eleven States
whose AT&C losses are above 40 per cent. Only two States, namely Goa and
Tamil Nadu, have reported AT&C losses of less than 20 percent14 whereas
eight States figure in the category of 20-30 per cent and seven States have their
losses in the range of 30-40 per cent. This is in spite of the considerable
progress achieved in the area of distribution reform with the completion of inter
face metering, consumer metering and initiation of energy audit15.
6.20.2 Several States have by now enacted anti-theft laws, which enable the
establishment of special courts to try cases of electricity theft expeditiously.
The restructured companies have also established special task forces and
divisions to carry out inspections and to follow up electricity theft cases.
However, the progress in establishing special courts is rather slow. Haryana
and Orissa Governments have not set up special courts so far for speedy trial of
electricity theft cases. The overall support from the State Governments to
prevent thefts of electricity and to bring culprits to book is lackadaisical. It is
recommended that:
(a) Suitable incentives may be devised for detecting and
checking the cases of theft of electricity as has been practiced in West
Bengal, Tamil Nadu and Gujarat; and
(b) Strict vigilance measures and special police stations may
be established to detect and prosecute the theft of electricity cases.
6.20.3 In some States like Andhra Pradesh, the vigilance activity of DISCOMs is
controlled by the Transmission Company. The vigilance activity needs to be
decentralised and internalised with DISCOMs, who should be given the
independent control of eliminating thefts of electricity and pilferage. If the
responsibility is directly entrusted to DISCOMs, an efficient and competitive
environment would be created. This would lead to more effective:
(a) Prevention of electricity theft;
14 In the case of these two States also, these figures are based on assumptions since agriculture supply is unmetered.
15 ICRA Report on Power Sector, 2006.
133
(b) Avoidance of electricity theft; and
(c) Misuse of electricity.
6.20.4 A notable example, which stands out in this regard, is the State of Gujarat
where the Government has been extending full support to the vigilance
activities of the Utilities. Reportedly, there is no political interference against
detection and prosecution of electricity theft cases in the State, as a result of
which the average additional collection from such sources was as high as an
average of Rs 190 crore per year during the last six years. In this regard, the
initiative to recruit a contingent of 600 ex-servicemen to help the DISCOMs in
prevention and detection of electricity theft is reportedly proving to be highly
effective; and could be replicated by other States.
6.20.5 Attitudinal change in the approach of the State Governments to distribution
reforms is essential. During the given defined control periods (as may be
determined in consultation with respective SERCs), Distribution Utilities
should have to improve their efficiency in respect of operations, revenue
collections and delivery of service to consumers, etc. At the same time, State
Governments should take a proactive role in preventing and eliminating
theft of electricity by giving full support to the DISCOMs. Such support
should include establishing the required number of special courts, making
available adequate number of police personnel and prosecutors, etc., to
make the drive against theft of electricity effective. Additionally, State
Budgets should provide adequate funds to establish the special courts and
vigilance mechanism, in consultation with the DISCOMs.
6.20.6 Further, Regulatory Commissions may be urged to allow the cost of
establishing special courts and related expenditures such as the cost of
police personnel etc., as a pass through in the tariff.
6.20.7 District Magistrates (DMs) and Superintendents of Police (SPs) should be
required to play a greater role in handling power theft matters, since
without their active support, DISCOMs may not be successful in dealing
with such cases effectively. Grant of cash awards and incentives to the
personnel of the Utilities and to the district officials concerned who handle
the electricity theft cases would provide further motivation and
encouragement.
6.21 Energy Accounting and Auditing
6.21.1 This is one of the most important tools, which, if used effectively, can help the
Utilities to quickly regain sound financial health with minimum investments as
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are required for provision of energy meters of required accuracy and in certain
cases of a type which can be interfaced with a Data Acquisition System (DAS).
For effective energy audit, it is necessary to conduct proper energy
accounting. The principles of energy accounting are well known. In
practice, however, certain common difficulties/gaps are noticed. These and
the solutions to overcome them with a view to getting as near as possible to
the optimum solution are noted below.
(a) In many installations, energy input from the generator on the
extra high voltage (EHV) busbar is not directly recorded by an energy
meter but is computed from the difference between the energy recorded
by the meter on the low voltage (LV) side of the generator transformer
and the meter on the unit auxiliary transformer. With this arrangement, the
losses in the EHV step up transformer (less than 1 per cent normative) of
the generating station go into the account of the Transmission Company.
To overcome this, a precision energy meter of at least 0.2S class of
accuracy should be provided, along with provision of similar class of
EHV current transformer in the generator transformer bay. CEA’s
‘Regulations on Installation and Operation of Meters’ need to be
followed for this purpose.
(b) In the EHV sub-stations, all transformers feeding energy into
the distribution system at 11/22/33 kV should be provided with energy
meters on the primary and secondary sides. All EHV express feeders and
all 11/22/33 kV feeders (including feeder for station auxiliaries/colony
supply) should be provided with meters. As far as possible, all these
energy meter readings should be collected from the DAS of the sub-
station itself. Simple checks such as to ensure that the loss in the
EHV transformer is less than 1 per cent and the sum total of
incoming and outgoing energy on the 11/22/33 kV busbar is zero or
near zero should be done every hour by the DAS or by the staff on
duty where DAS is not provided. The reading of the billing meters of
HT consumers served through dedicated feeders at the consumers’ end
should be taken on more than one occasion, but every time at a round
hour so that it can be tallied with the corresponding reading at the same
hour recorded at the sub-station.
(c) All distribution transformers in industrial area/urban
area/high consumption area should be provided with meters on the
LV side. These meters should be read at a defined round hour and the
meters of all consumers supplied through the transformer, should be taken
in a period as near as and on either side of this round hour as possible.
135
The energy loss should be directly computed by the billing computer
without any manual input of billing data.
(d) In respect of sub-stations feeding an industrial area, the
meter readings of all high tension (HT) consumers, high voltage (HV)
feeders, distribution transformers and low tension (LT) consumers
should be taken at a round hour and in a short period on either side
of this round hour for obtaining realistic figures of loss of energy.
(e) The energy loss should be computed in kWh lost (and
money lost on applicable tariff). Each site in-charge should be
responsible to reduce the kWh loss and this should be one of the
important parameters for appraisal of his/her performance.
6.22 Reducing Cross-Subsidies
6.22.1 It is well recognised that a major cause for the continuing unsatisfactory
financial performance of the power sector is the omission to bring the entire
supply of electricity to the agricultural sector to the rigours of metering and
billing. The magnitude of the problem could be gauged from the fact that in the
State of Tamil Nadu, for instance, the estimated loss to the Electricity Board
due to supply of free power to the agricultural sector comes to about Rs 3,000
crore per year16. However, the compensation given by the State Government to
the Electricity Board for the above-subsidised power comes to only a small
fraction of the actual loss, forcing the Electricity Board to resort to heavy
borrowings. The need to ensure accountability through universal metering of
all irrigation pumpsets and agricultural connections and to make the farmers
pay for the electricity consumed at a reasonable tariff cannot be overlooked.
6.22.2 During the pre-restructuring period, the number of applications pending for
connection from the agricultural sector in Rajasthan used to be about 1.25 lakh.
In spite of the large-scale release of agricultural connections during the last
three years, the number of pending applications has gone up to 2.2 lakh.
Rajasthan had, long ago, taken the lead in the rationalisation of the agricultural
tariff and introduced an “out-of-turn allotment scheme” called “Nursery
Scheme” for agricultural connections. The scheme provided that interested and
willing farmers could avail instant connections as against the average waiting
period of up to 13 years, at initial charges which were higher by about 10
times, coupled with tariff rates of 100 per cent more. In spite of the high rates,
the scheme was a great success with thousands of applicants opting for the
scheme. The Nursery Scheme, pertinently, exploded the myth that the 16 The supply to the agricultural sector is not metered and the loss is estimated on the basis of 5 per cent of all
connections subjected to metering, on a test basis.
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agricultural tariff cannot be increased, since the Electricity Board had
succeeded in raising the tariff substantially under the guise of the optional
scheme. The scheme came in for appreciation from the Planning Commission
and the World Bank. Unfortunately, it had to be diluted over time due to
political pressures, especially after the formation of the DISCOMs.
6.22.3 The financial statement of two DISCOMs in Karnataka would indicate that
they are highly vulnerable to subsidy due to the large number of agricultural
consumer mix in their jurisdiction and the inability to enforce metering and
billing of this group of consumers. The flat rate for recovery for the metered
group among them comes to only 40 paise per unit as against the minimum of
50 paise determined in 1993 by the Ministry of Power and agreed to by Chief
Ministers under the ‘Common Minimum National Action Plan’, in 1996. The
DISCOMs have reported that their three-year universal metering programme,
which formed part of their business plan, did not succeed because of stiff
resistance from farmers and the farmers’ lobby.
6.22.4 This study brings out that, as a result of the large-scale irrigation pumpset
population and flat rate tariff system, the financial subsidy on account of such
consumers in all States has gone up alarmingly. The total subsidy received by
the sector from the State Governments, on realised basis, has increased from Rs
9,617 crore in 2000-01 to Rs 11,693 crore in 2004-05, which represents a 21.5
per cent increase. In Haryana alone, the subsidy support has gone up from Rs
532 crore17 in 1999-2000 by more than three-folds and has reached a level of
Rs 1,686 crore in 2005-06. Annexure-XV(I) will indicate the situation in
different States.
6.22.5 The bottom line is that the obligations of the States to provide subsidy to the
agricultural sector remains unabated, and keeps increasing. On the other
hand, the fiscal inability of the State Governments to provide the subsidy will
seriously jeopardise the entire reform process, which aims to rationalise the
tariff structure and achieve commercial viability in the sector.
6.22.6 There is no denying that the success of the power sector reforms is highly
dependent on arriving at an acceptable solution to tackle the issue of free and
highly subsidised electricity supply to the agricultural sector. There is also a
need to control the growing subsidy in several States like Haryana,
Maharashtra, Punjab, Rajasthan and Tamil Nadu. The relatively high
dependence on subsidy (close to 25 per cent of the total revenue) by Utilities in
some of the States continues to be a cause for concern. To address the fiscal
17 As depicted in the tariff orders of the Regulatory Commission.
137
imbalance created on account of the high-level of subsidy support provided to
the agricultural consumers, it is recommended that:
(a) The State Governments, along with the concerned
Electricity Regulatory Commissions, should review the existing policy
of flat rate tariff for agricultural consumers, since these consumers
have the freedom to consume unlimited quantity of power as
compared to the consumers whose pumpsets are subjected to
metering.
(b) A connected issue is the serious problem of lack of proper
water conservation and inefficient use of pumpsets used for irrigation
by farmers for crops, which are highly water intensive. As a result, the
water-table is gradually going down. It is, therefore, necessary to
adopt a multi-disciplinary approach to sensitise the farmers about the
measures for water conservation and efficient use of irrigation
pumpsets and machinery.
(c) The National Electricity Policy affirms that over the last
few decades, cross-subsidies have increased to unsustainable levels.
Cross-subsidies hide inefficiencies and losses in operations. There is a
need to correct this imbalance without giving tariff shock to
consumers. The existing cross-subsidies would need to be reduced
progressively and gradually. This directive has to be implemented in
a time-bound manner. The example of the West Bengal State
Electricity Board (WBSEB) which charges tariff at the rate of Rs 1.50
per unit from the agricultural sector is a model to emulate.
(d) The issue of reasonable recovery from the agricultural
sector is closely linked to the political commitment and support
extended by the political leadership for reforms efforts. The mindset
that free power or highly subsidised power is a fundamental right
should be removed from the consumers of this group.
(e) There is a clear need to define the “creamy layer” among
the farmers, those who are the “haves”, and to distinguish them as a
class apart from the poor and marginal farmers. It is a fact that the
former group is in a better position to pay a reasonable price for the
electricity consumed by them. The decision should be taken at the
national level to address this issue and ensure that the subsidies are
only targeted towards small and marginal farmers. Also, State
Governments should formulate policies to encourage differential
cropping patterns aligned to the water-tables.
138
(f) A detailed financial plan should also be put in place to
bring down the subsidy on a diminishing pattern, with targets and set
goals for each year and for each DISCOM.
(g) Ministry of Power should circulate a consultation paper
(converging all related issues) on ‘Reducing Cross-subsidies’ and
continue its efforts to arrive at a political commitment on this vital
issue.
6.23 Fostering Competition Through Open Access
6.23.1 The National Electricity Policy lays down that additional surcharge may be
levied on consumers who are permitted ‘Open Access’. These charges should
not be so high as to eliminate competition. Since an Open Access consumer
will have to pay charges to each service provider in the value chain, as also
cross-subsidy surcharge, he would avail the facility only if it is beneficial to
him. The objective of Open Access is to promote competition in the larger
interest of the consumers. The EA, 2003 proposes the introduction of Open
Access in a time-bound manner.
6.23.2 National Tariff Policy establishes the formula for the levy of the surcharge and
computes it as the difference between the tariff applicable to the relevant
category of consumers and the cost of the distribution licensees (DISCOMs) to
supply electricity to the consumers of the appropriate class. Till now, 18
SERCs have notified the Open Access surcharge; but hardly anyone has come
up to avail the facility. This shows the fundamental flaw in the methodology to
fix the surcharge and the failure of the system to achieve the basic objective of
fostering competition.
6.23.3 Captive generation, as brought out in the Tariff Policy, is an important
means to making competitive power available, provided an enabling
environment is created to encourage the connecting of captive plants to the
grid. Open Access would encourage non-captive users to draw power from
captive plants at negotiated rates, provided Regulatory Commissions fix a
reasonable surcharge for Open Access. In its absence, captive plants would
remain under-utilised. As brought out in Chapter-3, the average PLF of
captive plants with a total installed capacity of 19,103 MW (1 MW and above
size) was at the low level of only 42.8 per cent (2004-05), which could be
raised significantly in the interest of the economy by encouraging Open
Access.
139
6.23.4 The Forum of Regulators (FOR) discussed the need for a uniform approach in
the matter; but considered that it was not feasible. They could not forge a
consensus on the methodology to be adopted. When arrived at, it would be an
important instrument to encourage Open Access, which may encourage the use
of surplus power generated by Captive Power Plants and give choice to bulk
consumers to source competitively priced power from any source enhancing
their competitiveness in the globalised environment. In its absence, uncertainty
continues to the detriment of consumers. Since ushering in competition is one
of the primary objectives of the power sector reform, and in line with the EA,
2003, there is an urgent need to remove the bottlenecks to Open Access.
Ministry of Power should take the lead in the matter and strive to arrive at
a practical solution, in consultation with FOR, by prescribing broad
principles for determining “surcharges”, which would create an
appropriate climate for the extensive use of Open Access and the resultant
competition.
6.24 Data Management Systems
Accuracy of system data and consumption pattern are essential for a host of
management functions including precise physical and financial projections,
planning, attracting investments, and market scenario in the power sector. One
of the main reasons attributed for the initial setback of the Orissa power sector
restructuring model was the improper assessment of T&D losses. Although
Power figures in the Concurrent List of the Constitution of India, it is essential
that demand projections, extent of technical and commercial losses and all
other relevant updated data of all the States as well as the entire country
are readily available with a designated central agency for effective and
proper utilisation. It is recommended that Ministry of Power may entrust
this task to an appropriate agency.
6.25 Adoption of Information Technology in Power Sector
6.25.1 Computerised Online Information System
(a) With a view to streamlining the various processes and to help
customers and other stakeholders of the new companies to derive greater
economic value, setting up of an end-to-end Enterprise Resource Planning
(ERP) based Information Technology (IT) solution would be beneficial.
The system should incorporate solutions in respect of all operations of
the restructured companies including finance, purchase, inventory
management, maintenance management, project management, process
management, energy billing and receivables, energy audit, management
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of customer relations, power system network studies, human resources
development and associated area of payroll applications, etc.
(b) Installation of a comprehensive computerised solution as above
would result in substantial reduction in paper work through online
documentation and approval process, besides achieving economy in
operations and improving the work culture in the organisation. Presently
such a system is being installed in Gujarat. It is expected to be operational
by the end of this year. Gujarat should be requested to organise a
National Workshop to share its experience with other Utilities in the
country.
(c) Consumer grievance redressal system should be made online
and it should be made possible to monitor the same in hierarchical
order.
6.25.2 Other IT-related Applications
6.25.3 Besides the above-mentioned IT solution, the following IT-related applications
are already in service in many Utilities and have proved their usefulness.
Accelerated efforts should be made by all Utilities to install such (or more
advanced) applications in their respective areas of operation.
(a) Use of Automated Meter Reading (AMR) and/or recording of
data of energy meters and transmission of the same to designated data
collection centres for further processing.
(b) Adoption of Geographical Information System (GIS) for building
up of the consumer database and associated system data for improving
services to consumers.
(c) Data Acquisition Systems (DAS) in sub-stations for automatic
recording of data and display of designated parameters in sub-stations.
(d) Use of computers in energy billing operations and posting of
payments received.
(e) Use of hand-held devices for meter reading/spot billing
applications.
6.26 Outsourcing of Works/Services
6.26.1 The restructured companies will have to increasingly resort to outsourcing of
several services presently handled by them in-house, keeping in mind the
advantages of reduction in operational cost, speedy and more efficient project
implementation, access to outside expertise, etc. These include billing and
collection, training of staff at all levels (especially in deficient areas such as
141
financial and commercial functions), HRD and routine and low-level skill
functions, etc. The outsourcing strategy, including the areas of works and
services to be outsourced should be devised carefully after due consideration of
all factors. However, adequate checks and balances may be built into the
management systems to ensure that the outsourcing practice achieves its
objectives, and the required level of standards.
6.26.2 All restructured companies should carefully develop their outsourcing
policy and strategies after identifying their strengths and weaknesses and
keeping in mind consumers’ interest, and ensure that there are checks and
balances built into the system. The policy should also be transparent and
be established after taking the staff into confidence.
6.27 Encouragement to Non-Conventional Energy Sources
6.27.1 Renewable Energy is environmentally benign and is a growing source in our
energy mix. The EA, 2003, provides that SERCs shall take measures to
promote the generation and distribution of energy through Renewable Energy
Sources (RES) such as co-generation etc. SERCs may specify sourcing of a
percentage of the total consumption of electricity in the area of distribution
licensee from RES. The SERCs are also required to keep this aspect in
determining the tariff. However, very few SERCs have brought out tariff orders
for power produced from RES. In actual practice, the progress achieved leaves
much to be desired. At present, the installed capacity and total generation
from RES come to only 6190.86 MW and 6180.84 GWh respectively. These
represent only 5 per cent and 1 per cent respectively of the corresponding all
India grand totals from all the sources of electrical energy. In spite of several
tax benefits and incentives, private entrepreneurs are reluctant to invest
significantly in Non-Conventional Energy generation area because of certain
barriers like lack of grid connectivity, uncertain market and indifferent attitude
of Utilities and SERCs. Some State Government Policies for promoting
renewal energy sources have resulted in putting undue demands in terms of
royalty, share of free power, cost of providing evacuation, etc. There is
considerable potential for RES like wind, small hydro, biomass and
cogeneration from bagasse. It also provides employment and livelihood to the
poor. Promotional steps by way of laying down a certain share from RES at
preferential tariff rates need to be pursued by the States and SERCs.
6.27.2 In this context, use of conventional energy for heating purpose etc., in
industrial and commercial complex and large residential blocks could be
142
discouraged by making solar heating systems mandatory by providing
appropriate tax incentives and other benefits.
6.27.3 In line with the EA, 2003 and NEP, State Governments and restructured
companies should endeavour to give its rightful place to RES generation
and ensure that the objectives of the EA, 2003 and the NEP are fulfilled by
specifying targets and providing the required encouragement, in
consultation with the FOR. Policies of State Governments, which are
coming in the way of harnessing full potential of renewal energy, should be
reviewed with the intervention of Ministry of Power and MNES.
6.28 Rural Electrification
6.28.1 As brought out in Para 3.3, Chapter-3, there are 1,54,230 villages in the
country yet to the electrified. Only five States including Goa and Delhi have
achieved hundred per cent village electrification on the basis of new definition
of village electrification. Only 29,516 villages, comprising 5 per cent of the
total, were electrified during the entire last decade. The achievement against
target (13,409 against 3,00,000) was abysmally low during the Ninth Plan.
6.28.2 The RGGVY aims to provide access to electricity to the remaining
unelectrified villages in five years and grants 90 per cent capital subsidy for
implementation of the scheme. It has a target of electrifying 40,000 villages in
2006-07. However, the key issue is the sustainability of reliable supply of
power to remote areas. Besides, drawing long electric lines to remote villages,
not having adequate load would not be remunerative for the Utilities. It is
estimated that the task of electrifying the large number of left over villages in
States like Orissa, Rajasthan, and Uttar Pradesh would be daunting and
unattainable in the near term. Even in several other States, the number of
households to be electrified would be enormous.
6.28.3 In order to accelerate the Rural Electrification Programme, the following
recommendations are made:
(a) Where it is not feasible to extend the conventional grid due to
remoteness of villages, focus may be on non-conventional sources of
energy by planning and developing a loop of local areas (cluster).
(b) The recent initiative of franchisee models should be pursued
vigorously. The example of West Bengal to promote decentralised
management of distribution systems with the involvement of the local
population could be replicated by other states.
143
(c) Restructured Utilities should accord high priority for rural
electrification in their Business Plans and in the proposed
MOAs/Annual Performance Targets, which should be closely
monitored by their respective States.
(d) 11 kV feeders should be erected separately for rural domestic
and agricultural supplies, which will facilitate better load
management and improved recovery as was accomplished in Gujarat.
The practice of Andhra Pradesh in providing single-phase
transformers for domestic and other non-power loads with 24 hours
power supply is also worth following.
6.29 State-level Planning and Coordination
6.29.1 Prior to restructuring, the SEBs used to undertake the overall State-wise
electricity planning for which the required coordination was possible internally
within the organisation. After restructuring, three separate functionally-oriented
entities, each with a distinct mandate, were established.
6.29.2 Sub-Section (2) of Section 39 of the EA, 2003 defines the functions of State
Transmission Utilities (STU). According to Clause (b) ibid, the STU shall be
responsible for all functions of planning and coordination relating to intra-State
transmission system with various players including State Governments,
generating companies, licensees, Regional Power Committees, etc. Although
the Act refers only to planning and coordination of transmission system, and in
the absence of references to planning and coordination by any other agencies at
the State level, it is implied that the STU would be the appropriate agency for
undertaking Statewide long-term and perspective planning for the power sector.
Moreover, as the single carriage of power in the State from the generating
units to the distribution levels, connecting both ends, the Transmission
Companies will undoubtedly be the most appropriate and suitable agency
to undertake all functions related to State-wide planning and coordination.
6.29.3 In order to enable the State owned Transmission Companies to perform
these functions efficiently and with a larger perspective, it is essential to
induct experienced and competent planners and support staff into these
companies.
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CHAPTER - 7
WAY FORWARD
7.1 Steps to be Taken by the Ministry of Power
7.1.1 Convene a special conference of Chief Ministers of States, which have not yet
reorganised their SEBs (or are still in the process of restructuring), to persuade
them to restructure SEBs in their respective States as per a systematic plan and
with dispatch, as proposed in this Report. [Para 6.1.5 (a)]
7.1.2 As a sequel to the above, convene a conference of all the Chief Ministers and
State Power Ministers to take stock of the progress and impact of power sector
reforms so far in their respective States, and to arrive at a political commitment
to speed up the process, through concerted actions, as recommended in this
report. [Para
6.1.5]
7.1.3 Review and modify MOAs to be signed with State Governments in future to
include, among other things, conditions relating to grant of full autonomy to the
restructured companies. [Para
6.1.6]
7.1.4 Plan and coordinate a national communication strategy involving media and
civil society, jointly with the State Governments on the objectives, necessity
and merits of reforms in the power sector. [Para
6.3]
7.1.5 Announce a policy decision not to grant further extensions for
postponing/delaying the restructuring exercise of SEBs in the States, which
have not yet reorganised their SEBs. [Para
6.1.7]
7.1.6 Assist State Governments to obtain resources from multilateral/bilateral
institutions and other sources to finance their consultancy costs for the
restructuring process. [Para
6.4.7]
7.1.7 Coordinate through a designated agency and make available the best practices,
findings and recommendations of consultants and expert bodies on
restructuring and transitional issues in respect of successful model(s) to all
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State Governments. [Para
6.4.6]
7.1.8 Take steps to strengthen the Regulatory mechanism at the Centre and State
levels by undertaking the following steps, among others:
(a) Persuade all States to honour the orders and directives of
the Regulatory Commissions and to resolve disagreements through a
consultative process.
(b) Encourage the Regulatory Commissions to take a more
proactive role in implementing provisions of ‘Open Access’, Multi Year
Tariff (MYT), Standards of Performance (SOP), etc. Further, issue
modified guidelines regarding fixation of surcharge applicable to ‘Open
Access’.
(c) Encourage the Regulatory Commissions to strengthen the
internal consultative process and sharing of information and views by
making FOR/FOIR more effective.
(d) Sensitise the public about the regulatory process by
publicising the major decisions and orders of the Regulatory Commissions
through the print and electronic media and websites. Encourage the
regular publication of major decisions through ‘Law Reporters’.
(e) Create a better working environment for the Regulatory
Commissions by vesting them with sufficient autonomy and powers in
matters relating to staffing pattern, funds, organisation and recruitment of
staff needed by them.
(f) In order to ensure the requisite authority and autonomy to
the Electricity Regulatory Commissions, appropriate steps need to be
taken to holistically address the following issues:
(i) Powers of civil courts for execution of orders [as conferred on
Appellate Tribunal under Section 120(3)]; [Para 6.8.3 (d)]
(ii) Reference to the CERC on policy directions by State Governments,
issued in public interest. The decisions of CERC in such matters
should be final; [Para 6.8.3 (f)]
(iii) Subsidy for reductions in charges specified under sections 46, 47 and
50; [Para 6.8.3 (e)]
(iv) The terms of office of the Chairperson and the Members of the
Appellate Tribunal; [Para 6.8.3 (h)]
148
(v) Direct cognizance by the Ombudsman in special cases. Uniform
procedure for filing of appeals before the Commission against the
decisions of Ombudsman; [Para 6.8.3 (i)]
(vi) Fixing time-limit for creation of ‘State Electricity Regulatory
Commission Fund’, if not already created; [Para 6.8.3 (c)]
(vii) Inducting the Chairpersons of both CERC and CEA as permanent
members of the Selection Committees for the State Commissions.
[Para 6.8.3 (k)]
7.1.9 Constitute a Power Sector Reform Fund (PSRF) in States, with a commitment
for matching contributions from the Central Budget. [Para
6.9.3]
7.1.10 Request the Central Financial Institutions to render assistance also to
Distribution utilities, whose major Share-holding is by the private companies,
by relaxing norms; and extend financial support to them under APDRP,
RGGVY, etc., on a level playing field. [Para
6.10]
7.1.11 Coordinate with IIMs, IIPA, ASCI and NPTI to impart structured management
training and development programmes to the personnel of State Power
Utilities. [Para
6.14.4]
7.1.12 Establish a Centre for Manpower Planning and Development in the Power
Sector. [Para
6.15]
7.1.13 Request the Department of Administrative Reforms and Public Grievances
(DAR&PG) to assist Utilities to establish Citizens’ Charters and in capacity
development to implement these charters. [Para
6.18]
7.1.14 Circulate a consultation paper on ‘Reducing Cross-subsidies’ on the lines
suggested in this Report and vigorously pursue efforts to build up political
commitment issue, as recommended. [Para 6.22.6 (g)]
7.1.15 Review the formula established for fixing the Open Access surcharge in
consultation with FOR and make necessary modifications. [Para
6.23.4]
149
7.1.16 Identify a national level agency to collect, update and process the power sector
data on technical, financial and commercial aspects and establish Data
Management Systems for dissemination to stakeholders. [Para
6.24]
7.2 Steps to be Taken by the State Governments
7.2.1 Review the current status of restructuring (as brought out in Chapter-6 of the
Report) and analyse the findings and recommendations for taking forward the
Reform Process.
7.2.2 Formulate Detailed Policy Statements (DPS) on the future strategy for power
sector development with targets and milestones, with the approval of the State
Cabinet. [Para
6.2]
7.2.3 Reactivate the High-level Empowered Committee under the State Chief
Secretary to guide and direct the reforms process. This committee should issue
periodic comprehensive progress reports against set targets. [Para 6.7.4]
7.2.4 Establish a comprehensive communication strategy as recommended in this
Report, with the help of professionals in the field and involve Utilities, media,
civil society, eminent citizens and local bodies in its implementation.
[Para 6.3.12]
7.2.5 Evolve a forward looking and effective HR policy, which would motivate the
staff of the Utilities for higher efficiency and would also assure them of their
terminal benefits and career prospects. Further, initiate action to review the
staff norms, and strengthen the managerial cadres, as required. [Para 6.5]
7.2.6 Review and update the FRPs with specific commitments and targets to bring
about financial turnaround of Utilities and include them in Medium Term
Expenditure Framework (MTEF), performance budgets and Annual Plan
discussions. [Para
6.6]
7.2.7 Create a healthy convention of invariably implementing the directions and
orders of ERCs and resolving disagreements, if any, through a consultative
process. Also, extend full autonomy and assistance to Regulators in matters of
organisation, staff complement, appointment of staff, funds, infrastructure
facilities, etc., subject to an overall budget ceiling. [Para 6.8.2 (b)]
7.2.8 Initiate action to establish the PSRF expeditiously, in consultation with the
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Ministry of Power and the respective Regulatory Commissions. [Para 6.9]
7.2.9 Ensure greater autonomy and efficiency to the board of directors of the Utilities
by inducting at least 50 per cent directors from a panel of experts in relevant
disciplines. Also induct adequate functional directors into the boards and desist
from inducting political appointees to the boards. [Para 6.11.2]
7.2.10 Institute the system of MOA, with annual performance targets, mutual
commitments and obligations between Utilities and the Departments of
Energy/Power. The State Governments should honour the commitments and
obligations as agreed to in the MOA. [Para
6.12.1]
7.2.11 Commit to a policy of granting full autonomy to the restructured Utilities.
Facilitate the strengthening of the management cadres by inducting
professionals, on fixed tenures of minimum three years, with specific targets
for achievements. [Para
6.13.7]
7.2.12 Desist from appointing the Secretary (Power) as chairperson of any power
Utility. Chairperson/CMD/Director (Finance)/Company Secretary, etc., of one
Utility should not hold a post in any other power Utility. [Para
6.13.8]
7.2.13 Sponsor competent middle-level officers with the necessary aptitude for
management development/training to designated professional training institutes
of repute. [Para
6.14.4]
7.2.14 Facilitate public participation by offering 26 per cent equity in Generation
Companies to the public and also with a percentage earmarked for employees
at attractive rates. Undertake suitable restructuring plans to assist financially
weak Utilities to achieve turnarounds as a prelude to public participation,
restricted to 26 per cent, in the equity base of the Distribution Companies.
[Para 6.16.2]
7.2.15 Establish a policy to increase public participation in chosen areas of interface
with the Utilities, to increase customer satisfaction and overall improved
performance. Also, ensure that all Utilities establish and implement efficient
Citizens’ Charters and appoint nodal officers to monitor their implementation.
[Para 6.18.2]
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7.2.16 Provide complete support to Utilities to achieve universal metering
programme, covering all categories of consumers. Also, a minimum charge
(higher than the charges for their average consumption) be introduced so that
consumers are compelled to get their defective meters replaced. [Para 6.19.3]
7.2.17 Extend total support to Utilities to detect and prevent theft of electricity by
establishing special courts and Police Stations, deputing adequate police
personnel and prosecutors for such tasks, and providing adequate funds in the
budget for this purpose. Institute awards and incentives to the district officials
who play an active role in prevention of electricity thefts. [Para
6.20.5]
7.2.18 Review, in consultation with the Regulatory Commissions, the current policy
of Flat Rate Tariff for the agriculture sector, to deter the consumers from
availing unlimited quantity of power; and explore means to gradually reduce
the cross-subsidy over a given period. [Para 6.22.6 (a)]
7.2.19 Encourage the development of non-conventional energy sources through
innovative measures; such as providing suitable incentives and discouraging
the use of conventional energy for heating purposes in large industrial,
commercial and residential complexes and making solar energy systems
mandatory. [Para
6.27.3]
7.2.20 Entrust the State Transmission Corporation with the task of Statewide
planning for the power sector; and induct experienced personnel for such
assignments. [Para
6.29]
7.2.21 The States, which have not yet reorganised their SEBs, may review and adopt
with suitable customisation, the model followed by Andhra Pradesh, Haryana,
Karnataka, etc., (Model II, as mentioned at Para 4.6.4, Chapter-4) for
restructuring their SEBs. [Para
6.7.3]
7.3 Steps Suggested for Implementation by the Utilities
7.3.1 The Utilities should design a focused and effective communication strategy,
jointly with the respective State Governments by engaging professionals in this
field. The ‘message’ should highlight the imperatives and benefits of the sector
reforms and all stakeholders should be targeted. The strategy should also
include: conducting face-to-face meetings with staff representatives and
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enlisting the participation of civil society organisations, etc. [Para
6.3]
7.3.2 Enlist the support of the media, especially the electronic media, to spread the
message and beneficial effects of the reform process; involve Gram Panchayats
and other local bodies in the communication strategy. [Para
6.3.13]
7.3.3 Prepare an efficient and forward looking HR policy with the help of consultants
to enhance professionalism, morale and motivation of the staff at all levels.
Also, initiate action to right-size the staff and strengthen the middle and top
management levels by inducting professionals. [Para 6.5]
7.3.4 MoAs should be signed with State Department of Energy/Power, specifying
annual targets and commitments. [Para
6.12]
7.3.5 Prepare a programme for increased civil society participation in the areas of
consumer interest, on the lines of Akshay Prakash Yojana (APY) in
Maharashtra and Grama Vidyuth Pratinidhi (GVP) in Karnataka and other
appropriate models. [Para
6.17]
7.3.6 Establish Citizens’ Charters in all offices and divisions as mandated by the
Department of Administrative Reforms and Public Grievances, Government of
India, and take action to implement them earnestly, in cooperation with
consumer advocacy groups. [Para
6.18]
7.3.7 Ensure that the Universal Metering Programme is accorded top priority. Also
ensure that meters are checked regularly and defective meters replaced
promptly. [Para
6.19]
7.3.8 Pursue with the concerned State Government to secure its full support and
cooperation to detect and prevent electricity thefts; follow up regarding
establishment of special courts, special police stations and prosecutors, etc., by
regular interaction. [Para
6.20]
7.3.9 Strengthen energy audit by providing precision meters of the prescribed
accuracy, feeder meters, and installing adequate checks, in accordance with the
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set guidelines. [Para
6.21]
7.3.10 Establish fair and transparent outsourcing strategy for each company, (after
taking the staff representatives into confidence), by identifying suitable
functions, aimed at achieving better efficiency and customer satisfaction with
proper checks and balances. [Para
6.26]
7.3.11 Foster the application of feasible IT solutions, such as consumer indexing,
AMR, GIS, DAS, etc., in the power systems. [These should be validated by the
Regulatory Commissions/independent agencies and should be made a
prerequisite for decision-making on Annual Revenue Requirements (ARR)
filed by the Utilities before the appropriate Commission]. [Para
6.25.2]
7.3.12 Accord high priority for rural electrification in the business plan, and also
include the targets in the MoAs to be signed with the Department of
Energy/Power. Undertake plans to provide separate 11 kV feeders for rural
domestic and agricultural supplies, to facilitate better load management and
improved recovery. [Para
6.28]
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