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FOREWORD

Electricity is the most versatile form of energy and a strategic input providing a source of livelihood for various segments of society. The power sector is a prime mover and an effective engine of economic growth. Sustaining Indias current turbo growth rate requires massive infusion of investments and predicated and sound policies for efficient power generation, transmission and distribution. Over the years, the SEBs had played a very vital and vibrant role in extending the outreach of electricity to even remote corners of the country. However, by the 1990s, the SEBs were found to be beset with unsustainable inefficiencies, unviable tariffs, high T&D losses, mounting subsidies, lack of adequate attention to the distribution segment, sub-optimal performance, wasteful practices and lackadaisical financial management. All these led to financial fragility of the entire sector. Due to the uninspiring financial position of the vertically integrated monolithic SEBs, the power sector was failing to attract the much-needed investments for its development. Power sector reforms were necessitated to turn around the sector. Orissa was the first State to restructure its SEB and thereafter, 12 more States followed suit. Enactment of the Electricity Act, 2003, is doubtless a distinct watershed in the Indian power sector, as it introduced innovative concepts like power trading, Open Access, Appellate Tribunal, etc., and special provisions for the rural areas. The Act has made it mandatory for all the States to restructure their SEBs. Since, by now, sufficient experience was available to gauge the performance of the restructured Utilities, the Ministry of Power felt it opportune to have the issue revisited and studied in depth, based on the hindsight and foresight warranted by the emerging challenges. With this end in view, MoP entrusted the Indian Institute of Public Administration with the task of undertaking a comprehensive study on Impact of Restructuring of SEBs. After wide consultations, IIPA drafted a team of experts with rich domain knowledge of the operational dynamics of the power sector. We acknowledge the outstanding work done by the members of the `Group of Experts at all stages of the Study. All of them carried an incisive State-specific review and helped in drafting of the National Report most diligently and objectively. All of them generously contributed their time and attention and completed their task most meticulously and methodically. The key findings of the Study are: Restructuring is a necessary but not a sufficient condition for turnaround of the power sector. It is important to note that restructuring is only the beginning and not the end of the process. It must be accompanied by continuous complementary efforts to enhance efficiency in the sector and improve the quality of service to consumers. Strong and sustained political support during all phases of restructuring is the key. Taking the employees into confidence and enlisting their willing support and strengthening the

institution of Electricity Regulators are critical factors for success and sustainability of power sector reforms. Most of the GENCOs, TRANSCOs and some of the DISCOMs have now become financially viable. Consequently, they are able to attract additional investments and better technological and managerial interventions. It has been noticed that most of the restructured Utilities are beaming positive trends in respect of key parameters wherever reasonable autonomy has been provided to them. The level of consumer satisfaction in these States is also significantly higher. Restructuring has brought in the required accountability in the power sector triggering improved performance. Such positive correlation needs to be further reinforced through welldesigned systems and adoption of best practices on a continuing basis. Restructuring should not be misconstrued as privatisation. It requires demystification, aggressive education and creation of a strong constituency to preserve, promote and develop the essence of restructuring.

We are thankful to Shri Sushilkumar Shindeji, Honble Union Minister of Power, for very graciously agreeing to receive the Report. We are grateful to Shri R.V. Shahi, Secretary (Power), Government of India, who was always ready and willing for consultations and insightful views resulting in huge value addition to the Report. Shri A. K. Basu, Chairperson, CERC, was very kind to spare his valuable time along with his team of Chairpersons of the State Electricity Regulatory Commissions and enlighten us about the Regulatory issues pertaining to the power sector. Thanks are also due to Shri Ajay Shankar, Additional Secretary, Shri Rakesh Nath (Chairperson, CEA), Shri Mrutunjay Sahoo, JS&FA and Shri Alok Kumar, Director for their sterling support to the project. We are also beholden to the Trade Union representatives, led by Shri E. Balanandan, Chairman, NCCEEE for candidly sharing their views on employees issues with the Group of Experts. Thanks are also due to CEA, PFC, REC and MNES for their inputs and support. All the concerned State Governments and Power Utilities were positive and proactive and responded readily to the IIPAs detailed questionnaire. It is fervently hoped that this Report would positively facilitate a heightened appreciation of the issues and challenges confronting the power sector. It is our belief that the findings would trigger a rejuvenated power sector regime with well designed, and efficiently executed policy initiatives, enjoying fullest support of all the stakeholders. The key message emerging from the Study is: If power sector wins, everybody wins. To accomplish such a win-win situation, the time to act is here and now. P. Abraham Project Co-Director P. L. Sanjeev Reddy Project Director

PREFACE

The country has been registering 8 per cent GDP growth rate for the last few years and a target of more than 8 per cent GDP growth rate has been envisaged during the Eleventh Plan. To sustain this pace of growth, electricity generation also needs to grow commensurately. This would require an aggregate annual investment of at least Rs 1,00,000 crore in the power sector. It was felt by the Ministry of Power that the faster pace of reforms is the key to meet the ever-evolving challenges. Ministry of Power desired that a study be conducted on the impact of the restructuring exercise on the power sector to assess the performance gains, shortcomings, and difficulties, if any, in the entire reorganisation exercise, so as to introduce mid-course corrective measures. IIPA was entrusted with the instant Study because of its proven record of excellence, for over half a century, in the field of Public Service, Policy Making and Capacity Building. The Study is designed to bring out overall trends in the performance of the Power Sector, starting five years before reorganisation and thereafter. The purpose of the Study is to evolve the process of introducing appropriate policy interventions that will impact policy-making through better interaction and greater participation and involvement of the State Utilities, as well as all other Stakeholders. Some States had already restructured their SEBs even before the enactment of the Electricity Act, 2003, some have done so after its enactment and some other States are in the process of doing so. In all, 12 States were selected for the Study based on the following criteria: Almost all the States, which have restructured their SEBs: and To draw a fair comparison and flag performance indicators between the restructured entities and the present SEBs, the top two performing SEBs in the country, namely those of Tamil Nadu and West Bengal, were also selected for the study.

The instant Study, the first of its kind to be undertaken at the national level on the restructuring of SEBs, is unique in a number of aspects like: `Group of Experts comprised of 10 members with wide-ranging experience and domain expertise in all important areas of the power sector; 12 States were studied in depth. All the energy departments of these States have given their responses to detailed questionnaire of IIPA; A detailed performance analysis of as many as 60 power Utilities, spread over all regions of the country was carried out; Extensive consultations with all stakeholders including Employees Unions, Regulators and decision-makers, etc.;

3600 feedback was obtained on the Draft Report from the concerned State Governments, power Utilities, etc.; and The report runs into more than 1000 pages spread over four Volumes.

A report of this magnitude is due to the contributions and support of a number of persons, who made very significant contributions in bringing the report to its present form. Dr. P.L. Sanjeev Reddy, IAS (R), Project Director and Shri P. Abraham, Project Co-Director steered the project right from its inception to its finalisation. Their deep knowledge and perceptive views helped in imparting a sense of direction and focus to the Report. Reports pertaining to the individual States were prepared by the respective Experts. From the findings of these Reports, the National Report was built by consensus. All the Experts went about their task most meticulously and systematically. Despite their onerous duties, they were always available with their insightful suggestions, for fine-tuning the Report. Sincere appreciation is also due to S/Shri K.M. Kapoor, P.S. Bhandari, Jaideep Lakhtakia, and Satish Kumar (of the Ministry of Power) who were very cooperative and provided all relevant data and inputs required from time to time. Shri A.K. Rajput, Deputy Director, CEA put in sustained efforts at all stages of preparation of the Report and helped in organising the inputs and data in a logical and systematic form. Valuable secretarial assistance was rendered by S/Shri B. Haridasan, Mehar Singh Bisht and Smt. Nirmala, who most willingly devoted long hours in organising, compiling, the copious data and inputs and painstakingly entering the same into the computer. Shri J.A. Rama Moorty, Project Officer, edited the entire Report and also provided administrative assistance. Shri Sunil Dutt, Publications Officer, IIPA, rendered valuable editorial advice which helped in making the Report much more presentable. Thanks are also due to S/Shri G.K. Arora, Kishan Tanwar, Attar Singh, Bhuvan Chander and Islam Ali for the support rendered by them throughout the duration of the Project. Besides the above, there have been a number of persons who helped at various stages of the Project. Constraints of space preclude mentioning them by name. Their contributions are gratefully acknowledged.

P.C. Shekar Reddy Project Coordinator

Annexure -XI

Performance of Generating Companies


S.No. 1 2 3 4 5 6 7 8 1 2 3 4 5 6 7 8 1 2 3 4 5 6 7 8 Parameter 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Andhra Pradesh - 1999-00 Installed Capacity (MW)# 5210 5765 6208 6214 6255 6756 7238 7616 7787 8072 8860 IC - State Sector (MW) 4974 5225 5475 5711 5726 5876 6179 6479 6639 6640 6939 Gross Generation (MU)$ 21235 24074 25853 27896 30519 29930 28823 27217 26629 30868 -PLF (%) 77.40 78.30 82.00 76.80 83.20 86.30 86.30 88.50 86.20 89.60 -Plant Availability (%) 90.20 89.00 90.90 85.30 89.70 89.20 89.60 92.50 90.60 92.50 -Auxiliary Consump.(%)* 9.38 9.15 9.15 9.16 9.21 9.09 10.05 9.19 9.44 9.21 9.38 Secondary Oil (ml/kWh) 3.45 2.52 1.39 1.34 1.15 0.78 1.33 1.00 0.70 0.49 0.57 Heat Rate (kcal/kWh) 2721 2659 2579 2570 2547 2509 2514 2484 2493 2439 -Karnataka - 1999-00 Installed Capacity (MW)# 3379 3385 3450 3973 4368 4465 4987 5197 5367 5935 6529 KPCL 3027 3027 3228 3474 3868 3943 4063 4350 4365 4530 4640 Gross Generation (KPCL) 14289 11929 15929 15970 19540 19493 18878 18141 19178 19822 -PLF (%) 67.70 70.20 75.20 81.60 82.30 81.30 81.10 79.92 88.40 83.30 -Plant Availability (%) 83.60 86.20 88.70 90.70 87.40 87.60 -----Auxiliary Consump. (%)* 9.75 10.64 8.26 8.20 8.16 7.97 8.52 8.44 8.58 8.82 8.79 Secondary Oil (ml/kWh) 1.18 0.78 0.77 1.30 2.41 -1.05 0.70 0.50 0.69 0.73 Heat Rate (kcal/kWh) 2437 2630 2548 2540 2488 2498 2496 2529 2576 Haryana - 1999-00 Installed Capacity (MW)# 1780 1780 1780 1780 1780 1990 1990 1990 1990 2546 2560 IC - State Sector (MW) 1780 1780 1780 1780 1780 1990 1990 1990 1990 2539 2553 Gross Generation (MU)$ 7262 7627 7331 8302 7969 7238 8454 9783 10865 9847 -PLF (%) 42.82 47.66 49.17 49.24 53.24 49.73 60.80 66.44 74.91 69.46 66.77 Plant Availability (%) 62.20 68.80 70.30 65.20 80.23 72.37 67.71 80.83 69.31 78.11 -Auxiliary Consump.(%)* 11.74 12.75 12.12 11.98 11.65 11.74 11.11 9.27 9.77 10.48 9.76 Secondary Oil (ml/kWh) 17.72 18.60 13.33 12.84 7.08 5.54 3.35 3.40 4.50 3.47 3.73 Heat Rate (kcal/kWh) ----3378 3505 3432 3365 3318 3287 3.73

A-1

S.No. 1 2 3 4 5 6 7 8 1 2 3 4 5 6 7 8 1 2 3 4 5 6 7

Parameter 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Orissa - 1996-97 Installed Capacity (MW)# 1692 1693 1693 1698 1998 2298 2298 2304 2301 2320 2345 IC - State Sector (MW) 1692 1692 1692 1697 1998 2297 2297 2303 2299 2320 2345 Gross Generation (MU)$ 2670 5946 5840 6358 7916 7802 9265 5882 9119 10308 -PLF (%) 67.00 69.40 65.30 76.20 85.60 81.58 70.64 71.24 81.60 86.04 -Plant Availability (%) 81.00 84.10 83.70 88.50 90.34 87.89 79.23 89.16 87.44 89.06 -Auxiliary Consump.(%)* 10.01 11.57 11.65 10.23 10.25 10.59 10.68 -9.38 9.47 9.65 Secondary Oil (ml/kWh) 3.53 5.00 4.28 1.68 1.31 2.13 1.52 1.70 -0.76 0.65 Heat Rate (kcal/kWh) ---2478 2447 2355 2296 2430 2465 2437 -Madhya Pradesh- 2002-03 Installed Capacity (MW)# 3864 3873 3878 4094 4353 4373 3008 3100 3112 3324 3795 IC - State Sector (MW) 3864 3864 3866 4076 4331 4351 2986 3078 3076 3275 3745 Gross Generation (MU)$ 17599 18410 19441 20552 21812 21439 14010 15452 15802 15907 -PLF (%) 58.70 62.30 66.00 67.20 69.40 66.70 72.20 72.20 70.00 71.78 -Plant Availability (%) 77.10 76.40 77.40 78.40 77.80 78.32 76.75 87.34 86.73 86.62 -Auxiliary Consump.(%)* 10.33 9.83 9.89 9.68 9.81 10.31 9.24 8.96 9.34 9.71 9.65 Secondary Oil (ml/kWh) 8.14 5.14 3.26 2.86 2.01 2.70 2.02 2.80 2.30 1.96 3.08 Heat Rate (kcal/kWh) 3005 3015 2909 2919 2855 3013 3160 3018 3102 3118 -Rajasthan - 2000-01 Installed Capacity (MW)# 1985 1985 1985 2235 2487 2489 3001 3077 3681 3814 3866 IC - State Sector (MW) 1985 1985 1985 2235 2485 2485 2985 3067 3509 3549 3776 Gross Generation (MU)$ 9929 10386 10853 11964 12638 13311 14161 17146 18599 20668 -PLF (%) 73.70 75.60 80.50 78.10 82.30 85.00 85.00 85.00 82.00 85.00 -Plant Availability (%) 77.40 80.30 89.30 83.20 86.50 87.80 -----Auxiliary Consump.(%)* 10.48 10.21 10.32 10.29 10.08 9.43 9.41 9.44 9.66 9.40 9.10 Secondary Oil (ml/kWh) 3.01 2.79 1.73 1.30 1.15 1.56 0.94 0.50 0.70 0.74 0.62

A-2

S.No. 1 2 3 4 5 6 7 1 2 3 4 5 6 7 8 9

Parameter 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Uttar Pradesh - 1999-00 Installed Capacity (MW)# 6069 6059 6169 6085 5613 5613 4659 4626 4621 4706 4924 IC - State Sector (MW) 6069 6059 6169 6079 5607 5607 4659 4626 4621 4621 4810 Gross Generation (MU)$ 22827 23637 23790 24938 23598 24888 22633 22377 22836 20911 -PLF (%) 47.30 49.10 48.80 48.90 49.80 57.19 59.76 58.40 57.70 57.50 -Plant Availability (%) 60.40 62.70 63.10 61.30 64.30 64.89 72.07 74.03 73.28 --Auxiliary Consump.(%)* 9.64 9.75 10.22 9.86 10.05 10.14 10.55 10.10 9.85 9.92 10.08 Secondary Oil (ml/kWh) 5.30 3.86 4.70 5.84 11.12 6.97 2.33 2.20 4.90 1.14 5.00 All India Installed Capacity (MW)# 83294 85795 89102 93294 97884 101626 105046 107877 112684 118426 124287 IC - State Sector (MW) 55646 53737 55467 56870 58493 60850 65875 63711 67380 69161 -Gross Generation (MU) 379877 395889 421747 448544 481055 501204 517439 532693 565102 594456 617382 Gross Gen. State Sector 235798 235359 243725 256546 268641 270788 290245 282405 304648 315365 -PLF (%) 63.00 64.40 64.70 64.60 67.30 69.00 69.97 72.34 72.96 74.82 73.71 PLF (%)-State Sector 58.00 60.30 60.90 60.80 63.70 65.60 66.62 68.93 68.80 69.77 -Plant Availability (%) 77.80 79.13 78.78 78.88 79.89 79.84 79.91 81.83 81.93 82.93 81.78 Auxiliary Consump.(%)* 9.14 9.14 9.36 9.17 8.92 8.80 8.72 8.53 9.05 8.57 8.44 Secondary Oil (ml/kWh) 4.53 4.36 3.45 3.50 3.59 2.76 2.70 -2.30 1.37 1.77 * Auxiliary consumption (%) is in respect of thermal plants $ State Sector (Source : CEA) # Installed Generating Capacity (Utilities Only)

Note: Figures of PLF, Plant Availability, Auxiliary Consumption, Secondary Oil Consumption and Heat Rate are in respect of Thermal Power Plants.

A-3

Annexure-XII

Performance of Transmission Companies


Parameter Andhra Pradesh (1999-2000)* Total Length of Transmission Lines (ckt km) Transmission Losses (%) Karnataka (1999-2000)* Total Length of Transmission Lines (ckt km) Transmission Losses (%) Haryana (1999-2000)* Total Length of Transmission Lines (ckt km) Transmission Losses (%) Orissa (1996-97)* Total Length of Transmission Lines (ckt km) Transmission Losses (%) Madhya Pradesh (2002-03)* Total Length of Transmission Lines (ckt km) Transmission Losses (%) Rajasthan (2000-01)* Total Length of Transmission Lines (ckt km) Transmission Losses (%) Uttar Pradesh (1999-2000)* Total Length of Transmission Lines (ckt km) Transmission Losses (%) All India Total Length of Transmission Lines (ckt km) * Year of Restructuring of SEB 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 17847 18354 20073 20700 20700 8.98 20473 22070 8.94 21377 24888 8.18 22302 28968 7.55 22302 6.55 5460 6.78 8907 5.11 17605 7.93 18634 3.68 23981 5.92 396934 26143 6.11 22302 4.89 5897 7.18 9139 4.15 18011 6.12 19065 4.72 24107 5.67 27406 4.91 24860 4.18 6731 5.67 9139 3.92 19310 5.62 19881 4.59 25085 4.97

16990

17173

18890

19467

4470

4828

4152

4395

4458

4458 6.78 7918 5.00 24060 8.17 17339 4.10 22546 5.50 359524

5312 7.17 7918 5.17 24060 8.20 18075 4.17 23984 5.50 379194

7726

8271

8249

6418

6418

21111

21916

22942

21476

21970 8.25 16898

14371

15328

16466

16651

21202

23193

21587

22361

22546 5.50 346963

302653

316297

330514

338799

402100 416479 (Source : CEA)

A-4

Annexure -XII(A)
Yearwise Targets Vs. Achievements IX and X Plans for Transmission Lines Voltage Level State Utility Haryana Rajasthan UP Gujarat MP Maharashtra AP Karnataka Orissa W. Bengal Total (SS) Total (All India) Haryana Rajasthan UP Gujarat MP Maharashtra AP Karnataka Tamilnadu Orissa W. Bengal Assam Total (SS) Total (All India) 1997-98 P* A# 162 391 41 100 145 0 50 0 0 963 2990 186 234 39 278 104 347 326 212 44 147 24 2406 2824 162 197 16 10 187 0 134 0 0 706 2767 152 232 0 311 38 644 323 271 89 135 0 2569 2914 1998-99 P 0 260 137 100 204 50 155 0 0 980 3004 110 314 89 371 170 179 229 85 99 24 30 2514 3210 A 0 293 120 215 120 0 136 0 0 884 3262 43 278 95 567 170 285 184 42 266 0 0 2701 3330 1999-2000 P A 0 480 191 198 330 487 226 212 290 2488 3128 137 304 93 160 50 185 495 381 175 218 12 2884 3553 0 475 207 200 660 656 218 0 290 2720 3336 131 162 36 277 46 247 945 332 171 0 530 3141 3932 2000-01 P A 0 5 42 0 412 234 530 212 0 1495 1973 164 204 226 463 330 391 372 530 539 530 190 4669 5058 0 158 1 0 307 190 548 155 0 1419 2091 153 161 52 360 217 426 452 595 502 342 73 3364 3674 2001-02 P A 0 1 60 222 203 585 0 57 22 1150 1780 55 153 111 317 120 366 538 499 374 400 408 4132 4240 0 1 0 101 40 997 0 24 0 1163 1780 28 401 60 236 119 358 840 524 313 216 99 3495 3543 Total 9th Plan P A 162 1137 471 620 1294 1356 961 481 312 7076 12875 652 1209 558 1589 774 1468 1960 1707 1231 1319 664 16605 18885 162 1124 344 526 1314 1843 1036 179 290 6892 13236 507 1234 243 1751 590 1960 2744 1564 1341 693 702 15270 17393 (Source : CEA) * P-Planned # A- Achievement 75 55 17 234 100 216 593 323 266 466 132 0 72 181 58 198 88 295 804 86 375 340 78 0 278 226 228 675 9 445 310 265 205 75 153 0 282 208 317 633 10 442 177 369 206 211 251 0 129 394 59 103 40 343 163 336 303 260 30 0 320 606 12 79 18 184 123 283 203 289 10 0 300 390 180 210 205 175 180 130 120 105 90 5 306 658 221 98 205 162 46 130 143 150 95 25 308 381 392 361 189 384 222 211 166 279 88 25 2002-03 P A 0 0 0 0 0 0 64 49 150 21 31 43 168 130 3 0 200 137 22 0 2003-04 P A 0 0 327 329 0 0 16 13 338 245 131 118 520 136 0 0 40 32 22 22 2004-05 P A 0 0 0 0 0 0 0 0 254 241 20 9 536 310 0 0 95 141 0 0 2005-06 P A 0 0 210 0 140 675 150 66 0 0 0 11 60 337 0 0 0 2 0 49 (ckt.km.) 2006-07 P A 0 250 20 155 0 211 44 0 39 660

400 kV

220 kV

Length of Transmission Lines (State Sector) Plan during 2006-07 to 2011-12 (ckt.km.) Voltage 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 State Level (kV) 234 900 1032 686 740 400 AP 502.69 1355.88 333 706.99 152 220 360 420 240 240 180 132 224 32 470 85 536 220 Karnataka 20 90 51 60 110 160 40 40 10 170 66 0 100 100 100 200 400 Haryana 22 210 180 180 180 240 220 21 223 300 360 330 330 132 180 430 695 0 0 1080 400 Rajasthan 472 738 307 0 0 594 220 375 0 0 0 0 0 132 168.5 0 60 144 80 520 220 UP 80.27 261 159 181 100 350 132

A-5

Annexure-XII(B)
Yearwise Targets Vs. Achievements IX and X Plans for Sub-Stations (ckt.km.) 2006-07 P A 0 0 630 630 0 420 630 630 630 0 315 0

Voltage Level

State Utility Haryana Rajasthan UP Gujarat MP Maharashtra AP 400 kV Karnataka Tamilnadu Orissa W. Bengal Assam Total (SS) Total (All India) Haryana Rajasthan UP Gujarat MP Maharashtra AP 220 kV Karnataka Tamilnadu Orissa W. Bengal Assam Total (SS) Total (All India) * P-Planned

1997-98 P* A#

1998-99 P A

1999-2000 P A

2000-01 P A

2001-02 P A

Total 9th Plan P A

0 630 0 315 315 0 0

0 0 0 630 315 0 0

0 630 315 0 630 0 0

0 945 315 0 315 0 0

0 0 315 755 440 630 945 1445 1130 0 0 0 315 1260 630 945 0 1260 0 0 0

315 0 315 0 630 945 0

630 945 815 0 630 630 815

315 945 815 0 0 945 500

945 3590 3205 315 2520 2835 815

630 2330 2890 630 2520 1890 500

0 1890 3150

630

630

630

630

2002-03 2003-04 2004-05 P A P A P A 0 0 0 0 0 0 630 315 945 315 945 630 0 0 0 0 315 0 0 0 0 0 0 0 0 0 0 0 0 315 0 630 1945 1445 500 500 0 0 0 0 315 0 315 0 630 1130 0 0 0 400 0 0 0 315 630 0 0 0 630 0 0 0 630 0 0 0 0 0 0 0 0 0

2005-06 P A 0 0 0 315 630 945 0 315 0 630 315 0 630 1575 0 500 315 0 0 630 735 0 0 0

1260 2205 2205 3905 3775 4280 2520 4780 3520 17060 13280 2205 2205 2835 6990 6230 5855 4095 6355 5095 24555 20460 300 200 100 1500 900 1000 300 400 1450 2400 100 1080 460 1780 1460 450 400 550 2450 3700 320 0 0 960 1050 1920 325 450 1925 4690 550 500 300 2450 3032 300 300 200 2000 3250 1195 410 450 2035 2945 320 200 0 1250 680 0 0 0 960 960 0 75 0 250 0 8155 5310 4220 27640 31887 400 400 800 955 600 810 600 0 250 490 550 300 420 300 160 240 100 820 300 660 320 350 250 600 500 400 1150 0 0 160 160 320 640 1120 640 275 775 700 1425 675 1745 475 632 1100 600 732 300 100 200 600 500 200 600 200 500 500 150 50 100 200 300 100 400 600 120 0 0 400 200 200 320 160 1280 1120 800 640 600 25 0 0 0 25 37 275 450 900 460 400 680 855 200 400 700 140 160 250 850 100 460 500 480 525 400 500 300 400 320 225

250 100 450 150 400 250 200 200 400 200 200 250 400 400 200 0 200 700 100 200 200 500 450 600 1300 300 950 650 320 320 160 125 160 285 320 450 1075 150 400 350 845 650 600 831.5 450 350 500 1000 400 500 1050 500 800 400 900 300 150 250 300 450 475 600 700 300 60 200 100 250 200 300 160 0 160 0 640 640 960 0 0 0 0 100 0 75 5360 6017 4690 5435 5335 8060 6045 5410

6017 4840 5485 5435 8210 6195 8155 5410 4320 27290 32187
# A- Achievement
(Source : CEA) A-6

Annexure-XII(C)
Transmission Sub-Station Capacity Addition (State Sector) during 1997-98 to 2011-12 Voltage (kV) Capacity 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 MVA 945 945 1575 2520 630 400 Number 2 3 4 4 1 MVA 1000 550 300 1100 731.5 100 200 1600 1400 1000 800 600 831.5 350 220 AP Number 9 7 3 11 8 1 1 8 7 5 4 3 9 5 MVA 192 280 160 160 120 132 Number 6 7 4 4 3 MVA 630 630 630 1260 400 Number 1 1 1 2 MVA 250 300 100 400 955 810 450 200 200 800 800 1000 1600 100 150 Haryana 220 Number 3 4 1 4 10 9 5 1 1 4 4 5 8 2 2 MVA 148 352 384 480 416 448 132 Number 7 11 12 15 13 14 MVA 500 1130 500 500 630 1630 400 Number 1 3 1 1 1 2 MVA 1100 300 200 500 600 500 400 1200 600 1000 800 1800 1050 800 220 Number 10 3 2 4 5 5 3 6 3 6 4 9 8 8 Karnataka MVA 260 280 180 150 100 110 Number 13 15 9 8 5 MVA 786.8 412.8 256.4 1600 100 66 Number 29 19 8 8 5 MVA 315 630 630 400 Number 1 2 2 MP MVA 285 320 160 320 1120 680 320 125 220 Number 2 2 1 2 7 5 2 1 MVA 630 400 Number 2 Orissa MVA 200 320 120 200 140 60 100 220 Number 2 1 2 2 2 1 1 MVA 315 315 315 315 630 315 945 400 Number 1 1 1 1 2 1 3 MVA 400 1000 400 250 550 300 900 300 500 100 800 400 200 Rajasthan 220 Number 4 10 4 3 6 3 11 3 5 1 8 4 3 MVA 300 132 Number 15 MVA 440 945 945 315 630 400 Number 2 2 3 1 2 MVA 200 100 460 240 820 660 460 780 200 860 120 1180 700 UP 220 Number 2 1 7 3 11 7 7 5 1 4 1 4 7 MVA 120 280 80 40 100 120 132 Number 6 10 4 2 2 2 MVA 8210 7655 4220 5315 8372 8662 6995 400 Number 90 49 62 88 93 79 All India MVA 2205 3520 1345 3205 1760 5540 220 Number 6 9 5 9 5 16 (Source : CEA)
A-7

State

Annexure-XIII

Performance of Distribution Companies


Parameter Andhra Pradesh (1999-2000) Length of 33 kV Lines (ckt km) Length of 11 kV Lines (ckt km) Distribution Lines upto 500 Volts Ratio LT to HT (upto 11 kV) HT Lines (ckt km)/1000 sq km LT Lines (ckt km)/1000 sq km No. of Distribution Transformers Aggregate Capacity of DTs (kVA) DTs Failure Rate (%) - Central Distribution Co. - Northern Distribution Co. - Eastern Distribution Co. 25.03 28 32.9 20 23.73 24.42 13.87 14.16 Karnataka (1999-2000) Length of 33 kV Lines (ckt km) Length of 11 kV Lines (ckt km) Distribution Lines upto 500 Volts Ratio LT to HT (upto 11 kV) HT Lines (ckt km)/1000 sq km LT Lines (ckt km)/1000 sq km No. of Distribution Transformers Aggregate Capacity of DTs (kVA) 5175 113597 312054 2.75 592.30 1627.06 102117 6493215 5175 113674 312933 2.75 592.70 1631.64 102117 6493215 6016 120015 451220 3.76 625.76 2352.68 102117 6493215 6189 120010 465678 3.88 625.74 2428.06 114893 7547142 6381 120010 351241 2.93 625.74 1831.38 139170 12012274 6655 130578 359964 2.76 680.84 1876.87 148099 12861815 6864 136682 367690 2.69 712.66 1917.15 158212 13618012 6864 137533 370702 2.70 717.10 1932.85 158212 13618012 6878 162501 405958 2.50 847.29 2116.68 125799 11142573 7242 170961 417605 2.44 891.40 2177.41 214442 18773263
A-8

1995-96 25,114 156,798 407,653 2.60 570.07 1482.11 146215 11121738

1996-97 25,782 157,639 412,511 2.62 573.13 1499.77 146215 11121738

1997-98 26,549 158,617 384,315 2.42 576.68 1397.26 146215 11121738

1998-99 27,906 162,329 464,769 2.86 590.18 1689.76 172014 10259123

1999-00 27,906 162,329 464,769 2.86 590.18 1689.76 177344 10765846

2000-01 31,972 170,045 447,933 2.63 618.23 1628.55 177344 10765846

2001-02 32,655 176,859 448,949 2.54 643.01 1632.25 177344 107658

2002-03 46,787 284,435 645,409 2.27 1034.12 2346.52 264962 19253256

2003-04 32,732 186,988 447,428 2.39 679.83 1626.72 331508 20774972

2004-05 33,580 202,568 486,237 2.40 736.48 1767.81 405997 22495826

16.27 18.83 9.48 9.26

11.87 15.81 7.25 8.45

9.48 11.72

7.01

Parameter Haryana (1999-2000) Length of 33 kV Lines (ckt km) Length of 11 kV Lines (ckt km) Distribution Lines upto 500 Volts Ratio LT to HT (upto 11 kV) HT Lines (ckt km)/1000 sq km LT Lines (ckt km)/1000 sq km No. of Distribution Transformers Aggregate Capacity of DTs (kVA) DTs Failure Rate (%) Orissa (1996-97)* Length of 33 kV Lines (ckt km) Length of 11 kV Lines (ckt km) Distribution Lines upto 500 Volts Ratio LT to HT (upto 11 kV) HT Lines (ckt km)/1000 sq km LT Lines (ckt km)/1000 sq km No. of Distribution Transformers Aggregate Capacity of DTs (kVA) DTs Failure Rate (%) - NESCO - WESCO

1995-96 4288 53159 102639 1.93 1202.42 2321.62 93356 6317560

1996-97 4357 53816 103266 1.92 1217.28 2335.81 93356 6317560

1997-98 3386 54240 103878 1.92 1226.87 2349.65 99938 6822865 33.00

1998-99 3386 54240 103878 1.92 1226.87 2349.65 103678 7272612 27.80

1999-00 4473 55765 105749 1.90 1261.37 2391.97 103678 7272612 25.73

2000-01 4473 55765 105749 1.90 1261.37 2391.97 103678 7272612 20.19

2001-02 4473 55765 105749 1.90 1261.37 2391.97 103678 7272612 16.56

2002-03 3718 59048 107695 1.82 1335.63 2435.99 124809 8939692 15.68

2003-04 3866 59729 107969 1.81 1351.03 2442.19 133425 9535301 16.15

2004-05 3966 65638 111150 1.69 1484.69 2514.14 146810 10306617 16.30

9,841 48,551 51,510 1.06 311.80 330.81 22,938 1,660,364

9,841 48,401 51,459 1.06 310.84 330.48 22,938 1,660,364

9,440 50,141 58,755 1.17 322.02 377.34 22,938 1,660,364

9,440 50,141 58,755 1.17 322.02 377.34 31,290 4,837,950

9,440 50,141 58,755 1.17 322.02 377.34 31,290 4,837,950

10,209 61,293 58,755 1.19 393.64 466.81 31,290 4,837,950

10,209 61,293 58,755 0.96 393.64 377.34 31,290 4,837,950

10,199 61,293 58,755 0.96 393.64 377.34 31,290 4,837,950

27,180 58,755 174.56 377.34 22,181 1,847,571

11,026 61,920 58,755 0.95 397.66 377.34 34,424 2,643,156

17.00

15.00 18.57

14.00 19.50

13.00 20.49

11.00 18.65

15.00 16.91

A-9

Parameter Madhya Pradesh (2002-03)* Length of 33 kV Lines (ckt km) Length of 11 kV Lines (ckt km) Distribution Lines upto 500 Volts Ratio LT to HT (upto 11 kV) HT Lines (ckt km)/1000 sq km LT Lines (ckt km)/1000 sq km No. of Distribution Transformers Aggregate Capacity of DTs (kVA) DTs Failure Rate (%) Rajasthan (2000-01)* Length of 33 kV Lines (ckt km) Length of 11 kV Lines (ckt km) Distribution Lines upto 500 Volts Ratio LT to HT (upto 11 kV) HT Lines (ckt km)/1000 sq km LT Lines (ckt km)/1000 sq km No. of Distribution Transformers Aggregate Capacity of DTs (kVA) DTs Failure Rate (%)

1995-96 34,160 189,984 350,659 1.85 428.43 790.77 157,466 11,630,648

1996-97 32,745 190,303 354,331 1.86 429.15 799.05 225,313 11,820,877

1997-98 33,932 191,737 353,874 1.85 432.39 798.02 236,543 12,410,070

1998-99 34,460 194,884 362,762 1.86 439.48 818.06 249,003 14,149,999

1999-00 34,940 195,821 367,793 1.88 441.60 829.41 249,003 14,149,999 14.1

2000-01 35,300 194,383 371,227 1.91 438.35 837.15 249,003 14,149,999 14.56

2001-02 35,300 153,688 344,060 2.24 498.58 1116.17 249,003 14,149,999 18.13

2002-03 29,535 174,073 369,406 2.12 564.71 1198.40 168,980 14,595,914 20.37

2003-04 29,804 170,613 364,329 2.14 553.49 1181.93 173,888 15,411,238 24.14

2004-05 30,790 174,571 369,756 2.12 566.33 1199.53 307,952 28,047,304 22.88

21,105 127,102 179,022 1.41 371.38 523.09 127,176 7,351,708

21,105 130,725 183,154 1.40 381.97 535.16 127,176 7,351,708

23,180 138,928 192,178 1.38 405.94 561.53 164,826 8,837,219

24,477 145,265 198,618 1.37 424.45 580.35 181,048 9,514,466

25,393 150,652 205,116 1.36 440.19 599.33 196,396 10,062,377

25,773 157,490 216,360 1.37 460.17 632.19 201,680 10,321,565 13.43

25,773 157,504 216,360 1.37 460.22 632.19 201,680 10,321,565 13.49

27,720 165,417 221,317 1.34 483.35 646.67 229,563 11,420,254 15.01

23,228 173,881 225,550 1.30 508.07 659.04 257,052 12,189,328 17.55

29,781 184,994 232,820 1.26 540.54 680.28 303,700 13,956,805

A-10

Parameter Uttar Pradesh (1999-00)* Length of 33 kV Lines (ckt km) Length of 11 kV Lines (ckt km) Distribution Lines upto 500 Volts Ratio LT to HT (upto 11 kV) HT Lines (ckt km)/1000 sq km LT Lines (ckt km)/1000 sq km No. of Distribution Transformers Aggregate Capacity of DTs (kVA) DTs Failure Rate (%) All India Length of 33 kV Lines (ckt km) Length of 11 kV Lines (ckt km) Distribution Lines upto 500 Volts Ratio LT to HT (upto 11 kV) HT Lines (ckt km)/1000 sq km LT Lines (ckt km)/1000 sq km No. of Distribution Transformers Aggregate Capacity of DTs (kVA) * Year of Restructuring of SEB

1995-96 24,376 184,571 220,022 1.19 626.92 747.33 276,448 14,594,258

1996-97 24,376 185,142 223,549 1.21 628.86 759.31 276,448 14,594,258

1997-98 25,325 192,481 230,332 1.20 653.79 782.35 304,011 16,854,422

1998-99 25,941 196,310 234,256 1.19 666.79 795.68 315,146 17,518,011

1999-00 25,971 194,622 232,460 1.19 661.06 789.58 315,146 17,518,011

2000-01 25,971 194,622 232,460 1.19 661.06 789.58 315,146 17,518,011

2001-02 27,743 196,782 232,460 1.18 816.76 964.84 315,146 17,518,011

2002-03 28,407 199,303 236,945 1.19 827.22 983.46 315,146 17,518,011 20

2003-04 29,286 202,238 238,786 1.18 839.41 991.10 354,402 19,448,081 20

2004-05 29,159 206,823 239,342 1.16 858.44 993.41 354,708 19,556,036 20

181,452 1,523,749 3,081,842 2.02 463.53 937.52 1,642,664

182,348 1,533,518 3,108,830 2.03 466.51 945.73 1,694,711

193,099 1,593,105 3,405,788 2.14 484.63 1036.06 1,869,024

198,578 1,634,840 3,538,189 2.16 497.33 1076.34 1,999,989

195,740 1,660,453 3,525,121 2.12 505.12 1072.36 2,089,009

205,004 1,711,619 3,574,500 2.09 520.69 1087.39 2,140,153

218,027 1,753,331 3,679,596 2.10 533.37 1119.36 2,207,340

233,729 1,936,689 3,985,909 2.06 589.15 1212.54 2,364,709

213,883 1,869,371 3,859,504 2.06 568.67 1174.09 2,492,274

229,166 1,971,722 3,953,456 2.01 599.81 1202.67 2,916,588 (Source: CEA)

135,852,203 124,602,352 154,171,507 141,973,942 179,930,696 169,119,362 176,025,524 196,685,931 206,667,870 236,070,385

A-11

Annexure-XIV

Percentage Transformation, Transmission and Distribution Losses (including Energy Unaccounted for) in States/Union Territories (UTs)
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
STATES/UTs 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 Haryana 27.49 26.79 26.78 25.00 30.80 32.39 32.77 34.04 35.33 38.28 39.82 39.22 37.65 32.07 32.11 Himachal 20.96 19.81 19.98 18.80 19.17 16.41 18.42 20.22 26.35 22.76 23.38 25.55 21.16 22.76 28.9 J&K 42.96 50.08 48.13 46.37 50.07 49.03 49.97 51.34 47.97 45.04 45.39 48.85 45.55 45.54 41.08 Punjab 19.26 21.75 19.61 19.70 17.19 18.32 18.95 18.79 17.98 18.32 26.58 27.70 24.42 25.96 25.42 Rajasthan 25.76 23.07 22.71 24.85 24.65 29.29 25.88 26.42 29.41 30.33 29.76 43.06 42.61 43.74 44.68 UP 27.13 26.13 24.68 24.37 21.87 22.75 25.06 26.47 30.28 40.37 36.94 37.62 34.16 35.17 34.39 Uttaranchal 32.39 25.17 49.23 39.3 Chandigarh 23.72 29.64 26.21 27.27 28.44 33.72 21.88 22.38 22.48 24.70 25.41 24.97 24.06 39.06 30.37 Delhi 24.93 24.66 24.02 32.54 35.08 49.57 49.64 48.51 50.54 46.67 44.27 43.97 45.82 43.66 45.4 BBMB 4.43 4.33 3.52 3.64 4.05 3.85 3.12 3.84 4.47 4.14 4.32 4.81 5.20 1.22 0.98 Gujarat 23.44 23.56 22.20 20.81 20.87 21.03 21.42 24.41 25.34 25.34 28.14 26.87 28.52 24.20 30.43 MP 17.98 25.82 22.52 21.78 20.75 19.27 20.59 20.94 21.05 33.67 46.07 44.55 43.31 41.44 41.3 Chhattisgarh 33.75 37.86 42.55 28.06 Maharashtra 18.26 18.61 18.51 17.83 17.47 18.21 17.72 18.04 17.82 29.20 33.81 37.28 34.01 34.12 32.4 D&N Haveli 17.69 19.66 17.98 12.64 11.35 9.31 8.80 12.90 15.37 31.69 39.84 27.22 40.26 15.10 16.00 Goa 24.97 23.78 21.85 24.50 26.87 26.06 23.50 31.02 30.40 27.56 28.70 25.18 40.26 45.05 35.97 Daman&Diu 16.85 15.9 15.67 22.34 16.30 12.80 8.15 14.69 21.83 11.33 11.38 7.52 14.95 16.88 15.56 AP 22.93 20.25 20.65 20.21 18.05 19.58 33.09 32.28 33.56 37.65 36.63 26.81 30.11 27.73 23.96 Karnataka 20.17 19.93 19.62 19.49 19.35 19.15 18.86 19.06 30.57 37.31 34.93 33.83 24.57 23.29 26.08 Kerala 22.36 22.47 22.77 20.52 20.81 21.48 21.37 19.12 17.69 17.76 18.44 32.21 27.45 21.63 22.48 Tamilnadu 17.98 18.44 17.30 16.99 17.12 16.13 17.22 17.06 16.75 17.01 15.72 16.06 17.31 17.16 19.28 Lakshadweep 18.62 17.43 18.72 16.99 17.84 17.23 15.11 15.70 12.78 10.13 6.71 10.94 11.29 11.85 10.20 Pondicherry 19.2 18 15.31 15.80 15.00 16.54 17.38 13.56 10.44 12.25 7.93 12.00 21.10 11.60 18.15

A-12

24 25 26 27 28 29 30 31 32 33 34 35 36 37

STATES/UTs 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 Bihar 16.47 18.31 17.15 15.12 15.28 12.62 18.16 11.01 16.53 15.46 17.86 51.70 37.98 36.66 38.88 Jharkhand 26.39 21.19 25.35 19.62 Orissa 25.77 25.3 25.87 23.07 23.66 25.63 50.38 49.79 43.20 44.26 44.91 47.34 45.36 57.09 44.02 Sikkim 24.53 25.89 22.55 22.60 21.22 16.47 29.24 22.87 12.44 12.07 24.98 31.73 54.85 54.99 50.49 West Bengal 17.69 19.72 17.53 15.96 19.45 19.98 20.62 20.35 22.89 26.33 29.44 31.67 25.93 31.01 28.54 A&N 19.83 21.66 23.62 23.71 22.38 19.25 19.15 20.59 20.03 16.52 17.49 29.20 19.78 25.95 12.63 DVC 2.61 2.3 1.99 1.33 0.64 2.15 1.98 1.21 2.56 2.48 4.75 3.63 3.34 2.69 2.69 Assam 24.1 22.66 21.41 22.44 24.18 27.60 25.97 27.32 38.72 38.96 40.71 42.78 38.30 39.31 51.76 Manipur 28.02 24.43 22.35 23.92 25.30 24.85 22.95 21.09 59.55 62.06 58.49 62.35 63.66 65.18 70.61 Meghalaya 11.56 11.65 11.62 17.89 19.03 12.66 19.48 12.13 19.93 27.38 20.97 22.66 21.92 16.73 28.35 Nagaland 26.08 23.14 27.26 33.45 36.12 35.17 26.81 29.79 26.52 32.32 24.60 52.32 56.71 55.00 48.26 Tripura 29.59 31.96 30.64 30.53 31.96 30.86 30.11 31.11 26.82 29.63 43.89 40.38 40.64 46.44 59.54 Arunachal Pr. 19.99 28.2 32.32 42.04 45.30 37.12 32.62 34.10 30.60 47.12 34.41 53.58 38.95 47.54 42.96 Mizoram 29.63 34.95 29.04 31.89 29.76 25.18 34.35 46.84 44.79 47.63 45.42 49.77 46.91 55.54 66.14 All India 22.89 22.83 21.80 21.41 21.13 22.27 24.53 24.79 26.45 30.93 32.86 33.98 32.54 32.53 31.25 (Source : CEA)

A-13

Annexure - XV(A)

Commercial Profit/Loss (without Subsidy) of State Power Utilities


States 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 -4 -23 -981 -1255 -939 -1376 -2679 -3117 -2559 -2948 -1232 Andhra Pradesh -205 -197 -255 -261 -244 -439 -322 -214 -379 -696 -776 Assam -280 -190 -189 -211 -442 -495 -605 -511 -670 -896 -966 Bihar 204 643 Chhattisgarh -207 0 -578 -626 -760 -1039 -1103 -1055 -1092 -803 Delhi -519 -493 -550 -1003 -952 -1364 -2039 -3778 -3920 -3146 -2267 Gujarat -404 -507 -468 -554 -635 -765 -704 -1247 -1960 -948 -803 Haryana 2 -51 19 11 -19 -33 -88 -206 -92 -107 -52 Himachal Pradesh -225 -293 -347 -363 -507 -661 -835 -793 -990 -703 -1089 Jammu & Kashmir -255 -462 Jharkhand -19 -2 -164 -502 -652 -322 -847 -975 -1675 -1870 -1599 Karnataka -65 -75 -129 -183 -208 -199 -411 -646 -1129 -1254 -935 Kerala -493 -377 -594 -602 -464 -1058 -2655 -3151 -3264 -1703 -835 Madhya Pradesh 162 189 276 -408 -92 -11 160 -1479 -1404 -540 -255 Maharashtra -8 -3 -21 -20 -15 -26 -50 -53 -44 -34 -52 Meghalaya -85 -196 -136 -231 -375 -392 -538 -187 -216 -261 -944 Orissa -626 -693 -681 -644 -603 -943 -1354 -2113 -1477 -1868 -1386 Punjab -260 -415 -412 -430 -498 -640 -1331 -1899 615 -1324 -1739 Rajasthan -258 -302 -2 -77 -257 -296 -741 -1442 -1447 -5174 -2100 Tamil Nadu -808 -1202 -1152 -1136 -3378 -3692 -3692 -2596 -2534 -2518 -2374 Uttar Pradesh -26 23 Uttranchal -258 -231 -339 -322 -398 -492 -1089 -842 -1059 -1706 -914 West Bengal All India -4560 -5060 -6125 -8770 -11305 -13963 -20860 -26353 -25259 -29331 -21193 (Rs crore) 2003-04 2004-05 -1579 -1194 -656 -1081 -987 -1122 561 370 -1781 -812 -3031 -2125 -785 -1449 -46 -37 -989 -1080 -730 -1183 -1315 -1107 -916 -239 -667 -764 -549 -804 64 -9 193 303 -663 -1520 -1777 -2037 -1360 -2030 -2116 -3624 -40 -179 -296 -275 -19722 -22129

(Source : Planning Commission and PFC)

A-14

Annexure-XV(B)

Commercial Profit/Loss (with Subsidy) of State Power Utilities


States 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 Andhra Pradesh -4 -23 -37 4 -89 -1376 -130 -53 -932 284 855 Assam -205 -197 -255 -261 -244 -439 -322 -214 -379 -549 -587 Bihar -280 -190 -189 -211 -442 -495 -605 -511 -670 -1167 -1456 Delhi -207 NA NA -578 -626 -760 -1039 -1103 -1055 --881 Gujarat 100 92 106 108 111 119 -366 -2501 -2604 188 101 Haryana -368 -447 -13 46 7 -32 -340 -835 -1548 -919 -5 Himachal Pradesh 2 -51 19 11 -19 -33 -88 -206 -92 -120 -98 Jammu & Kashmir -225 -293 -347 -363 -507 -661 -835 -793 -990 50 -1112 Karnataka 32 34 43 51 54 58 67 76 76 213 103 Kerala -65 -75 -120 -130 -176 -199 -205 -181 -348 -682 138 Madhya Pradesh -113 38 -80 -8 -163 -812 -2534 -2718 -2800 -2197 11 Maharashtra 162 189 276 222 166 295 515 605 -1404 -451 -368 Meghalaya -2 4 -14 -12 -7 -17 -41 -43 -34 -24 -55 Orissa 26 30 25 27 -363 -386 -538 -187 -212 36 -475 Punjab -626 -693 -681 -644 -603 -943 -1354 -1709 -1477 -1415 -40 Rajasthan 22 10 77 81 63 65 -134 -133 615 -1581 -626 Tamil Nadu 92 226 348 339 330 274 335 -1192 -1197 -4457 700 West Bengal -258 -158 -242 -240 -343 -402 -1040 -793 -1009 -1181 -94 Uttar Pradesh -808 -1202 85 381 -1821 -1853 -1853 -2596 -1734 -1395 -295 All India -2725 -2706 -998 -1178 -4674 -7598 -10509 -15088 -17794 -16725 -4846 (Rs crore) 2003-04 2004-05 1467 1231 -631 -907 -1511 -1606 -1609 -584 -343 649 187 -392 83 -58 -996 -1032 412 621 -211 -117 1015 -296 415 2209 65 -23 422 464 1528 1315 -412 -578 -494 -139 183 713 -1004 -3557 -2268 -3438

(Source : Planning Commission and PFC)

A-15

Annexure-XV(C)

Losses of State Power Utilities (without Subsidy)


30000

25000

20000

All State Utiltiies

Rs crore

15000

10000

5000

Group-1 States

0 All State Utilities Group-1 States excluding UP Other States excluding UP

1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 4560 1472 2280 5060 1519 2339 6125 2756 2217 8770 4152 3482 11305 4188 3738 13963 5311 4960 20860 9793 7375 26353 11680 12078 25259 10114 12611 29252 8689 15397 20887 7932 10581 19465 7751 9598 21998 7239 11135

(Source : Planning Commission and PFC) A-16

Annexure-XV(D)

Losses of State Power Utilities (without Subsidy) Business as usual continues vs. Effect of Reforms and Restructuring
45000

40000

35000

Business as usual all SEBs Reduction in Losses for Group-1 Business as usual Group-1

30000

Rs crore

25000

20000

15000

10000

5000

0 All State Utilities Group-1 States excluding UP All SEBs/ UtilitiesBusiness as usual continues Group-1 excluding UP Business as usual continues

1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 4560 1472 5060 1519 6125 2756 8770 4152 11305 4188 13963 5311 20860 9793 26353 11680 25259 10114 29252 8689 29252 11680 11566 13000 20887 7932 31940 14435 19465 7751 34993 15870 21998 7239 38046 17305 21334 6499 41098 18740 20808 5867 44151 20174

(Source : Planning Commission and PFC) A-17

Annexure-XV(E)

Cash Profit/Loss of State Power Utilities (with Subsidy)


5000

Group-1 States

-5000

Rs crore

-10000

All State Utilities Other States

-15000

-20000 All State Utilities Group-1 States (excluding UP) Other States excluding UP

1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 -2725 -613 -1305 -2706 -357 -1147 -998 15 -1098 -1178 -377 -1181 -4674 -1118 -1735 -7598 -3243 -2502 -10509 -4649 -4006 -15088 -4953 -7539 -17794 -5856 -10203 -16725 -4164 -11166 -4846 -1018 -3533 -2268 1482 -2746 -3438 466 -347

(Source : Planning Commission and PFC) A-18

Annexure-XV(F)

Percentage of Losses of Group-1 States (excluding UP) compared to all the States (excluding UP)

60

50

40

Rs crore

30

Effect of Restructuring

20

10

1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 55 54 53 52 57 49 45 36 43 45 39

% of Losses of Group 1 States excluding UP compared to all the states (excluding UP)

(Source : Planning Commission and PFC) A-19

Annexure-XV(G)

Commercial losses of State Power Utilities as a Percentage of Revenue (sale of power)


States Andhra Pradesh Assam Bihar Chhatishgarh Delhi Gujarat Haryana Himachal Pradesh Jammu & Kashmir Jharkand Karnataka Kerala Madhya Pradesh Maharashtra Meghalaya Orissa Punjab Rajasthan Tamil Nadu UP(Power corp.) Uttranchal West Bengal All State Utilities 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 -54.85 -28.57 -34.48 -64.27 -68.95 -42.57 -49.86 -16.66 -20.56 -13.93 -71.23 -60.57 -108.39 -70.77 -38.45 -56.30 -110.30 -115.99 -81.59 -124.68 -18.07 -34.78 -33.63 -42.68 -28.44 -33.70 -99.12 -106.39 -104.22 -113.91 11.28 27.96 22.56 15.19 -37.05 -35.16 -34.21 -48.12 -46.25 -38.82 -33.61 -47.91 -17.46 -30.69 -22.79 -27.67 -37.20 -67.93 -58.00 -44.54 -29.77 -36.89 -24.26 -47.70 -45.15 -46.04 -37.99 -65.33 -87.11 -34.96 -27.59 -24.23 -42.90 3.64 -5.41 -7.62 -18.20 -36.49 -13.95 -16.72 -6.87 -4.67 -3.04 -655.83 -819.47 -700.08 -834.18 -381.34 -440.20 -244.17 -180.15 -199.26 -27.60 -44.55 -68.93 -106.67 -27.54 -30.52 -12.14 -30.32 -29.58 -44.64 -42.01 -35.62 -22.26 -16.95 -26.61 -30.98 -20.84 -34.39 -39.77 -55.79 -64.44 -37.69 -33.24 -8.19 -18.17 -11.11 -25.22 -56.25 -56.39 -52.45 -47.07 -19.44 -13.74 -14.89 -5.80 -1.08 -0.12 1.61 -14.10 -12.45 -4.49 -2.05 -4.15 -5.72 -36.50 -26.56 -36.73 -75.10 -65.76 -45.56 -35.79 -42.28 40.76 -4.04 -25.40 -32.71 -28.85 -36.93 -11.54 -12.14 -15.66 -50.16 9.74 14.13 -31.30 -24.78 -33.91 -40.96 -59.49 -37.21 -41.85 -26.76 -11.20 -25.97 -21.71 -20.97 -21.57 -40.12 -50.16 15.44 -34.39 -43.29 -42.92 -44.89 -1.88 -5.79 -5.65 -13.26 -23.24 -19.40 -65.40 -22.93 -12.54 -18.23 -30.87 -87.38 -79.32 -79.32 -46.83 -38.72 -40.06 -39.63 -53.75 -55.82 -10.12 3.44 -4.23 -23.96 -24.17 -27.89 -27.22 -59.69 -40.27 -47.36 -72.97 -34.93 -7.75 -6.80 -23.63 -25.71 -27.35 -37.90 -42.93 -35.77 -41.69 -26.20 -22.04 -22.60 (Source : Planning Commission and PFC)

A-20

Annexure-XV(H)

Commercial Losses of State Power Utilities as a Percentage of Revenue (Sale of Power)


60.00

50.00
Group-1 States

40.00

Percentage

30.00
All State Utilities

20.00
Other States

10.00

0.00 All State Utilities Group-1 States Other States

1995-96 23.63 31.85 19.18

1996-97 25.71 25.69 25.73

1997-98 27.35 27.90 27.03

1998-99 37.90 47.84 32.02

1999-00 42.93 50.55 38.33

2000-01 35.77 37.87 34.49

2001-02 41.69 45.68 39.85

2002-03 26.20 29.06 24.74

2003-04 22.04 24.46 20.72

2004-05 22.60 20.20 23.93

(Source: Planning Commission and PFC)


A-21

Annexure-XV(I)
Subsidy Booked & Subsidy Received and Percentage of Subsidy Booked & Received to Total Revenue (For Utilities selling directly to consumers) (Rs crore) 2000-01 2001-02 2002-03 Sl. Subsidy Booked Subsidy Received Subsidy Booked Subsidy Received Subsidy Booked Subsidy Received State No. % to % to % to % to % to % to Amount Amount Amount Amount Amount Amount Revenue Revenue Revenue Revenue Revenue Revenue 1 Andhra Pradesh 2936 61.4 2788 58.30 2437 41.2 2437 41.2 1509 20.41 1509 20.41 2 Haryana 820 36.44 820 36.44 763 28.13 763 28.13 829 28.49 829 28.49 3 Karnataka 1821 50.27 708 19.54 2211 49.67 1872 42.05 1333 29.69 1240 27.62 4 Madhya Pradesh 543 15.01 543 15.01 668 15.55 851 19.81 5 Orissa 0 0 0 0 0 0 0 0 0 0 0 0 6 Rajasthan 1324 34.39 286 7.43 1047 26.06 278 6.92 7 Uttar Pradesh 240 3.85 240 3.85 862 13.72 862 13.72 849 14.17 849 14.17 8 Assam 52 8.45 0 0 52 8.29 0 0 80 11.97 80 11.97 9 Gujarat 2021 33.22 2021 33.22 2579 36.51 2579 36.51 1,805 23.70 1,527 20.05 10 Maharashtra -373 -3.2 -373 -3.20 0 0 0 0 0 0 0 0 11 Tamil Nadu 1693 22.8 250 3.37 323 4.01 323 4.01 2,212 24.15 2,212 24.15 12 West Bengal 215 10.22 50 2.38 239 10.23 100 4.28 0 0 0 0 All India 12183 17.25 14541 20.67 9563 13.59 12,907 15.96 11,577 14.32 2003-04 Subsidy Booked Subsidy Received % to % to Amount Amount Revenue Revenue 1515 19.73 1515 19.73 1026 31.67 924 28.52 1529 25.88 1172 19.84 818 16.85 1,049 21.61 0 0 0 0 1060 25.60 534 12.90 0 0 0 0 0 0 0 0 1,101 13.40 2,017 24.55 0 0 0 0 250 2.30 250 2.30 0 0 0 0 9,905 11.07 10,101 11.29 2004-05 Subsidy Booked Subsidy Received % to % to Amount Amount Revenue Revenue 1303 15.20 1303 15.20 1102 32.62 1102 32.62 1569 24.02 1400 21.43 817 15.93 817 15.93 0 0 14 0.65 1298 28.60 690 15.20 693 10.67 693 10.67 70 8.04 70 8.04 1,101 12.56 2,026 23.11 1 0.01 1 0.01 925 8.30 925 8.30 0 0 0 0 10956 11.19 11,693 11.94 (Source : PFC)

Sl. No. 1 2 3 4 5 6 7 8 9 10 11 12

State Andhra Pradesh Haryana Karnataka Madhya Pradesh ORISSA Rajasthan Uttar Pradesh Assam Gujarat Maharashtra Tamil Nadu West Bengal All India

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Annexure-XVI(A)

Percentage of Energy Shortage (Group-1 States)


25

20

15

Percentage

India 10

-5

1998-99 9 2 2 13 6 -3 3 6

1999-00 7 3 2 8 7 -3 5 5

2000-01 8 5 3 9 12 -3 4 15 8

2001-02 9 3 2 13 15 0 1 10 8

2002-03 7 2 3 10 16 2 2 17 9

2003-04 3 1 5 14 13 2 1 13 7

2004-05 1 1 6 4 14 1 1 20 7

2005-06 1 2 9 1 14 1 4 8
(Source : MoP) A-25

Andhra Pradesh Delhi Haryana Karnataka Madhya Pradesh Orissa Rajasthan Uttar Pradesh India

Annexure-XVI(B)

Percentage of Peak Shortage (Group-1 States)


35 30 25

Percentage

20 15 10 5 0 -5

India

1998-99 9 8 8 16 25 2 4 13

1999-00 12 12 0 16 30 5 0 14

2000-01 15 13 3 13 25 -2 3 15 12

2001-02 20 8 3 17 13 7 1 9 13

2002-03 19 9 3 22 14 6 2 14 13

2003-04 11 3 5 12 22 7 0 17 12

2004-05 2 2 10 5 19 0 8 20 12

2005-06 2 3 9 10 22 2 14 12
(Source : MoP) A-26

Andhra Pradesh Delhi Haryana Karnataka Madhya Pradesh Orissa Rajasthan Uttar Pradesh India

Anneure-XVII

Per Capita Consumption of Electricity (kWh per year)


States Andhra Pradesh (1999-2000)* Karnataka (1999-2000)* Haryana (1999-2000)* Orissa (1996-97)* Madhya Pradesh (2002-03)* Rajasthan (2000-01)* Uttar Pradesh (1999-2000)* ALL INDIA 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 345.70 340.14 503.78 308.90 366.95 301.23 196.56 334.26 391.00 387.09 488.02 308.18 377.51 314.34 199.53 348.50 405.33 350.64 502.41 321.16 398.17 330.28 198.79 360.01 433.96 367.02 530.20 334.28 353.13 339.51 179.06 364.45 433.14 411.74 544.31 342.89 294.82 349.54 191.08 366.12 699.74 638.03 924.37 550.02 495.48 517.41 311.28 559.18 672.64 611.16 997.08 470.18 520.35 566.14 316.13 566.69 718.84 642.26 923.83 695.42 474.78 539.62 299.63 764.75 660.04 950.69 735.49 515.50 583.32 308.83

592.00 612.50 (Source : CEA)

* Year of Restructuring of SEB Note : From 2001-02 onwards the figures refer to annual per capita consumption of electricity as per new definition adopted.

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Annexure-XV(J)

Presentage of Subsidy Booked to Total Revenue


70.00

60.00

50.00

40.00

Percentage

30.00

20.00

10.00

0.00

-10.00 2000-01 2001-02 2002-03 2003-04 2004-05

AP 61.40 41.20 20.41 19.73 15.20

Haryana 36.44 28.13 28.49 31.67 32.62

Karnataka 50.27 49.67 29.69 25.88 24.02

MP

Orissa 0.00

Rajasthan

UP 3.85

Assam 8.45 8.29 11.97 0.00 8.04

Gujarat 33.22 36.51 23.70 13.40 12.56

Maharashtra -3.20 0.00 0.00 0.00 0.01

Tamilnadu West Bengal 22.80 4.01 24.15 2.30 8.30 10.22 10.23 0.00 0.00 0.00

All India 17.25 20.67 15.96 11.07 11.19

15.01 15.55 16.85 15.93

0.00 0.00 0.00 0.00

34.39 26.06 25.60 28.60

13.72 14.17 0.00 10.67 States

(Source : PFC) A-23

Annexure-XV(K)

Presentage of Subsidy Received to Total Revenue


70.00

60.00

50.00

Percentage

40.00

30.00

20.00

10.00

0.00

-10.00 2000-01 2001-02 2002-03 2003-04 2004-05

AP 58.30 41.20 20.41 19.73 15.20

Haryana 36.44 28.13 28.49 28.52 32.62

Karnataka 19.54 42.05 27.62 19.84 21.43

MP

Orissa 0.00

Rajasthan

UP 3.85

Assam 0.00 0.00 11.97 0.00 8.04

Gujarat 33.22 36.51 20.05 24.55 23.11

Maharashtra -3.20 0.00 0.00 0.00 0.01

Tamilnadu West Bengal 3.37 4.01 24.15 2.30 8.30 2.38 4.28 0.00 0.00 0.00

All India

15.01 19.81 21.61 15.93

0.00 0.00 0.00 0.65

7.43 6.92 12.90 15.20

13.72 14.17 0.00 10.67 States

13.59 14.32 11.29 11.94

A-24

Introduction to Volume-II
Study on Impact of Restructuring of SEBs

Synopsis of Volume-I of the Report has been presented in this Volume. It primarily contains the operative portion of the National Report, i.e., Recommendations and Way Forward. This Volume has been specifically prepared to serve as a ready reference and to ensure wider dissemination. For any clarifications, please refer to Volume-I.

CONTENTS
Executive Summary ............................................................................................ 1
A. B. C. D. E. F. G. H. Background ......................................................................................................... 1 Overview of the Sector ....................................................................................... 3 Restructuring Models and Progress.................................................................. 3 Outcome of Restructuring of the Power Sector ............................................... 5 Regulatory Commissions.................................................................................... 6 Rural Electrification........................................................................................... 6 Other Findings .................................................................................................... 7 Findings and Recommendations ....................................................................... 7

Chapter-1 Recommendations ............................................................................................... 9


6.1 6.2 6.3 6.4 6.5 6.6 6.7 6.8 6.9 6.10 6.11 6.12 6.13 6.14 6.15 6.16 6.17 6.18 6.19 6.20 6.21 6.22 6.23 6.24 6.25 6.26 6.27 6.28 6.29 Political Commitment and Support .................................................................. 9 Detailed Policy Statements............................................................................... 10 Communication Strategy ................................................................................. 10 Consultancy Support ........................................................................................ 11 Human Resources Development Issues .......................................................... 12 Financial Restructuring Plans ......................................................................... 13 Managing the Reforms Process ....................................................................... 13 Role of the Electricity Regulatory Commissions ........................................... 13 Establishing a Power Sector Reform Fund .................................................... 15 Access to Central Institutional Funds by Privatised Utilities....................... 15 Reconstitution of the Board of Directors........................................................ 16 Memoranda of Agreements ............................................................................. 16 Better Management Practices.......................................................................... 16 Capacity Building and Developing Management Cadres ............................. 17 Centre for Manpower Planning and Development........................................ 17 Accountability and Corporate Governance ................................................... 18 Participation of Civil Society Organisations .................................................. 18 Citizens Charter .............................................................................................. 19 Universal Metering of Service Connections ................................................... 19 State Government Initiatives and Support to Prevent Theft ....................... 19 Energy Accounting and Auditing.................................................................... 20 Reducing Cross-Subsidies ................................................................................ 21 Fostering Competition Through Open Access ............................................... 22 Data Management Systems.............................................................................. 23 Adoption of Information Technology in Power Sector ................................. 23 Outsourcing of Works/Services ....................................................................... 23 Encouragement to Non-Conventional Energy Sources................................. 24 Rural Electrification......................................................................................... 24 State-Level Planning and Coordination ......................................................... 25

Chapter - 2 Way Forward .................................................................................................... 26


7.1 Steps to be Taken by the Ministry of Power .................................................. 26 7.2 Steps to be Taken by the State Governments................................................. 29 7.3 Steps Suggested for Implementation by the Utilities..................................... 31

EXECUTIVE SUMMARY
A. A1 BACKGROUND The pre-eminent role of electricity in the growth of a nations 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 electricity generated, the annual per capita consumption is a miniscule, 631.5 kWh (200506 provisional figure), one of the lowest in the world. The world average of annual per capita consumption in 2003 was 2,429 kWh. 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. 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 reforming the distribution segment was considered essential for improving the

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Study on Impact of Restructuring of SEBs

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. The Group of Experts had the benefit of discussions on several issues relating to the power sector in the following important meetings: Date Participants Issues Discussed Issues and concerns relating to employees of the electricity sector. Points raised by them and responses of Group of Experts are at Annexure-III (Volume-I). 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. 3600 feedback was obtained on the preliminary Report. Issues pertaining to the institution of Electricity Regulators. For details, please refer to Para 6.8, Chapter-6 (Volume-I).

A5

Sl. No.

1.

2.

Shri. E. Balanandan, Chairman, National Coordination Committee of Energy 21.07.2006 Employees and Engineers and other representatives of the Committee. Shri R.V. Shahi, Secretary (Power), Govt. of India, Senior officers of MoP and officials of 24.08.2006 MNES, REC and CEA.

3.

4.

Principal Secretaries (Power) 13.09.2006 of States, Chairpersons and MDs of State power Utilities. Shri A.K. Basu, Chairperson, CERC and Chairpersons of six 14.09.2006 SERCs.

National Report (Vol.-II)

Study on Impact of Restructuring of SEBs

A6

The valuable inputs and suggestions offered by the above-mentioned persons are gratefully acknowledged. Overview of the Sector Capacity additions as a percentage of targets during the Eighth, Ninth and Tenth Five Year Plans are 54, 47 and 75(anticipated) 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. Energy and peak shortages in 2005-06 were still as high as 8 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. 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 of SEBs and fostering competition, to improve productivity, efficiency and transparency in the sector. Restructuring Models and Progress 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 3

B. B1

B2

B3

C. C1

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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. 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. 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, there is also a need to make the Transmission Company in each State responsible for 4

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statewide planning and coordination, for which these Utilities would need to be strengthened by inducting experts in energy planning. D. D1 Outcome of Restructuring of the Power Sector The extensive Statewide surveys and analyses 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) ii) Trend towards reducing AT&C losses; Increased and more focussed 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 electricity thefts, pilferages, unregulated/unmetered supplies to the agricultural sector, and unreliability of service emerge as areas of concern and reflect on management inadequacies and future challenges for the power sector. 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.

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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 interest of customers. 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. Regulatory Commissions 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. However, there is a 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. 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. 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. Rural Electrification 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

E. E1

E2

E3

E4

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targets. Rural Electrification Programme should not be seen as adding yet another burden of losses on the Utilities through conventional technical system extension. G. G1 Other Findings 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. 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. Findings and Recommendations 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) ii) Need for sustained political commitment and support for the reform; Need to issue Detailed Policy Statements (DPS) to spell out the future policy and programmes;

G2

H. H1

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.-II)

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/employees 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. Volume-I Details 7 Chapters focussing on common issues on the Impact of Restructuring of SEBs, which will be relevant and of interest to the Ministry of Power, State Governments and the restructured Utilities in general. Executive Summary, Findings and Recommendations and the Way Forward of Volume-I. Detailed State-wise chapters covering each of the 12 States studied. Summarised versions of individual State Reports on the impact of restructuring of SEBs, relating to 12 States covered in the study.

Volume-II Volume-III Volume-IV

CHAPTER - 1 RECOMMENDATIONS

Recommendations have been extracted from Chapter-6, Volume I of the National Report. For easy and ready reference, Para Nos of Volume-I have been retained. (For clarifications/further details, please refer to Chapter-6, Volume-I of the National Report.)

6.1

Political Commitment and Support

6.1.5 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 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. All these efforts should be consolidated through a national level political commitment. Ministry of Power should take the 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 in the first instance. (b) The States should grant full autonomy for the functioning of the new companies and should enforce the principle of corporate accountability.

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Study on Impact of Restructuring of SEBs

(c) A Financial Restructuring Plan (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 Detailed Policy Statement (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 Utilities after the restructuring. The policy should, inter-alia, provide for the financial turnaround of the Utilities within a defined period. 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

6.3.8 The contact programme with consumers and community-based organisations including residents welfare associations, womens groups, and students should be worked out. Agricultural extension workers could carry messages about energy conservation to farmers in furthering the cause of power sector reforms. 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. 10

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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 reforms 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.

6.3.12 In order to take forward the reform to success, 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

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. 6.4 Consultancy Support

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.

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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 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 MoP must help to find resources for the same. 6.5 Human Resources Development Issues

6.5.5 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 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 The poorly managed Utilities should adopt the norms as followed in bettermanaged 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. 12

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6.6

Financial Restructuring Plans

6.6.2 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. FRPs should clearly identify the components of financial assistance to be 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 discussions of the respective States. 6.7 Managing the Reforms Process

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). 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 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.

6.8.2 (a)

(b) 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 13

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by the ERCs 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 out the differences. More importantly, there is a need to make the provisions for penalty for non (or delayed) compliance more stringent. (c) 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. (e) 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, MYTs and standards of performance (SOP), as envisaged in the National Electricity Policy and the National Tariff Policy. (g) 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 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 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: 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. 14

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(b) Staffing Requirements of the Commissions: 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: 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. (i) Recourse to the Ombudsman: There should be only one channel to be crossed before the consumer can approach the Ombudsman.

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) to enhance the creditability and mitigate the risk of policy reversals, so as to ring-fence both the liabilities and the inflows earmarked for the sector restructuring. 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 ..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

6.10.2 In order to accelerate the reforms process, Central Financial Institutions like PFC and REC should be requested to extend their assistance to the privatised distribution companies by relaxing their norms, as required. For instance, such 15

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assistance should be provided without insisting on State Governments guarantee; but on requirement of mortgaging the assets to be created with such financial assistance. 6.10.3 Moreover, similar assistance must also be made available to the States, where privatised Utilities are in position, from Central funds earmarked under APDRP, RGGVY, etc, without any discrimination. This is being recommended because such 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

6.11.2 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 Government should hold any position on the boards of the restructured companies. 6.12 Memoranda of Agreements

6.12.1 The instrument of Memorandum of Agreement (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 Governments vis--vis the Utilities to facilitate the fulfillment of the targeted level of performance. 6.13 Better Management Practices

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 16

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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. 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 Secretary of the Government department) as the Chairperson of any other company should be discontinued. 6.14 Capacity Building and Developing Management Cadres

6.14.4 Indian Institutes of Management (IIM) should 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 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. 6.15 Centre for Manpower Planning and Development

6.15.1 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 17

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other Internet options on important developments and successful projects in different States (like Akshay Prakash Yojana in Maharashtra) for use by others. 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 selfsustaining by pricing its services to the Utilities. 6.16 Accountability and Corporate Governance

6.16.1 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 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), 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

6.17.3 The engagement of Grama Vidyuth Pratinidhis in Karnataka 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 18

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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

6.18.2 It is recommended that all restructured companies, especially the distribution companies, 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 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

6.19.3 It is recommended that the MoP 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 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

6.20.2 .

(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. (b) Strict vigilance measures should be adopted and special courts and special police stations (wherever they have not been set up) should be established to deal with the cases of electricity thefts. 6.20.5 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 19

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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 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) 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. CEAs Regulations on Installation and Operation of Meters need to be followed for this purpose. (b) 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. (c) All distribution transformers in industrial area/urban area/high consumption area should be provided with meters on the LV side. The energy loss should be directly computed by the billing computer without any manual input of billing data. 20

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(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

6.22.5 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. (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 watertable is gradually going down. It is, therefore, necessary to adopt a multidisciplinary approach to sensitise the farmers about the measures for water conservation and efficient use of irrigation pumpsets and machinery. (c) The NEP 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 21

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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 category. (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. (f) A detailed financial plan should also be put in place to bring down the subsidy support on a diminishing pattern, with targets and set goals for each year and for each DISCOM.

(g) MoP 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

6.23.3 Captive generation, as brought out in the Tariff Policy, is an important means for 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. 6.23.4 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 22

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determining surcharges, which would create an appropriate climate for the extensive use of open access and the resultant competition. 6.24 Data Management Systems 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 MoP 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) 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 of customer relations, power system network studies, human resources development and associated area of payroll applications, etc. (b) Installation of a comprehensive computerised solution would result in substantial reduction in paper work besides achieving economy in operations and improving the work culture in the organisation. Presently such a system is being installed in Gujarat. The State may 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. 6.26 Outsourcing of Works/Services

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.

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6.27

Encouragement to Non-Conventional Energy Sources

6.27.1 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. 6.27.2 Use of conventional energy for heating purpose, etc., in industrial and commercial complex and large residential blocks could be 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 MoP and MNES. 6.28 Rural Electrification

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. (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

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other non-power loads with 24 hours power supply is also worth following. 6.29 State-Level Planning and Coordination

6.29.2 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 - 2 WAY FORWARD

Way Forward has been extracted from Chapter-7, Volume-I of the National Report. For easy and ready reference, Para Nos of Volume-I have been retained.

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 State Governments. [Para 6.4.6]

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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) ii) Powers of civil courts for execution of orders [as conferred on Appellate Tribunal under Section 120(3)]; [Para 6.8.3 (d)] 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)]

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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 DISCOMs, 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] 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]

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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 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] 29

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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 DISCOMs. [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] 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] 30

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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 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] 31

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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 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]

32

TABLE OF CONTENTS
Executive Summary ...............................................................................................1.1 Chapter 1 - General Findings and Recommendations .......................................1.8 Chapter 2 - Restructuring Exercise ....................................................................1.19 Chapter 3 - Impact of Restructuring..................................................................1.24 Chapter 4 - Specific Issues ...................................................................................1.27 4.1 Generation ........................................................................................1.27 4.2 Transmission.....................................................................................1.30 4.3 Distribution.......................................................................................1.33 4.4 Electricity Regulatory Commission .................................................1.49

ANDHRA PRADESH EXECUTIVE SUMMARY

INTRODUCTION Andhra Pradesh State Electricity Board (APSEB) was one of the largest and most efficiently run power utilities in the country. The State witnessed phenomenal growth in the power sector after the formation of the APSEB in 1959. APSEB was earning three per cent rate of return (ROR) on net fixed assets consistently till the late 1980s. The financial strain started from 1989-90 and the situation continued to worsen over the years. By the end of the year 199798, the outstanding dues of APSEB were of the order of Rs 2,600 crore. Due to the prevailing financial crisis, APSEB was not in a position to raise funds for its capital investments. The financial institutions started insisting on restructuring of APSEB as a pre-condition for lending capital support for investments. Accordingly, the State Government decided to undertake restructuring of APSEB.

1.1

Restructuring Exercise A High Level Committee headed by Shri Hiten Bhaya, ex Member, Planning Commission, recommended the restructuring of the power sector by separating generation, transmission and distribution functions. The reform initiatives were started by the Government in April 1997 with the issue of a policy statement clearly stating the objectives of the reforms and the strategy to be followed to achieve the same.

1.2

Implementation of Reform Process The reform and restructuring exercise started in Andhra Pradesh power sector in June 1997 with the creation of a Reform Cell headed by an officer of the rank of chief engineer. Officers, both serving and retired, with requisite skills and experience were inducted into the Reform Cell. Active involvement of the members of the Board in the reform exercise was evident from the fact that weekly meetings were held at the Board level to review the progress of reform activities. The Secretary (Energy), Government of Andhra Pradesh also participated in these review meetings, where the requisite approvals were also obtained.

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Study on `Impact of Restructuring of SEBs The following milestones in the reform process are worth mentioning: Carrying out negotiations with the employees associations and unions and entering into tripartite agreements involving the State Government, APSEB and the employees associations/unions. Carrying out intensive publicity campaign on the need for reforms. Enactment of Andhra Pradesh Electricity Reform Act, 1998. The World Bank provided funds for the projects in transmission and distribution segments and also loan assistance for the consultancy services in the initial stage. Major part of the resources for the consultancy support has been secured in the form of grants from the Canadian International Development Agency (CIDA) and the Department for International Development (DFID) of United Kingdom. 1.3 Restructuring of APSEB The restructuring exercise started with the reorganisation of vertically integrated APSEB into Andhra Pradesh Power Generation Corporation (APGENCO) for generation function and Transmission Corporation of AP Ltd (APTRANSCO) for transmission and distribution functions. The First Transfer Scheme vesting the assets, liabilities personnel, etc., with the APGENCO and APTRANSCO was implemented w.e.f. 1 February 1999. The Andhra Pradesh Electricity Regulatory Commission came into existence in April 1999. The distribution function was subsequently separated from APTRANSCO with the creation of the following area based distribution companies (DISCOMs):
DISCOM Eastern Power Distribution Company Ltd. (APEPDCL Northern Power Distribution Company Ltd. (APNPDCL) Central Power Distribution Company Ltd. (APCPDCL Southern Power Distribution Company Ltd. (APSPDCL) Headquarters Vishakapatnam Warangal Hyderabad Tirupati

The Second Transfer Scheme, vesting the distribution assets, liabilities, personnel, etc., with the four DISCOMs, came into effect in 2001.

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The bulk supply trading, which was initially under the control of the transmission company, was transferred and vested with the DISCOMs, through the Third Transfer Scheme w.e.f. 10 June 2005. 1.4 Impact of Electricity Regulatory Commission Andhra Pradesh Electricity Regulatory Commission (APERC) has played a very important role in the successful implementation of power sector reforms in the State. APERC has not only come up with regular tariff orders annually on time since 2000-01, but also notified several regulations, codes and guidelines for effective functioning of the utilities. The proactive role played by APERC has largely contributed to improved performance by the Utilities both in operational and customer-care matters. The standards of performance have been fixed and regulations framed for their implementation. APERC has introduced the Multi Year Tariff (MYT) framework from 2006-07. The Commission has been functioning quite independently as there is practically no interference in its functioning from the State Government. 1.5 Performance of the Utilities Reform and restructuring has benefited the power sector in Andhra Pradesh, as all the restructured Utilities have achieved commercial viability in a span of five years. The company-wise achievements are analysed below: 1.5.1 Generation Company The capacity additions made by APGENCO under the State sector in the first six years is 970 MW. During this period, the State has achieved total generation capacity addition of 3,776 MW from all sources as indicated below:
State Sector (APGENCO) Central Sector Private Sector Non-conventional and other sources Total 970 MW 1,686 MW 575 MW 545 MW 3,776 MW

APGENCOs total installed capacity at the end of 2004-05 was 6,581 MW. Further, the company has taken up projects for addition of 2,123 MW and these projects are under various stages of implementation. About 1,500 MW capacity gas-based power stations, executed under private sector, are in an advanced stage of completion. 1.3

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Study on `Impact of Restructuring of SEBs The performance improvements achieved after restructuring of APSEB are indicated below: Plant load factor (PLF) has improved from 77.6 to 89.7 per cent. Plant availability has improved from 84.8 to 92.5 per cent. Oil consumption level has come down from 1.7 ml/kWh to 0.50 ml/kWh. Auxiliary consumption level has come down from 9.17 to 9.09 per cent. Annual electricity generation has increased from 27,000 MU to 29,000 MU. The company has been earning profits right from its inception. 1.5.2 Transmission Company APTRANSCO is among the best performing transmission companies (TRANSCOs) in the country. The company has made sizeable investments and strengthened the transmission network. There has been a substantial growth in the transmission network after restructuring. The following table gives an idea of the growth pattern of the transmission network during the last six years:
Growth of Transmission Lines and Sub-stations Particulars 400 kV Lines (ckt km) 220 kV Lines (ckt km) 132 kV Lines (ckt km) 400 kV Sub-stations (No.) 220 kV Sub-stations (No.) 132 kV Sub-stations (No.) Total Increase 2,033 3,259 2,717 3 22 65

The performance improvements achieved by APTRANSCO in the operation of transmission system in the State are: Transmission losses have come down from 8.98 per cent (1999-2000) to 4.91 per cent (2004-05), a reduction of 4.07 percentage points in five years. The maximum and minimum voltages at 132 kV level have improved from 129 kV and 92 kV (1999-2000) to 140 kV and 121 kV respectively by 2004-05. The system frequency has improved from 51.12 Hz (max) and 47.80 Hz (minimum) in 19992000 to 50.84 Hz (max) and 48.62 Hz (minimum) in 1.4

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2004-05. It would be seen that both the maximum and minimum frequencies have been brought closer to the standard figure of 50 Hz. 1.5.3 Distribution With the separation of electricity distribution function from APTRANSCO, four DISCOMs came into existence from the year 2000. Several improvements have been noticed in the performance of the Utilities after restructuring. The companies have achieved considerable reduction in distribution losses. The position in the last four years is shown below: Reduction in Distribution Losses
DISCOM SPDCL NPDCL CPDCL EPDCL Distribution Losses (%) 2001-02 2004-05 21.31 18.12 26.81 19.20 27.10 20.17 17.90 15.30

After restructuring of APSEB, the failure rate of distribution transformers (DTs) has been brought down substantially. This is evident from the table given below: Distribution Transformers Failure Rate (%)
DISCOM SPDCL NPDCL CPDCL EPDCL 200102 14.16 24.42 N.A. 13.87 200203 9.26 18.83 16.27 9.48 200304 8.45 15.81 11.87 7.25 200405 7.01 11.72 9.48 N.A.

Since a large number of DTs have been added in the system and High Voltage Distribution System (HVDS) has also been adopted, the failure rate is likely to go down further. Addition of new DTs will also result in relieving the overloaded DTs. The improvements made in metering by the DISCOMs are: All categories of services, except agricultural, are provided with meters. Almost 100 per cent services in these categories have been metered. Metering of agricultural services is 21 per cent in SPDCL, 8 per cent in EPDCL and 2 per cent in the other two DISCOMs. 1.5

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Study on `Impact of Restructuring of SEBs The metered consumption has increased from 38 per cent in 1999-2000 to 52.4 per cent by 2004-05. Electronic meters have been installed in respect of all industrial and high value services. Metering of all 33 kV and 11 kV feeders has been completed. About 36,300 DTs are provided with meters.

There is a marked improvement in the billing and collection of revenues after the restructuring. This is evident from the figures given below: Billing demand has increased from Rs 4,841 crore (1999-2000) to Rs 8,817 crore (2004-05). The overall collection efficiency in the post-reform period is ranging from 96.52 to 102.87 per cent as compared to 92.74 per cent in 1999-2000.

The turnover of the DISCOMs has increased year by year and the companies have achieved turn around from loss making to profit earning entities. EPDCL is in profits from 2002-03 onwards. SPDCL and NPDCL achieved the turn around by 2003-04, while the CPDCL has joined them in 2004-05. Thus all the six restructured power utilities in the State are in the profit margin from 200405. 1.5.4 Subsidy Prior to reform and restructuring, no cash subsidy was being provided by the State Government, though there were accounting adjustments like conversion of loan into equity, etc. Consequent to restructuring, the Government has provided revenue subsidy in cash, in compliance of the Tariff Orders of APERC Due to substantially better performance by the Utilities, the subsidy component has come down gradually from Rs 1,626 crore in 2000-01 to Rs 1,303 crore in 2004-05. The cross-subsidy component in the tariff structure has also gradually come down from 24.35 per cent in 2000-01 to 16.39 per cent in 2004-05. There has also been a reduction in the retail tariffs in respect of the subsidising categories of consumers (i.e. industrial and commercial) over the years.

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1.5.5 Customer Service After restructuring, APERC has not only fixed the standards of performance (SOP) but is also monitoring their implementation. As a result, there is a marked improvement in the consumer services. Consumer grievance redressal forum has been established in each DISCOM and the Ombudsman has also been appointed to handle appeals. 2 ISSUES AND WAY FORWARD Restructuring of SEBs is only an important step in the reform process of the power sector. However, much more needs to be done till the goal of creating a vibrant and viable power sector is reached. To achieve this, the sector needs continued support from the Government. The way forward to ensure sustained growth is: The newly established power Utilities need to pursue the reform initiatives to further improve their performance on a sustainable basis. It is imperative that the boards of directors of the Utilities are strengthened by inducting experienced professionals from the fields of power engineering, management, and finance, etc., as part time directors. Action has to be taken to develop competent cadre of professionals to man senior positions in the restructured Utilities. In the meanwhile, professionals with adequate experience can be inducted on contract basis to the top-level positions in areas like finance, human resources, information technology, etc. Directors on the boards of the newly created entities should be inducted through a transparent selection process to ensure that only competent professionals of adequate experience man these key positions. The functional directors in the Board need to be given autonomy to operate and take decisions independently on the subjects allotted to them. Only policy issues need to be brought before the Board. There is a need to delegate authority and responsibility to the managers/officers at all levels. It would help in fixing accountability and also enhance the scope for developing managerial skills. DISCOMs have not been accorded full autonomy. Though the DISCOMs were separated from APTRANSCO more than five years ago, they are still 1.7

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Study on `Impact of Restructuring of SEBs operating under the directions and guidance of the APTRANCO. Each DISCOM should be empowered to function independently, guided by its own board of directors. After restructuring, engineering professionals, with adequate experience from the power sector, were appointed as CMDs for five out of the six Utilities. At present, only one DISCOM is headed by an engineering professional. The power sector needs the services of experts with knowledge of intricate problems of the sector. The need of the hour is to choose competent persons with knowledge, experience and expertise in the relevant field for heading the power Utilities. Adequate avenues should be created so that, in course of time, competent and deserving professionals get an opportunity to rise to head the Utilities. The vigilance activity in the DISCOMs is presently being controlled through the Joint Managing Director (Vigilance) of APTRANSCO. It should be decentralised and each DISCOM needs to handle this activity independently.

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CHAPTER 1 GENERAL FINDINGS AND RECOMMENDATIONS


1.1 IMPLEMENTATION OF REFORMS Andhra Pradesh has achieved a fair amount of success in the implementation of power sector reforms. The process of implementation of power sector reforms and restructuring in Andhra Pradesh was quite smooth with least resistance from its main stakeholders - the employees. The systematic approach adopted in identifying the problems and tackling them with utmost care right from the very beginning has yielded good results. The methods adopted may serve as useful guide to other States, which are contemplating to go for power sector reforms. The major factors that contributed to the success of reforms in the State are: Support of the State Government. Creation of a separate Reform Cell headed by a chief engineer in APSEB for carrying out the reforms process. Creation of working groups in the reforms cell by pooling resources from both the retired and serving officers of the APSEB, whose rich experience and exposure to the problems of the power sector have greatly helped in planning and implementation of the reform programme. Giving wide publicity to the problems being faced by the power sector and the necessity for undertaking reforms. Carrying out negotiations with the employee associations and unions and gaining their support by entering into tripartite agreements involving the State Government, APSEB and the employees associations/unions. Recognising the employees as major stakeholders in the reform process and addressing their concerns. Sensitising the legislators, media representatives, industrial and other consumer associations and employees on the then ongoing reform programme. Involvement and active participation of the Secretary (Energy) of the State Government and the Members of APSEB in the weekly meetings conducted to review the progress of reform activities. 1.9

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Study on `Impact of Restructuring of SEBs Provision of good consultancy support by M/s ICICI, SNC Lavalin (Canada), PricewaterhouseCoopers, Arthur Anderson, NERA and others. 1.2 MILESTONES Important milestones in the implementation of power sector reforms in Andhra Pradesh are: Entering into tripartite agreements with the employee associations and unions. Enactment of Andhra Pradesh Electricity Reform Act, 1998 (Act No. 30 of 1998 of Andhra Pradesh) and creation of Andhra Pradesh Power Generation Corporation (APGENCO) for generation function and Andhra Pradesh Transmission Corporation (APTRANSCO) for transmission and distribution functions from 1 February 1999. Establishment of Andhra Pradesh Electricity Regulatory Commission on 1 April 1999. Creation of four separate DISCOMs, namely EPDCL (headquarters, Visakhapatnam), NPDCL (headquarters, Warangal), CPDCL (headquarters, Hyderabad and SPDCL (headquarters, Triupati) as subsidiaries of APTRANSCO. Conferring financial autonomy on the DISCOMs. APTRANSCO withdrawing from the power trading function and entrusting the responsibility of purchasing bulk power directly from the generating companies to the DISCOMs.

1.3

GENERAL FINDINGS AND LESSONS LEARNT The general findings and lessons learnt regarding specific issues in the power sector reform and restructuring process in Andhra Pradesh are discussed below:

1.3.1 Political Support Andhra Pradesh was fortunate in getting strong political support for the power sector reforms from the beginning. Shri N.T. Rama Rao, the then Chief Minister of Andhra Pradesh, took the initiative in 1995, by appointing a High Level Committee to study and report on the ways and means to restructure the SEB. In 1997, the Government came out with a policy statement on reforms and restructuring of the power sector. The Government actively supported the 1.10

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publicity campaign undertaken by the APSEB to educate the public on the need for reforms. The policy statement of the Government clearly indicated that steps would also be taken to promote private sector participation in distribution. It reflected strong political support to the power sector reforms. No wonder, the process of implementation of the power sector reforms and restructuring was carried out smoothly with least resistance from the employees. 1.3.2 Planning and Consultants Support The policy statement of the Government provided the general outline of the proposed reforms and the changes contemplated in the organisational structure. Detailed analysis of issues involved, planning and implementation of various steps in the reform process were carried out by the specially created Reforms Cell with the active support of the Government and the APSEB. Valuable inputs provided by the national and international consultants helped in resolving issues at various stages of the reform process. . As major chunk of the Technical Assistance support was through grants, there was not much financial burden on the State for receiving the consultancy support. Good consultancy support in the initial phase of reform process is an essential requirement for the success of the reforms. It was available for Andhra Pradesh through ICICI (financial restructuring), SNC Lavalin (technical fields such as load forecasting, generation planning, load flow studies, transmission planning, etc.), PricewaterhouseCoopers (organisational structures, human resources, etc.) Arthur Anderson (institutional development) and National Economic Research Associates, USA (assistance to the Regulatory Commission). 1.3.3 Impact of Electricity Regulatory Commission The regulatory process is a very vital element of the reform and restructuring process of the power sector. Establishment of an independent Regulatory Commission is essential not only to exercise regulatory control but also to bring in the necessary co-ordination between different entities/players created in the process of restructuring. APERC came into existence w.e.f. 1 April 1999. The Commission took control of regulating the power sector in right earnest. Measures taken by APERC, which had impacted the State power sector are:

1.11

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Study on `Impact of Restructuring of SEBs Granting of Licenses to APTRANSCO (transmission and bulk supply license) and the four DISCOMs (distribution and retail supply license), prescribing detailed conditions to carry out their functions. Prescribing standards of performance to the licensees. Carrying out tariff adjustments every year. Tariff revisions were not allowed earlier for political reasons in spite of rising costs of inputs and labour. Fixing the subsidy to be provided by the Government annually and ensuring the flow of subsidy to the power Utilities on a regular basis. Earlier, there was no flow of cash subsidy. Bringing transparency in the functioning of power Utilities by conducting public hearing on tariff filings. Allowing only prudent expenditure by exercising control over the investments proposed by the Utilities. Scrutiny and clearance of the power purchase agreements proposed to be entered into by the Utilities. All the above measures taken by APERC have started yielding results and the improvement in the overall functioning of the Utilities are quite visible. The major gains of the measures taken by the APERC are: Regular annual tariff adjustments allowed by the Commission has bridged the gap between the expenditure and revenue. The revenue deficit for the year 1997-98 was about Rs 1,170 crore. There is regular flow of cash subsidy from the Government and a gradual reduction in the subsidy component on account of efficiency gains. It has come down from Rs 1,626 crore (2000-01) to Rs 1,303 crore (2004-05). The efficiency improvements in metering, billing and collection, brought about with the close monitoring by the Commission, has largely contributed to the increase in the annual receipts from Rs 4,841 crore (1999-2000) to Rs 8,817 crore (2004-05). Overall T&D losses have come down from 38 per cent (1999-2000) to 21.4 per cent (2004-05). Gradual reduction in cross-subsidy component provided by the industrial sector, resulted in reduction in the retail tariffs applicable to the sector. 1.12

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Standards of performance for consumer services are fixed and enforcement mechanism ensured through the consumer grievance redressal forums established in the DISCOMs and the appointment of Ombudsman. 1.3.4 Organisational Development and Autonomy The power industry in the State grew phenomenally during almost four decades of the existence of APSEB. Rise in consumer strength from a mere two lakh in 1960 to more than one crore by 1998-99 indicated its growth in good measure. Along with the growth, APSEB, a vertically integrated power Utility, had to encounter certain managerial problems, both operational and financial in nature. On account of the increasing gap between the demand and supply, the Board has to impose power cuts and restrictions affecting the quality of supply. Non-remunerative tariffs and revenue deficits had left APSEB in a financial crunch, posing a serious challenge to its capacity of debt servicing and resource mobilisation. After studying and analysing the prevailing conditions, the High Level Committee of experts, appointed by the Government, suggested bringing in certain changes in the organisational structure of the power industry in the State. In 1997, the Government gave its approval for reform and restructuring of power sector. Ultimately the restructuring of APSEB took place in February 1999 and two corporate entities Andhra Pradesh Power Generation Corporation (APGENCO) for generation function and Transmission Corporation of Andhra Pradesh (APTRANSCO) for transmission and distribution functions were created. The distribution function was later separated from the APTRANSCO and vested in four DISCOMs created on geographical area basis (north, east, central and south). 1.3.4.1 Benefits The benefits derived by creation of corporate bodies in place of APSEB are analysed hereunder: APSEB was one of the largest power Utilities in the country and it had become unwieldy to manage effectively. Six separate corporate entities were created in place of APSEB to manage the affairs either on functional lines as in the case of generation and transmission companies or on local area segment basis as in the case of DISCOMs. In the restructured scenario, inefficiencies are localised and largely identified by the DISCOMs. The State generation company took control of 1.13

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Study on `Impact of Restructuring of SEBs power stations in the State and faced no problems of management. The transmission company has generally being running in an efficient manner and transmission losses in the system are not very high. There have been significant achievements in the reduction of the distribution losses after the DISCOMs came into existence. In the integrated set up (APSEB), inadequate investments were made on development of transmission and distribution network as priority was always accorded to the generation segment. Now the companies can independently plan and implement their investments. In APSEB, project finances, received from the funding agencies for the transmission and distribution networks, were often getting diverted to the generation segment. In the present set-up, there is no scope for such a contingency. APSEB was functioning more or less like a Government department with little or no commercial orientation. The new corporate bodies can bring in more commercial focus in their functioning. It has become easier for the DISCOMs to obtain project approval, sanction of estimates/funds because of the existence of local corporate headquarters. 1.3.4.2. Deficiencies The deficiencies in the organisational structure in Andhra Pradesh power sector are: DISCOMs have not been accorded full autonomy. These companies are still functioning under the directions and guidance of APTRANSCO. There is a need for clear-cut delegation of powers and authority to different levels of managers/officers. At present, almost all powers and authority rest with the corporate headquarters, as was the case with the erstwhile APSEB. Not much of accountability and responsibility are assumed by the fieldlevel officers since adequate powers and authority have not been delegated to them. Such an environment is not conducive for the development of managerial skills in the individuals, who have to provide quality output in their day-to-day operations. Poor quality of output not only hampers the progress but also eventually affects the performance of the company. The board of directors of the restructured entities are appointed by the Government, which holds 100 per cent shares in these companies. Many a time, the selection is not based on the knowledge and competence of the 1.14

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individuals but by other considerations and compulsions. Consequently, the new corporate bodies are unable to achieve the reform goals since their top managements are ill-equipped to take forward the reform initiatives. The bureaucratic influence on the governmental decisions has resulted in Chief Executive level positions (i.e. CMDs) in the restructured corporate bodies being gradually occupied by the officers from the administrative service, ignoring even the competent engineering professionals with experience of more than three decades in the power sector. The incumbents from the administrative service are often being transferred in a short span of a year or two. Such decisions and practices can hamper the progress of reform. The functional directors in the Board have not been given full autonomy to take decisions independently on the subjects allotted to them. One of the major goals of reform is to limit the role of the Government to policy and planning matters, leaving the day-to-day management of the power Utilities to the respective Boards. However, in actual practice, the interference and influence by the Government is still in evidence.

The power Utilities in Andhra Pradesh will be able to perform much better if the above deficiencies are suitably addressed. 1.3.5 Human Resources Development Human Resource Development is recognised as a vital factor for the healthy development of the power sector. Employees are major stakeholders in the reform process and their support is necessary for successful implementation of reforms. Realising the above fact, negotiations were held with the employee associations and unions in Andhra Pradesh in the early stages of the reform process. Tripartite agreements were entered into with the employees associations and unions, assuring them that the service interests and conditions of the staff would be safeguarded. 1.3.5.1. Human Resources Management The restructured power Utilities have taken the following steps in HR management: Created separate human resource management cells in each company to handle HR issues. 1.15

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Study on `Impact of Restructuring of SEBs Inducted HR specialists from outside to head the HR management cells. Availed consultancy support to frame new service conditions for the employees recruited by the companies and to suggest improvements in the service conditions of the existing employees. Compiled relevant data of the existing employees. 1.3.5.2. Action Called For Despite efforts made in this direction, further steps are required in the following areas: Effective HR planning and forecasting the future HR needs. Performance management including developing the performance indicators and institutionalising the performance review system. Developing job descriptions and specifications. Recruitment and selection strategy and career development. Promotion and transfer policies. Developing competency profiles and regular monitoring/review of competency of senior level managers. Improvement of the training facilities and planning and conducting regular courses for skills development of the personnel of the Utilities. Effective dispute resolution and grievance redressal process. Creation and maintenance of an effective HR information system. 1.3.6 Performance Improvement After restructuring, there is a marked overall improvement in the operations of the power Utilities in Andhra Pradesh. Major improvements have been brought about in the following areas: Metering, billing and collection of revenues. Bridging the gap between expenditure and receipts. Facilitation of flow of funds for capital works. Reduction in AT&C losses. Reduction in transformer failure rate.

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Improved customer care. However, there is scope for further improvements as indicated below: Continuation of firm support from the Government for reform and restructuring; Appointment of persons committed to reforms to the board of directors; Establishment of transparent and proper selection process for appointments of the CMD and other board directors. Strengthening vigilance cells in the DISCOMs to take effective measures to minimise electricity thefts. At present, the vigilance activity of all the four DISCOMs is controlled and monitored through the Joint Managing Director (Vigilance) of the transmission company. Decentralisation of this activity will place more responsibility on the individual boards of managements and foster competition to curb pilferages and thefts of energy. Personnel chosen to serve in the Vigilance Cells should be of proven integrity. There is a general impression that the morale of the staff at consumer interface point is low. The management should take effective measures to address this issue. 1.3.7 Customer Satisfaction Measures taken to improve customer service include: Fixing of consumer service standards by the Commission. Consumer grievance redressal procedures. Institutionalising the consumers grievance redressal mechanism by creating consumer grievance redressal forums and the institution of Ombudsman. Creation of consumer complaint cells at sub-division level for recording and monitoring complaints. As a result of the measures already taken, there is an improvement in the customer care. However, further improvements can be achieved by fully and effectively operationalising the consumer grievance redressal forums.

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Study on `Impact of Restructuring of SEBs 1.3.8. Implementation of parallel measures including APDRP The DISCOMs have received good support from the Accelerated Power Development and Reforms Programme (APDRP) for network strengthening. The schemes covered under APDRP are in various stages of implementation. The following benefits have been derived by implementing the schemes under APDRP: Reduction of distribution losses; Reduction of interruptions; and Reduction in over loading the power and distribution transformers, thereby reducing the transformer failures. The following measures are suggested for effective use of resources under APDRP: Realistic assessment of the improvements required in the project areas at the time of preparation of the project; and Benchmarking the parameters for proper assessment of the benefits derived after implementation of the projects.

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CHAPTER 2 RESTRUCTURING EXERCISE


2.1 INTRODUCTION APSEB was one of the well-managed SEBs in the country. It was consistently earning three per cent rate of return (ROR) on net fixed assets till the late 1980s. The financial strain started in the 1989-90, when it achieved only 0.81 per cent ROR. The deterioration in the financial position continued and by the end of 1997-98, the outstanding dues of APSEB were the order of Rs 2,600 crore. The worsening financial situation of APSEB was caused by: Increase in the capital costs due to increase in the costs of capital equipment; Increase in the running costs due to increase in the costs of fuels (coal, oil, etc.) and transportation charges; Increased burden of debt servicing; Lack of political support to allow tariff adjustments to meet the growing cost of supply; Introduction of slab rate tariff to agricultural consumers in 1982-83; Increase in consumption by the agricultural consumers due to the addition of adding new services (of the order of one lakh or even more every year); No flow of cash subsidy from the State Government; and Rising T&D losses due to inadequate investments in the T&D network expansion and illegal tapping of electricity by the users. Due to the prevailing financial crisis, APSEB was not in a position to raise funds for its capital investments. Even the Power Finance Corporation (PFC) and the Rural Electric Corporation (REC) had stopped further lending on account of mounting overdue payments. The Independent Power Producers (IPPs) were facing problems in getting financial closures for their projects because of the weak financial health of APSEB, which was conceived as the sole buyer of the power produced by them. The FIs, both national and international, started insisting on reform and restructuring of APSEB as a precondition for lending support for the capital requirements of the power

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Study on `Impact of Restructuring of SEBs sector. Realising the gravity of the situation, the State Government decided to go in for reform and restructuring of APSEB. 2.2 BACKGROUND

2.2.1 High Level Committee Realising the need for reform and restructuring of APSEB, in January 1995, the State Government appointed a High Level Committee headed by Shri Hiten Bhaya, ex Member, Planning Commission, to study and report on the issues of restructuring of power sector, private investments in the industry, guidelines on tariffs, etc. The High Level Committee, consisting of the following eminent power sector experts, presented its report to the Government in April 1995: Shri Hiten Bhaya, Ex-Member, Planning Commission Shri N. Tata Rao, Ex-Chairman, APSEB Shri S. Sankara Guru Swami, Ex-Secretary (Energy), Government of India Shri K. Balaram Reddy, Chairman, APSEB Shri E.A.S. Sarma, Secretary (Energy), Government of A.P. Chairman Member Member Member Member

One of the major recommendations of the Committee was restructuring of power sector by separating generation, transmission and distribution functions. The report was immediately placed before the State Assembly for a debate. 2.2.2 Common Minimum National Action Plan The Government of India had taken several initiatives to revitalise the ailing power sector in the country including convening a Conference of Chief Ministers of different States. The outcome of the Conference was the recognition of the need for reforms in the power sector and enunciating the steps required to be taken by the State Governments to implement the reforms. The Common Minimum National Action Plan for Power was released by Government of India after the Chief Ministers conference. The Common Minimum National Action Plan contained among other things: Restructuring of SEBs; Setting up of an autonomous State Electricity Regulatory Commission; Private sector participation in distribution business; and 1.20

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Tariff for agricultural sector to be fixed at not less than 50 paise per unit (kWh) to start with and gradually to be brought up to 50 per cent of the average cost of supply. 2.2.3 Policy Statement on Reforms The Government of Andhra Pradesh, duly recognising the need for reforms in the power sector, issued a policy statement in April 1997 clearly stating the objectives of the reforms and the strategy to be followed in implementing them. Restructuring the APSEB, establishment of an independent SERC and tariff reforms were part of this strategy. The restructuring contemplated in the policy statement was as indicated below: Restructuring of the APSEB, by way of restructuring the vertically integrated Electricity Board into commercially viable functional entities for generation, transmission and distribution. The transmission function will be handled by the APSEB, which itself would be converted into a corporate body under the Indian Companies Act, 1956 with the State Government as the sole equity holder. The generating stations of the APSEB would also be constituted into a separate generating company. The power distribution system in the State shall be separated into distinct contiguous areas, each of which would be administered by a separate DISCOM. Each DISCOM would be sustainable both technically and financially on an autonomous basis. In the first instance, all such DISCOMs would function as wholly-owned subsidiaries of the transmission company. Based on further technical studies, steps would be taken to promote private sector participation in distribution through setting up of appropriate mechanisms like joint ventures, etc. It is clear from the above that the State Government intended to promote private sector participation in the distribution business. 2.2.4 Performance of APSEB APSEB was one of the largest and most efficiently run power Utilities in the country. Since the formation of the Board in 1959, the State witnessed phenomenal growth in the power sector. The figures given below bring out the tremendous achievements made by APSEB during its existence of about four decades:

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Study on `Impact of Restructuring of SEBs Particulars Installed generation capacity (MW) Villages electrified (No.) No. of consumers (lakh) No. of agricultural connections (lakh) 1959-60 213 2,496 2 0.13 199798 7,276 26,565 (100%) 100 20

In spite of the impressive performance of APSEB, it had to face certain serious problems in managing the power sector. Some of them were: Increasing revenue deficit year after year; Coping with un-remunerative tariffs due to lack of support from Government for tariff revisions; Outstanding liabilities (amounting to Rs 2,600 crore) at the end of the year 1997-98; Due to poor financial position of the Board, FIs were not willing to provide project finances; Due to lack of adequate investments, the gap between demand and supply widened; Power shortages which led to increased power cuts; and Government not providing subsidy in cash. 2.3 PROGRESS OF RESTRUCTURING The reform and restructuring exercise in Andhra Pradesh power sector started in June 1997 with the creation of a Reform Cell. Officers, with requisite skills and experience (serving as well as retired) were selected and drafted to the Reform Cell. Ten working groups were also constituted. Each group was entrusted specific task. The reports prepared were presented to the members of the Board for appropriate decisions. Active involvement of the members of the Board in the reform exercise was evident from the fact that the weekly meetings were held at Board level to review the progress of reform activities. Secretary (Energy), Government of Andhra Pradesh also took part in these review meetings. The process followed greatly helped in implementation of the restructuring process. On 1 February 1999, APSEB was restructured into APTRANSCO and APGENCO.

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APTRANSCO handled the transmission and distribution functions and APGENCO was assigned the generation function. Subsequently, the distribution function was separated from APTRANSCO and the following DISCOMs were created: DISCOM APEPDCL APNPDCL APCPDCL APSPDCL Headquarters Vishakapatnam Warangal Hyderabad Tirupati

The APERC came into existence in April 1999. The following milestones are worth mentioning: Carrying out publicity campaign to gain requisite support of various stakeholders; Conducting negotiations with employees associations and unions and entering into tripartite agreements; Enactment of the Andhra Pradesh Electricity Reform Act, 1998; Preparation and implementation of two Transfer Schemes one for transfer of assets, liabilities and personnel from APSEB to APGENCO and APTRANSCO and the other for transfer of distribution assets, liabilities and personnel from APTRANSCO to the four successor distribution companies; and Preparing the Financial Restructuring Plan (FRP) and obtaining the necessary approval.

Initially, the bulk supply trading function was with APTRANSCO. However, in line with the provisions of the EA, 2003, the trading function has since been transferred from the APTRANSCO to the respective DISCOMs. 2.4 PRESENT STATUS As a result of restructuring, six corporate entities have come into existence in place of APSEB. APERC, established in April 1999, has so far issued seven tariff orders starting from the year 2000-01. The rural electric co-operative societies have been merged with the territorial DISCOMs. Andhra Pradesh did not encounter any major problems in the restructuring exercise. So far the implementation of reform measures has been smooth and successful. 1.23

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3.1 ORGANISATIONAL PATTERN OF THE RESTRUCTURED ENTITIES The Reforms Cell, set up by APSEB, developed the organisational structures for APGENCO and APTRANSCO. Recommendations on issues such as composition of the board of directors (whole-time and part-time) were placed before the APSEB and the Government and the same were accepted with minor modifications. The top level management structures implemented for APGENCO and APTRANSCO initially are indicated below: 3.1.1 Structure of APGENCO APGENCO Top-Level Organisational Chart
Chairman & Managing Director (CMD)

Director/ Thermal

Director/ Hydel

Director/ Technical

Director/ Finance

Director/ Commercial

Executive Director/HR

Executive Director (HR) is not a member of the board of directors but he will function independently and report directly to the board. The other six (including CMD) are whole time functional directors. Though the maximum number of Directors in the company can go up to 12, the actual number of directors is restricted to six. There are no independent outside directors (parttime) on the board. 3.1.2 Structure of APTRANSCO: APTRANSCO Top-Level Organisational Chart
Chairman & Managing Director (CMD)

Director/ Director/ Transmis Distributi sion on

Director/ Distn-II

Director/ Distn-III

Director/ Tech.

Director/ Comml.

Director/ Finance

Director/ Time Directors-3

Of the two independent directors on the Board, one is the CMD of APGENCO and the other is a representative of the Power Grid Corporation of India

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs Limited (PGCIL). The Secretary and the Member (Finance) of the erstwhile APSEB have been inducted to the positions of CMD and Director (Finance) respectively in the board of directors of APTRANSCO. All other directors appointed are from engineering background with experience in APSEB. Subsequently, the Board has been further expanded with the induction of two joint managing directors, one for HR and administration (from Indian Administrative Service) and the other for vigilance and security (from Indian Police Service). With the creation of four DISCOMs certain changes have been made in the composition of board of directors of APTRANSCO. The three positions of Director (Distribution) have been abolished and the incumbents posted as MDs of three DISCOMs. The Director (Technical) of APTRANSCO was posted as MD of the fourth DISCOM. The MDs of the DISCOMs were later made CMDs of the same. The structure of the APTRANSCO management board has been further altered. At present, Principal Secretary (Energy) and Secretary (Finance) of the State Government are part-time directors in the board of APTRANSCO. 3.1.3 Structure of DISCOMs DISCOMs were created as subsidiaries of APTRANSCO in 2001. Initially, the companies started functioning with only one top-level executive, i.e., the managing director. The CMD of APTRANSCO was Chairman of all the four DISCOMs. The DISCOMs have later become autonomous and their Boards were reconstituted with the induction of whole-time directors and redesignating the managing director (MD) as chairman and managing director (CMD). The top-level organisational structure of the DISCOMs is indicated below: Top-level Organisation Chart of DISCOMs
Chairman & Managing Director (CMD)

Director/ Operations

Director/ Projects

Director/ Planning & Commercial

Director/ Finance

Non-Whole Time Directors-2

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Any two whole time directors of APTRANSCO also function as part-time directors in each DISCOM. One of the four DISCOMs has only four wholetime directors, including the CMD, whereas the other three DISCOMs have five whole-time Directors. 3.2 FUNCTIONAL AUTONOMY AND INADEQUACIES APGENCO and APTRANSCO have adequate functional autonomy, since there is minimal interference by the Government. The DISCOMs originally started as subsidiaries of APTRANSCO and later became independent with the constitution of their own Boards of directors. The power procurement function, which was handled earlier by APTRANSCO, is now being performed by the respective DISCOMs under the multi-buyer model (MBM). However, the DISCOMs are still functioning under the control and guidance of APTRANSCO.

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Study on `Impact of Restructuring of SEBs

CHAPTER 4 SPECIFIC ISSUES


4.1 GENERATION Consequent to restructuring, the generation assets of the erstwhile APSEB were vested with APGENCO. The company undertakes the responsibility of operation and maintenance of the existing power plants and also takes part in creating new capacity additions in the State. The company initially had power purchase agreements (PPAs) with APTRANSCO. Since the bulk supply trading function is no longer with APTRANSCO, power generated by APGENCO is being directly sold to the four DISCOMs in the State w.e.f. June 2005. 4.1.1 Capacity Additions At the time of initiating reforms, it was contemplated that most of the future capacity additions would come from independent power producers (IPPs) and the contribution from APGENCO would be very limited. The planning cell and the investment promotion cell, which were looking after capacity additions in APSEB, were transferred to the control of the transmission company at the time of restructuring. Hence the responsibility of planning for capacity additions, calling bids and entering into commercial agreements rested with APTRANSCO. The generation capacities, as existing at the end of 199899 (a year prior to restructuring) and end of 200405, from various sources are indicated below: Table: Progress in Installed Generating Capacity
Source State Sector (APSEB/APGENCO) Central Sector Joint Sector Private Sector Non-conventional Energy and other sources Total Installed Capacity (MW) 199899 5611 885 272 424 138 7330 200405 6581 2571 272 999 683 11106 Increase 970 1686 575 545 3776

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It can be seen that the major capacity additions of 1,686 MW had come from the central sector, of which 1,000 MW was from the State dedicated Simhadri Power Station of NTPC, located at Vishakapatnam. Private sector contribution was only 575 MW in six years. The following major power stations, planned under the private sector, did not materialise for want of financial closures: 1000 MW Power Station at Vishakapatnam by M/s Hindujas. 1000 MW Power Station at Krishna Patnam by M/s GVK Power and BBI. 500 MW Power Station at Ramagundam by M/s BPL.

After restructuring, APGENCOs major contribution was the 900 MW Srisailam Left Bank Hydel Station (6x150 MW). The balance sheets of the State Utilities has inspired enough confidence in the FIs to provide financial support for the projects of APGENCO. The following projects of APGENCO are under various stages of execution:
Project RTPP-II Stage VTPS-IV Stage KTPS-VI Stage Bhupalapalli Thermal Station Jurala Hydel Station Nagarjunasagar Tailpond Hydel Station Pochampad Hydel Station Unit-4 Total Capacity 2 x 210 MW 1 x 500 MW 1 x 500 MW 1 x 500 MW 1 x 39 MW 5 x 39 MW 2 x 25 MW 1 x 9 MW 2,213 MW Schedule of Completion 2006-07 2008-09 2009-10 2008-09 2006-07 2008-09 2008-09 2008-09

The following gas-based power plants, under the private sector, are expected to be commissioned soon: GVK Extension I Vemagiri Stage I Gouthami Stage I Konaseema 220 MW 370 MW 464 MW 445 MW

Overall, there is satisfactory progress in capacity additions after reform and restructuring of the power sector.

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Study on `Impact of Restructuring of SEBs 4.1.2 Operational Efficiency The performance of APGENCO is shown in the table below: Performance of APGENCO
Parameters Installed capacity (MW) Energy generated (MU) Auxiliary consumption (%) Secondary oil consumption (ml/kWh) Plant Load Factor (%) Plant availability (%) Employees per MW of Installed capacity Performance After Restructuring 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 5,611.5 5,626.5 5,627.5 5,927.5 6,396.7 6,560.9 27,022.8 29,632 29,163 28,003 2,6370 25,420 9.17 9.21 9.09 9.01 9.07 9.15 1.70 77.6 84.8 2.56 1.26 83.2 89.7 2.69 0.98 85.1 89.2 2.16 0.95 86.3 89.6 2.06 0.64 88.9 92.5 1.85 0.56 86.0 90.6 1.77

2004-05 6,580.9 28,717 9.09 0.50 89.7 92.5 1.72

The above performance data reveals the following: The energy generation increased initially in the first two years after the new company was formed but again fell on account of shortfall in Hydel generation due to inadequate inflows into the reservoirs; PLF has increased from 77.6 per cent in 1998-99 to 89.7 per cent in 200405; Plant availability has increased from 84.8 to 92.5 per cent during the same period; Auxiliary consumption is consistently in the range of 9 per cent; Secondary oil consumption has come down from 1.70 ml/kWh to 0.50 ml/kWh in the last six years; and The ratio of employees per MW installed capacity has gradually come down from 2.56 to 1.72.

It is evident from the above that there is commendable improvement in the performance of APGENCO. 4.1.3 Profit/Loss APGENCO has consistently earned profits right from its inception. The following figures show the companys performance from 2002-03 to 2004-05.
Particulars Profit after tax (Rs crore) Percentage of net profit to equity capital 2002-03 55.73 3.23 2003-04 10.46 0.56 2004-05 51.64 2.71

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4.1.4 Way Forward The generation wing of APSEB was performing well even before restructuring. The overall performance of APGENCO has further improved during the last five years. Vijayawada Thermal Power Station and Rayalaseema Thermal Power Station have won national level awards for best performance several times in the last ten years. However, sustained efforts are required to maintain the performance levels. The way forward for the generation company is: (i) Restoring the post of Chairman and Managing Director (CMD). The post was recently split into two positions and the Principal Secretary (Energy) was made the Chairman of APGENCO. Another officer of the administrative services was posted as Managing Director. The position of CMD was created in line with that of the Central power Utilities, as part of the power sector reforms, and splitting it would not serve the purpose;

(ii) Appointment of an experienced and competent generation specialist as chairman and managing director. After the post of CMD was split up the position of managing director has been filled by an officer of the administrative service. Power generation is a highly technical field and requires to be headed by a generation specialist, who has the experience and knowledge of the intricate problems of power generation. There is no dearth of such specialists; (iii) Originally, there was only one PPA between APGENCO and APTRANSCO and the billing was based on the overall cost per unit delivered. The same procedure is continuing even now. There is a need to have station-wise PPAs structured and entered into with the DISCOMs; and iv) There is scope for further reduction in the percentage of auxiliary consumption (which is above nine per cent at present). 4.2 TRANSMISSION As already mentioned, the transmission and distribution assets were initially vested with APTRANSCO at the time of restructuring in 1999. Subsequently in 2002, the distribution business was separated with the creation of four DISCOMs. Again in June 2005, the bulk supply business was transferred from APTRANSCO, leaving only transmission and load dispatch functions under its control. The bulk supply transactions at present are handled directly by the four DISCOMs. In due course, the load dispatch function would get separated and 1.30

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Study on `Impact of Restructuring of SEBs APTRANSCO would manage only the transmission function. Though the distribution function has been separated from APTRANSCO, the company is still exercising control over the four DISCOMs, which is diluting the principle of separating distribution function from transmission. 4.2.1 Reduction in Transmission Losses APTRANSCO has achieved appreciable results in reducing transmission losses as can be seen from the table below:
Particulars Transmission losses (%) Reduction in losses over 1999-2000 (percentage points) 1999 -00 8.98 2000 -01 8.94 0.04 2001 -02 8.18 0.80 2002 -03 7.55 1.43 2003 -04 6.11 2.87 2004 -05 4.91 4.07

Reduction in losses from 8.98 per cent in 1999-2000 (i.e. the first year after restructuring) to 4.91 per cent in 2004-05 indicates the significant efforts made by APTRANSCO in this vital area. Strengthening of the transmission network did not receive adequate attention in the integrated set-up of APSEB. After restructuring, APTRANSCO has been able to pay better attention to strengthening the transmission network. This has resulted in sizeable reduction in transmission losses. 4.2.2 Operational Efficiency Operational efficiency of the transmission system in Andhra Pradesh has improved after restructuring, as can be seen from the reduction in transmission losses in the last five years. The maximum and minimum frequency levels have improved during the same period from 51.12 Hz and 47.80 Hz to 50.84 Hz and 48.62 Hz respectively. The maximum and minimum voltages recorded at 132 kV level in 1999-2000, (i.e. the first year after restructuring) were 129 kV and 92 kV respectively. By 2004-05, the maximum and minimum voltages at 132 kV level have improved to 140 kV and 121 kV respectively. This indicates the improvement in the voltage levels of the transmission system. The availability of the transmission system and the cost recovery after restructuring are indicated in the table below:
Particulars Availability of transmission system (%) Recovery of cost (%) 2000-01 99.60 77.19 2001-02 99.44 97.49 2002-03 99.97 102.47 2003-04 99.35 100.64 2004-05 99.85 100.33

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The system availability has been always above 99 per cent and the cost of recovery has improved to over 100 per cent. 4.2.3 Network Expansion APTRANSCO initially received investment support from the World Bank for the vital projects of network expansion and strengthening. The first 400 kV transmission project was completed with investment support provided by OECF (presently Japanese Bank for International Co-operation or JBIC in short). Financial assistance was also received from PFC and REC for the transmission projects of APTRANSCO. The table below gives an indication of the increased investments in the transmission before and after restructuring;
Before Restructuring Investment Years (Rs crore) 1995-96 99.57 1996-97 60.96 1997-98 115.29 1998-99 205.00 After Restructuring Investment Years (Rs crore) 1999-00 424.19 2000-01 420.14 2001-02 459.11 2002-03 362.62 2003-04 248.01 2004-05 415.38

The transmission network expansion after restructuring is indicated in the table below:
Item 400 kV lines (ckt km) 220 kV lines (ckt km) 132 kV lines (ckt km) 400 kV sub-stations (No.) 220 kV sub-stations (No.) 132 kV sub-stations (No.) At the end of the Year 1998-99 2004-05 2,033 8,203 11,462 10,634 13,351 3 56 78 164 229 Total Increase 2,033 3,259 2,717 3 22 65 Average Annual Increase 339 543 453 1 4 11

The above figures reveal that greater and focussed attention is being given to expansion of the transmission network after the creation of APTRANSCO. 4.2.4 Way Forward APTRANSCO is among the best performing transmission companies in the country. The company has made sizeable investments and strengthened the transmission network. However, there is scope for further improvement as indicated below:

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Study on `Impact of Restructuring of SEBs (i) Distribution is a separate business, now under the control of the four independent DISCOMs, which are required to perform better in a competitive environment. The only link the DISCOMs have with APTRANSCO is in utilising the transmission network and paying the transmission charges as per the tariff orders of APERC. Under the circumstances, it is appropriate that APTRANSCO does not exercise control over the operations of the DISCOMs, so that their autonomy is ensured;

(ii) The main activities of TRANSCO are: operation and maintenance of the transmission system, carrying load flow studies, planning and executing the network expansion and the load dispatch operations are. Experience and in-depth knowledge of the transmission system operations should be the main criteria for selecting persons to manage TRANSCO. This aspect should be kept in view while appointing CMDs and other directors to the STU. (iii) The appointment of directors should be through an established selection process, keeping in view job specifications, qualifications and experience. (iv) The CMD and other directors should be initially appointed for a fixed period of three years. Any further extension, based on merit, should be for minimum period of two years. (v) After the distribution function has been separated, not much vigilance activity has been left with TRANSCO. Hence, the company does not require a director level officer to oversee the vigilance activities. Each DISCOM may have its own Director/Executive Director position for effective monitoring of vigilance activity. (vi) There is scope and need for further reduction in transmission losses. 4.3 DISTRIBUTION Distribution is the most vital segment of the power industry, which has a direct interface with the end users of electricity. Over the years, there has been substantial growth in the distribution network and the number of consumers. At the time of initiating power sector reforms, the number of electricity consumers in the State was more than one crore. Associated with this growth, the problems of managing the distribution system have also increased, affecting the quality of supply. The gap between expenditure and revenue increased gradually, due to rising input costs, failure to get the tariff adjustments carried 1.33

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out in time and delivery of power to certain categories of customers at subsidised rates, without getting compensated though cash subsidies from the Government. The overdue payments of APSEB to the lenders, suppliers and contractors had crossed Rs 2,600 crore. Due to these circumstances, the State Government has decided to undertake reform and restructuring of the power sector. At the time of restructuring APSEB into two corporations in 1999, the distribution function was vested with APTRANSCO. Later in 2000, the distribution function was separated from APTRANSCO and vested with four area based DISCOMs, as mentioned earlier. An analysis of the performance of DISCOMs during the last four years gives a clear indication of the overall improvements in various fields of distribution business. 4.3.1 Power Supply Position The demand and supply gap in both peak demand and energy existed in APSEB. The shortfall in the peak demand and energy prior to restructuring is indicated in the table below: Peak and Energy Shortfall: Prior to Restructuring of APSEB
Particulars Peak demand (MW) Energy (MU) 1994-95 790 1,609 1995-96 1,000 2,215 1996-97 1,110 2,318 1997-98 850 1,496 1998-99 800 560

Rostering of agricultural feeders and imposing load restrictions on the industrial customers were some of the measures adopted to manage the shortages. Also, there were unscheduled interruptions on account of load shedding. The situation has improved gradually in the post-reform period mainly because of the commissioning of the 900 MW Srisailam Left Bank Power Station and the 1,000 MW NTPCs Simhadri Thermal Power Station (at Vishakapatnam). The shortfall in peak demand and energy in the post-reform scenario are shown in the table below: Peak and Energy Shortfall: After Restructuring of APSEB
Peak load shortage (MW) Energy shortage (MU) 2001-02 10 25 2002-03 4 394 2003-04 4 403 2004-05 113 493

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Study on `Impact of Restructuring of SEBs It can be seen from the above that there is a significant improvement in the power supply position in recent years. At present, there are no load shedding and also there are no restrictions on industrial consumers. 4.3.2 Distribution losses The reduction of losses in the distribution system (both technical and commercial) are shown in the following table:
Distribution Losses (%) DISCOM SPDCL NPDCL CPDCL EPDCL 2000-01 N.A. 26.81 N.A. 17.90 2001-02 21.31 23.28 27.10 17.30 2002-03 21.22 21.24 23.29 16.80 2003-04 19.34 20.24 20.63 15.30 2004-05 18.12 19.20 20.17 N.A. Reduction of Losses in last four years (% point) 3.2 7.6 6.9 2.6

It is observed that the losses in all the four DISCOMs are coming down gradually. The loss levels in NPDCL and CPDCL are high and the reduction in the losses achieved is also substantially high at around seven per cent. The losses in the EPDCL are the lowest at 15.3 per cent. SPDCL has brought down the losses from 21.31 per cent in 2001-02 to 18.12 percent in 2004-05. All the DISCOMs have brought down the distribution losses. 4.3.3 Transformer failures The transformers failure rate (%) in the DISCOMs are as indicated below: Transformers Failure Rate (%)
Particulars Power transformers Distribution transformers Power transformers Distribution transformers Power transformers Distribution transformers Power transformers Distribution transformers 2001-02 SPDCL N. A. 14.16 NPDCL 5.38 24.42 CPDCL 7.65 23.73 EPDCL 6.13 13.87 2002-03 N. A. 9.26 4.53 18.83 3.98 16.27 5.61 9.48 2003-04 N. A. 8.45 3.61 15.81 4.17 11.87 2.03 7.25 2004-05 N. A. 7.01 3.82 11.72 2.99 9.48 N.A N.A

It can be seen from the above, that there is a reduction in the transformer failures (both power as well as distribution transformers) in the DISCOMs. In the case of NPDCL and CPDCL, though the reduction in distribution transformer failures is substantial, the percentages of failures at the end of 1.35

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200405 are still high at 11.72 per cent and 9.48 per cent respectively. Overall, there is a substantial reduction in the DTs failure rate as compared to the 28 per cent in 19992000 (the first year of restructuring). There is scope for further reduction and the trend indicates that the companies will bring in further improvements in the coming years. 4.3.4 Metering The percentages of metered connections are indicated below: Metering in DISCOMs
DISCOM SPDCL Category Agricultural Domestic Industrial Others Agricultural Domestic Industrial Others Agricultural Domestic Industrial Others Agricultural Domestic Industrial Others Percentage of Services Metered 2001-02 70 100 100 3.34 100 100 100 2002-03 97.0 100 100 80 100 100 4.78 100 100 100 2003-04 97.5 100 100 90 100 100 7.86 100 100 100 2004-05 21.40 98.5 100 100 2 100 100 100 2 100 100 100 N.A. 100 100 100

NPDCL

CPDCL

EPDCL

The improvements made in metering by the DISCOMs are as follows: All categories of services except agriculture are metered. The percentage of metered services in all categories, other than agriculture, is almost 100 per cent. Metering of agriculture services is 21 per cent in SPDCL, 8 per cent in EPDCL and 2 per cent in the other two DISCOMs. The metered electricity consumption has increased from 38 per cent in 1999-2000 to 52.4 per cent by 2004-05. All industrial and high value services are provided with electronic meters. All 33 kV and 11 kV feeders in the system have been metered. Metering has been completed in respect of about 36,300 DTs.

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Study on `Impact of Restructuring of SEBs 4.3.5 Billing and Collection The billing demand and collection over the years after restructuring are shown below: Details of Billing and Collection
(Rs crore) Particulars Revenue billed Revenue collection Percentage collection 19992000 4,841 4,490 92.74 2000-01 5,780 5,597 96.84 2001-02 6,438 6,623 102.87 2002-03 7,550 7,451 98.69 2003-04 8,391 8,100 96.52 2004-05 8,817 8,641 97.90

The annual revenue collected has almost doubled in the last five years after restructuring. The collection efficiency has increased from 92.74 per cent in 1999-2000 to around 98 per cent in 2004-05. 4.3.6 Collection Efficiency The collection efficiency in respect of major consumer categories (domestic, agricultural and industrial) in the four DISCOMs are indicated below:
Collection Efficiency (%) Consumer Category Domestic Industrial Agricultural Domestic Industrial Agricultural Overall collection efficiency Domestic Industrial Agricultural 2001-02 2002-03 SPDCL 97.40 98.94 99.23 101.02 85.46 79.92 NPDCL 88.29 92.07 99.79 98.50 78.36 80.52 CPDCL 97.59 91.19 EPDCL 100.00 98.82 100.00 99.06 90.00 86.88 2003-04 97.90 99.67 42.39 84.61 97.87 49.26 102.15 2004-05 95.72 98.77 27.86 91.93 98.32 93.34 95.21

99.33 99.72 64.74

Collections under the domestic and industrial categories are consistently good in EPDCL. In NPDCL the collection efficiency in the domestic category has increased from 88 to 92 per cent, whereas the efficiency in the industrial category has been maintained around 98 per cent. Under the agricultural category, the percentage of collections has come down in the years 2003-04 and 2004-05 in SPDCL due to the continued drought conditions in the area served by the company. Also, the State Governments policy announcement of free power to agricultural category had affected the revenues under this 1.37

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category. In the case of CPDCL, the company has furnished figures of overall collection efficiencies under the three categories. In 2004-05, the overall collection across the State was around 98 per cent. DISCOMs need to put in extra efforts to achieve collection efficiency of 100 per cent and more to reduce the arrears. The arrears of revenue are indicated below:
DISCOM SPDCL NPDCL CPDCL EPDCL 2001-02 297 436 833 114 Arrears (Rs crore) 2002-03 2003-04 347 492 385 214 955 946 106 152 2004-05 443 251 1,085 NA

It can be seen from the above, that over the years that there has been a reduction in the arrears of NPDCL. However, the arrears in the other three DISCOMs are increasing gradually. The arrears of revenue in CPDCL have crossed Rs 1,000 crore. Though the revenue potential of CPDCL is high, compared to the others, the management needs to pay special attention to analyse and bring down the arrears of revenue. EPDCL has the lowest arrears, mainly because of the generally good paying culture of the customers in the region. 4.3.7 Government Subsidy No cash subsidy was provided by the Government, prior to implementation of reforms. After initiating reforms, the State Government provided good financial support both in terms of taking over certain past liabilities and in providing necessary revenue subsidy in cash. The financial support of the State Government in 1999-2000 (the year of restructuring) was Rs 3,064 crore. The details of the revenue subsidy support provided by the Government from 200001 to 2004-05 are shown below:
Utility APTRANSCO SPDCL NPDCL CPDCL EPDCL TOTAL Subsidy provided (Rs crore) during 2000-01 2001-02 2002-03 2003-04 2004-05 1,626 542 438 402 334 547 353 307 342 184 506 579 464 288 212 227 163 1,626 1,561 1,509 1,515 1,303

The subsidy support has come down from Rs 1,626 crore in 2000-01 to Rs 1,303 crore in 2004-05. This is primarily due to performance improvements 1.38

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Study on `Impact of Restructuring of SEBs achieved after restructuring. A reduction of more than Rs 300 crore in the revenue subsidy is significant especially in the context of the present policy of the State Government to provide free power to the agricultural consumers. The Government has also provided additional subsidies as indicated below: Details of Additional Subsidy Provided
(Rs crore) 2000-01 1,309 2001-02 896 2002-03 367 2003-04 2004-05 509

The above data indicates that the State Government is committed to support reforms in the power sector. There is also gradual reduction in the percentage of cross-subsidy component provided by the industrial and commercial categories of consumers as indicated below:
2000-01 Percentage of cross-subsidy 24.34 2001-02 22.49 2002-03 21.68 2003-04 20.00 2004-05 16.39

The reduction in the cross-subsidy component has facilitated reducing the tariffs applicable to the subsidising categories of consumers. The reduction in the tariffs of these categories of consumers is given below:
Consumer/Category LT-Non-domestic Consumption range (kWh) 51100 101200 > 200 First 1,000 units Balance First 1 lakh units Next 1 lakh units Balance Reduction in tariff (paise/unit) From To Difference 660 625 35 700 625 75 745 625 120 385 375 10 430 375 55 280 at 132 kV and 96-115 376 above 310 at 33 kV 66-85 390 330 at 11 kV 46-65 395 365 132 kV and 85 450 above 390 at 33 kV 60 440 at 11 kV 10 460 420 40

LT-Industrial HT-Industrial

HT-Non-industrial

HT-Railway traction

The gradual reduction in the tariffs applicable to the paying categories of consumers would encourage the growth in the number of such consumers. 1.39

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4.3.8 Financial Performance The companies have shown gradual progress in the financial performance over the years as shown below: Financial Performance
DISCOM SPDCL NPDCL CPDCL EPDCL Particulars Turnover PAT/Loss Turnover PAT/Loss Turnover PAT/Loss Turnover PAT/Loss 2001-02 2,076 -2.54 926 -51.09 2,363 0 1,223 -28.90 2002-03 2,389 -2.03 1182 -0.68 3,553 -127 1,415 3.85 (Rs crore) 2003-04 2004-05 2,416 2,468 2.60 5.97 1158 1208 0.95 3.30 4,061 4,959 -21 1.66 1,546 2,013 1.85 15.36

The turnover of each DISCOM has increased over the years. Initially, the DISCOMs were incurring losses. The financial performance has gradually improved over the years. By 2003-04, three DISCOMs could register profits. From 2004-05, the fourth DISCOM (CPDCL) has also started earning profits. 4.3.9 Investments In the pre-reform scenario, the investment support had almost come to a standstill because of the poor financial status of APSEB. PFC and REC have stopped releasing new loans on account of accumulation of over due payments of the past loans. The restructured power Utilities regained the confidence of the investors by clearing their dues. The DISCOMs are now receiving adequate financial support from the FIs for successfully pursuing their schemes. Investments in the distribution segment from 2001-02 to 2004-05 are shown below: Investments in Distribution Sector
(Rs crore) DISCOM NPDCL CPDCL EPDCL 2001-02 81.31 169.44 75.01 2002-03 167.69 343.40 143.52 2003-04 193.25 399.95 181.72 2004-05 212.26 323.27 -

Initially, investment support was provided by the World Bank under the Adjustable Programmable Lending (APL) Loan. Later, support was received from the REC, PFC, etc. After the reforms, there is adequate investment support for the network expansion and improvements as can be seen from the succeeding paragraphs.

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Study on `Impact of Restructuring of SEBs 4.3.10 Network Development The distribution network development before and after restructuring is are as shown below: Development of Distribution Network Prior to Restructuring
Particulars 33 kV lines (ckt km) 11 kV lines (ckt km) LT lines (ckt km) 33 kV sub-stations (No.) Distribution transformers (No.) 1995-96 23,615 1,50,543 3,92,786 1,420 1,41,839 1996-97 24,024 1,53,167 397626 1,470 1,48,024 1997-98 25,216 1,56,634 404621 1,521 1,60,003 1998-99 26,559 1,61,845 414540 1,594 1,71,766 1999-2000 29,884 1,66,244 4,24,277 1,764 1,86,847 Average Annual Growth 1,400 3,628 8,402 85 11,031

Development of Distribution Network After Restructuring


Particulars 33 kV lines (ckt km) 11 kV lines (ckt km) LT lines (ckt km) 33 kV sub-stations (No.) Distribution transformers (No.) Note: The length of 2000-01 30,517 1,69,649 4,60,863 1,862 2,01,801 2001-02 30,537 1,65,299 4,42,209 1,941 2,16,801 2002-03 32,284 1,78,056 4,67,313 2,123 2,42,668 2003-04 32,711 1,86,723 4,73,928 2,329 3,23,033 2004-05 33,560 2,02,282 4,86,191 2,474 4,05,937 Average Annual Growth 735 7,208 12,383 142 43,949

lines (33 kV, 11 kV and LT) were reconciled in 2001-02.

Comparison of the network development before and after restructuring reveals the following: The average annual growth of 33 kV lines after restructuring is low on account of reconciling the figures in 2001-02 and also on account of the length of lines required to be laid for the sub-station being short; The average annual growth of 11 kV lines in the post-reform scenario is almost double the average growth before reforms; Average growth in the LT lines has increased compared to the pre-reform period. It will come down in the future due to adoption of HVDS; The annual average rate of addition of 33 kV sub-stations has increased from 85 to 142; There is fourfold increase in the annual average addition of distribution transformers; and

1.41

Andhra Pradesh High rate of increase in the 11 kV lines and the distribution transformers is on account of introduction of HVDS with single-phase distribution transformers as well as small capacity three-phase distributions transformers (16 kVA and 25 kVA). 4.3.10.1 High Voltage Distribution System The High Voltage Distribution System (HVDS), being implemented by the DISCOMs in Andhra Pradesh, aims at replacement of low voltage network by high voltage network by installing a large number of smaller capacity 11 kV/400 volts transformers for supply to agricultural consumers. The benefits of the implementation of HVDS are: Loss reduction; Prevention of unauthorised agricultural connections; Reduction in transformer failures; and Improvement in efficiency of pumpsets. By the end of 2004-05, the number of pumpsets covered under HVDS was more than 1.4 lakh. The DISCOMs are planning to bring the total agricultural connections under HVDS in a phased manner. Detailed project reports, covering more than 21 lakh pumpsets, have been sent to JBIC and REC for obtaining financial support. 4.3.11 Customer Relations Customer service was not getting adequate attention of the management in the pre-reform period. Consumer service centres have now been established at section level, where the complaints of the consumers are received and attended to. The objective of reforms is to provide quality power to consumers at reasonable rates. In line with the above objective, APERC has taken steps to ensure improvement in customer services. In this connection, APERC has notified the following regulations: Standards of performance; Consumers right to information; Consumer grievance redressal procedure;

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Study on `Impact of Restructuring of SEBs Establishment of forums and Vidyut Ombudsman for redressal of consumer grievances; Licensees duty for supply of electricity on request; and Electricity Supply Code. The standards of performance have been notified by the APERC. It covers the time schedules fixed by the Commission for different services to be rendered by the licensee. The Commission also specified the penalties to be paid by the licensees in the case of default in time schedules specified in the performance standards. Procedures have thus been laid down for implementation of performance standards relating to consumer services. The consumer grievance redressal forums, established in all the four DISCOMs, have started functioning. The institution of Vidyut Ombudsman is also in place to deal with appeals against the orders of the forums. The Number of complaints received from the consumers and attended to by the DISCOMs in recent years is as given below: Details of Complaints
Particulars Total No. of complaints received No. of complaints attended Percentage of complaints attended 2003-04 1,72,693 1,66,531 96.43 2004-05 1,92,731 1,87,619 97.35

Steps taken by the DISCOMs to improve consumer services are as follows: 324 Customer Services Centres have been established to cover all towns, municipalities, corporations and sub-divisional headquarters in the rural areas to handle the complaints; Vidyut Adalats are held to resolve billing complaints at Mandal HQs once in a month; Distribution transformer replacement centres have been increased from 85 to 272; Spot billing, using hand held computers, have been introduced in all the areas; On-line bill collection facility has been made available in Hyderabad City and all the towns through e-seva centres; 1.43

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On-line bill collection facilities to the villages have been introduced through Rural Service Delivery Points (RSDP) centres in stages. So far, 1,400 such centres have been established; Load sheddings are practically nil; Because of various system improvements carried out by the DISCOMs, unscheduled interruptions have been minimised; Reduction in transformers failure rate and the consequent decrease in supply failures; and Maintenance of distribution lines has improved. However, there is scope for further improvement by effective supervision and monitoring the premonsoon inspections and rectification of defects in time.

Overall, the consumer service facilities have improved after restructuring. In future, the customer services are likely to improve further, with the implementation of several steps already taken by APERC/licensee. 4.3.12 Information Technology Initiatives The DISCOMs have taken various steps to introduce Information Technology (IT) application in their operations. The DISCOMs have created IT cells in their corporate offices. The initiatives taken so far are: Establishment of Supervisory Control and Data Acquisition (SCADA) System at Hyderabad for collection, monitoring and analysis of on-line data of the sub-stations in and around Hyderabad city; Billing irregularities and metering errors are tracked using the Consumer Analysis Tool (CAT) software; Monitoring and Tracking System (MATS) is used to track the cases against consumers, right from case booking to its ultimate closure; Transformer Information Managements System (TIMS) tool is being used to track the maintenance schedule of the distribution transformers; Steps have been taken to introduce Remote Meter Reading (RMR) facilities to monitor the number of hours of supply to agricultural feeders; Enterprise Resource Package (ERP) is being introduced for adopting systematic automated procedures; and

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Study on `Impact of Restructuring of SEBs Substantial progress has been achieved in the use of IT in the DISCOMs. There is need to use the existing systems effectively to analyse and take corrective measures wherever required. Also other areas, where the IT can be beneficially utilised, are to be explored for effective management control of the distribution system.

4.3.13 Theft of Electricity Theft of electricity is largely contributing to commercial losses in the distribution sector. Constant efforts are made by the Vigilance Wing and field engineers to contain the theft. The number of cases detected and the amounts recovered year-wise are indicated below:
Particulars No. of theft cases detected Total revenue recovered (Rs crore) 1999-2000 21,586 12.11 2000-01 18,505 9.01 2001-02 35,536 12.61 2002-03 1,08,889 13.16 2003-04 91,168 13.08 2004-05 1,28,006 11.08

In Andhra Pradesh, the local Courts have been given the powers of special courts, to be established under the EA, 2003. 4.3.14 Rural Electrification In Andhra Pradesh, 100 per cent village electrification was completed by the year 1992. However there are certain hamlets, dalitwadas, weaker section colonies, etc., which are still to be electrified. The position of rural electrification at the end of the year 2004-05 is shown below:
Item Total Existing No. 264 26,586* 31,664 Electrified by 2004-05 No. 264 26,565 31,253 Percentage Balance No. Nil Nil 411

Towns 100 Villages 100 General hamlets 98.7 Tribal hamlets/ 9,893 8,741 88.36 1152 habitations Dalitwadas 53,195 49,298 92.67 3897 Weaker section colonies 27,277 24,129 88.46 3148 Rural households 1,33,72,300 90,35,700 67.57 43,36,600 * Ten villages are submerged, nine villages are un-inhabited and two villages are occupied by NTPC.

There are 9,650 tribal villages electrified with Solar Photo Voltaic (SPV) panels. These villages are also being gradually covered by conventional lines.

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By the year 2004-05, 8,975 (93 per cent) of such villages have been covered by conventional lines. The balance to be covered are 675. The companies have programmed to cover the balance habitations and households under the RGGVY in a phased manner by 2007-08. In this connection, detailed project reports have been sent to REC. Out of Rs 803 crore requested for this purpose, REC has so far sanctioned an amount of Rs 666 crore (covering 17 districts). The balance projects covering five districts are also expected to be sanctioned by REC shortly. The process of tendering and awarding works is in progress. The schemes include augmenting the network and erection of 23 No., 33/11 kV Sub-stations. 4.3.14.1 Electrification of Model Villages The Government of Andhra Pradesh has launched a new scheme, Integrated Novel Development in Rural Areas and Model Municipal Areas (INDIRAMMA) for achieving 100 per cent electrification of habitations and households in the identified model villages and model colonies of the Municipalities. The model villages and the colonies are to be identified by the district administration and the scheme sanctions are obtained from REC under RGGVY. The Scheme is to be implemented in three years. The following guidelines for implementation of the scheme have been issued: All the beneficiaries of household electrification under both BPL and nonBPL have to pay an application fee of Rs 25 and security deposit of Rs 100 up to 250 Watt and beyond at Rs 300 per kW and part thereof; In respect of BPL households, service wires and the meter board along with meter with pilfer proof box, cutout, bulb holder, switch and earth terminal will be provided by the DISCOMs; In respect of non-BPL households, the beneficiaries have to provide service wire, service connection materials and internal wiring; and The district administration will conduct Grama Sabhas at all the villages to inform the public about implementation of the INDIRAMMA programme. The field officers of the DISCOMs will attend the Grama Sabhas and coordinate with other departments in getting the benefits of the scheme communicated to the public.

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Study on `Impact of Restructuring of SEBs 4.3.15 Power supply to Agricultural Consumers Government of Andhra Pradesh has decided to provide free power to the agricultural consumers with effect from 14 May 2004. There has been a spurt in agricultural consumption in August and September 2004, causing severe strain on the supply system, resulting in power swings and blackouts in certain areas of the State. The Government, after taking all aspects into consideration, has modified the policy of power supply to agriculture w.e.f. the financial year 2005-06. According to the modified policy, the criteria for eligibility of the free power has been specified. The policy proposes to provide incentives and disincentives in order to promote energy saving measures. Agricultural consumers, who are ineligible for free power, have been covered under the subsidised low tariff category. The tariffs approved by the Commission for the year 2005-06 take into consideration the modified policy of the Government. The tariffs for the agricultural category consumers for the year 2005-06 are indicated below: Power Supply Tariffs for Agriculture
Category No. V (A) With DSM measures Purpose Agriculture Dry land farmers (connections <=3 Nos.) Wet land farmers (Holding <=2.5 Acres) Dry land farmers (connections > 3 Nos.) Wet land farmers (Holdings >2.5 Acres) Corporate farmers & IT Assessees Fixed charges Energy charges paise/unit 0 0 20 20 100 0 0 50 50 200 20

*Rs210/HP/Year *Rs210/HP/Year

Dry land farmers (connections <=3 Nos.) Wet land farmers (Holding <=2.5 Acres) Dry land farmers (connections > 3 Nos.) Wet land farmers (Holdings >2.5 Acres) Corporate farmers & IT Assesses V (B) Out of turn allotment (Tatkal): with DSM *Equivalent flat rate tariff.

Without DSM measures

*Rs525/HP/Year *Rs525/HP/Year ------

Free power is applicable for dry land farmers with less than or equal to three connections and wet land farmers with less than or equal to 2.5 acres of land. Demand Side Management (DSM) measures by the farmers is given weightage for getting tariff concessions. There are about 24 lakh agricultural connections in the State. Supply to the agricultural feeders is regulated for 7 hours a day. Tatkal Scheme has been introduced for giving out-of-turn connections to the

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pumpsets by providing meters. All new services of the farm sector are being given supply only if DSM measures are adopted by the farmers. Lift irrigation schemes are given priority by the State Government in order to reduce exploitation of ground water. All the 213 existing HT lift irrigation (LI) schemes are being provided with dedicated feeders to ensure 16 hours supply to them. All the new lift irrigation schemes coming up are with dedicated feeders to regulate the supply for specified hours in a day. 4.3.16 Way Forward The DISCOMs in the State have improved their performance over the years and have started earning profits. There is scope for further improvement both in operational and financial performance. The following measures are required to be taken to strengthen the organisations and to ensure further improvement in the performance of the DISCOMs: Continuation of the firm political support for implementation of reforms; Institution of an effective process for selecting competent professionals for the positions of director in the boards of the companies; Ensuring that the CMDs, appointed to the DISCOMs, have domain expertise of the power sector; Appointment of some outside experts in the corporate management as part-time directors in each company is necessary; The DISCOMs are still controlled and guided by APTRANSCO despite having their own boards of management. They need to function independently without further `parental handholding. The companies need to grow on their own in an environment of competition; Whole-time directors in the companies need to function independently while taking decisions on issues other than that of policy; Vigilance activity needs to be handled by the DISCOMs independently; Managers/officers at various levels need to be empowered with clear delegation of powers. Authority will bring in responsibility and accountability to achieve better results, besides developing managerial skills in the functionaries; Under the EA, 2003 the Government is required to establish special courts. The existing courts, identified for this purpose by the Government 1.48

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Study on `Impact of Restructuring of SEBs may not be able to serve the purpose of quick disposal of the cases relating to theft/misuse of electricity; Human resource cells in the DISCOMs need to be strengthened by inducting qualified personnel from outside until the companies develop their own cadre of adequate skills and experience; The mindset and the style of functioning of the officers and staff have not changed much even after they have come under the control of corporate bodies. Special training courses need to be conducted to bring in resultoriented corporate work culture; There is need to improve the image of the staff at the consumer contact levels and bring in better consumer relations and improve consumer services; and Continued efforts by the DISCOMs are essential to ensure improvements in the technical as well as the financial performance in a sustainable manner;

4.4

Electricity Regulatory Commission In Andhra Pradesh, the SERC came into existence in April 1999. The Commission was constituted under the provisions of Andhra Pradesh Electricity Reform Act, 1998. The Commission initially started functioning with some officers deputed from APTRANSCO. Technical Assistance services at various points of time were provided by reputed consultants. Some of the major achievements of the Commission are: Organisational set-up and recruitments; Framing of conduct of business regulations; Issue of licenses for transmission and bulk supply and distribution and retail supply to APTRANSCO; Issue of distribution and retail supply licenses to the rural electric cooperative societies; Issue of power procurement guidelines; Consumers right to information regulations; and Standards of performance regulations;

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4.4.1 Regulations and Tariff Orders The Commission has issued Tariff Orders regularly every year in the third week of March, so that the orders are effective for the next financial year. The utilities are mandated to file their Annual Revenue Requirements (ARRs) and tariff applications every year by December. The utilities have adhered to the time schedules prescribed for filing the ARRs and tariff applications. The Commission calls for the objections from the stakeholders and also conducts public hearings at different places in the State (at one place in the jurisdiction of each DISCOM) before finalising the tariffs. The Commission has framed regulations for a MYT framework. Under these regulations, each distribution licensee has to make the filings in respect of distribution business for a control period of five years. However, the first control period is for three years, starting from 2006-07 to 2008-09. The filings for the retail supply business are to be on an annual basis for the first control period and thereafter for entire control period for the subsequent control periods of five-year duration. The first tariff orders cover under the MYT framework issued by the Commission cover the following: Tariffs for wheeling of electricity (distribution business) for the entire control period of 2006-07 to 2008-09; and Retail supply tariffs for 2006-07. A number of regulations were issued by the Commission before the EA, 2003 came into force. Some of them were modified in terms of the provisions of the new Act. 17 Regulations have been notified by APERC under the EA, 2003. The regulations, guidelines and codes issued by the Commission cover the broad spectrum of the items relating to the functioning of the Commission and the licensees and also relating to the protection of the interests of the consumers. 4.4.2 Appointment of Electricity Regulators Andhra Pradesh Electricity Reform Act, 1998 stipulates that the three member Commission shall consist of one technical member (Graduate Electrical Engineer) with knowledge and experience in the power industry and two others with specialisation and adequate experience in any one of the disciplines like economics, law, commerce, accountancy, finance or administration. However, at any point of time, the Commission shall not consist of more than one 1.50

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Study on `Impact of Restructuring of SEBs member from the same discipline. The chairperson and members of the Commission were appointed in March 1999 as per the provisions of the said Act. The members are selected by a selection Committee consisting of: i. ii. iii. A retired Chief Justice of any High Court or a retired Judge of the Supreme Court The Chairman of the Central Electricity Authority The Chief Secretary of the State Chairman Member Member

The selection committee shall have to submit the panel of two suitable persons for each of the commission members to the State Government in alphabetical order, from among whom the State Government shall appoint one of the two as a member of the Commission. The procedure prescribed for selection of the chairperson and members of the State Commission in the EA, 2003 is almost the same except for a minor difference in the composition of the Selection Committee. According to the provisions of the EA, 2003, the Selection Committee shall consist of: a) b) c) A person who has been a Judge of the High Court. The Chief Secretary of the State. The Chairperson of the CEA or the Chairperson of the Central Electricity Regulatory Commission.

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The organisational chart of APERC is as follows:

ORGANISATIONAL CHART

Chairman & Members

Secretary

Director Engineering

Director Tariffs

Director Law

Jt. Director I.T.

Director Administration

Jt. Director - 1 Dy.Directors - 3

Jt. Director - 1 Dy.Directors - 3

Dy.Director - 1

The officers and staff required were initially taken on deputation from the APTRANSCO. Subsequently, all positions were filled by recruitment. At present, the Commission has its own officers and staff. Retired officers with adequate qualifications and experience in the relevant discipline have been appointed to the positions of secretary and some directors on contract basis. The selection and recruitment of officers and staff is done by the Commission independently without the involvement of the State Government. There is transparency in the functioning of APERC. The Commission invariably goes through the process of public hearing before taking decisions on matters relating to tariffs and other matters of public interest. In matters relating to the consumer service, the Commission has notified the standards of performance for the licensees and set up the mechanism to oversee the implementation through consumer grievance redressal forums and Ombudsman. Due to close monitoring and control, the Commission has ensured improvements in the operational and financial performance of the utilities. APERC is acclaimed as one of the best performing regulatory institutions of the country. 1.52

TABLE OF CONTENTS
EXECUTIVE SUMMARY...3.1 CHAPTER-1 BACKGROUND OF REFORM EFFORTS.......3.5 State subsidy to the power sector ............................................................................ 3.8 Factors Leading to Restructuring of the KEB ..................................................... 3.12 CHAPTER-2 A FACTSHEET OF THE REFORM EFFORTS.....3.15 Initial Study on Restructuring of the Electricity Board...................................... 3.15 Consulting Support................................................................................................. 3.16 Regulatory Commission ......................................................................................... 3.20 Establishing CESCO .............................................................................................. 3.20 Tariff Reform .......................................................................................................... 3.21 Independent Power Producers Policy................................................................... 3.21 Recommendations of FDP Consultants ................................................................ 3.22 Distribution Margin................................................................................................ 3.23 Formation of the KTPCL as the Successor to KEB ............................................ 3.25 Status of Personnel Dispersal ................................................................................ 3.26 Establishment of Pension Trust............................................................................. 3.26 CHAPTER-3 PROGRESS OF RESTRUCTURING...3.27 General issues.......................................................................................................... 3.27 Organisational Pattern........................................................................................... 3.27 Autonomy of Restructured Companies ................................................................ 3.29 Composition of the Board of Directors................................................................. 3.29 Financial Autonomy ............................................................................................... 3.30 Continuation of the Subsidy Payments................................................................. 3.32 Metering Progress................................................................................................... 3.33 CHAPTER-4 ANALYSIS OF THE RESTRUCTURING PROCESS...3.35 Restructured organisational pattern and functional autonomy......................... 3.35 Achievements in Financial Operations by DISCOMs......................................... 3.37 CHAPTER-5 LESSONS LEARNT...3.40 CHAPTER-6 WAY FORWARD...3.43

KARNATAKA
EXECUTIVE SUMMARY

INTRODUCTION The Government of Karnataka initiated the power sector reforms in 1997. The State Government also announced the reform policy, which aimed at attracting private sector investments, establishing a regulatory mechanism to promote competition, improved operational efficiency and cost reduction, and encouraging energy conservation. The policy professed the restructuring of the Karnataka Electricity Board (KEB) into one transmission and several distribution companies (DISCOMs) and redeployment of the staff so as to improve operational efficiency and customer satisfaction. The policy was very objective and focussed in its approach and spelt out the Governments resolve to implement the sector reform on a sustained basis. ELECTRICITY REFORM ACT, 1999 In pursuance of the policy statement, the State Government issued the Karnataka Power Sector Reform Act, 1999, which provided for the establishment of the Karnataka Electricity Regulatory Commission (KERC). It also resulted in the creation of the Karnataka Power Transmission Corporation Limited (KPTCL) to carry out all functions of the KEB, (which stood dissolved), pending the formation of four DISCOMs. Government of Karnataka also gave significant financial relief to the sector by taking over the loan liabilities of Rs 1,050 crore and by writing off bad and doubtful debts amounting to Rs 866 crore, and the terminal and pension liabilities of the staff till the date of restructuring. RESTRUCTURING EXERCISE Based on competent professional advice from reputed consultants, the State Government established four DISCOMs. The new companies were formed on an urbanrural mix. Subsequently, in 2004-05, one more supply company was formed by carving out five districts from an existing DISCOM. Karnatakas experience of establishing an independent generation company as early as in 1971 was refreshing. DETAILED POLICY STATEMENT The Detailed Policy Statement (DPS) issued by the Government of Karnataka aimed at providing equitable access to basic and reasonably priced electricity service to all by the year 2010, meeting the entire requirements of commercial and industrial sectors so as to accelerate economic growth, promotion of environmental friendly energy use,

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Study on `Impact of Restructuring of SEBs and accelerated reform process. More importantly, the DPS also envisaged the eventual disinvestments of the shares in KPCL, as well as the early privatisation of the distribution companies. It also sought to extend maximum autonomy to the power companies to manage their business along commercial lines. An Independent Power Producers Policy was also issued in 2001. FINANCIAL DEVELOPMENT PLAN The Consultants appointed to develop the Financial Development Plan (FDP) were of the view that a conventional privatisation strategy would not appeal to prospective bidders, and proposed the deployment of distribution margin, under which the State Government was to share substantial risks during a transition period of five years, while investors would mainly bear the risks of operating costs, capex and penalty for unsatisfactory performance. The privatisation process was to be by bidding, and the successful bidder was to hold a minimum of 51 per cent shares in the company. INTEGRATION OF THE STAFF Even though the Transfer Schemes provided for the permanent absorption of the staff in the various new companies, Government of Karnataka could not make it effective so far because of litigation by concerned employees. The restructured DISCOMs have been in operation for four years now, and have performed reasonably well. On the downside, however, they have not attained adequate managerial and financial autonomy, and are yet to imbibe an appropriate corporate culture among their staff and managers. Moreover, instead of being a net contributor to the States treasury, the restructured companies continue to depend on Government subsidy. ACHIEVEMENTS OF THE NEW COMPANIES Among the achievements of the restructured companies, the most notable ones are the reduction in transmission losses by KPTCL to a level of 4.18 per cent (which is regarded as one of the best in the country), the gradual reduction of T&D and AT&C losses by the DISCOMs, the progress in metering, billing and collection for all categories except the agricultural segment, increasing investments to improve the overall quality of power supply, better customer care, grievance redressal mechanism and higher level of satisfaction. The restructured companies are also more viable units for managerial control and efficiency. However, there are several areas where the new companies need to exhibit better performance, including the critical area of financial performance.

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In order to achieve the above objectives, the DISCOMs need to be made more autonomous by delegating additional powers to them, distancing them from (political) interferences and influences, and by reconstituting their Boards of Directors. There is also a need to integrate the staff of the KEB, now working on the rolls of KPTCL, with the respective DISCOMs. LESSONS LEARNT The most important lesson from the Karnataka experience is that political commitment is the most important driver for reforms. In its absence, there are very remote chances for drastic turnarounds in this politically sensitive sector. Further, there must be one or more strong and dedicated champions for the reform at the top level in the Government, who must act as major catalysts for the reform efforts. Another important lesson is the need to get the buy-in of the staff of the organisation to implement the reform. Unfortunately, the State Government does not appear to have paid sufficient attention to this aspect, which has resulted in the continuation of the work culture as was existing prior to restructuring. The delay in integrating the staff with the new companies also has had its adverse effects on their morale and motivation. WAY FORWARD The most important factors required to accelerate the reform efforts in Karnataka include the following: (A) Securing political commitment to the sector reform, for which the Ministry of Power must take the initiative. A national political consensus on an acceptable power sector reform policy, and agreement on a minimum action programme to be implemented according to a time schedule would have to be put in place. (B) Since one of the main reasons for the poor financial performance of the DISCOMs is the free power to the agricultural sector, there is need to tackle this issue at the national level. The creamy layer among the farmers must be persuaded to pay for the power consumed by them; the possibility of linking the support price mechanism with the metering and payment for electricity consumed might be considered in this regard. (C) The State Government must establish a high-level Planning and Monitoring Agency to oversee the reform. This should have the support of an expert group comprising of experienced professional experts.
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Study on `Impact of Restructuring of SEBs (D) The Reform Cell in the Secretariat must be strengthened by inducting senior committed officials who could guide and support the reform process. (E) There is need to re-establish a powerful and innovative communication strategy to educate all stakeholders, especially the staff of the companies, the farmers, etc. (F) The Boards of the power sector companies must be reconstituted by inducting 50 per cent professionals from outside. Efforts should also be made to develop a strong, professional management cadre; the CEOs must be appointed on contract basis. (G) DISCOMs must be granted adequate autonomy required to manage their affairs on commercial lines. The practice of appointing the managing director of KPTCL as the chairman of DISCOMs must be discontinued. KPTCLs Board must be made more professional and the political appointees on its Board must renounce those posts. (H) Government of Karnataka must prepare a Detailed Financial Action Plan with a specific programme to discontinue the subsidy over the medium term. The DISCOMs, which are financially weak, must have specially designed targets and goals to improve their finances. (I) The new companies must be required to sign Annual Performance Contracts with specific targets and goals related to all areas of their performance, based on their Business Plans, which must be monitored closely. In return, they must be granted the required autonomy and support to carry out their tasks with efficiency. A Human Resources Development Plan for the integration of the staff with the new companies and their career advancement with adequate incentives to opt for the new companies must be implemented early.

(J)

(K) Partial divestment of governments shares in the restructured companies, as also in KPCL, to the public and to the employees of these companies, will bring in better corporate culture and accountability. A decision in this regard must be taken after working out the strategy.

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CHAPTER - 1 BACKGROUND OF REFORM EFFORTS

INTRODUCTION The State of Karnataka has a total area of 1,91,790 sq km and a total population of about six crore. The State receives abundant rainfall and has a large number of rivers and reservoirs, which act as perennial source of water supply and energy. The State is well-known for its lush green tropical forests, sandalwood and coffee, hospitable climate, tourism, friendly people, educational institutions, and of late, its premier role as the main centre for development of Information and Communication Technology (ICT) and Biotechnology. The State has been achieving an average State Domestic Product (SDP) growth rate of about 8 per cent per year in the recent years, about the same level as the growth rate of the GDP of the country. The first hydroelectric project in India, Sivasamudram Project, was established in 1902 in Karnataka. That perhaps showed the way, and the State can be justifiably proud that about 3,673 MW of its total installed capacity (2004-05) of 8,355 MW (44 per cent) comes from this renewable source of energy. Another matter of gratification for the State is that it was perhaps the first to have a separate utility for generation of power, the Karnataka Power Corporation Limited (KPCL), which accounts for about 56 per cent of the total installed capacity in the State. KPCL has been functioning as a generating company since 1971. The per capita consumption of electricity in 2004-05 in the State comes to 660.04 units per year as compared to the national average of 612.50 units. The Government of Karnataka was a pioneer in the matter of power sector reforms, and started its initiatives in this regard from the mid-1990s onwards. The prime motivation came from the policy formulated by the MoP in 1991 to encourage greater private sector participation in electricity generation, supply and distribution fields; followed by the changes in the Electricity (Supply) Act, 1948 to provide for this as well as changes in the financial and administrative environment to facilitate the policy1. The State Government also recognised that the poor financial health of the major utility, the Karnataka Electricity Board (KEB) (which was established in 1956), was draining the fiscal resources of the State, and also that there was need to improve
1

Reform Policy for the Energy Sector: Proceedings of the Government of Karnataka: 30 January 1997.

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Study on `Impact of Restructuring of SEBs the levels of customer service through power sector reform. The Government of Karnataka accordingly announced its policy and approach to power sector reforms in January 1997. The reform process of the power sector would complete one decade by the end of the current year (2006). It would be appropriate at this stage to take stock of the progress of the reforms carried out so far, analyse the gains and shortcomings, if any, and identify the way forward, to make the reform process more successful. This report is an attempt in that direction. BACKGROUND INFORMATION The total installed generating capacity in Karnataka including Central allocations and private power comes to 8,355 MW, of which 3,673.30 MW comes from hydro resources2. Some 1,470 MW comes from the only coal-based power station (with seven units) at Raichur (RPSS) of KPCL; the rest comes from Central allocation, private generation capacity, Vishweshwaraiah Vidyut Nigam Limited (VVNL), and renewable sources (wind power). As mentioned earlier, KPCL accounts for about 56 per cent of the total generation. The State receives 1,618.69 MW of power as its share from the Central Power Companies. The VVNL3 has an installed capacity of 354.32 MW, including from its diesel generators (127.92 MW) as well as from hydropower sources (226.40 MW). The private sector generation comes to about 280.95 MW (hydel) and 588 MW (thermal). There are also several wind energy firms of small capacities, which supply power to the State Grid. It is pertinent that the total private power supply amounts to 1,741.61 MW, which works out to about 21 per cent of the installed capacity. The break up of the generating capacity in the State is as given in the following table: Table: Details of Generating Capacity (MW)
KPCL Thermal Hydel RES Total 1,470.00 3,165.95 4.55 (Wind) 4640.50 VVNL 127.92 226.40 354.32 Central 1,618.69 1,618.69 Private 588.00 280.95 872.66 1,741.61 Total 3,804.61 3,673.30 877.21 8,355.12

{KPCL and VVNL put together accounts for about 60 per cent of the installed capacity.}

Energy available for transmission during the last three years, as per the information provided by KPTCL is as follows:

2 3

The Powerline of Karnataka; KPCL Publication. VVNL was formed in 1999, at the time of winding up of the KEB, to transfer the diesel generating stations under its control to the new utility.

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Table: Energy Available for Transmission (MU)


Energy available (MU) Energy Delivered (MU) Transmission Loss, MU (%) 2002-03 29,279 27,266 1988 (6.55%) 2003-04 31,217 29,676 1527(4.89%) 2004-05 33,110 31,711 1383 (4.18%) (Source: KPTCL)

Sold to DISCOMs

The following statistics will provide an overview of the length of the transmission capacity available in the State, as at present: Table: Length of Transmission Lines (ckt km)
Voltage Level (kV) 400 220 110 66 33 Total 2002-03 1976.346 7835.745 6529.680 6645.819 6968.740 29,956.330 2003-04 1976.846 8281.795 6891.310 7073.319 7071.740 31,295.010 2004-05 1977.846 8351.115 7182.690 7347.989 7175.620 32,035.260 (Source: KPTCL)

The break-up of the customer base on an appropriate basis is as follows: Table: Details of Consumer Base
Category of Consumers Domestic Agricultural Industrial (HT) Industrial (LT) Commercial Others Total Number of Consumers 88,47,542 14,12,604 6,243 1,86,823 10,88,780 1,24,000 1,16,65,992 Percentage of the category to total 76 11 0.5 2 9 1.5 100 Average Realisation (Rs/unit) 2.30 0.40 4.24 3.88 5.66 Percentage of energy to total Consumption 20 44 14 8 4 10 100 (Source: Annual Accounts)

The total energy generated by the State utilities during the year 2004-05 was 33,110 MU against which the total power input into the system was 31,711 MU. Energy sales by the DISCOMs, however, came to only 23,325 MU (2004-05: Vision 2020 Karnataka Power Sector). The transmission loss came to 4.18 per cent and the distribution loss was estimated at 26.57 per cent. The T&D losses was recorded at 29.5 per cent during the year. The AT&C loss was higher at 36.65 per cent. The power demand in the State has been growing at the rate of about 8 per cent per year. The only thermal power station at Raichur with a total installed capacity of 1,470 MW has
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Study on `Impact of Restructuring of SEBs been performing at a high level of plant load factor and has been the recipient of several awards for its PLF, reduction of secondary and fuel oil consumption, etc. KARNATAKA ELECTRICITY BOARD AND ITS PERFORMANCE A brief account of the performance of KEB, before it became extinct on 31 May 1999 would be of some interest. During the year 1998-99, the total energy generated in the generating stations within the State was 17,066 MU and the total power available for sale was 22,746 MU. However, the actual sale to the consumers came to only 15,909 MU, which worked out to about 70 per cent of availability. The T&D loss during the year, as per the records of the Board, came to 6,868 MU (30.2 per cent). About 44 per cent of the total sales were to the agricultural sector, which was the lowest revenue generator. In its last year of functioning, namely, 1998-99, KEB had a total income of Rs 3,927.26 crore (inclusive of Rs 913.89 crore of rural electrification subsidy) and incurred a total expenditure of Rs 3,860.27 crore, thereby generating a surplus of Rs 66.99 crore. Excluding the above subsidy, the year would have closed with a shortfall in income of Rs 846.9 crore. The capital expenditure for the year was Rs 676.40 crore. The total outstanding loans came to Rs 2,242.04 crore. The accumulated depreciation was Rs 1,333.76 crore, with gross fixed assets valued at Rs 4,063. 98 crore. The Board, at the time of its dissolution, had a staff strength of 45,982 including those on contract basis. Establishment expenses came to Rs 743.24 crore, which amounted to some 19.25 per cent of the total expenditure for the year. STATE SUBSIDY TO THE POWER SECTOR Power sector all over the country is known for the heavy subsidies provided to it year after year by State Governments, and Karnataka is no exception. But for such subsidies, the KEB would not have survived for long; indeed, the major determinant and the prime motivation for reform in the power sector, as mentioned earlier, came from the high, unsustainable level of subsidies, which remained an all-time threat to the fiscal stability of the State. The subsidy was mainly intended to benefit the agricultural sector; but in the absence of efficient and complete metering of the energy sold by the utilities to various categories of consumers, there was no mechanism (even now) to assess the actual extent of energy supplied to the farmers for genuine

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agricultural use, and a large part of the commercial losses was categorised as T&D losses - a euphemism for theft4! The following table gives the extent of subsidy provided by the Government of Karnataka to the power utilities in the recent years: Table: Extent of Government Subsidy to the Utilities (Rs crore)
2000 -01 1,246.42 2001 -02 1,897 2002 -03 1,636.50 2003 -04 1,341.95 2004 -05 1,569 2005 -06(BE) 1,750 2006 -07(BE) 2,373

The extent of subsidy involved can be gauged from the fact that during the current year (2006-07), the subsidy amount of Rs 2,373 crore, provided in the State Budget comes to about seven per cent of the Revenue Expenditure for the year, and is in excess of the capital budget deficit for the year by Rs 866 crore. An amount of Rs 1,800 crore out of the current years subsidy amount is intended towards consumption by agricultural pumpsets, while Rs 227 crore will go to regularise the unauthorised use of power for irrigation pumpsets and to incentivise the metering of the pumpsets. The following Table gives the trend of subsidy booked, subsidy received, and percentage of subsidy booked to revenue in respect of utilities in Karnataka: Table: Details of Subsidy Booked and Received: Utilities
2002-03 DISCOM BESCOM GESCOM HESCOM MESCOM Total
Subsidy booked Subsidy received % of Subsidy booked to Revenue Subsidy booked

2003-04
Subsidy received % of Subsidy booked to revenue Subsidy booked

(Rs crore) 2004-05


Subsidy received % of Subsidy booked to revenue

316 358 496 163 1,333

350 343 445 102 1,240

13.64 71.82 73.82 16.25 43.8

189 422 681 237 1,529

86 391 521 174 1,172

5.94 64.42 82.97 18.87 43.05

0 470 828 271 1,569

186 395 581 238 1,400

0 68.56 93.91 19.73 45.45

TRANSMISSION AND DISTRIBUTION LOSSES It may be of interest to trace the record of T&D losses in Karnataka during the past, since this was one of the major factors responsible for the poor performance of the Board, and continues to be an unsustainable burden for the restructured utilities. As mentioned by Shri S.L. Rao, former Chairman, Central Electricity Regulatory

From the famous statement of Sh.Tata Rao, former Chairman, of Andhra Pradesh State Electricity Board.

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Study on `Impact of Restructuring of SEBs Commission (CERC) in his recent publication, Governing Power, the T&D losses were as follow:
1994-95 18.9% 1995-96 18.5% 1996-97 18.9% 1997-98 18.6% 1998-1999 29.9%5 1999-2000 38.0% 2000-01 36.5%

The sudden jump in the percentage of the losses from the year 1998-99 onwards stands clarified in the words of Shri S.L. Rao, quoted below: T&D losses of SEBs have not declined to any significant extent (in spite of ERCs coming into being). 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.6 Power Finance Corporation (PFC), which has been a major source of development loans to the utilities, and has shaped its lending policy as an instrument to reform the power sector has provided the following data regarding the past performance of the KEB and its successor companies, which is revealing: Table: T&D Losses (%)
Karnataka All-India 1999-00 37.31 30.93 2000-01 34.93 32.86 2001-02 33.83 33.98 2002-03 24.57 32.54 2003-04 2004-05 23.29 26.08 32.53 31.25 Source: CEA (General review).

However, it must be borne in mind that the AT&C losses in Karnataka continue to be heavy and unabated. The following data will indicate the position: Table: AT&C Losses of DISCOMs (%)
DISCOM BESCOM GESCOM HESCOM MESCOM Karnataka 2002-03 35.70 43.54 47.73 35.68 45.68 2003-04 43.86 43.86 31.66 25.82 35.82 2004-05 42.99 42.99 41.64 26.62 34.727 Source: PFC.

As per the annual report of KEB, the T&D loss during the year was even more at 30.2 per cent. S.L.Rao: Governing Power, TERI; Page 230. 7 The restructuring has, however, helped in bringing down the AT&C losses from 40.50 per cent in 2001-02 to 34.02 per cent in 2004-05, thanks to strengthening of the system, energy audit, closer supervision and control.
6

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AGRICULTURAL LOAD Karnataka is basically an agro-based economy, though in the recent years it is known for the high level of industrialisation achieved through the mushrooming of several large and medium Information and Telecommunication Technology (ITT) industries, which are centered in and around its capital city, Bangalore. Naturally, a large share of the energy distributed by the erstwhile KEB as well as the present-day DISCOMs constitute supplies to farmers for agricultural purposes. KEBs records8 show that about 44 per cent of its sale was consumed by the agricultural sector. In that year (1998-99), the energy utilised for irrigation pumpsets came to 7,008 MU as against 9,117 MU in the previous year. As on 31March 1999, some 11,25,933 irrigation pumps were serviced by the KEB, and an additional 15,891 sets by the Hukkeri Rural Electric Cooperative Society Ltd. On the other hand, the revenue generation from the supplies to pumpsets was abysmally low at only 5.4 per cent for the year 1998-99. The above trend is visible, even in respect of BESCOM and MESCOM for which data is available as under: Table: Consumer Category-wise Sale of Power in MU (2004-05)
DISCOM Domestic Coml. BESCOM Rs. (Cr) MESCOM Rs. (Cr) 2,551 867 1076 347 1,331 834 313 195 Industry Industry Public WaterOthers (HT) (LT) Lighting works 1816 872 941 399 870 397 221 109 222 117 151 62 651 266 444 160 50 45 Agl. Total

3926 11,417 (34%) 192 3589 (5.3%) 1558 4,705 (33%) 99 1,372) (7.2%) (Source: PFC)

INDEPENDENT GENERATION COMPANY (KPCL) A unique feature of the power sector development in Karnataka was the establishment of the KPCL in 1971. It must be remembered that almost all other SEBs had internalised the generation activity, and the practice followed by Karnataka to form a separate entity for generation was a bold step. KPCL has an installed capacity of 4,640.50 MW with an annual income of Rs 2,483 crore (2004-05). It made a profit before tax (PBT) of Rs 239 crore in that year and declared a dividend of Rs 20 per share (on shares of Rs 10 each). The Raichur Thermal Power Station (RTPS) under the KPCL has an installed capacity of 1,470 MW and had achieved the highest PLF of
8

KEBs Annual Administrative Report for 1998-99.

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Study on `Impact of Restructuring of SEBs 90.39 per cent in 2002-03. It has won several awards for performance in terms of PLF, reduction of secondary fuel oil consumption and auxiliary consumption. KPCLs total installed hydropower capacity amounts to 3,165.95 MW; it also has a small wind energy unit of 4.5 MW capacity. The importance of KPCL is in the fact that it is a pioneer in the concept of Restructuring of SEBs into separate functional utilities about three decades before the concept came into vogue in the 1990s. Government of Karnataka can rightfully take pride in the fact that it had shown the path for restructuring exercise to the rest of the country, and was a forerunner of the reform process! FACTORS LEADING TO RESTRUCTURING OF KEB Government of Karnataka realised as early as in 1997 the need for bringing in additional resources in the electricity sector, and the essential requirement of sector reforms, which was made amply clear in its proceedings on Reform Policy for the Energy Sector, issued in January.1997.9 The objective of the reform included attracting private investment into generation, transmission and distribution areas, improve the level of customer service, and to free scarce Governmental resources for investment in other sectors where private investment is not forthcoming. The policy highlighted the existing and potential shortfalls in energy availability and meeting the peak demand, and their impact on the industrial and economic development of the State. Since there was no possibility of the Government continuing its support to the power sector on the same scale as in the past, leave alone meeting the enormous funds requirements for building up capacity in the future, the proposed reforms were considered inescapable. According to the reform policy, the objectives of the reform of the power sector were aimed to achieve the following: i) ii) Attracting enough private investment to the sector in generation, transmission and distribution, to meet the growing demand for power; Establishing a regulatory environment which will ensure that generation costs are kept at a minimum through competitive bidding for setting up capacity and also ensure that adequate incentives are provided for improvements in operational efficiency, cost reduction, and enhancement in quality of customer service in the transmission and distribution sectors;

Order No:DE 99 PFC 96 Bangalore, dated 30th January 1997.

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iii) Providing incentive for energy conservation; and iv) Releasing scarce Government resources, which are now deployed in power sector for being used in other areas of greater priority (i.e., where private investment may not be available). The policy statement identified the steps of the reform process although the details were to be worked out after thorough studies by experts in the field. The steps to be taken provided for the separation of the transmission and distribution functions, on the lines of KPCL, with one transmission company and several economically viable DISCOMs. The policy also hinted at redeployment and possible voluntary separation of staff through manpower planning and consultation process. Another major step was the establishment of a Regulatory Commission, to be manned by persons of assured independence, qualification and competence. The Commission, with wide overseeing powers over the sector, will also usher in competition, set standards, bring in tariff reform, and would settle certain kinds of disputes. A significant initiative spelt out in the policy was the resolve of the State Government to open the restructured distribution operations of KEB to private sector parties. This measure was with a view to improve operational efficiency in distribution and to enhance customer service quality. Similarly, the holding of the Government in KPCL was to be diluted by offering shares to the public. The policy also proposed to introduce adequate safeguards in the ownership of the transmission company so as to prevent manipulation by a single or a set of distributors influencing its operations to the detriment of the public. The Government further constituted a Steering Committee to be chaired by the Chief Secretary to provide policy guidance and to monitor the implementation of the reform programme. A Task force under the Secretary (Energy) was also established to manage the day-to-day activities of the programme. It must be pointed out that the energy reform policy of Government of Karnataka had an excellent basis, considered various possible options, and delineated the reform process professionally and precisely, without giving room for unnecessary doubts and misinterpretations. The approach was clear and definite; and except for providing a time line, had a fairly sound road map. The predicament arising from the continuing heavy subsidies to the power sector was highlighted by the then Chief Minister of Karnataka, Sri. S.M. Krishna, who also held
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Study on `Impact of Restructuring of SEBs the Finance portfolio, in his budget speech for the FY 2003-04, which is quoted below: Power sector reform and achieving effectiveness in the power sector will doubtless be the single important factor that will help achieve or impede fiscal sustainability of the State finances. The success of the State Medium Term Expenditure Framework (MTEF) will depend substantially, perhaps almost entirely, on a visible improvement in the power sectors performance. Despite the fact that the Government supports the power sector with a subsidy of Rs 2,340 crore, there is still considerable dissatisfaction among the consumers with regard to reliability and quality of power. The power sector deficit now nearly equals the entire revenue deficit of the State.10 In other words, unless fiscal discipline is enforced in the power sector, there is little hope of medium term fiscal stabilisation. With an equally heavy subsidy element of Rs 2,373 crore announced in the current years budget for the power sector, one could grasp the truism of the statement in the quoted budget speech. However, the current budget policy is silent on the reform process, except for certain provisions made therein to encourage farmers to accept metering of their pumpsets where it does not exist.

10

This was in 2003-04. As mentioned earlier, the deficit in 2006-07 exceeds the capital budget deficit.

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CHAPTER - 2 A FACTSHEET OF THE REFORM EFFORTS


INITIAL STUDY ON RESTRUCTURING OF THE ELECTRICITY BOARD In its policy statement, the Government of Karnataka had envisaged the appointment of national and international consultants to study specific issues, which need policy options and provide advice on the most suitable course of action. The first sector study concerning the reform process was accordingly entrusted to the Administrative Staff College of India (ASCI) in 1997. The study brought out (May, 1998) the need for restructuring of the KEB and recommended the creation of one transmission company for the whole State and four or five distribution companies, based on area-wise jurisdiction. ASCI11 report also recommended that the residuary generation activities carried out by KEB (such as the diesel project at Yelahanka) may be entrusted to another generating company to be formed as part of the restructuring process, which could be privatised as a stand alone unit. A reform implementation plan (September, 1998) was also submitted by the ASCI outlining the procedure to be followed in taking forward its recommendations. KARNATAKA ELECTRICITY REFORM ACT, 1999 The recommendations of ASCI were accepted by the State Government almost entirely. This led to the enactment of the Karnataka Electricity Reform Act, 1999 (KERA). The Act led to the following developments: i) The Karnataka Electricity Regulatory Commission (KERC) came into being. The Act provided, among other things, that the Commission shall be responsible to regulate the purchase, distribution, supply and utilisation of electricity, the quality of service, the tariff and charges payable keeping in view the interest of the consumers and that the charges for electricity supplied are adequately recovered for sustained operation; Incorporation of a company with the principal objectives of purchase, transmission, sale, and supply of electricity. The company was named as KPTCL. The company was to discharge all powers, duties and functions of KEB, which was to be dissolved;

ii)

11

Since a copy of this report was not readily available, what is mentioned in this Chapter is extracted from parallel documents.

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Study on `Impact of Restructuring of SEBs iii) Simultaneously, a generation company, VVNL, was also constituted to transfer the generating functions performed by KEB; iv) Government of Karnataka was to issue a Transfer Scheme12 to vest the function of power distribution and assets and liabilities (which were transitorily to be vested in KPTCL on the dissolution of KEB) in a further licensee, namely, DISCOMs to be formed separately; and v) The Transfer Scheme was to include provisions for the transfer of personnel to KPTCL or to the newly formed companies, on terms, which were not less favorable than those applicable to them before the transfer scheme, and in consonance with the tripartite agreements with the employees.

The Act thus brought to an end the era of Electricity Board in the State. The procedure followed for the transfer of the functions, assets, personnel, etc, could be considered to be very methodical and sequentially designed. It is to be mentioned that the State Government also took over/wrote off the bad and doubtful receivables from consumers (Rs 866 crore) and past loan liabilities amounting to Rs 1,050 crore, so that the newly formed entities could function unburdened by the weight of past liabilities. The passing of the Act and the process adopted were indicative of the determination and resolution of the Government to make the reform a true success. KERC started functioning from November 1999, which made a difference to the working of the sector, and gave a push to the reform efforts. The first transfer scheme was notified in March 2000. CONSULTING SUPPORT The Government engaged a number of consultants to advise on different aspects of the reform process. These included the following: i) ii) M/s CMS Cameron McKenna Consortium of UK as Financial and Distribution Privatisation (FDP) Consultants; M/s PricewaterhouseCoopers Development Associates Limited, UK, as institutional strengthening of KPTCL and Power Market Development (ISP) Consultants;

iii) M/S Mecon Ltd., Bangalore and Knight Piesolo, UK, as Environmental Assessment Consultants, and

12

The Transfer Scheme was notified on 30 March 2000.

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iv) M/s CMSR, Hyderabad, as Social Assessment Consultants. Mention of the recommendations of the consultants has been made in this report at appropriate places. FORMATION OF THE ELECTRICITY SUPPLY COMPANIES (ESCOMS) The implementation of the Second Transfer Scheme, issued by way of Karnataka Electricity Reform (Transfer of Undertakings of KPTCL and Personnel to Electricity Distribution and Retail Supply Companies) Rules, 2002 resulted in the formation of four area/zone based distribution companies, effective from 1 June 2002. These were named as: i) ii) Bangalore Electricity Supply Company (BESCOM), which took over the city of Bangalore Urban, Bangalore Rural, and four contiguous districts; Mangalore Electricity Supply Company (MESCOM) by carving out the Mangalore Zone of the former KEB with ten districts13; (GESCOM) with operational

iii) Gulbarga Electricity Supply Company responsibility for five districts; and;

iv) Hubli Electricity Supply Company (HESCOM), with seven districts falling under the Hubli Zone. Although all functions relating to distribution and retail supply of electricity were transferred to the DISCOMs from the notified date, the personnel were deemed to be on deputation from KPTCL until they were absorbed in the new undertakings on the basis of the options to be exercised by the staff, in accordance with a fair principle laid out in the KER Rules, 2002. An important feature of the KER Rules, 2002, which was intended to unburden the new companies of the terminal benefits (liabilities) of the personnel of the former KEB, is worth mentioning. This was made sufficiently clear in Rule 13(i) ibid to the effect that: the State Government, and not the DISCOMs, shall be liable for, and shall make appropriate arrangements in regard to the funding of the pension funds, and all statutory and other personnel related funds for the services rendered by the specified personnel to Karnataka Electricity Board and KPTCL, prior to the effective (second)

13

Originally, MESCOM was formed with 10 districts, which were under the Mangalore Zone; but in 2005-06, another Distribution Company, Chamundeswari Electricity Distribution Company (CESCOM) has been formed with Mysore and four neighbouring districts with it.

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Study on `Impact of Restructuring of SEBs date of transfer, to the extent they are unfunded, etc. This was again a wise move to put the fledgling DISCOMs on a sound footing from the formative years onwards. DETAILED POLICY STATEMENT The State Government came out with a Detailed Policy Statement (DPS) in the year 2001, which was a comprehensive and definitive document, and covered almost all major issues relating to the power sector reform process. It is considered necessary to refer to the DPS in some depth and quote extracts at length to provide an overview of the reform process in the state. The DPS acknowledged, in spite of some impressive achievements, power sector has become a major bottleneck to the economic development of the State, and has not been able to meet the needs of the people of Karnataka, in particular, that of rural population and the poor. Power sector is also exercising a considerable drain on Karnatakas public finances, which in turn reduces capacity of the State Government to address social needs, notably for the most vulnerable sections of the population. The indifferent status of availability, quality and reliability of power has reduced the competitiveness of Karnataka industry. Rapid increase in consumption by irrigation pumpsets has imposed high cost on KPTCL with regard to its agricultural and rural operations. High costs on consumers are also attributable to the high T&D losses. The poor quality of power, and resultant damage to their machinery, has left a vast number of consumers dissatisfied. Furthermore, a large part of the rural population still does not have access to electricity services (emphasis supplied). The DPS aimed to achieve three main objectives by establishing a specific energy policy, as mentioned below: i) ii) Equitable access to basic and reasonably priced electricity services to all by electrifying all remaining households and hamlets by the year 2010; Providing electricity supplies that industry and commerce need to achieve economic growth, and;

iii) Promoting the kind of energy use that will not damage the environment. The State Government affirmed in the DPS that it was determined to accelerate the reform process of the power sector. The objective of the reform process was to promote the development of an efficient, commercially viable and competitive power industry, which will develop over time into a net contributor to the State finances. The thrust of the reform will be, however, to ensure the best interest of the consumers. And the primary task was seen as the restoration of the financial health of the sector so that
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it acquires creditworthiness, which in turn, will attract private investments, and management skills. In order to take forward the reform process, the DPS proposed the reorganisation of the already formed KPTCL by establishing separate distribution companies (which was done soon after) and their privatisation (which is yet to take place). Further, the DPS also proposed to transfer the hydro stations which were entrusted to VVNL to KPCL (which indeed was a logical step) and to affect the strategic sale of the Yelahanka Thermal Power Station of VVNL through a transparent and competitive bidding process (which has not been done). The sale proceeds were to go to the Pension Fund to meet the liabilities of the former staff of KEB / KPTCL. It is to be mentioned that the DPS also envisaged the eventual disinvestments of the State Government's shares in KPCL. As an intermediate arrangement, KPTCL was to act as a wholesale trader, buying power from KPCL and others and selling to the DISCOMs. The policy also aimed at an Open Access system to be put in effect. After the transition period, the Government of Karnataka proposed to ensure a completely level-playing field for all operators and stakeholders, and in particular, would not provide nor arrange any financing, or guarantee to lenders, which will be the policy applicable to all generating companies. Another commitment in the DPS was the resolve to grant maximum autonomy to all companies (KPTCL and others) to manage their business along commercial lines. To what extent this has been done will be examined in the latter part of this Report. The policy further admitted that in order to improve and achieve better efficiency, mobilise additional resources, and to improve the quality of services to the consumers, there was a need to privatise the distribution companies at the earliest, with aid and advice of the consultants being appointed for the purpose. Besides, it was the intention that the utilities, particularly the distribution companies started their operations with a clean balance sheet. As mentioned earlier, this task was carried out adroitly. In so far as the personnel policy was concerned, the DPS assured that the service conditions of the staff transferred to the new utilities will be fully protected; but after the formation of the DISCOMs, they would have the freedom to frame their own service conditions and recruitment procedures, without jeopardising the interests of the transferred employees. (This aspect will be covered in detail in the discussion of the staff issues in this Report) It will be seen that the DPS is a systematic and well-conceived document and brings out the reform policy and envisaged procedures in clear and specific terms. Although
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Study on `Impact of Restructuring of SEBs it was mentioned that the process would be implemented in a time-bound manner (details of which were not included in it), for all purposes and intent, the DPS was a blueprint for reform. REGULATORY COMMISSION The Karnataka Electricity Regulatory Commission (KERC) has been playing a major role in the reform process of the power sector in the State. The KERA deals extensively with the duties, powers and procedures regarding the Commission. The Commission has so far issued three Tariff Orders. In fact, the close regulatory role played by the KERC has invited complaints from KPTCL; its managing director wrote to the KERC in 2003 that the Commission held 80 meetings in the previous calendar year and that there was an increasing attempt to get involved in day-to-day micro management of transmission and distribution sectors. The frequent meetings and public hearings called by the KERC were affecting the normal functioning of the Corporation!14 In turn, KERC clarified by the issue of a notice to the MD, KPTCL that the list furnished by the latter included several public hearings on tariff proposals etc., which, indeed, cannot be considered unnecessary. The incident highlights the involvement shown by the KERC to straighten the affairs of the sector to make it competitive and more self-sustaining, among others. It may be seen that the relations between KERC and the utilities have not always been smooth, in the past. Quoting from Shri S.L. Rao, in Karnataka, the Government instructed the KPTCL to hold up implementation of a KERC order on tariffs, without any intimation to KERC, and entirely against the letter of the law. The KPTCL has objected to the need of its officials to appear before KERC as often as they have done. Clearly, they would not have done so without the encouragement of their owners- the State Government15. ESTABLISHING CESCO As mentioned earlier, the Karnataka Electricity Reform Amendment Rules, 2002 provided for only four DISCOMs in the State. They started functioning from June 2002. Recently, however, in 2004-05, the Government established one more distribution company, named as Chamundeswari Electricity Supply Company (CESCO). This company has Mysore as its headquarters, and covers five neighbouring districts carved out from MESCOM. The working results of this
14 15

S.L.Rao: Governing Power; page 184. S.L. Rao: Governing Power; page 174.

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company will be known after the annual report for the year 2005-06 is finalised and audited. The rationale for forming this new company might have been that Mangalore, headquarters of MESCO, is at some distance, which would result in lesser customer support by the top management, as also in view of the growing importance of Mysore, which is being targeted as an alternate growth centre for the IT industry with a view to decongest the overstretched infrastructure of Bangalore. However, the actual motive appeared to be political rather than functional. TARIFF REFORM It is worth noting that the Power Sector Policy of the State Government issued on 30 January 2000, identified the need to reform the tariff structure as an important objective. The policy recognised that the Regulatory Commission would introduce necessary modifications in the tariff structure, which will progressively reduce cross subsidies and ultimately result in their elimination. In fairness, however, the policy noted that to the extent the small rural consumers and the rural poor need to be protected, the cross subsidies may have to continue in the short to medium term. One would consider that the envisaged tariff reform policy was indeed a bold and highly desirable aim, which, though yet to fructify, was indicative of the keen resolve and the direction of the reform initiative. The KERC has already issued three Tariff Orders for the DISCOMs till now, and is in the process of developing a multi year tariff (MYT) policy. It has also approved the Open Access system in the State. The tariff reform policy also aimed at measures to introduce time-of-day (ToD) meters for select consumer categories, incentives for supporting load management and energy conservation etc. INDEPENDENT POWER PRODUCERS POLICY Another landmark policy statement issued by the Government of Karnataka was the IPP Policy, released in 2001. Noting that the shortage at that time to meet peak demand and energy requirements was to the extent of 16 per cent and 8 per cent respectively, and that the demand and energy requirement by year 2009-10 would grow to 9,100 MW and 46,000 MU respectively, the policy proposed a substantial reduction in T&D losses to 14 per cent by the targeted year and a minimum capacity addition of some 3,500-4,000 MW requiring heavy capital investments. Besides, the strengthening of the T&D network was expected to cost a huge sum of about Rs 13,500 crore by the same period. It was in consideration of the need for such large
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Study on `Impact of Restructuring of SEBs financial and physical inputs, which could not be mobilised by the public sector alone that the State Government decided to issue the IPP policy, mentioned earlier. A High Level Committee on escrow cover to IPPs had recommended that the Government, as owner of KPTCL, should not provide such cover to IPPs, and that the process of transferring the distribution system to private ownership must be completed expeditiously. The Committee had also recommended that all future capacity addition in the thermal sector must come from the private sector. After carrying out several studies, the Committees recommendations to encourage a total capacity addition of about 3,500-4,000 MW from IPPs over the timeframe up to 2009-10 were approved. It was further decided that encouragement would also be given to non-conventional and environment-friendly sources of energy by as much as 10 per cent of the total capacity. Further, there would be no provisions for escrow covers, or other forms of guarantees, etc. The policy also proposed to prioritise the projects based on the given principles and parameters including the least tariff criterion, timing, and the extent of capacity requirement synchronised with the evacuation arrangements, on a year-toyear basis. The IPP policy was another major stride in the transition towards reforms in the power sector. RECOMMENDATIONS OF FDP CONSULTANTS As mentioned earlier, the Government of Karnataka had appointed the consortium of M/s CMS Cameron McKenna with Rothschild and IDFC as the Financial Development Plan (FDP) Consultants. The consultants submitted their report on privatisation strategy paper in October 2001. The report is very significant and takes into account the suggestions and views expressed by the top management in the Government, including the Steering Committee appointed to monitor the reforms. The consultants were of the view that the privatisation of the distribution assets and businesses by a conventional sale to strategic investors would be limited to the urban pockets of Karnataka, at best, Bangalore Urban, Mangalore, Hubli, Dharwad and Belgaum, and would cover at best 33 per cent of the load and 5 per cent of the land area. The consultants also opined that given the position of the existing low tariff levels, the ability of consumers to bear risk through appropriate tariff increases was limited. Based on this, the consultants proposed that the Government of Karnataka must assume the risks, which would normally be allocated to consumers until such time as consumers start paying cost recovery tariffs and could bear the risks allotted to them. In other words, the Government of Karnataka was to assume many risks of the
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distribution business until such time as the electricity industry has achieved a stable and sustainable financial condition. During the transition period, which will extend to five years, the investors will only bear the risk of managing the operating cost and capex of the distribution business, but will also share with Government of Karnataka some of the risks by subjecting their returns on investments to penalties for nonachievement of specified performance targets. They will also gain incentives for efficiency improvements such as subsidy reduction, which would benefit the State Government directly. The major risks from which the consultants proposed protection to the privatised distribution business included tariff risks (regulator not moving tariffs to the full cost recovery levels), collection risks (arising from lack of support of the law enforcement bodies, particularly in the rural areas), and commercial losses (especially theft remaining high due again to lack of support from law enforcement authorities). The consultants felt that by transferring the risks to the Government of Karnataka during the transition period, it will be pressurised to manage the risks in such a way as would lead the industry to financial stability. The strategy proposed by the consultants for achieving the above was what is termed as distribution margin (DM), which is explained below. DISTRIBUTION MARGIN Under this concept, the privatised distribution business would have the reasonable assurance that it would be able to earn its revenue requirement provided it meets its performance obligations and targets. The DM is compensation to the company for operating the distribution satisfactorily. The DM will have two components, namely: (i) Base revenue and (ii) Incentive charges. The base revenue is the amount the company will be allowed to retain to meet its cost of operating the business. It will be set taking into account the estimated total first year cost of distribution services, plus a reasonable minimum equity rate of return. On the other hand, the incentive charge will be a pre-defined proportion of the collection above a minimum collection requirement, which the company may be allowed to retain. The incentive charge will represent the investors return above the base return on the equity fixed as part of the base revenue. Bidding for the DISCOMs was to be on the basis of the lowest incentive charges to be offered by the bidders. Further, the DISCOMs were to collect a minimum gross revenue, what was called the minimum collection requirement or MCR, which
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Study on `Impact of Restructuring of SEBs simply put, was the minimum cash collection for the sale of electricity. There would be a penalty for not achieving the MCR. While clarifying the procedure which was to be adopted, the State Governments Privatisation Strategy Paper16 also clarified that the winning bidder must buy at least 51 per cent of the equity of the DISCOM concerned, the price of which would be fixed at par value, before the submission of bids. Specific service standards would be set during the transition period. Since it was envisaged that during the transition period, the privatised companies might not have enough revenues to pay for the entire electricity purchased, the deficit would be met by the Government of Karnataka or it will make alternate arrangements. The risk will be, thus, during the transition period, taken over by the State Government, and will not pass to the privatised DISCOM. Importantly, the Strategy Paper said that all four DISCOMs existing then would be privatised simultaneously, as recommended by the FDP consultants. The strategy was quite innovative and offered substantial incentives and concessions to the prospective bidders, by Government of Karnataka assuming a major part of the risks during the transition period. As expected, there were severe criticisms against the proposed strategy. Although the reasoning behind DM is logical, doubts could arise about the higher extent of risk assigned to by Government of Karnataka as for a fiveyear period. For instance, Shri S.L. Rao points out the following likely impact of the DM methodology on the power sector of the State: i) ii) Private ownership is to be free for a transition period while the public sector will continue to be tightly regulated; There will be a maximum of four tariff changes in a year allowing for variations in input costs, procurement costs, etc. But there is no provision for scrutiny of these costs and their validity;

iii) There is no transparency; iv) Cross pass-through are not subject to examination. This is an invitation for padding of costs. The risk sharing puts a heavier load on the Government; and v) These proposals appear to attempt incorporation of the right contractual norms of Chile model. They use the conceptual model framework of the World Bank paper titled Regulation by Contract. It must be realised that the many problems in distribution will take years to be resolved and to make the distribution

16

Independent Power Producers Policy, Energy Department, Government of Karnataka, 2001.

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companies commercially viable. In the interim period, the State Government will have to give considerable administrative and financial support to the new private owners. It could be asked why they (State Government) could not do these things when they owned the distribution companies. The main concern is that the State Government should build sufficient public and political opinion in support of restructuring so that when they decide to, they could move forward without any hitch. In this regard, they could learn from the experience of Delhi.17 FORMATION OF KTPCL AS THE SUCCESSOR TO KEB The Karnataka Electricity Reform act and rules made the Karnataka Transmission Corporation Limited (KPTCL) the successor entity for the erstwhile KEB and initially all functions performed by the KEB were ipso facto transferred to it. In the Second Transfer Scheme issued in 2002, the distribution functions and assets relating to distribution were transferred to the four DISCOMs created with effect from 1 June 2002. The staff was required to opt for absorption in the DISCOMs, and subject to availability of slots to accommodate them, they were to be absorbed in the DISCOMs. The process and mechanism adopted for the restructuring of the KEB through the medium of KPTCL was appropriate and efficient. But in actual practice, the DISCOMs continue to look up to KPTCL as to a big brother to solve their problems. They have not yet attained the expected and required freedom from the linkage. Partly this may be because of the common work culture and history. But more so, because the personnel are still borne on the cadre of KPTCL, though they work in different DISCOMs. Moreover, the managing director of KPTCL functions as the chairperson of all DISCOMs, which though intended to ensure overall coordination, would go to retain the pre-eminent role of KPTCL over the DISCOMs. Till recently, DISCOMs were reportedly relying on KPTCL for many functions such as power purchase, raising finances, etc. This trend has been partly reversed; but needs to be reversed further, and efforts must be made to make the DISCOMs totally independent and autonomous entities, as was envisaged in the restructuring proposals. Merely clothing them with corporate veil will be of no avail, unless they are encouraged to function as corporate bodies in letter and spirit.

17

S.L. Rao: Governing Power; page 178 -179.

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Study on `Impact of Restructuring of SEBs STATUS OF PERSONNEL DISPERSAL Establishment of Pension Trust The KER Rules, 2002 stated that the State Government and not the DISCOMs would be responsible for the funding of the pension funds and all statutory and other personnel related funds for the services rendered in KEB and KPTCL prior to the effective date of the second transfer scheme of the specified personnel. Accordingly, a separate Pension Trust has been established to manage the past liabilities, effective from 1 June 2002. The Pension Trust also receives pension contribution of the staff for the period after the restructuring from the companies at actuarially determined rates in order to discharge the current and future liabilities. This system has absolved the companies from an enormous past liability and also has given the employees the required assurance. The Pension Trust has approximately, 26,000 pensioners and family pensioners on its rolls.

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CHAPTER - 3 PROGRESS OF RESTRUCTURING


GENERAL ISSUES Organisational Pattern Like all Electricity Boards, KEB was a huge multi-disciplined, multi-functional organisation, internalising practically all activities related to generation, transmission and supply of power. It had become unwieldy and typically bureaucratic, with statewide jurisdiction, and employing over forty five thousand employees. As a result, the most important attribute of a public utility, namely customer care, did not get the required attention. Although Karnataka had the unique distinction of establishing a separate generating company (KPCL) to cater to most of the production aspects, still, KEB had a few generating stations of its own to supplement the power purchase from the KPCL. Though the plan for restructuring of KEB does not refer to the requirement of core competency and management efficiency as causative factors for the restructuring exercise, the division of the Board into more viable corporate entities has indeed helped to achieve such an objective. KEB has now been restructured into seven separate companies, one to deal with transmission, another to manage the separated generation units (VVNL), and five DISCOMs for distribution. The idea of creating VVNL as a separate unit and not to merge the related generation units with KPCL18 was to undertake the privatisation of the units concerned as stand-alone units. Besides, the original decision was to create only four distribution companies; but recently, one more DISCOM, viz., CESCOM was carved out from MESCOM, as stated elsewhere. The organisational pattern that exists after the restructuring is competent and conforms to the principle of core competency. Each new company has only one major function to perform, which would allow for professionalisation. The geographical areas attached to each DISCOM can be considered to be more viable and manageable units, and susceptible to close supervisory control. The new organisation of the power companies in Karnataka would undoubtedly offer scope for better load management, better quality power supply, universal metering, enhancement of revenue, reduction of commercial losses, and above all, improved customer care and customer relations.

18

Detailed Policy Statement.

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Study on `Impact of Restructuring of SEBs The present organisational pattern of the restructured companies is as given below: KPCL VVNL

KPTCL

BESCOM Bangalorebased distribution company.

MESCOM Mangalorebased distribution company.

HESCOM Hubli-based distribution company.

GESCOM Gulbargabased distribution company.

CESCOM Mysore-based distribution company.

VISHWESHWARAIAH VIDYUT NIGAM LIMITED (VVNL) The ASCI Report on reform of the power sector had recommended that the residuary generation activities of the former KEB may be entrusted to another generating company, which could be privatised as a stand-alone unit. This was the genesis of VVNL. However, in 2003, Government of Karnataka decided to merge VVNL with KPCL in the interest of better hydrological interdependence among State owned hydel stations and integrated approach towards state-owned generation19. This is yet to be completed, and must be expedited. Presently, KPCL manages the affairs of VVNL, pending the formal merger. It is hoped that the required formalities would be completed soon. CHAMUNDESWARI ELECTRICITY SUPPLY COMPANY (CESCO) CESCO is a recent addition to the DISCOMs in the State, carved out by separating five districts from the jurisdiction of MESCOM. As mentioned earlier, the formation of CESCO could find justification in the need to strengthen the infrastructure of Mysore, which is registering considerable growth as a tier-two city for the development of the Information Technology industry. However, the fact that it was not formed as a part of the restructuring strategy, nor was it mentioned in the scheme of things, indicates that it was an afterthought. A more coordinated planning for
19

Circular No. DE 19 PSR 2003 dated 20 February 2003.

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restructuring would indeed yield better results with lesser implementation uncertainties. AUTONOMY OF RESTRUCTURED COMPANIES An important objective of the reform process of the power sector was not only to invest the utilities with the corporate status, but also to grant them adequate organisational and functional autonomy to enable them to work independently, with adequate powers to manage their affairs on a sustainable basis. At the cost of repetition, the DPS specifically proposed the grant of maximum autonomy to the restructured companies to manage their business along commercial lines. However, this has not yet been provided, which is obviously a major impediment to the reform process. According to the Chairman of the Karnataka Electricity Regulatory Commission (KERC), the restructuring of the power sector is a failure since electricity companies are not functioning independently20. The extent to which the restructured companies have achieved functional autonomy could be ascertained from the following developments. COMPOSITION OF THE BOARD OF DIRECTORS (i) Karnataka Power Corporation Limited (KPCL)

The Chief Minister of the State has traditionally held the position of the Chairman of KPCL, which was established in 1971. The Board has the Minister for Energy and the Adviser to the Minister for Energy as members. Six senior bureaucrats, including the Secretary to the Chief Minister, Principal Secretary (Energy Department) and the Managing Director of KPTCL are also on the Board. There are also four functional directors. The composition of the Board is indicative of the limited autonomy that the management will have on policy matters, without being hampered by political interference. The presence of the CM and the Minister for Energy on the Board of the Company will not only inhibit free and fair discussions in the Board meetings, but will also affect its autonomy. Hence, it would be appropriate that the CM and the Minister must voluntarily step down from Board positions, even if these appointments are declared as non- profit positions under the relevant law. The Board must further be reconstituted by including only up to three Government (nominee) directors in addition to the functional directors. Government of Karnataka
20

Shri K.P. Pande, Chairman, KERC, quoted in The Hindu, dated 26 May, 2006.

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Study on `Impact of Restructuring of SEBs must also induct up to 50 per cent of the total strength of the Board of KPCL, with independent directors, to be drawn from a panel of experts in field of technical, financial and management functions. (ii) Boards of Restructured Companies (KPTCL and DISCOMs)

KPTCL has the Minister for Energy as Chairman, while managing director of KPTCL functions as the chairman of all the DISCOMs. The Boards have a few functional directors from each company as members, as required. They also have Principal Secretaries/Secretaries of departments concerned (Energy, Water Resources etc.) as members. In the DISCOMs, the local area police and forest officials have been nominated for coordination. There are also representatives of staff associations on the Boards, as outside members. In order to professionalise the Boards and to make them independent and autonomous, it will be appropriate to reduce the number of Government nominees and to induct in their place professionals and experts from the fields of management, technology and other related areas. Further, it would be appropriate to merge the posts of chairman and managing director into one, as obtaining in Central Public Sector Undertakings (CPSUs). FINANCIAL AUTONOMY Till recently, KPTCL used to undertake several financial functions and activities on behalf of the DISCOMs. The Company Secretary of KPCL acts in that capacity for some of them on Company Law matters. This was understandable in the initial period of the formation of DISCOMs, since they may have been inexperienced and understaffed. But DISCOMs have been operational for almost four years by now, and must have built up the required capability and competency to function as full-fledged corporate bodies. One serious problem facing them all is the non-availability of competent professionals to take over the senior level financial assignments. Till recently, even for crucial matters like power purchases, DISCOMs used to depend on KPTCL; but this practice has since been changed. However, a common purchase committee is reportedly taking the power purchase decisions, and the DISCOMs simply implement them. As pointed out by the chairman, KERC, the DISCOMs do not have the discretion to manage their commercial decisions on innovative basis since they lack the autonomy. From this angle, it is imperative for the State Government to install an appropriate scheme to define the extent of management and

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financial autonomy to be granted to the restructured companies and empower them by appropriate measures. HUMAN RESOURCES DEVELOPMENT A tripartite agreement was entered among Government of Karnataka, KPTCL and representatives of the staff of the former KEB regarding the transfer of the staff to the restructured undertakings. Under the First Transfer Scheme, all former employees of KEB became employees of KPTCL. In the subsequent Second Transfer Scheme, all the personnel of KPTCL and those working in the DISCOMs were required to exercise their option, within eight months, to get absorbed in DISCOMs or to remain with KPTCL. Later, the Second Transfer Scheme was amended to give extension of time up to 31 October, 2003 to the staff to exercise their option. It is learnt that some of the staff members have since obtained a stay order against the directive to exercise options to get absorbed in the DISCOMs. The staff is apprehensive that in the event of their absorption in the DISCOMs, their current inter-se seniority would get adversely affected, with impact on the prospects for career advancement. It is likely that they also do not opt for the BESCOM so as to avoid relocation from their preferred places of postings. Pending a final decision by the Court, the staff continues to be borne on the KPTCL cadre, and work on deputation in the DISCOMs. The Transfer Scheme provided that the transfer of the staff to the restructured undertakings will assure them positions and compensations not less favourable than what they were enjoying in KEB/KPTCL. However, no additional incentives were provided to encourage the staff to opt for the absorption in the restructured companies. The continued retention of the personnel on the rolls of KPTCL is a major impediment against taking forward the reform exercise. For one thing, the morale of the staff gets affected. Further, the managements of the companies have no incentive to evolve innovative personnel policies to motivate the staff to perform better. The officials working for the restructured companies continue to retain the work culture and habits of the erstwhile KEB with hardly any commitment to their present employers. The newly formed companies also do not own up their staff, and are not able to motivate them. It is apparent that unless the integration of the human resources of each restructured company with its own management is achieved soon, the reform process would not get the required impetus. The State Government must expedite the process by moving the judicial authorities to approve the transfers and put in place a strong and well3.31

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Study on `Impact of Restructuring of SEBs structured human resources network for each restructured company, at the earliest. This must be a matter of priority. It may be a wise investment to offer adequate and sufficiently attractive incentives to the transferred personnel to encourage them to opt for the revised corporate entities. This must be supplemented with an appropriate communication strategy to educate the staff members on their career prospects so that they shed their misapprehensions and volunteer to get absorbed in the DISCOMs. CONTINUATION OF THE SUBSIDY PAYMENTS Power sector reforms aim at substantial reduction and the gradual elimination of the government subsidy to the sector. It is no ones case that the subsidy that the sector has been enjoying for decades could be wished away overnight by merely restructuring the Electricity Boards. But the entire restructuring exercise was initiated with the objective of reducing and eliminating the continuing subsidy and to make the sector self-supporting and sustainable in the shortest possible time frame. As mentioned earlier, the State Government has been giving considerable subsidy support to the power utilities in the State. . Even after almost a decade of the reform efforts, there is no let up in the provision of subsidy to the sector. The ten-year Financial Restructuring Plan (FRP) for the power sector approved by the State Government envisaged that the government support to the sector would be Rs 8,999 crore till 2005, including a direct subsidy of Rs 6,750 crore, debt service on trade bonds to CPSUs of Rs 555.30 crore, cash subsidy for past power purchase dues of Rs. 200.40 crore and pension contribution of Rs. 785 crore. Additionally, the liability for the past pension obligations till the restructuring of the KEB would continue. At the same time, a turnaround of the finances of the sector was expected in the five-year period to follow (i.e., by 2006-07). The FRP assumed annual revision of tariffs, annual reduction of losses, 100 per cent collection efficiency, and adequate capital investments supported by external funding. Following this, Government of Karnataka also published the Medium Term Fiscal Plan (MTFP) for the State for the period up to 2004-05 during the budget session 2001-02, which announced drastic reduction of implicit and explicit subsidies to the power sector through economic pricing, improving productivity in generation, transmission and distribution and metering the consumption of electricity by the agricultural sector and privatisation of distribution. The MTFP, among other things, sought to link the power sector subsidy to reduction in T&D losses (from the then existing level of 37.5 per cent to 25 per cent in 2005-06, through gradual annual reductions), and regular tariff increases. The first Balance
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Sheet Restructuring Plan provided a total financial support of Rs 1,800 crore to the restructured company (KPTCL) and the second such exercise included the write off of KPTCLs receivables of Rs 866 crore. This also aimed to restrict the total subsidy payable to the sector for the subsequent ten year period to Rs 12,140 crore, exclusive of Rs 1,050 crore taken over towards the long-term debt servicing of KPTCL (erstwhile KEB). In actual practice, however, the large amount of subsidies to the sector continues to persist, with no respite visible in the near future. The following Table provides the details of profit, loss, and subsidies to the distribution sector in the recent years: Table: Details of Profit and Loss
Profit after tax (Accrual basis) 340 310 462 1,112 (Rs crore) Cash profit Cash profit Cash profit Loss (accrual basis (subsidy (Revenue and without excluding received subsidy on Subsidy depreciation basis) realised basis) and write-offs) 943 849 103 (1,599) 1,034 689 412 (1,315) 1,259 1,092 621 (1,107) 3,236 3,630 1,136 (4,021) (Source: PFC)

Year

2002-03 2003-04 2004-05 Total

Thankfully, the extent of losses without subsidy has come down from Rs 1,599 crore in 2002-03 to Rs 1,107 crore in 2004-05, that is by as much as 31 per cent over the three-year period, which shows significant improvement. However, the gap between the average cost of supply and the average revenue realised continues to vary between Rs1.30 per unit for HESCOM and Rs 0.06 for BESCOM. Efforts must be continued to reduce the gap and to gradually eliminate the subsidy by efficient planning, and measures aimed at increasing revenue and reducing costs. METERING PROGRESS Government of Karnataka had initiated a three-year programme in 2002-03 for 100 per cent metering of all service connections; but this has not succeeded due to severe resistance from the farmers. According to MESCOMs Business Plan, the Universal Metering Plan is a limited success. The Plan states that the metering of IP sets in three districts were completed. Due to resistance of farmers, the progress in one division (Sagar) was only 50 per cent. BESCOMs metered consumption comes to only 49 per cent of the total sales in 2004-05, though there is marginal increase from the previous years. HESCOM claims that it has achieved some 87 per cent overall efficiency in
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Study on `Impact of Restructuring of SEBs metering, with only 30 per cent metering for IP sets. The ESCOM was continuing with its Bhagya Jyothi installations metering, while the metering of street lighting was completely outsourced. The Business Plan of BESCOM aimed at 100 per cent metering by 2004, except for IP segment, where there is resistance from the customers. In the current years budget, the State Government has allocated a subsidy of Rs 127 crore to encourage the farmers to agree to install meters for IP sets. The individual subsidy amount will be Rs 16,450 per IP set, for regularisation, with the farmers bearing the first Rs 10,000 per set.

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CHAPTER - 4 ANALYSIS OF THE RESTRUCTURING PROCESS


RESTRUCTURED ORGANISATIONAL PATTERN AND FUNCTIONAL AUTONOMY The organisational pattern adopted for the restructuring of the KEB was, by all accounts, unexceptional. The decision to form one transmission company for the whole State and four distribution companies on the basis of zonal jurisdiction, with a mix of urban and rural contiguous zones, was logical and based on detailed studies carried out by well-known consultants. The alternative of segregating them into urban and rural distribution companies would have not only affected the financial viability of the latter, but also would have been unacceptable from the point of their future privatisation, which was the declared policy. Given the appropriate organisational pattern, the restructured companies must be functioning with efficiency and autonomy by now, after four years of the restructuring. However, this has not happened, as mentioned before. The reasons are following: Non-integration of the staff with the restructured companies even after four years of their formation has stalled the progress of reform. The efforts taken by the management to have the judicial orders regarding the transfers rescinded are neither adequate nor significant. In the absence of separate cadres for each DISCOM, the employees consider themselves as part of one entity, KPTCL, or even perhaps, of KEB in a different name. The attitude of the staff and the work culture continue to be as before the restructuring exercise. The formation of the DISCOMs has not made any difference to the majority of the staff. There are no incentives to the staff to move over to the new companies, and there is hardly any motivation. A revised and more attractive personnel policy would undeniably lead to better efficiency and autonomy. The CEOs of the DISCOMs are drawn either from the civil service (IAS/KAS) or from the technical cadres of the former KEB. Many of them do not have the aptitude, expertise and experience to manage complex electricity sector. There are also frequent transfers of these personnel. The CEO of KPTCL is, by virtue of his position, appointed as the chairman of all DISCOMs. This does not help the DISCOMs to function as independent entities, but might encourage them to work more as subordinate units of KPTCL. This is
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Study on `Impact of Restructuring of SEBs particularly so when the CEOs of the DISCOMs are officers drawn from the KPTCL /KAS. Till last year, KPTCL was the designated agency to purchase power and supply it in bulk to the DISCOMs. Though this practice has recently been modified, a centralised power purchase committee now carries out the task. In order to permit the DISCOMs to function with autonomy, it is necessary to encourage them to take all major decisions, including on power purchases, for which they must be endowed with adequate management capability. The DISCOMs do not have competent finance directors, finance professionals, company secretaries, etc., which is a major handicap. The present wage pattern will hardly enable them to attract suitable talents. Unless this problem is solved by appropriate measures, the DISCOMs would not be able to function efficiently and independently. DISCOMs have prepared their detailed business plans with external assistance, which is appreciable. The effective and close implementation of these plans will help to achieve the targets set in the power sector reform regarding improved physical and financial performance of the sector as a whole.

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ACHIEVEMENTS IN FINANCIAL OPERATIONS BY DISCOMs The following Table indicates the financial performance of DISCOMs: Table: Financial Performance of DISCOMs (Rs crore)
DISCOM Income Total PBT excluding expenditure subsidy 2,375 502 713 1,053 4,643 3,265 666 1,324 889 6,144 3,656 693 948 1,446 6,743 2,670 850 1,198 1,204 5,922 3,432 1,081 1,540 1,554 4,607 3,567 1,158 1,755 1,698 8,088 Cash Cash Profit Cash profit on Revenue PAT profit without and Subsidy subsidy Received basis 89 35 44 59 227 107 41 69 81 298 180 37 102 90 409 123 20 (7) (3) 133 5 11 (91) 18 (57) 366 (38) (146) 58 240 (225) (43) (174) (172) (614) (104) (45) (65) (122) (336) 238 (103) (329) (36) (528) (Source: PFC)

BESCOM GESCOM HESCOM MESCOM Total BESCOM GESCOM HESCOM MESCOM Total BESCOM GESCOM HESCOM MESCOM Total

2002-03 20 18 9 8 10 10 12 11 51 47 2003-04 21 13 7 (14) 21 19 17 15 66 33 2004-05 88 81 4 (4) 21 9 19 18 132 104

The above Table shows that there has been general improvement in the overall financial performance of DISCOMs, which indicates the merits of the restructuring relating to PBT, PAT, Cash Profit, etc. However, the companies have to redouble their efforts to recover revenue and subsidy on time. Moreover, there is need to focus on the financial performance of HESCOM and GESCOM in particular. These companies have large agricultural segments compared to BESCOM and MESCOM, and would benefit from a sound policy for universal metering and improved billing and collection. These two companies were also recipients of heavy subsidy as a percentage of sales revenue ranging from 68.56 per cent to 93.51 per cent, which are unsustainable, and need early remedial action to improve their performances. Another area where some improvement was noticed from year-to-year relates to collection efficiency. This factor ranged from 80.55 per cent in the case of HESCOM to 96.42 per cent in the case of BESCOM (2004-05). However, the debtors to sale ratio have gone up. This aspect needs to be examined.
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Study on `Impact of Restructuring of SEBs PERFORMANCE OF TRANSMISSION COMPANY (KPTCL) The following Table summarises the performance level of KPTCL: Table: Performance of KPTCL
Particulars Energy available (MU) Energy delivered (MU) Transmission loss (MU) Transmission loss (%) PBT (Rs crore) PAT (Rs crore) Sundry Debtors, (Rs crore)/(% of debt to sale) 2002-03 29,279 27,266 1,988 6.55 536.73 494.5 7,095.5 (12.5) 2003-04 2004-05 31,217 33,110 29,676 31,711 1,527 1,383 4.89 4.18 597.8 1,171.8 523.9 1,088.2 16,831.6 16,025.7 (26.10) (24.20) (Source: KPTCL)

It may be observed that the company has been turning out appreciable performance over the years by reducing the transmission loss, which is reportedly one of the lowest in the country. Even though the profit levels have been on the increase, the sundry debtors position would cause serious concern. However, since the practice of power trading was discontinued from 2005-06, it is hoped that there would be improvement in the Companys accounts in regard to this aspect for the subsequent year onwards. KPTCL has also embarked on an ambitious capex programme of Rs.1,700 crore in the current year, for which approval has been issued by the KERC. PERFORMANCE OF THE GENERATING COMPANY (KPCL) Since KPCL has been in existence for about 35 years, its performance has to be seen in the overall context of the reform process, and not as a part of the review of the success of restructuring exercise. As mentioned earlier, KPCL has a 55.5 per cent (60 per cent along with VVNL) share of the total installed capacity in the State, with predominant hydel mix. The Vision Statement of KPCL estimates that the load demand will continue to outstrip generation, and the shortage is expected to grow to 2,492 MW by 2010. KPCLs ambitious vision is to become a 25,000 MW company by 2025.

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The generation and PLF performance of KPCL can be seen from the following Table: Table Generation and PLF Performance
Generation (MU) PLF (%) Auxiliary consumption (MU) Auxiliary Consumption as a percentage of generation 2002-03 10,292 79.92 957 5.58 2003-04 11,393 88.47 1,069 5.80 2004-05 10,730 83.33 1,041 5.48

The achievements of KPCL compare well with the best in most other States. The company had made PAT of Rs 240.70 crore, Rs 223.23 crore and Rs 239.45 crore respectively during the last three years.

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Study on `Impact of Restructuring of SEBs

CHAPTER - 5 LESSONS LEARNT


The lessons learnt from a review of the power sector reform efforts in Karnataka are very revealing and educative. The procedure followed by Government of Karnataka to conceptualise, plan and initiate the reform process was by all accounts efficient, meticulous and well structured. This is evident from the various steps and measures adopted by it from the beginning; whether it be in the formulation of the policy for reform, the planning which went into the process, the appointment of competent external consultants, the establishment of the monitoring and implementation mechanism, etc, followed by the FRP, institutional strengthening plan, and the mode of the restructuring exercise itself. The pace of implementation was also quite appropriate. However, the main intended and planned process does not seem to have yielded the full-intended outcomes, and the DISCOMs suffer from adverse financial results attributable to inadequate management systems and external pressures. On the other hand, the State Government has not been able to reduce the subsidy to the sector significantly for redeployment in the more deserving social and development sectors, as expected. This is not to say that the restructuring was a failure; quite the contrary. In fact, the new companies have been successful in many respects, including metering programmes, improved billing and collection, energy audit, reduction in AT&C losses, etc. More importantly, the restructured companies are able to devote more attention to customer care, which can be regarded as one of the most desired results of the reform process. But there is no gainsaying that more needs to be done to make the reform a real success. The principal lesson that emerges from the study is that it is not enough to put in place a textbook model for reforms; but all reforms need one or more powerful and totally committed champions to put them through. It is always convenient to let things drift; but if the reform is to succeed, it needs bold initiatives, which are unlikely to come from within the organisation itself. The most important tool for achieving any task is human resources. Inadequate attention to develop this valuable resource will have deleterious effects on the reform efforts. It would appear that in Karnataka, the State Government did not pay adequate attention to encourage the staff of the KEB to become members of the restructured companies, also it did not develop a competent cadre of managers who could take over and function effectively at the top rung of the restructured companies.
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The political will to successfully implement the reform efforts, which was visible in the initial period of the reform, does not appear to been sustained thereafter. Power sector reforms can succeed to a considerable degree only when there is a strong political will. However, there are several positive gains arising from the restructuring of KEB. These include the following: (i) Viable Enterprises: The functionally oriented, smaller companies formed out of KEB are more viable to manage and offer scope for better management control and efficiency. Reduction in losses: There has been gradual and steady reduction in the AT&C losses of the new companies. Financial sustainability: Two of the five distribution companies are comparatively sustainable in terms of financial viability. The new companies are paying more attention to billing and collection, which will have direct impact on their financial results. The system of engaging Grama Vidyut Pratinidhis for collecting the dues in rural areas, and the practice being adopted to outsource the billing and collection process will go to improve the revenue base. Increasing computerisation of billing and collection tasks by DISCOMs, especially by BESCOM, is also paying dividends. The short point is that after restructuring, the smaller entities are able to devote more time and attention to revenue realisation.

(ii) (iii)

(iv)

Metering Progress: There has been significant progress in metering all installations, except for the IP sets. In their case also, despite the political overtones, there have been appreciable efforts to extend the metering exercise, though with limited success. Customer satisfaction: The customer satisfaction level has surely gone up. The CEOs of the DISCOMs, especially in Bangalore, has shown considerable interest to receive complainants personally, and to solve their problems. They have also established appropriate grievance redressal mechanisms, to look into customers complaints. The independent studies carried out by a Civil Society

v)

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Study on `Impact of Restructuring of SEBs Organisation21 in Bangalore and Hubli have shown that the level of customer satisfaction has increased in the recent years. vi) Additional Investments: Significant investments are being made to improve upon the facilities and services offered by the newly-formed companies. The investment requirements envisaged in the document Vision 2020 for the period from 2005-06 to 2009-10 comes to about Rs 6,400 crore for KPTCL and Rs 16,032 crore for the DISCOMs. The fact that KPTCL has KERCs approval to incur Rs 1,700 crore for capital works in 2006-07 indicates the progress being made towards inviting additional investments.

21

Public Affairs Centre: Third Citizens Report Card; Bangalore; Citizens Report Card for Hubli Municipal Area.

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CHAPTER - 6 WAY FORWARD


(A) POLITICAL COMMITMENT: A MUST Unless there is Central intervention to activate the reform efforts and to put it back on even keel by securing political commitment of the State Government, the trend is unlikely to change. Ministry of Power must consider the ways and means to accelerate the reform process by innovative measures, albeit the EA, 2003 establishes the framework for restructuring. It is important to pursue the objectives of the Act in letter and spirit, since a mere restructuring in form, as carried out in Karnataka, will not yield the full desired results. With all restructured companies continuing as 100 per cent Government owned and controlled entities, the impact of restructuring is limited. The feasibility of linking central assistance (including those from REC and PFC) with the progress of effective implementation of the reform will be one such possible measure. (B) IMPROVING RECOVERY FROM AGRICULTURAL SECTOR The main reason for the continued poor financial performance of the restructured companies is the resistance of the agricultural lobby to install meters on IP sets and refusal to pay for the electricity consumed, which is taken by them as a matter of right. This is an all-India issue and has to be sorted out at the national level. The objective must be to define the creamy layer of farmers, to identify them, and to make them pay through coercion. Linking the support price and procurement operations to those who have paid for the electricity drawn by them could be explored. Until a reasonable solution is found for this daunting problem, the sector reform will only be partly successful. (C) PLANNING AND MONITORING AGENCY During the initial stages of the power sector reform in Karnataka, there was a ministerial committee to oversee the reform implementation. It is necessary to reactivate such a high level committee, but with clear and specific objectives and tasks. This must be supplemented with a Steering Committee under the Chief Secretary, as before, with clearly defined tasks and commitments.

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Study on `Impact of Restructuring of SEBs (D) ADVISORY GROUP TO ASSIST IN REFORM EFFORTS An advisory group of experts and professionals with wide experience and expertise in the field must be established to assist the Steering Committee in its tasks. The Advisory Group must be selected carefully, and not confined to former bureaucrats/technocrats. The Group may however include representatives of CEA/PFC. (E) STRENGTHENING THE REFORM CELL OF THE SECRETARIAT It would appear that though the Reform Cell of the Department of Energy is still in existence, they are engaged in routine activities. The Cell requires to be strengthened substantially. There is need to induct committed senior officials with wide experience and the right temperament into the Reform Cell so that it becomes proactive and plays a major role in pursuing the reform efforts. (F) REINVENTING THE COMMUNICATION STRATEGY The external consultants had advocated a communication strategy, which was not put into effect efficiently. All reform efforts and change managements need to be supported by strong communication strategies. The target groups should include all stakeholders, namely, the public at large, consumers and consumer groups, staff of the undertakings, politicians, administrators and all concerned. One reason for the less than envisaged success of the reform efforts in Karnataka, whether it be the reluctance of the staff members to opt for the restructured companies, or whether the refusal of the agricultural lobby to allow installation of meters on IP sets, or whatever, was the apparent failure of the communication strategy. It is strongly recommended that a competent, practical and target-oriented communication strategy be developed with the help of experts in the field, and be put into practice as the next stage of the reform process. (G) RECONSTITUTING THE BOARDS RESTRUCTURED COMPANIES OF DIRECTORS OF

The present constitution of the Boards of the utilities in the State leaves much to be desired. The boards now mostly comprise of serving and former officials of different departments and agencies. Even where there are outside members, they are mostly retired senior officials of the same entity. There is need for Government of Karnataka to establish a policy to reconstitute the BOD of the power sector companies; the recommended procedure is to restrict functional
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and government directors to 50 per cent of the total strength of the boards, and to fill the rest with professionals and experts drawn from a panel of experts in management, technology, finance and related professions. This will go a long way to transform the restructured companies to function more professionally, and with more autonomy. Traditionally, the Chief Minister acts as the chairman of KPCL; Minister in charge of Energy becomes the vice-chairman. The management is of the view that this arrangement helps the company in decision-making; but the demerits of a political executive acting as the chairman of a public corporation are apparent. This needs consideration at the highest level. (H) PROVIDING AUTONOMY TO DISCOMS The practice of appointing the CEO of KPTCL as the chairperson of DISCOMs must be discontinued. Until competent CEOs, who could function as CMDs, are available for appointment internally in DISCOMs, suitable outside personnel could be appointed to those posts. Meanwhile, the Government of Karnataka must define the extent of powers that needs to be granted to DISCOMs through a corporate analysis and delegate them. Further, the management of the DISCOMs must be strengthened by inducting competent and experienced middle and top level functionaries who will be able to work more independently and professionally. (I) DEVELOPING A COMPETENT CADRE OF MANAGERS It would be a tough assignment; but efforts should be in place to develop a competent cadre of professionals to man the senior positions in the power companies, including those of CMDs. Since CEOs require multi-disciplinary skills, it is necessary to train the senior personnel of KPTCL and DISCOMs as part of capacity development. This might take a long time; but must be initiated early. Meanwhile, the availability of competent executives with the necessary expertise to function as CEOs, from CPSUs like NTPC, NHPC, etc., could be explored. It may also be necessary to provide adequate and attractive compensation packages to such candidates, without being hamstrung by the State civil service pay structures.

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Study on `Impact of Restructuring of SEBs (J) ESTABLISHING A DETAILED FINANCIAL ACTION PLAN The entire plan for continuing the reform efforts, with clear objectives, process, etc., must be presented, as a White Paper and a medium term plan to make the sector sustainable, without subsidy, must be evolved. This will, as mentioned above, indeed call for an aggressive and conscious policy to tackle the agricultural sector; but the Common Minimum National Action Plan established by the Chief Ministers Conference in 1996 would show the way forward. Under this Plan, agricultural sector was to pay not less than 50 paise per kWh, to be brought to 50 per cent of the average cost gradually. The financial action plan must be firmly established, after getting the approval of KERC. (K) ENFORCEMENT COMPANIES OF PERFORMANCE CONTRACT WITH

The Vision, 2020 Statement prepared by KPTCL for both the transmission and distribution areas envisages significant capacity additions and capex during the coming years, as also establishes ambitious management goals. The business Plans of BESCOM and MESCOM provide useful year-wise targets and goals for various activities. In order to ensure sustained and efficient performance by all restructured companies over the years, it would be advantageous to encourage them to sign annual Performance Contracts with the Department of Energy. The mechanism of Performance Contracts will also cast corresponding duties and obligations on Government of Karnataka (Government support to undertake universal metering, payment of subsidy on time, etc.) as also will go to enhance the autonomy of the companies. (L) PARTIAL DISINVESTMENTS OF GOVERNMENT HOLDINGS IN THE RESTRUCTURED COMPANIES The DPS indeed announced the firm resolve of Government of Karnataka to privatise the restructured companies, as also disinvestments in KPCL over time. It may be recalled that the State Government had also accepted in principle the recommendations of the consultants to adopt the DM route as a means to attract prospective investors to bid for all DISCOMs. Subsequently, as brought out in this Report, the reform process got retarded, and there has been no development on that front.

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Different approaches may be possible in respect of the issue of disinvestments in the power sector companies. One cannot however pre-empt the route that policy makers must adopt in this regard. Further, even the extent of dilution of equity in a concern will be a matter of major policy issue. However, there is no denying that public participation in the equity base would accentuate the autonomy and accountability of public corporate bodies, and will make the managements more responsive to the corporate objectives. Viewed from this angle, there is a strong case for offering part of the shareholdings of KPCL and DISCOMs to the public, including the employees of the companies themselves. It would be advisable therefore to revisit the recommendations of the FDP consultants regarding the issue of privatisation. Meanwhile, a pre-determined portion of the shareholdings of KPCL and DISCOMs, say 26 per cent, could be offered to the public. Similarly, without prejudice to the option of finding strategic partners, the Government of Karnataka must examine the ways and means of a further financial restructuring of the DISCOMs to make them sufficiently attractive so that a percentage of the shareholdings could be offered to the public. These measures will have to be considered in depth with the help of consultants and experts in the field; but a step in that direction would take the restructuring process to logical conclusions. (M) HUMAN RESOURCES DEVELOPMENT Integration of Staff with DISCOMs The reluctance of the staff to opt for the restructured companies, though they had signed the tripartite agreement, may be due to their apprehensions of adverse career prospects, as also to avoid possible relocations, among other things. The need to educate the staff concerned suitably at all levels, and also to provide adequate and just incentives to motivate them to opt for the transfers cannot be gainsaid. The management and the State Government must jointly therefore evolve an appropriate and efficient communication strategy to implement the transfer scheme and work for it according to the roadmap established. Shortage of Technical and Commercial Staff Against the sanctioned staff strength of all companies, the number of staff in position is considerably less. The shortages seem to be more in the technical and commercial areas, especially in the field, which impacts the functioning of
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Study on `Impact of Restructuring of SEBs the companies. The staff norms were established during the KEB days, and based on the liberal standards existing under the Board regime. There is need to have them revised as per commercial norms and O&M studies; perhaps by engaging outside experts. Once this is done, the managements of the companies must have the freedom to fill up the required number of staff, as their own employees on respective cadres, which will strengthen the working of the companies. The restructured companies also must have powers to evolve their own performance-linked wage structures, which are most suited to their environments, subject to the overall policy guidance of the State Government. The model could be patterned on the basis of the procedures followed by the CPSUs. (N) OUTSOURCING OF FUNCTIONS A related issue is the advantages of outsourcing services and functions. Already, BESCOM has resorted to outsourcing of its billing and collection in a number of its sub-divisions, with apparent benefits. Apart from reducing the cost to the companies, outsourcing will also help in better collection efficiency, provided there is a competent data collection and monitoring system in position. DISCOMs must be encouraged to adopt the practice of outsourcing increasingly, but subject to installing appropriate security and monitoring controls. (O) PUBLIC PARTICIPATION IN OPERATIONS The need to secure a buy-in of the public to the reform efforts in the power sector through the communication strategy has already been discussed. This needs to be supplemented with public participation in areas such as elimination of thefts, 100 per cent metering, and such relevant areas. The project launched in Maharashtra (Akshay Prakash Yojana) to involve the rural population in the activities of the utility could be adopted as a model. Karnataka has a large number of effective and successful Non-Governmental Organisations (NGOs) operating in different parts of the state. It might be possible to involve them in mobilising public cooperation to improve the commercial aspects of the working of the DISCOMs through concerted efforts.
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The recently announced scheme of franchisees in rural areas, sponsored by the Rural Electrification Corporation (REC) might throw open fresh avenues in rural management of the operations. Another option will be to involve the Panchayati Raj Institutions (PRIs) actively in billing and collection; perhaps as bulk purchasers of power. They must also be incentivised to pay for the electricity consumed by their local offices and facilities, by close interaction.

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TABLE OF CONTENTS
EXECUTIVE SUMMARY ............................................................................................4.1 1. GENERAL OVERVIEW.........................................................................................4.13 1.1 Background of Power Sector Reforms ................................................................4.13 1.4 Milestones ...............................................................................................................4.14 1.4.5 Functions and Undertakings Retained in MPSEB ...........................................4.15 1.4.6 Taking over of Liabilities by Government of MP.............................................4.16 1.5 Financial Restructuring Plan.................................................................................4.16 1.6 Role of MPSEB in the Reform Process.................................................................4.20 1.7 Formation of TRADECO.......................................................................................4.20 1.7.1 Functions of Board Transferred to TRADECO ...............................................4.21 1.8 Cash flow Mechanism of MPSEB .........................................................................4.22 1.9 The Reform Expectations.......................................................................................4.24 2. GENERATION .........................................................................................................4.25 2.2 Generating Capacity in the State ..........................................................................4.25 2.3 Projects Identified for Eleventh Plan....................................................................4.26 2.4 Renovation and Modernisation of Existing Plants ..............................................4.26 2.5 Performance of the State Generation Units .........................................................4.27 2.6 Observations/Comments ........................................................................................4.30 3. TRANSMISSION .....................................................................................................4.31 3.1 Transmission Network ...........................................................................................4.32 3.2 Operational Parameters.........................................................................................4.33 3.3. Transmission System Availability ........................................................................4.33 3.4. Capital investment in Transmission Sector.........................................................4.34 3.5 Power Supply Position in the State .......................................................................4.35 3.6 Power Purchase.......................................................................................................4.36 3.7 Commercial Parameters ........................................................................................4.36 3.8 Observations/Comments ........................................................................................4.37 4. DISTRIBUTION SYSTEM .....................................................................................4.38 4.1 Performance Parameters .......................................................................................4.39 4.2 Observations/Comments ........................................................................................4.48 5. REGULATORY FRAMEWORK....4.49 5.1 Tariff Revision ........................................................................................................4.49 6. ROLE OF THE STATE GOVERNMENT ............................................................4.50 7. ELECTRICITY ACT 2003 AND THE REFORM PROCESS.............................4.51 7.1 Establishment of SLDC..........................................................................................4.51 7.2 Adequacy of the Provisions of the Central Act ....................................................4.51 7.3 Suggestions from State Govt. and the Support Expected ...................................4.52 8. LESSONS LEARNT AND WAY FORWARD ......................................................4.53 8.5 Regulatory Process .................................................................................................4.54 8.6 Generation Sector ...................................................................................................4.55 8.7 Transmission System ..............................................................................................4.56

8.8 Distribution............................................................................................................. 4.56 8.8.1 Transition Support by Government of MP ...................................................... 4.56 8.9 Sustainability of State Power Sector .................................................................... 4.56 9. CONCLUSIONS ...................................................................................................... 4.61 List of Officials with whom Discussions were Held: ................................................. 4.62

MADHYA PRADESH EXECUTIVE SUMMARY


GENERAL Madhya Pradesh had the distinction of being one of the few States, which had an efficient State Electricity Board (SEB). MPSEB has been ranked high amongst the SEBs, in terms of creating good generation capacity in the State sector, well-organised network of transmission and sub-transmission system and relatively low level of Transmission and Distribution (T&D) losses among the SEBs. However, the working of MPSEB started deteriorating on account of inefficiencies from its monolithic structure, distortions in tariffs, defaults in payment to Central Public 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 MPSEB, which aggravated the fiscal condition of the State Government. Government of Madhya Pradesh had little option but to go in for the comprehensive reforms in the power sector. REFORM ACT, 2000 The Reform Act, Madhya Pradesh Vidyut Sudhar Adhiniyam, 2000 was enacted on 20 February 2001, but in the meanwhile in November, 2000, the erstwhile State of Madhya Pradesh was bifurcated into two separate States, i.e., the now existing Madhya Pradesh and the newly created State of Chhattisgarh. After reorganisation of the State, 33 per cent of the installed generating capacity was transferred to the State of Chhattisgarh, whereas the level of consumption was only 21 per cent of the total consumption of undivided Madhya Pradesh. With limited generation capacity and large number of agricultural consumers, this division led to an inverted structure of power sector. Restructuring of MPSEB The State Government adopted a reform model for restructuring of MPSEB on functional basis and it restructured the vertically integrated electricity sector into separate Utilities. Accordingly, one generation, one transmission and three distribution companies (DISCOMs) were incorporated in July 2002. In the reform model, a certain role has been assigned to MPSEB. The new Utilities initially started functioning under O&M agreement with MPSEB from 1 July 2002. Even when all the five companies have been made independent companies to conduct their respective business with effect from 31 May 2005, in this mode, MPSEB will exercise control over the

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revenues from business of these companies, which shall be utilised through a special cash flow mechanism. It has been indicated that this arrangement is intended to last during the transition period. State Government Role and Structural Financial Support The Financial Restructuring Plan (FRP) was prepared by MPSEB and updated in November 2005, which, however, has not been formally approved by the State Cabinet. The important assumptions used in Financial Projections were that the AT&C losses will be reduced from 51.6 per cent in 2004-05 to 32.5 per cent in 201112, collection efficiency would increase from 85 to 96 per cent and capital investments to the tune of Rs 18,825 crore would be made into the sector. Also, there shall be a regular year on year increase in the retail tariff. Implementation of the proposed FRP is expected to turn around the MPSEB by 2011-12. The State Government's commitment to a total cash outflow would be approximately Rs 6,881 crore during the seven-year period of FRP. However, there would be an inflow of around Rs 8,623 crore to the State Government from MPSEB, resulting in a net outflow of around Rs 1,741 crore to the State Government. Role of MPSEB The reform model provides for a unique functional role of MPSEB after the restructuring. MPSEB has transferred all functions including assets of the erstwhile Board vide Madhya Pradesh Electricity Reforms Transfer Scheme Rules, 2006 to the respective Utilities. It has retained two principal functions, viz., the first, relating to cash management during the transition period and the second, to act as principal employer till the staff gets allocated amongst the Utilities. Although, MPSEB will be the principal employer, full powers relating to punishments, dismissal, etc., has been vested in the CMDs of the respective utilities. The State Government officials feel that this arrangement was also necessary because of the dispute over the assets and liabilities pertaining to the erstwhile Board of the undivided Madhya Pradesh and the newly created State of Chhattisgarh. REORGANISATION OF THE STATE After bifurcation of the composite State of Madhya Pradesh, 12 per cent of the generic and project related liabilities were transferred to Chhattisgarh, 88 per cent of this burden was put on MPSEB.
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Liabilities Taken Over by the Government of Madhya Pradesh Based on the recommendation of Montek Singh Ahluwalia Committee, the State Government has already issued bonds worth Rs 2,663.89 crore for one-time settlement (OTS) of dues of NTPC, PGCIL, NPCIL, WCL and SECL. Also, during FY 2005-06, the State Government took over liabilities of MPSEB to the tune of Rs 4,431 crore. However, this additional liability taken over by the State Government does not appear to be part of the transfer scheme for transferring assets and taking over of liabilities. Government Subsidy MPSEB is heavily dependent on subsidy support from the State Government. The amount of subsidy was around Rs 794 crore in 2004-05 which is around 15 per cent of the revenue earned by the DISCOMs from sale of power. This dependence is expected to increase as, Government of MP would provide subsidy to the agricultural consumers of the State as well as for meeting the revenue deficit of the DISCOMs under the FRP. However, the additional subsidy burden could be a constraint on the States finances. REGULATORY PROCESS The State Electricity Regulatory Commission has been quite effective in rationalisation of tariff in the State. The gap between ARR and ACS prevails primarily for agricultural pumpsets consumers and is nearing the cost to supply for the domestic category. The realisation attained for the domestic consumers is at 86 per cent of the average cost to serve and for the rest of the categories, the average revenue realised is more than the ACS. MULTI YEAR TARIFF AND OPEN ACCESS MPERC has notified Open Access regulations in the State and has introduced the MYT framework. Following the directives of MPERC, only GENCO and TRANSCO have submitted their ARR in accordance with the MYT in 2006-07. The MYT framework is envisaged for a control period of three years up to 2009. Reforms have been in progress in the State for almost five years. So far as the generation and transmission Utilities are concerned, it can be stated that these two Utilities have been functioning as separate entities in their respective areas. The
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picture about the DISCOMs is, however, different. Therefore, the levels of performance also have to be considered in this background. GENERATION Key Positives On the technical side, MPPGCL has been able to improve the PLF of its generating stations from 46-66 per cent during 1992-93 to 1997-98 to a level of 70-73 per cent, from 1998-99 onwards. Similarly, the availability of generating stations has increased from 75 per cent in 1995-96 to 87 per cent during 2004-05. There is also a reduction in specific oil consumption in thermal stations and the same has come down 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 Key Concerns Power Shortages The deficit has been as high as 28 per cent for peak demand and 23 per cent for energy in April 2006. The State is highly dependent on the allocation from Central sector power projects and sources around 35 per cent of its requirements from them. The Madhya Pradesh Electricity Board (MPEB) had a capacity of about 4260 MW in 1999-2000. After reorganisation of the State, installed generating capacity left in the State was about 2,940 MW. There was only a marginal increase of about 50 MW hydro capacity since 2002-03. As regards thermal capacity, there has been no further addition in the corresponding period. A total capacity of 770 MW is under construction and is likely to be commissioned by the end of Tenth Plan. Government of MP has set-up an ambitious target to eliminate power shortages by 2008-09. The State is likely to get the benefit of capacity addition of 2,890 MW during the Eleventh Plan. This would involve investments to the tune of Rs 13,000 crore. It is, however, not clear as to how these resources would be raised by the Utilities or the State Government. LOANS FROM FINANCIAL INSTITUTIONS MPGENCO is finding it difficult to get loans from FIs and PFC. The future loans have been linked with the performance of the DISCOMs. Also, the State Pollution Control Board (SPCB) has imposed restrictions on o running of some of the existing units due
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to high level of emissions; which the GENCO feels was attributable to poor quality of coal and limitation of space for extension of electrostatic precipitator (ESP) fields. RENOVATION AND MODERNISATION PROGRAMME More than 60 per cent of the generating stations in the State have served for a period of 25 years or more. The generating stations need overhaul and urgent measures for renovation and modernisation. In case of joint venture projects like Satpura Power House, the requirement of obtaining consent of the partner State has delayed the taking up of R&M activities. This and similar other issues relating to pollution control would require intervention and coordination of the concerned Central Ministries. MPERC has taken serious note of under-utilisation of the approved funds allowed in the ARR. The Commission has refrained from clawing back the amount retained and not utilised for R&M purposes in the previous years. It is observed that, in the past, the GENCO had spent a very little amount on R&M activities as compared to the amount approved by the Commission under this head. The Commission in its tariff order dated 10 December 2004 had allowed Rs 140.31 crore under R&M of generating stations, but the GENCO failed to utilise the approved amount. For 200506, the Commission had approved Rs 131.91 crore under this head. But the repeated failure to utilise the funds approved for the much-needed R&M activities is baffling when it is urgently needed to increase the generation and PLF. TRANSMISSION NETWORK Key Positives Transmission Loss Reduction It is pertinent to note that while there was an increase in the quantum of energy handled by MPTRANSCO by about seven per cent in the year 2004-05 over 2003-04, the overall losses in the transmission system for the year 2004-05 have come down to 5.62 per cent from 6.12 per cent in the year 2003-04. This shows significant efficiency gains after restructuring. The State Government has constituted the existing Load Despatch Centre as State Load Despatch Centre (SLDC) vide Order No. 2489/13/04, dated 17 May 2004. The SLDC is well connected to the Western Region Load Despatch Centre for efficient and
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integrated operation of the grid. There has been no failure of power transformers during the years 2003-04 and 2004-05. MPPTCL has also claimed that there were no grid disturbances or major breakdowns during the year 2004-05. Also, there has been an increase in the transmission system availability from 97.59 per cent in 2000-01 to 99.53 per cent in 2003-04. From 1998-99 to 2001-02, the level of investments made towards new capacity addition and strengthening of transmission system has been very low. The investment significantly increased to Rs 130 crore in 2003-04 and to Rs 264 crore in 2004-05 from Rs 46.35 crore in 2000-01 and Rs 27 crore in 2001-02. Distribution Under Operation and Management (O&M) Agreement with MPSEB, the three DISCOMs were to manage the distribution assets, planning and maintenance operation within their respective areas. The DISCOMs have started their independent operations from 1 June 2005. Hence, for the purpose of analysis of distribution sector in Madhya Pradesh, consolidated data for MPSEB has been considered up to 2004-05 and thereafter individual DISCOM wise data has been analysed. Key Concerns Distribution Transformer Failures The failure rate of distribution transformer (DTs) in MPSEB system has increased by 4.75 percentage points (from about 18.13 per cent in 2001-02 to 22.88 per cent in 2004-05). The failure rate of DTs for the individual DISCOMs also reveals a similar trend with the failure rate being as high as 22 per cent in Poorv Kshetra and 16 per cent in Paschim Kshetra. Consumer Metering There is a significant increase in percentage of metered agricultural connections from less than 1 per cent in 2000-01 to 30 per cent in 2004-05. However, the percentage of metered domestic connections has come down from 84 per cent in 2000-01 to 81 per cent in 2004-05. A huge backlog of unmetered domestic and agricultural service connections in the system is indicative of high quantum of losses being suffered by the Utilities and warrants serious attention.
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Collection Efficiency The collection efficiency in respect of agricultural and domestic consumer categories has suffered after restructuring. In the case of agricultural consumers, the collection efficiency has deteriorated progressively from 88 per cent in 2000-01 to as low as 21 per cent in 2004-05. It is equally poor for the domestic consumers and has come down from as high as 95 per cent in 2000-01 to 79 per cent in 2004-05. Even, the collection efficiency for industrial and commercial categories of consumers is declining. Transmission and Distribution/Aggregate Technical and Commercial Losses The percentage T&D losses from 1995-96 to 1998-99 were shown to be in the range of 19-21 per cent. After restructuring, the losses rose to 31.94 per cent in 1999-2000 and 47.18 per cent in 2000-01. The reduction in the loss levels, after restructuring, has been slow and dropped only by less than 3 per cent in four years (43.48% in 2004-05). MPERC has fixed higher targets for loss reduction in its tariff order dated 31March 2006, in respect of the three DISCOMs for 2006-07, spread over a control period as indicated below:
DISCOM Poorv Kshetra Paschim Kshetra Madhya Kshetra Prescribed By the Commission 2005-06 35.5 31.7 41.6 2006-07 32.5 30 37 2007-08 29.5 27.5 32 2008-09 26.5 25 27.5 Indicated by the DISCOMs 2005-06 2006-07 38.73 35.88 31.5 30 41.6 38 (Source: MPERC)

AT&C losses reduction target for 2005-06, as prescribed by the Commission, has been achieved by Paschim Kshetra and Madhya Kshetra DISCOMs, whereas the same has not been achieved by the Poorv Kshetra DISCOM, there it is 3.23 per cent above the target. It appears that after restructuring and proactive role of MPERC, more realistic loss levels are being indicated. The targets of AT&C losses given in the FRP are not in conformity with those prescribed by the MPERC. The targets prescribed by the Commission are aimed at bringing these losses closer to the level of 15 per cent (as mandated in the NTP). In view of the above, there is a fresh need to look at the targets set for AT&C losses in FRP, so that these are in conformity with those fixed by the Commission.

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Anti-Theft Measures For prevention of electricity theft, the State Government notified the Madhya Pradesh Urja Adhiniyam on 17 April, 2001. Several administrative measures undertaken by the companies to check power theft include: strengthening of the Vigilance Squads, replacing bare low tension (LT) conductors by armored cables/HT lines and setting up of special courts (92 Nos.) for speedy trial of electricity theft cases. Work of energy audit up to division level and also in some big cities and towns has been started to identify theft prone areas. Enforcement measures for elimination of cases of theft of electricity have slowed down in the State. During 2002-03, 3,700 FIRs were lodged and an amount of Rs 61.33 crore was realised. These preventive measures seem to have created an impact, but subsequently the number of FIRs lodged has come down. 1,607 FIRs were lodged in 2003-04 and 522, in 2004-05 and the recoveries from such cases declined from 78 to 75.8 per cent of the demand raised. Recovery of Cost of supply The Average Cost of Supply (ACS) and Average Revenue Realised (ARR) across various categories of consumers in the State depict that the ACS is increasing at an annual rate of around 10 per cent taking 1998-99 as the base year. While MPERC, in its tariff order for FY 2006-07, has projected a marginal gap of around Rs 9.51 crore (for the three DISCOMs combined), the ARR-ACS analysis for MPSEB for the year 2003-04 indicates a revenue gap of around 96 paise per unit. This would call for further rebalancing of the tariffs and/or greater thrust on preventing of electricity theft and AT&C loss reduction efforts by the DISCOMs. Information Technology Initiatives Information Technology (IT) initiatives in the DISCOMs have remained limited which has been attributed to financial crunch and shortage of technical staff and modern office equipment to manage the IT applications. It is imperative that Utilities encourage the adoption of IT in the field of Geographical Information System (GIS) and Consumer Indexing, metering, data acquisition and management, assets management and customer services. It has developed in-house IT enabled revenue management system (RMS), which is being introduced in phases and, in the first instance, Information Technology (IT) enabled RMS package has been implemented
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in 27 divisions of seven regional headquarter cities (called priority divisions). The progress made in this direction is slow as compared to the States like Andhra Pradesh, Karnataka and Maharashtra. Structural Issues 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 and the role of the MPSEB for cash management of utilities that would need to be addressed. Considering the changing market scenario of Open Access, intra-State ABT and competitive power procurement, the Utilities would require functional as well as financial autonomy. FRP and CFM The State Government ownership for the reform is demonstrated by the FRP, which stipulates the total transition cost involved for the power sector in the State. For the DISCOMs, the State financial support is provided to the tune of Rs 6,881 crore. The role of the MPSEB has some advantages. However, in actual practice it amounts to concentration of decision-making with MPSEB in several areas, which are normally in the jurisdiction of the DISCOMs. Since MPSEB is not a licensee now and therefore not answerable to the MPERC, there is a likelihood of conflict with the objectives and spirit of the EA, 2003. The objectives of the cash flow mechanism (CFM) and the Financial Restructuring Plan (FRP) could be achieved through a holistic approach, which guarantees prior consultation with the MPERC and control and responsibilities on the DISCOMs for implementation of the FRP targets. The FRP has been revised to cover the period from 2006-07 to 2012-13. The FRP provides for the reduction of AT&C losses from 50 to 32.5 per cent in a seven-year period, i.e., around 2 per cent on a yearly basis, which appears to be low. It also provides financial support to the utilities for the revenue foregone for concessional tariffs and also for meeting the operational deficit to the Utilities. Key Areas for Support by State Government Functional autonomy for the restructured Utilities may have to be defined within the framework of the reform model adopted by the State Government to make the Utilities more accountable. Equally important is the effectiveness of the Commission by giving
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it support for financial autonomy and capacity building. The encouragement to civil society and close involvement of advocacy groups in the reform process will help in understanding the issues and problems specific to the power sector of the State. An effective communication strategy will be crucial for creating a positive atmosphere for reform process and to bring about wider public support for the reform process. OUTSTANDING ISSUES Generic Loans The DISCOMs are carrying a sizeable component of generic loan liabilities of the prereform period. Amounts of Rs 252 crore, Rs 494 crore and Rs 316 crore have been shown against the DISCOMs of Poorv Kshetra, Paschim Kshetra and Madhya Kshetra respectively. In regard to these generic loans shown in the opening balance sheet of DISCOMs, MPERC has said that unless full details are provided to it and it is proved that these loans have been utilised towards creating assets, MPERC will consider these as working capital loans and will allow interest to the extent of normative working capital requirements. Unless there is clear understanding about the rationale for these loan liabilities, the legitimate claim for expenses, etc., of the DISCOMs may defy a practical solution. FINALISATION OF THE ASSETS AND LIABILITIES There are outstanding issues relating to transfer of assets, liabilities and staff, which have not been resolved as yet. It is not easy for the State Government to come to a settlement unless there is an equally positive response from the State Government of Chhattisgarh. Since these are post-reorganisation matters between the two States, it would require intervention by the Central Government to bring about an amicable settlement of the outstanding issues. Interim Support As a result of reorganisation, the available generation capacity in the State has been adversely affected. Out of total capacity of 4,260 MW of the undivided State, only
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2,940 MW of generation assets were left with Madhya Pradesh. The State has also not been able to take up effective steps to increase generation through R&M activities. In view of these uncertain circumstances, the State Government may have to be given some weightage in the allocation of unallocated power from Central Generating Stations on an ad-hoc basis for an interim period. Promoting New Initiatives 1. The aim of the Reform could be achieved by improving the technical and commercial performance of the distribution sector. More of APDRP funding provided by MoP shall be harnessed for strengthening and improvement of subtransmission and distribution (ST&D) systems and its commercial health. Similar other funding arrangements can also be considered to accelerate the process. Involving the public at large in controlling electricity thefts through social awareness can further strengthen the reform process. The same can be implemented by providing discounts in the electricity bills of the consumers either on an area or feeder basis that helps the utilities in controlling/eliminating thefts. It would help in creating a better public consciousness about the need for cultivating social responsibility. Such a cultural change is extremely important for effectively addressing the menace of electricity thefts, which is the single largest factor responsible for overwhelming losses suffered by the Utilities, and thereby depriving the consumers of benefits of lower tariffs. This may be done by the Utilities in consultation with the Regulatory Commission or by suitable amendment in the NTP.

2.

Imperatives of the reforms demand focused attention on keeping the reforms on course with positive support by the State Government. The gradualism in the approach to reforms has given space to those who are opposed to reforms or those who perceive threat to their vested interests. An effective strategy should be designed to counter the opposition to reforms and accelerate the pace of reforms in the distribution sector. The most significant lesson from the instant study is that power sector reform needs continued support from the Government both in terms of financial and institutional support and development of an independent regulatory mechanism. The State Government has committed itself financially for restructuring the power sector during the transition period to enable the Utilities to achieve a turnaround. The State should commit on the reform choices as regard competition, privatisation, etc. Discussions
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with the various State Governments indicate that private sector participation is not a closed option but the more immediate concern is about the existing DISCOMs which in their present condition may not appear to be ideal for private sector participation. Private sector participation The States/Utilities need to consider alternative models for improving the financial and operational efficiencies, private-public partnership in network management activities, SCADA, DMS application, Customer Relation Management (CRM), etc. For the distribution reforms to lead to appreciable/demonstrable impact on delivery of quality power supply, road map for network upgradation and reliability of subtransmission and distribution system will have to be accorded high priority. This should be preceded by a detailed study of the condition and problems of the network. Promotion of energy conservation measures, both from the Utility side as well as at the utilisation end and promoting the use of energy-efficient pumpsets in the agricultural sector and introducing tradable incentives such as interest subsidy on purchase of energy efficient pumpsets are some of the other measures that need to considered. To avoid the cascading effect of the power systems fault, measures to enhance grid security must be devised and separate funds should be earmarked for implementing the appropriate islanding schemes for DISCOMs. Although this may not be right time to introduce the MOU mechanism for making them achieve the predetermined productivity and other efficiency targets, some steps are needed to promote competition between the distribution Utilities. Unless some inter-DISCOM competition or incentives are built, there would be no pressure on them for under or poor performance. There would be no tangible benefits to consumers in terms of low prices or benefits. Utilities which are ready to introduce better pricing for certain categories of consumers such as industrial, commercial, etc, should be encouraged to do so. In this direction, a good move by the MPERC to consider Differential Retail Supply Tariff (DRST) for DISCOMs was dropped as the State Government conveyed to the Commission its intention in its letter dated 7 March 2006 to have similar tariffs for various consumer categories in the foreseeable future. It is felt that the intention to protect tariffs for domestic and agriculture consumers on socio-political grounds should not prevent the Commissions to attempt rebalancing of tariffs to translate efficiency gains in better pricing for industrial and commercial categories of consumers.
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1. GENERAL OVERVIEW
1.1 BACKGROUND OF POWER SECTOR REFORMS The process of reform and restructuring was initiated in the State in 1996 with the constitution of a High Level Committee under the chairmanship of Dr. N. Tata Rao, The Committee recommended the restructuring of Madhya Pradesh Electricity Board (MPEB) on functional basis, i.e., formation of separate generation, transmission and distribution companies and setting up of an Electricity Regulatory Commission in the State. 1.2 THE REFORM ACT The Reform Act, Madhya Pradesh Vidyut Sudhar Adhiniyam, 2000 for the State was enacted on 20-02-2001 and made effective from 03 July 2001 provides for the following: (a) Establishing State Electricity Regulatory Commission (SERC); (b) Restructuring of the electricity industry; (c) Rationalisation of generation, transmission, sub-transmission, distribution and supply of electricity in the State; (d) Regulating the licensing of transmission and supply of electricity; (e) Regulating the purchase, transmission, distribution, supply and utilisation of electricity; (f) Providing quality of service and the tariff and other charges considering the interest of consumers and Utilities; and

(g) Taking measures conducive to the development and management of the electricity industry in the State in an efficient, economic and competitive manner. Besides other provisions, the Reform Act provides for restructuring MPSEB and limiting the role of the State Government to policy making. It has a unique provision to eliminate cross-subsidisation in the tariff. It stipulates that the tariff to any class of consumer should reflect a level at least 75 per cent cost of supply to that particular class of consumer with in next five years.
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1.3 REORGANISATION OF THE STATE In November 2000, the erstwhile State of Madhya Pradesh was bifurcated into two separate States, i.e., the now existing Madhya Pradesh and the newly created State of Chhattisgarh. In place of MPEB, MPSEB and CSEB came in to existence. After reorganisation of the State, 33 per cent of the installed generating capacity went to the State of Chhattisgarh, whereas the level of consumption was only 21 per cent of the total consumption of undivided Madhya Pradesh. 1.4 MILESTONES IN THE RESTRUCTURING AND REFORM PROCESS 1.4.1 Memorandum of Understanding Memorandum of Understanding (MOU) was signed between the Government of Madhya Pradesh and Government of India on 16 May 2000, wherein Government of MP committed to a time-bound reform and restructuring of power sector in the State to promote and develop an efficient, commercially viable and competitive power supply industry which will provide reliable and quality power at competitive price to all consumers in the State and which will support industrial development in the State. 1.4.2 Two Stage Restructuring of MPSEB In the first stage, in November 2001, MPSEB was split into two Companies, viz., Madhya Pradesh Power Generation Company Limited (MPPGCL) and Madhya Pradesh Power Transmission Company Limited (MPPTCL), which were incorporated under the Companies Act, 1956. 1.4.3 Formation of DISCOMs Further, in May 2002, the following DISCOMs were incorporated under the Companies Act, 1956,
DISCOM MP Poorva Kshetra Vidyut Vitaran Company Limited (DISCOM, East Zone) MP Madhya Kshetra Vidyut Vitaran Company Limited (DISCOM-Central Zone)MP Paschim Kshetra Vidyut Vitaran Company Limited (DISCOM, West Zone) Headquarters Jabalpur Bhopal Indore

These DISCOMs were wholly owned Corporations of the Government of Madhya


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Pradesh, but functioned as agents of MPSEB under the Operation and Management (O&M) agreement with MPSEB from July 2002. 1.4.4 Transfer of Assets to the Restructured Utilities MP Electricity Reforms First Transfer Scheme Rules notified on 30 September 2003 laid down the principles for transfer of assets, employees, etc., for the restructured Utilities in the State. Assets were held notionally by the new companies. In 2005, by a Notification dated 31 May 2005, balance sheet and transfer of assets were made effective for the respective Utilities. The O&M agreement between MPSEB and all the five companies, ceased to exist on 1 June-2005. 1.4.5 Functions and Undertakings Retained With MPSEB As per MP Electricity Reforms First Transfer Scheme Rules, notified on 30 September 2003, the following functions were retained with MPSEB: i) The bulk purchase and bulk supply function, namely, purchase of electricity in bulk from the generating companies including GENCO and supply of electricity in bulk to the DISCOMs. MPSEB will not, however, undertake the activities of supply of electricity to any consumer in the State from such date as the State Government may direct in this behalf; The liabilities to the extent to be retained as per the directions the State Government may issue in this behalf; The assets in the form of amounts, which the State Government may direct as payable by the transferee to MPSEB to the extent and in the manner as the State Government may consider appropriate to compensate the MPSEB for the liabilities retained as per clause (ii) above; Cash and bank balance to be retained and shall be given to the transferees to the extent they are associated with or related to them, or as per the direction the State Government may issue in this behalf; and Fixed deposit lying with the State Bank of India (SBI) being the amount taken as security deposit from independent power producers (IPPs).

ii)

iii)

iv)

v)

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1.4.6 Taking Over of Liabilities by Government of Madhya Pradesh The State Government took over outstanding power purchase and fuel liabilities of MPSEB by issue of MSA bonds, REC loan restructuring and adjustment against free electricity claims, PFC loan restructuring, LIC loan restructuring and part payment of liability related to SLR bonds, etc. The liabilities to the tune of Rs 4,431 crore were taken over by Government of MP. The details are shown below: Liabilities of MPSEB Taken Over by Government of MP
2005-06 Dues to Central Power Sector Undertakings (CPSUs) Dues to Rural Electrification Limited (REC) SLR bonds liabilities Total (Rs crore) Amount) 2,663 1,414 354 4,431 (Source: Government of MP schedule)

However, this additional liability of the State Government does not appear to be part of the transfer scheme regarding assets and taking over of liabilities. 1.4.7 Inter-se Agreement Inter-se agreements were executed on 17 June 2005 by MPSEB with the respective power utilities in the State for the: i) ii) Power purchase agreement between MPSEB and MPPGCL; Transmission service agreement between MPSEB and MPPTCL and three DISCOMs; and

iii) Bulk Supply agreement between MPSEB and all the three DISCOMs. 1.5 FINANCIAL RESTRUCTURING PLAN In order to support and achieve the objective of power sector reforms , to attain financial viability of power sector and to provide reliable and quality power supply to consumers in the State, the Financial Restructuring Plan (FRP) has been formulated on the recommendation of the Asian Development Bank (ADB). The FRP has not been formally approved by the State Cabinet as yet. However, the State Government has committed to the implementation of FRP.

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1.5.1 Key Features of FRP (a) Balance liability related to SLR bonds to be paid by Government of MP; (b) The power purchase and fuel related liability already taken over by Government of MP by issue of MSA bond and cash payment to be treated as equity in books of MPSEB; (c) Conversion of overdue liability of Government of Madhya Pradesh as equity in books of MPSEB; (d) Energy input to the system to increase at a cumulative annual growth rate (CAGR) of 8.1 per cent; (e) Sales to increase at CAGR of 12 per cent; (f) To reduce AT&C losses from 51.6 per cent in 2004-05 to 30.1 per cent in 2011-12, which includes that collection efficiency to increase from 85 per cent at present to 96 per cent by 2011-12;

(g) Capital investments [including interest during construction (IDC) and other expenses capitalised] of around Rs 18,825 crore assumed in the system as per details below: Generation Rs 8,451 crore Transmission Rs 3,805 crore Distribution Rs 6,496 crore (including investment to the extent of Rs 2,700 crore for 100 per cent rural electrification as per National Electricity Policy).

The year-wise average tariff hike projected is as under:


March 2007 Year-wise overall tariff hike needed (%) 9.3 March 2008 3.4 March 2009 5.9 March 2010 5.6 March 2011 3.5 March 2012 3.0

1.5.2 Support from Government of Madhya Pradesh The FRP has assumed cash and financial support from the State Government over a
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medium term. The impacts of implementation of FRP are: (a) Provide cash support of approximately. Rs 2,180 crore (2006-12) for the planned future capital expenditure of MPSEB in the form of equity; (b) Provide a cash support of approx. Rs 2,763 crore (2006-12) to bridge the operational deficit (tariffs being less than cost of supply); (c) Provide loan assistance to an extent of approx. Rs 871 crore (2006-12) to meet the deficit in cash flows; (d) Take over of the contingent liabilities of MPSEB (estimated to be around Rs 848.37 crore as on 31 March 2004) and consider them as equity in the books of MPSEB as and when they devolve; (e) Pay bills of Government of MP departments/local bodies in cash on monthly basis on time; and (f) Provide guarantee for payment of terminal benefits to employees in case the same is not considered passed through in tariffs by MPERC for recovery from consumers.

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Details of FRP for the period 2005-06 to 2011-12 are as under: Impact on Government of MP Finances (2006-12)
FY Particulars Payments by Govt of MP to MPSEB Support for operational deficit due to tariff being less than cost of supply Subsidy towards subsidised domestic, powerloom and agriculture consumers Support for capex Loan from Govt of MP Payments to Govt of MP Electricity duty & other levies Loan interest Loan repayment Water charges Gross cash outflow for Govt of MP Gross cash inflow for Govt of MP Net cash outflow for Govt of MP March 2006 1,345 March 2007 1,440 March 2008 1,128 March 2009 1,141 March 2010 1,102 March 2011 453 March 2012 273 (Rs crore) Amount

6,881

7,608

777

463

409

354

2,763

51 360 174 744 566 108 66 5 1345 744 601

122 360 182 866 679 111 71 5 1440 866 575

133 360 172 1077 898 99 73 7 1128 7107 51

201 360 171 1247 1069 92 78 7 1141 1247 -106

216 360 172 1376 1197 81 91 6 1102 1376 -274

155 298 0 1486 1327 71 82 7 453 1486 -1034

191 82 0 1827 1444 51 195 8 273 1827 -1554

10,689 2,180 871 8,623 7,180 614 656 45 6,881 8,623 -1,741

(Source: FRP document)

It is evident that the State Government would be committing to a total cash outflow of approximately Rs 6,881 crore during the seven-year period of FRP. However, there would be an inflow of around Rs 8,623 crore to the Government of Madhya Pradesh from MPSEB, resulting in net inflow of around Rs 1,741 crore to Government of MP. The implementation of FRP proposals would lead to turn around of MPSEB by 201112, subject to various assumptions on which the financial projections are based. The State Government believes that although the FRP sets out goals but, in a dynamic situation, changes may be necessitated by factors that may arise during the transitional period. From the discussions with the State officials, it also transpires that there have been a few updations to this plan in the past and the present FRP as mentioned above was adopted in November 2005.

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1.6

ROLE OF MPSEB IN THE REFORM PROCESS

The reform model provides for a unique functional role of the MPSEB after restructuring of the State power sector. MPSEB has transferred all functions including assets of the erstwhile Board vide Madhya Pradesh Electricity Reforms Transfer Scheme Rules, 2006 to the respective Utilities. It has retained two principal functions, viz., one relating to the cash management during the transition period and the second function to act as the principal employer till the staff gets allocated amongst the Utilities. It was explained during the discussions that this was necessitated due to the compulsions of the outstanding issues relating to the division of staff, assets and liabilities between the States of Chhattisgarh and Madhya Pradesh. It was also mentioned that for all practical purposes the staff as on 1 November 2000 has been allocated to almost 99 per cent but the actual effect to this division will be given after the guidelines/recommendations are received from the R.P. Kapoor Committee which is going into the issues of allocation and division of staff, etc., between the two States. It was also clarified that the MPSEB continues to be the principal employer but full powers related to punishments, dismissal, etc., have been vested in the CMDs of the respective Utilities. The State Governments officials feel that this arrangement was necessary also because of the dispute over the assets and liabilities pertaining to the erstwhile Board of the undivided Madhya Pradesh. The State Government believes that while 12 per cent of the generic and project related liabilities were transferred to Chhattisgarh, 88 per cent of this burden was put on MPSEB, which according to them was grossly unfair. 1.7 FORMATION OF TRADECO With the restructuring of MPSEB on functional basis into separate generation, transmission and distribution companies, the bulk purchase and bulk supply function, namely, purchase of electricity in bulk from the generating companies including MPPGCL and supply of electricity in bulk to the DISCOMs were retained with MPSEB. The Board became the sole buyer of all energy produced by MPGENCO and continued as a trading licensee till 9 June 2006. The State Government notified the Madhya Pradesh Electricity Reforms Transfer Scheme Rules, 2006 on 3 June 2006. Under these rules a new company called MP Power Trading Company (TRADECO) came into existence. The related functions of the MPSEB were transferred to TRADECO.

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1.7.1 Functions of the MPSEB Transferred to TRADECO Functions of the MPSEB transferred to the TRADECO are as under: (a) The bulk purchase and bulk supply functions, namely, purchase of electricity in bulk from the generating companies and supply of electricity in bulk to the DISCOMs in the State; (b) The power purchase agreement (PPA)or arrangement existing between the board and the generating companies including inter-State joint venture projects and the bulk supply agreements with the DISCOMs in the State and all arrangements in relation to trading of electricity, inter state and intra-State; (c) All short, medium and long-term bulk power purchase agreements (BPAs) or arrangements between the Board and the power traders existing as on the effective date; (d) The bulk power transmission agreement existing between the Board and Power Grid Corporation of India Limited (PGCIL) as well as other transmission licensees for transmission and wheeling of power, inter-State or intra-State; and (e) Any future agreements that are presently being contemplated/ processed by the Board in respect of any of the above and any activities in regard to electricity trading in the State. 1.7.2 Arrangements among Different Companies with the TRADECO The salient features are as under: (a) TRADECO shall have first charge over entire generation of the GENCO from the stations and projects listed in the agreement, and shall purchase the entire power from the GENCO at a tariff to be determined/approved by the MPERC; (b) TRADECO shall receive power from all other suppliers, viz., Central sector stations, joint ventures (JVs), inter-State projects, etc., in accordance with the existing/ongoing power purchase agreements (PPAs) with MPSEB, now stood transferred to TRADECO; (c) All the three DISCOMs shall buy power of their requirement from the single source, i.e., from TRADECO, as per the inter-se bulk supply agreement (BSA) and at the tariff as determined/approved by the MPERC plus trading margin;
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(d) DISCOMs may advise TRADECO to buy short-term power for their immediate need. The cost of such power shall be a pass through to the respective DISCOM. (e) Transco shall transmit the power to the DISCOMs at the interface points, received through TRADECO, as supplied by GENCO and from other sources as defined in the Para (b) above as per the bulk power transmission agreement to be entered between TRADECO, TRANSCO and the DISCOMs. In addition to meeting the demand of the three DISCOMs, TRADECO will also trade the power to other Utilities within or outside the State; in that case the cash flow arrangement shall be as under: i) Any surplus power of the State power sector can be sold by TRADECO to other buyers and proceeds from the sale of power shall be deposited in a separate bank account (trading account) maintained by TRADECO. However, the cost of energy at the rate being billed to the DISCOMs (pooled rate) shall be transferred in MPSEB account for making payments to the power suppliers. The transactions from any other trading of power, i.e., purchase and sale of power other than the pooled power of the sector shall be made from the TRADECOs Trading account, which shall not be part of the cash flow mechanism (CFM).

ii)

1.8 Cash Flow Mechanism of MPSEB The reform model embodies a special mechanism for managing the cash flow for the restructured Utilities till the cash deficit in the revenue earnings and expenditure requirements are resolved to the satisfaction of all the companies. The CFM adopted by MPSEB has been defined in the Madhya Pradesh Electricity Reforms Transfer Scheme Rules, 2006. The salient features of the scheme are as under: (a) All the six companies, namely TRANSCO, GENCO, DISCOM EAST (Poorv Kshetra), DISCOM WEST (Paschim Kshetra), DISCOM CENTRAL (Madhya Kshetra) and TRADECO shall issue a Power of Attorney or authorisation in favour of MPSEB, inter-alia, authorising it to own, collect and distribute cash on behalf of the companies;

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(b) All the cash collected by DISCOMs through Regional Accounting Offices (RAOs) shall be transferred to MPSEB account as per the existing arrangement; (c) All letter of credits, escrow comforts and working capital shall continue to be maintained by MPSEB on behalf of the companies as MPSEB has first charge over entire revenue of DISCOMs from sale of power, subject to escrow agreements, as per the existing arrangements enforced duly supported by the authorisation from the companies; (d) MPSEB shall allocate cash among companies based on a predetermined priority for payment of expenses as detailed below: i) ii) Statutory payments including those arising out of various Court orders; Employee cost which includes salary, contribution towards provident fund, terminal benefits, etc.;

iii) Coal/oil supply payments of GENCO including freight charges; iv) Payment towards purchase of power including unscheduled interchange (UI) and wheeling charges and debt servicing to Power Finance Corporation (PFC); v) Essential Administrative & General (A&G) expenses of the companies;

vi) Essential Operation & Maintenance (O&M) expenses of the companies; vii) Essential capital expenses; viii) Debt servicing other than PFC; ix) Any other payments; (e) The companies shall authorise MPSEB to decide priority of payments as per availability of cash; (f) MPSEB shall continue to service the debt liabilities, including generic loans on behalf of all companies.

The CFM as devised above involves transfer of a part of the responsibility of the distribution licensees to MPSEB. There is an apparent conflict with the spirit of
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section 17(3) and (4) of the EA, 2003, which says that any such assignment of revenue of the DISCOMs to MPSEB shall require prior approval of the MPERC. This aspect needs to be examined by the Ministry of Power. 1.8.1 Validity of the Cash Flow Mechanism The CFM will be valid till the cash deficit in the revenue earnings and expenditure requirements is resolved to the satisfaction of all the companies, or issue of further directives from the State Government. Once the DISCOMs are in a position to meet all their expenses including power purchase, pooling of the revenue earnings with MPSEB will not be required and the State Government, by an order, will terminate this mechanism. 1.9 THE REFORM EXPECTATIONS The process of reforms and restructuring has been initiated with an aim to make the Madhya Pradesh power sector self-sustainable and meet consumer expectations of quality and reliable power at an affordable rate. The MPSEB, a large entity, has been restructured with a view that the smaller entities would be easy to manage by providing them autonomy and also to work as a responsible corporate structure.

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2. GENERATION
2.1 MADHYA PRADESH POWER GENERATING COMPANY LIMITED (MPPGCL) MPPGCL is a public sector company wholly owned by Government of Madhya Pradesh with a current authorised capital of Rs 2,500 crore. The issued, subscribed and paid up capital is Rs 1,278 crore. Prior to 01June 2005, MPPGCL had been working under O&M agreement under MPSEB. However after the implementation of the Transfer Scheme Rules, 2003, MPPGCL started working as an independent entity. 2.2 GENERATING CAPACITY IN THE STATE 2.2.1 Capacity before Restructuring The Madhya Pradesh Electricity Board (MPEB) had a capacity of about 4,260 MW in 1999-2000. During the period 1995-96 to 1999-2000, the capacity addition was about 447 MW. Total Generating Capacity (in MW) prior to Restructuring - State Sector Particulars Hydel Thermal 1995-96 846.5 2967.5 1996-97 843.3 2967.5 1997-98 848.3 2967.5 1998-99 848.3 3177.5 1999-2000 873.2 3387.5

(Source: MPGENCO Schedule)

After carving out the State of Chhattisgarh from the erstwhile Madhya Pradesh, MPSEB was formed, which has an installed generating capacity of about 2,940 MW only (2001-02). 2.2.2 Generating Capacity after Restructuring Generating capacity in post-restructuring period up to 2004-05 in the State sector is given as under: Total Generating Capacity (in MW) Post-Restructuring--State Sector
Particulars Hydel Thermal Total 2000-01 753 2,147.5 2,900.5 2001-02 793 2,147.5 2,940.5 2002-03 2003-04 843 2,147.5 843 2,147.5 2004-05 843 2,147.5

2,990.5 2,990.5 2,990.5 (Source: MPGENCO Schedule)

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2.3 PROJECTS IDENTIFIED FOR THE ELEVENTH PLAN As per the following table the State is likely to get the benefit of capacity addition of 2,890 MW during the Eleventh Plan period and the following projects have been identified:
State Sector Malwa (T) Chanderi CCGT Kanhan HEP Sone HEP Maheshwar (H) Capacity (MW) 1000 1300 90 100 400 Commissioning Schedule U-1 : 2009-10 U-2 : 2010-11 2010-11 ----2011-12 (Source: CEA)

2.3.1 Capacity Addition through IPPs In order to attract capital investment in generation sector, around 22 Memoranda of Understandings (MOUs) were signed with the independent power producers (IPPs). However, the capacity addition could not materialise on account of perceived poor paying capacity of the SEB. 2.4 RENOVATION AND MODERNISATION OF THE EXISTING PLANTS More than 60 per cent of the generating stations in the State have served for a period of 25 years or more. The generating stations need frequent overhaul and are in urgent need of Renovation and Modernisation (R&M). MPPGCL has not been adequately spending on repairs and maintenance. The position is as under: Table: Investment on R&M
(Rs crore)
1995 -96 Amount spent on R&M 29.60 1996 97 15.13 1997 -98 11.19 1998 -99 23.04 1999 -2000 20.61 2000 -01 13.18 2001 -02 2.93 2002 -03 1.64 2003 -04 0.71

(Source: MPGENCO)

MPERC in its tariff order dated 10 December 2004 allowed Rs 140.31 crore under R&M of generating stations, but the GENCO once again failed to utilise the approved amount. Vide its tariff order dated 25 January 2006, MPERC approved Rs 131.91 crore under this head. It is desirable that the GENCO should spend adequate amount
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on R&M activities to ensure the higher availability of plants. 2.5 PERFORMANCE OF THE STATE GENERATION UNITS 2.5.1 Technical Parameters 2.5.1.1 Plant Load Factor) From the year 2002-03 onwards the Plant Load Factor (PLF) has been in the range of 70 to 73 per cent, showing a considerable improvement over the previous years (46 to 66%). However, during 2005-06, the PLF shown as 68 per cent is a cause of concern and must be analysed.
OVERALL PLF of Generating Stations of MPPGCL (%) 75% 70% 65% 60% 55% 50% 45% 40%
199293 199394 199495 199596 199697 199798 199899 199900 200001 200102 200203 200304 200405 200506

(Source: MPGENCO) 2.5.1.2 Plant Availability The plant availability has increased significantly from the level of 75 per cent in 199596 to 87 per cent during 2004-05. The yearly plant availability has been provided as under: Plant Availability of MPPGCL Stations (%)
1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 75.3 74.9 74.5 79.8 77.8 78.32 76.75 2002-03 87.34 2003-04 86.73 2004-05 86.62

(Source: MPGENCO)

2.5.1.3 Fuel and Auxiliary Consumption There has been a reduction in specific oil consumption in thermal stations and the same has come down from 4.57 ml/kWh in 2001-02 to 2.44 ml/kWh in 2004-05. The graph below depicts the performance of thermal power stations, based on secondary oil consumption.
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Oil Consumption (ml/kWh) 10 8 6 4 2 0


95-96 96-97 97-98 98-99 99-00 00-01 200102 200203 200304 200405

9.35 5.8 4.025 3.1 3.8 2.2 4.57 2.87 3.04 2.44

(Source: MPGENCO)

The auxiliary consumption has reduced from 10.8 per cent in 1998-99 to around 9.9 per cent in 2004-05. The graph shows the performance of the thermal power stations, based on auxiliary consumption, and indicates ample scope for improvement.
Auxiliary Cons um pt ion in MPPGCL plants
11. 0 0

10 . 8 0

10 . 6 0

10 . 8

10 . 4 0

10 . 2 0

10 . 3

10 . 0 0

9 .8 0 9. 8 9 .6 0

9. 9 9. 8 9. 7 9. 6

9. 9

9. 9

9 .4 0

9. 5

9 .2 0

9 .0 0 95-96 96 - 9 7 97 - 9 8 98 - 99 9 9- 00 00-01 20 0 1- 02 20 0 2 - 0 3 2 00 3 - 0 4 2 00 4 - 0 5

(Source: MPGENCO)

Heat Rate Quality of coal used for generation might have an impact on the deteriorating heat rate.

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Heat Rate (kCal/kWh) 3200 3150 3160 3100 3050 3000 3005 2950 2900 2909 2850 2855 2800
95-96 96-97 97-98 98-99 99-00 00-01 2001-02 2002-03 2003-04 2004-05

3102

3118

3015

3013

3018

2919

(Source: MPGENCO)

2.5.1.4 Overall Performance Data for the year 2004-05 pertaining to MPPGCL indicates that it has met the targets set by MPERC in respect of major performance parameters such as PLF and specific oil consumption except the Station Heat Rate (SHR) and auxiliary consumption, which could not be achieved as per the targets set. The details are as under:
Generation Targets vs. Performance - (2004-05) MPPGCL Particulars Thermal generation (MU) PLF (%) Hydel generation (MU) Heat rate (kCal/kWh) Specific oil consumption (ml/kWh) Auxiliary consumption (%) Targets proposed Achievement 14225 14351.1 71.50 72.09 2058 2218.2 2972 3124 2.84 2.44 9.5 9.86 (Source: MPGENCO Website)

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2.5.2 Financial Parameters 2.5.2.1 Energy Sold (MUs) Improved thermal generation during 2004-05 as compared to 2003-04 could be credited to the improved availability of the plants. However, the increase is not remarkable as a still higher level of generation was achieved during 2002-03.
Energy Sold from generating stations Energy sold (MU) 25000 20000 15000 16009 16820.5 14556 17743.4 18628.4 19922.8 12868.2 11300 12851.9 14099 14493.1 14420

10000 13770 5000

15428

15787

17426

2841.4 2496.8 2315.4 2239 2264.5 0 95-96 96-97 97-98 98-99 99-00 00-01 Hydel Thermal Years

12366 12169 11866 10575 2627.1 2276.9 2251 1733 1568.2 2001-02 Total 2002-03 2003-04 2004-05

(Source: MPGENCO)

2.5.2.2 Cost of Generation From 2005-06, the Commission has approved the two-part tariff for State generating stations. Accordingly it is now possible to distinctly identify the fixed and variable components of power for the MPPGCL. Fixed and variable Costs of MPGENCO Thermal Stations (paise/unit)
Thermal Stations Amarkantak TPS Satpura TPS Sanjay Gandhi TPS Fixed cost Variable cost 59.8 113 27.9 123 69 97 ( Source: MPGENCO)

2.6 OBSERVATIONS/COMMENTS After reorganisation of the erstwhile Madhya Pradesh into Chhattisgarh and the present Madhya Pradesh, an inverted situation emerged with regard to the available generation resources and the consumer mix. 33 per cent of the installed generating capacity went to the State of Chhattisgarh, whereas the level of consumption was only 21 per cent of the total consumption of undivided Madhya Pradesh. This has been described by Government of Madhya Pradesh as irrational and unequal treatment of the power generating assets.

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A number of MOUs were signed with the Independent Power Producers (IPPs, 22 Nos.). The same, however, could not materialise probably due to poor paying capacity and payment security issues with the State. Under the new arrangements for power procurement the MPPGCL is required to sell power to MP Power Trading Company Limited (TRADECO) as a single buyer model. TRADECO will supply bulk power to DISCOMs. Though, during the year 2004-05, the targets set by MPERC have almost been achieved by GENCO, the shortage of peak and energy continues in the State. In order to meet the demand efforts should be made to create additional generating capacity in the State. More than 60 per cent of the generating stations in the State have served for a period of 25 years or more. The generating stations need frequent overhaul and are in urgent need of renovation and modernisation. The R&M activities have not received adequate priority and the funds allocated for R&M actually got reduced gradually from Rs 13.18 crore during 2000-01, Rs 2.93 crore during 2001-02, and Rs 1.64 crore during 2002-03 to Rs 0.71 crore during 2003-04. The Commission in its tariff order dated 10 December, 2004 has accorded due priority and allowed Rs 140.31 crore under R&M of generating stations, but the GENCO once again failed to utilise the approved amount. Vide its tariff order dated 25 January 2006 the Commission has approved Rs 131.91 crore under this head. MPGENCO should spent adequate amount as approved by the Commission, on R&M activities to ensure the higher availability of plants. MPGENCO has recorded better performance in respect of technical parameters such as PLF, specific oil consumption and auxiliary consumption except the station heat rate.

3. TRANSMISSION
MP Power Transmission Company Ltd (MPTRANSCO) is a Government owned Company, and was also notified as State Transmission Utility (STU) on 17 May 2004. Under MPSEB, the company had been continuing to perform the electricity bulk purchase and bulk supply function till 9 June 2006 as per notification of Government of MP. From 03 June 2006 a new power trading company, TRADECO has come into existence in the State and all the existing power purchase agreements (PPAs) of
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MPSEB/MPPTCL shall be taken care of by the newly established power trading company. The MP Tradeco has been established on 03 June 2006 with its Headquarters at Jabalpur. 3.1 TRANSMISSION NETWORK Following is an overall snapshot of the transmission network of MPSEB: Growth of Transmission Sector in Madhya Pradesh
Particulars 400 kV 220 kV 1998-99 1999-2000 2000-01 2001-02 1,706 6,496 2002-03 1,706 6,496 2003-04 1,723 6,594

Sub-stations (No.) Transformers (No.) Capacity (MVA) Sub-stations (No.) Transformers (No.) Capacity (MVA)

Length of Lines (ckt km) 1,982 1,706 1,751 8,086 6,296 8,079 Sub-stations/Transformers 400 kV 5 5 4 22 22 14 3,990 3,990 2,940 220 kV 29 29 26 86 87 75 7,580 7,740 6,650

4 14 2,940 26 74 6,610

4 14 2,940 26 75 6,770

4 14 2,940 28 78 7,250

(Source: MPSEB Compendium) MPPTCL has accorded priority to strengthening of the T&D system in order to reduce T&D losses and to provide quality and reliable power to consumers and hence, post2002, works of more than Rs 1,200 crore have been implemented and other proposals are being put up for financial assistance. Growth of Transmission System in MPPTCL
As on 1.07.02 (beginning of company) As on March 2005 19,310 177 430 21,812 % Increase in TR Capacity April 2006 over 1-7-2002 As on 19,871 10.77 185 25.53 443 18.13 23,175 30.77 (Source: M TRANSCO)

Particulars

Length of lines (ckt km) 17,432 Sub-stations (No)* 141 Transformers (No)* 364 Capacity (MVA)* 16,680 * includes 132 and 66 kV assets

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3.2 OPERATIONAL PARAMETERS 3.2.1 System Losses While there has been an increase in the quantum of energy handled by MPTRANSCO by about seven per cent in the year 2004-05 over the year 2003-04, there is a significant achievement in terms of reduction of transmission losses. The overall losses in transmission system corresponding to 2004-05 have come down to 5.62 per cent from 6.12 per cent in the year 2003-04. Cumulatively, the losses have been brought down from 8.25 per cent in 1999-2000 to 5.62 per cent in 2004-05. Loss Levels in Transmission Network (%)
1997 -98 Energy available for transmission (MUs) Energy delivered (MUs) Losses (MUs) Loss (%) 30510 28373 2137 7.01 1998 -99 33233 30585 2648 7.97 1999 -2000 34549 31700 2848 8.25 2000 -01 26601 24428 2172 8.17 2001 -02 26513 24338 2174 8.20 2002 -03 27082 2003 -04 27554 2004 -05 29531

24935 25869 27871 2147 1685 1659 7.93 6.12 5.62 (Source: MPTRANSCO)

3.2.2 Establishment of State Load Despatch Centre and interconnection with MPTRANSCO system The State Government has constituted the existing Load Despatch Centre as State Load Despatch Centre (SDLC) vide its Order dated 17 May 2004. The SDLC is the apex body responsible for the operation, planning, monitoring and control of the power systems in the State. The SLDC is well connected with the Western Regional Load Despatch Centre (WRLDC) for efficient and integrated operation of the Grid. 3.3. TRANSMISSION SYSTEM AVAILABILITY 3.3.1 Transformer Failure Rate The data provided by MPTRANSCO suggests that there has been no failure of power transformers during the years 2003-04 and 2004-05. Failure of Power Transformers in MPTRANSCO
Particulars Failure rate (%) 1996-97 3.16 1997- 1998- 1999- 2000- 2001- 2002- 2003- 200498 99 2000 01 02 03 04 05 3.04 3.58 2.89 3.28 3.78 3.00 0.00 0.00

(Source: MPTRANSCO)

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3.3.2 Availability of Transmission Network There has been an increase in the transmission system availability from 97.59 per cent in 2000-01 to 99.53 per cent in 2003-04. The transmission system availability remained at 99.18 per cent in 2004-05. Appreciable level of transmission availability is also on account of very low failure rate of power transformers (about 3% during the period 1996-97 to 2002-03 and no failure was observed during the years 2003-04 and 2004-05).
Availability of the Transmission Systems (%)
100.0 99.5 99.0 98.5 98.0 97.5 97.0 96.5 2000-01 2001-02 2002-03 2003-04 2004-05 97.59 98.2 98.75 99.53 99.18

(Source: MPTRANSCO)

3.4. CAPITAL INVESTMENTS IN THE TRANSMISSION SECTOR The investments in the transmission sector had picked up in 2003-04. The investment grew by almost 300 per cent to Rs 130 crore in 2003-04 from Rs 46.35 crore in 200001 for new transmission works and ten-fold for strengthening of transmission system from Rs 27 crore in 2001-02 to Rs 264 crore in 2004-05. Investments in Transmission Sector: Post Restructuring
(Rs crore)
Particulars New transmission works Strengthening of transmission system Total 1997 -98 74.16 1998 -99 24.90 19992000 28.66 2000 -01 46.35 2001 -02 25.78 2002 -03 60.67 2003 04 130.20 2004 -05 95.95

43.74 117.90

18.02 42.92

16.27 44.93

8.52 54.87

27.19 52.97

76.59 137.26

264.64 394.84

93.44 189.39

(Source: MPTRANSCO)

From the year 1998-99 to 2001-02 the level of investment made towards new capacity
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addition and strengthening of transmission system has been very low as compared to the investment made in the sector from 2002-03 to 2004-05. Correspondingly, percentage transmission losses are also showing a downward trend. 3.4.1 Future Investments Interaction with the MPTRANSCO authorities reveals that a large number of transmission projects/schemes have been planned. These are proposed to be funded through the Asian Development Bank (ADB) or other financial institutions (FIs). 3.5 POWER SUPPLY POSITION IN THE STATE The State has been facing acute peak demand as well as energy shortages. The deficit has been as high as 28 per cent for power and 23 per cent for the energy in April 2006. Demand- supply position of the State is as under: Demand Supply Gap in MP
April-December, 2005 Power Supply (MU) Requirement Availability Deficit 26,432 23,322 3,110 (11.8%) 3,099 2,364 Demand 6,558 Peak (MW) Availability Deficit 5,136 1,422 (21.7%) 4,008 1,573 (28.2%)

April 2006 735 (23.70%) 5,581

(Source: CEA) NEEDS TO BE CONTINUED FROM THIS POINT ONWARDS 3.5.1 Future Demand Projections The anticipated power supply position in the State for the end of Tenth Plan as also for the Eleventh Plan is provided below. The scenario indicates that the State is likely to face a shortfall of around 20 per cent for peak demand and energy requirements by the end of Tenth Plan. The situation is, however, expected to improve by the end of the Eleventh Plan wherein the shortfall for energy has been projected at less than 3 per cent. Anticipated Demand Supply Position
Requirement 42354 55914 Power supply (MU) Availability Surplus/Deficit 33967 56005 Demand Peak(MW) Availability Surplus/Deficit 5668 9084 -1384 (-19.6%) -226 (-2.4%) Tenth PLAN ending -8387(-19.8%) 7052 Eleventh PLAN ending +91 (0.2%) 9310

(Source: CEA)

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3.6 POWER PURCHASE 3.6.1 Energy Balance As is evident from the table below, the State is highly dependent on the allocation from Central sector projects and sources around 35 per cent of its requirements from them. The share of MPGENCO is around 47 per cent while short-term and UI purchases together contribute around 4 per cent in the total power requirement in the State. Table: Energy Requirement of the State in 2006-07 (MU)
Particulars Central sector (WR) Central sector (ER) Bilateral purchases NHDC (INDIRA SAGAR) Sardar Sarovar CPP/Wind Short-term purchases UI MPGENCO Total Estimated by Commission 11410 390 2700 1590 12 1124 500 15633 33359 Share % 34 1 8 5 0 3 1 47 100

(Source: MPERC)

3.7 COMMERCIAL PARAMETERS 3.7.1 Price Build up of Transmission Operations The estimated price build-up for 2005-06 as provided below suggests that around 23 per cent of the price build up of operations of MPTRANSCO is towards provision for unfunded liabilities of pension and terminal benefits. As per transfer scheme these liabilities are for all existing pensioners of MPSEB, whose pension terminal benefit liabilities are chargeable on ARR of MPTRANSCO. Estimated Price Build Up for: 2005-06
Particulars Employee cost A&G expenses Repairs & maintenance Depreciation Interest on loans Interest on working capital Return of equity Provision for unfunded liabilities of pension and terminal benefits. Total Rs crore 80.01 15.36 24.17 83.09 184.39 12.78 92.82 153.19 645.81 (%) 12.39 2.38 3.74 12.87 28.55 1.98 14.37 23.72 100

(Source: MPERC)

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3.7.2 Transmission Cost The cost of transmission of energy over the transmission network has been indicated as 13.22 paise per unit in 2002-03 and 17.82 paise per unit in 2005-06. MPERC has expressed its disagreement with the transmission charges as stated above. The Commission has viewed that the principle of recovery of transmission expenses from the long-term users of transmission system should be expressed in terms of Rs per MW. In view of the above the Commission had directed that rates provisionally agreed between MPPTCL and MPSEB may be treated as payment on ad-hoc basis. The Commission in its order dated 7 February 2006 for 2006 has decided that the long-term users of the transmission system of the licensee shall be required to pay Rs 2,276.34 per MW per day. The long-term open access customer shall be in accordance with MPERC (Terms and Conditions for Open Access in MP), Regulations, 2005. Transmission Cost of Energy in Madhya Pradesh
(Paise/unit)

2002-03 13.22

2003-04 14.88

2004-05 18.89

2005-06 17.82

(Source: MPTRANSCO)

After restructuring, for the first to third years, the tariff formulation was done for the Board (MPSEB) as a whole. The above cost does not include weightage for transmission losses, as they are settled in kind, separately. The transmission prices fully cover the cost of transmission. Being an integrated Utility (MPSEB), this was in-built in retail tariff for recovery from consumers. 3.7.3 Exploitation of UI Charges There should be cap on UI charges and heavy penalties should be imposed on the constituent States for violating the grid discipline and endangering the grid. 3.8 OBSERVATIONS/COMMENTS From the years 1998-99 to 2001-02 the level of investment made towards strengthening of transmission system has been very low. This picked up after the restructuring. With a vast transmission network in the State, the level of loses have come down from 8.25 per cent in 1999-2000 to 5.62 per cent in 2004-05. This is a commendable
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achievement. A 0.5 per cent reduction of transmission losses is targeted during the year 2005-06 and transmission losses are expected to come down to 5.10 per cent. TRANSCOs performance has improved after restructuring and it is continuing its efforts to improve the transmission system in terms of higher system availability, low breakdowns and low failures, reduction in transmission losses and capacity to attract new capital investment to strengthen the transmission system.

4. DISTRIBUTION SYSTEM
Under O&M agreement with MPSEB, the three DISCOMs in the State started their operations from July 2002 as franchisees under the MPSEB. The DISCOMs were to manage the distribution assets, planning and maintenance operation within their respective areas. The DISCOMs have started their independent operation from 1 June 2005. Hence for the purpose of analysis of distribution sector in Madhya Pradesh, consolidated data for MPSEB has been taken up to 2004-05. Thereafter individual DISCOMs wise data has been analysed from their respective ARR filings before MPERC. The overall snapshot of the distribution assets as also their individual energy requirement is as under: DISCOM wise details of HT and LT Lines (ckt km) in sub-T&D Network
1998-99 HT Lines LT Lines Ratio LT/HT HT Lines LT Lines Ratio LT/HT HT Lines LT Lines Ratio LT/HT 64290 97162 1.51 57425 91287 1.59 56568 123995 2.19 1999-2000 2000-01 2001-02 Poorv Kshetra 64888 65181 66179 98890 99965 101338 1.52 1.53 1.53 Madhya Kshetra 57941 58503 57736 92201 93249 92417 1.591 1.594 1.601 Paschim Kshetra 57415 57785 58300 125514 126208 126651 2.186 2.184 2.172 2002-03 68615 104105 1.52 61021 96697 1.585 2003-04 69957 107101 1.53 61465 97221 1.582 (ckt km) 2004-05 69494 107532 1.55 62833 98178 1.56

59595 60476 61544 130265 130740 131311 2.186 2.162 2.134 (Source: MPSEB Compendium)

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DISCOM wise Energy Requirement for 2006-07


Particulars Total energy sales (MU) Distribution loss (%) At T-D interface (MU) Transmission loss of MPPTCL (%) At G-T interfaceof MPPTCL (MU) External losses (PGCIL %) External losses (MU) Net energy requirement (MU) Poorv Kshetra 6017 32.5 8914 5 9383 5.35 188 9571 Paschim Kshetra 7860 30 11229 5 11820 5.35 236 12056 Madhya Total Kshetra 6232 20109 37 33.05 9892 30036 5 5 10413 31617 5.35 5.35 207 631 10620 32247 (Source: MPERC)

4.1 PERFORMANCE PARAMETERS 4.1.1 Failure of Distribution Transformers The failure rate of distribution transformers (DTs) in MPSEB system has increased by 4.75 percentage point (from about 18.13 per cent in 2001-02 to 22.88 per cent in 2004-05). The significant increase in failure rate of DTs is indicative of poor maintenance of distribution system and resultant low level of reliability and quality of power supply in the State and is a matter of concern.
Failure Rate of Distribution Transformer (%)- MPSEB

25 20 15 10 95-96 96-97 97-98 98-99 99-00 00-01 2001- 2002- 2003- 200402 03 04 05 Distribution Transformer failure rate (in %age)

(Source: MPSEB)

The failure rate of DTs for the individual DISCOMs also reveals a similar trend with the failure rate as high as 22 per cent for East DISCOM (Poorv Kshetra) and 16 per cent for West DISCOMs (Paschim Kshetra) at present.

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Distribution transformers in service (No.) 73799 Poorv Kshetra 46262 Paschim Kshetra 55591 Madhya Kshetra DISCOMs Total failure as on 13-02-2006 (No.) 8592 7133 10730 Failure (%) during 2005-06 up to 13-02-2006 11.64 15.42 19.30 Failure (%) during 2004-05 22.27 16.6 21.24

(Source: MPERC)

4.1.2 Losses in the Distribution System 4.1.2.1 Extent of Metering There is a significant increase in percentage of metered agricultural consumers, i.e., from less than 1 per cent in 2000-01 to 30 per cent in 2004-05. However, the percentage of metered domestic consumers have come down from 84 per cent in 2000-01 to 81 per cent in 2004-05. The cumulative progress of metering is shown in the following table: Metering Progress as a Proportion of Total Connections
1995 -96 0.98 65.98 100 100 1996 -97 0.56 64.90 100 100 1997 -98 0.44 64.71 100 100 1998 -99 0.37 62.77 100 100 1999 -00 0.31 44.48 100 100 2000 -01 0.20 84.34 100 100 2001 -02 1.34 85.36 100 100 2002 -03 6.81 84.42 100 100 2003 2004 -04 -05 19.34 30.70 83.36 81.33 100 100 100 100 (Source: MPSEB)

Agriculture Domestic Industrial Commercial

The status of metering in the DISCOMs is also depicted below. A large number of unmetered domestic and agricultural consumers in the system is indicative of high quantum of losses being suffered by the utilities and is a matter of concern. Unmetered Consumers in DISCOMs
DISCOM Poorv Kshetra Madhya Kshetra Paschim Kshetra Total Unmetered Consumers Reported by the Licensee as in June 2005 Domestic Agriculture 366406 1783157 210088 96716 214453 303374 (Source: MPSEB)

4.1.2.2 Billing and Collection Efficiency The collection efficiency in respect of DISCOMs is also showing a poor performance. While the revenue collection efficiency towards sale of power to the agricultural consumers deteriorated progressively from 88 per cent in 2000-01 to as low as 21 per cent in 2004-05, it was equally bad for the domestic consumers, i.e., 95 per cent in
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2000-01 to 79 per cent in 2004-05. The collection efficiency from different sectors has fallen below the level achieved before restructuring as can be seen in the following table: Collection Efficiency (%)
1995 -96 Domestic 95.36 Industrial 98.72 Agricultural 95.81 Commercial 97.78 Particulars 1996 -97 96.14 99.34 98.08 97.91 1997 -98 95.28 99.05 96.07 98.24 1998 -99 95.45 98.08 96.33 96.84 1999 -00 92.47 99.01 94.42 97.52 2000 -01 95.15 97.39 88.20 100.20 2001 -02 83.40 97.46 50.83 95.91 2002 -03 77.07 95.00 24.79 94.90 2003 2004 -04 -05 78.41 78.95 94.43 96.38 13.10 21.01 94.24 95.86 (Source: MPSEB)

Incidentally, it is worth mentioning that the prevailing electricity tariff for the agricultural category in the State is the highest when compared with other large States.. This is a cause of concern and dissatisfaction among the farmers especially when they compare the tariffs with other States. The State has limitation of resources. Hence, it cannot subsidise beyond a point and has stressed on a national consensus on minimal agricultural tariff. 4.1.2.3 Transmission and Distribution Losses The transmission and distribution (T&D) losses in MPSEB system from 1995-96 to 1998-99 have been shown to be in the range of 19-21 per cent and thereafter as 31.94 per cent in 1999-2000, 47.18 per cent in 2000-01 and further showing a very slow declining trend (43.48% in 2004-05). The trend of T&D losses is depicted in the following graph:
Percentage T&D losses - MPSEB
50 40 30 20 10 95-96 96-97 97-98 98-99 99-00 00-01 201-02 2002- 2003- 200403 04 05

47.18 44.63 43.59 43.99 43.48 31.94 19.48 19.26 19.08 20.98

4.1.2.3.1 AT&C Losses in DISCOMs It is only recently that the DISCOMs in Madhya Pradesh have started functioning
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independently. Therefore the actual performance evaluation of the DISCOMs in respect of their operation as independent corporate entities can be done only after certain period of time. MPERC in its tariff order dated 31 March 2006, which is the first Annual Revenue Requirement (ARR) for determination of tariff in respect of these DISCOMs for 2006-07 has stipulated the following programme for AT&C loss reduction:
Indicated by the respective DISCOM DISCOM 2005-06 2006-07 2007-08 2008-09 2005-06 2006-07 Poorv Kshetra 35.5 32.5 29.5 26.5 38.73 35.88 Paschim Kshetra 31.7 30 27.5 25 31.5 30 Madhya Kshetra 41.6 37 32 27.5 41.6 38 Source: MPERC Prescribed by the Commission

The target level regarding AT&C losses for 2005-06, as prescribed by MPERC, has been achieved by Paschim Kshetra and Madhya Kshetra DISCOMs, whereas the same has not been achieved by the Poorv Kshetra DISCOM (the gap of 3.23 per cent is yet to be met). For checking and prevention of theft of electricity, Madhya Pradesh Urja Adhiniyam was notified by the State Government on 17 April, 2001. Several administrative measures have been undertaken by the DISCOMs to check electricity theft These include strengthening of the Vigilance Squads, replacing bare low tension (LT) conductors by armored cables/HT lines, setting up of special courts for speedy trial of electricity theft cases (92 special courts have been set up so far). 4.1.2.4 Multi Year Tariff Framework MPERC has introduced Multi Year Tariff (MYT) framework under which a loss reduction trajectory and other targets of expenditure, etc., are fixed for the control period. MPERC directed that the first control period for MYT will run for a period of three years, i.e., up to 2008-09 for all the five companies. The tariff determined under its tariff order for 2006-07, under the present order, shall be the tariff and charges recoverable from various consumer categories during the control period. MPERC will review the actual performance of the targets of efficiency and conduct truing up of cost through Annual Revenue Requirement (ARR) for each year. The distribution licensees are required to file their ARR application before the Commission every year by 31 October.
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4.1.3 Subsidy Support by the State Government 4.1.3.1 Agricultural Consumption About 73 per cent of the population in MP resides in villages and at present out of about 65 lakh consumers in the State about 17 per cent belong to the agricultural category. As compared to 2000-01, the power consumption by the agricultural sector has gone up by 40 per cent in the year 2003-04 (3795 MU in 2000-01 to 5342 MU in 2003-04). Government of MP Decision to Supply Free Power The decision to provide free power to select categories of consumers by the State Government in 1994 led to a situation of excessive consumption and misuse of electricity. Thereafter the Government reviewed the situation and from January, 2001, this facility was extended only to SC/ST consumer categories living below the poverty line BPL). 4.1.3.2 Subsidy Support In order to avoid tariff shock to agricultural consumers and to the weaker sections of society, the State Government is providing subsidy support in cash to MPSEB on regular basis. The Government is providing subsidy support to the sector not only for the agricultural sector but also to meet the revenue deficit arising out of poor billing and collection efficiency. The revenue collected by the Utilities is barely 70 per cent of the cost of supply, which does not include the non-cash expenses. Details of support in the form of subsidy made available to MPSEB by Government of Madhya Pradesh are as under:
Subsidy Support to MPSEB by GoMP

Rs. Crores

1500 1000 500 0 2002-03 568

1045

814

2003-04 Years

2004-05

(Source: Government of MP)

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4.1.4 Commercial Viability 4.1.4.1 Receivables Extent of arrears and debt year-wise, including the dues outstanding that were securitised or waived or rescheduled is shown in graph below. While the same has been shown as around Rs 906 crore, for 2004-05, there has been a progressively increasing trend during the past years wherein the arrears have increased by 1.75 times from Rs 1,637 crore in 2001-02 to Rs 2,819 crore in 2003-04. The reduction in the amount of arrears is due to enforcement of the provisions of Dues Recovery Act (DRA) recently.
A r r e a r s P o s it io n - M P S E B ( R s C r s )

30 0 0 2 81 9 25 0 0 2 14 0 18 1 4 15 0 0 16 3 7

20 0 0

10 0 0

906

500 2 00 0 - 01 2 00 1 - 0 2 2 0 02 -0 3 2 0 03 -0 4 2 0 0 4- 0 5

(Source: MPSEB)

4.1.4.2 Financial Gap in Distribution Sector The average annual cost to supply (ACS) and ARR across various categories of consumers in the State depict that the ACS is increasing at an annual rate of around 10 per cent taking 1998-99 as the base year. Similarly the ARR from the agricultural consumers has dipped by around 9 per cent since 1998-99. The following table indicates the comparative figures of ACS and ARR in the State. On actual realisation basis in respect of agricultural category, the ARR expressed as a percentage of ACS has gone down from 19.6 per cent in 2000-01 to 5.4 per cent in 2004-05. In respect of domestic sector, the same has increased from 43 to 59 per cent. Cost of Power and Recovery (Rs/unit)
1995 1996 1997 1998 1999 2000 2001 -96 -97 -98 -99 -2000 01 -02 1.74 2.15 2.23 2.41 3.03 3.81 4.30 Recovery from Different Categories (ARR) 0.15 0.25 0.25 0.21 0.31 0.73 0.43 0.60 0.69 0.70 0.72 1.47 1.63 1.54 2.33 2.76 2.86 2.93 3.87 3.77 3.94 2.53 3.18 3.50 3.60 4.14 4.93 4.98 2002 -03 3.68 2003 -04 3.97 2004 -05 3.66

Average cost of Supply Agriculture Domestic Industrial Commercial

0.20 0.13 0.20 1.81 2.32 2.17 4.26 4.94 4.99 5.31 5.80 5.57 (Source: MPSEB)

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While MPERC, in the tariff order for 2006-07, has projected a marginal gap of around Rs 9.51 crore, however, the ARR-ACS analysis for the year 2003-04 indicates a revenue gap of around 96 paise per unit. The ARR-ACS trend and revenue gap up to 2003-04 is as shown below:
Trend of Average Cost of Energy (ACS) and Average Rate of realisation (ARR)Paise/Unit

410 310 210 110 10 32.82 1996-97 45.6 1997-98


182.33

430.44 380.68 303.02 215.15 222.55


176.95

368.41
279.42 242.74

397.33
300.63

241.14
164.31

258.73 207.51

187.7 121.95 88.99 2002-03 96.7

76.83 1998-99

95.51

1999-2000

2000-01 ARR

2001-02

2003-04

Cost of Power

Gap (ACS-ARR)

(Source: MPSEB)

4.1.5 Capital Expenditure The investments in the distribution sector have picked up since 2001-02. The investments had more than doubled from Rs 124 crore in 2001-02 to Rs 302 crore in 2004-05.
Investment (Rs. Crores) to Improve Distribtion system (MPSEB) 350 300 250 200 150 100 218.2 171.79 141.01 127.67 155.41 163.77 166.53 124.28 159.24 302.56

95-96 96-97 97-98 98-99 99-00 00-01 01-02 02-03 03-04 04-05

(Source: MPSEB)

4.1.5.1 Equity and Loans As per the notification, dated 31 May 2005 of the State Government, the provisional opening balance sheets were issued in respect of the five companies. As per opening balance sheet, equity and loans, as allocated to the DISCOMs, is given as under:

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Particulars Equity PFC Loan ADB Loan REC Loan Generic Loan (MPSEB) Poorva Kshetra 317 96 45 154 252 Paschim Kshetra 533 133 45 80 494 (Rs. crore) Madhya Kshetra 316 74 45 101 316

In regard to generic loans of MPSEB, shown in the opening balance sheet of the DISCOMs, MPERC has viewed that the nature of these loans and assets associated with it have neither been disclosed nor identified. The Commission has also observed that these loans of the MPSEB transferred to the DISCOMs will get adjusted with the assets retained with MPSEB after the latter ceases its operations in the future. 4.1.5.2 Status of APDRP Funding The APDRP financial status from 2002-03 shows that, for 48 projects, an outlay of Rs 663.20 crore has been approved. An amount of Rs 129.87 crore has been released by the Central Government and Rs 184.90 crore has been utilised (including the counter part funding). During the interaction, MPSEB brought out that their proposal for claim of about Rs 200 crore for incentive component under APDRP in lieu of cash loss reduction from the base year of 2000-01 has been shuttling between the Ministry of Power and Ministry of Finance (Government of India) and the matter is yet to be resolved. The intervention of Ministry of Power will be necessary for early release of the amount due to the State. Another apprehension mentioned is that RGGVY and APDRP do not cover the works at voltage level of 132 kV and above, and extending the supply lines to remote villages, especially under RGGVY will put additional burden on transmission system. 4.1.5.3 Rural Electrification As per the earlier definition of village or rural electrification, the level of village electrification in the State was 97 per cent. As per the new definition of village electrification, the figure is 74 per cent. Household coverage in rural areas is about 37 per cent. The State Government is committed to electrify 100 per cent villages and to cover all households by 2012. Under RGGVY, schemes for 48 districts, at an estimated cost of Rs 3,100 crore, has been submitted to Rural Electrification Corporation Limited (REC). Sanction has been received for 9 districts.
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The State Government feels that the extension of electricity facilities to all the villages will lead to extensive revenue subsidy as compensatory tariff will not be feasible. Therefore, the State would need additional financial devolution. 4.1.6 Consumer Services 4.1.6.1 Standards of Performance and Customer Related Measures Enhancement of consumer services through: Computerised call centres have been established at various places; Collection facility round the clock by cheque at call centres; and Mobile phone facility to line staff for quick response to consumers complaints.

One window type facility to: Accept consumers complaints; Process applications for new connections, load enhancement and reduction applications, billing complaints, meter reading complaints, etc.: Bill data made available on SMS/email; and Facilitate Acceptance of advance payment and payment of interest thereon.

Steps taken to improve billing efficiency All the high value consumers have been provided with Data Logger type of meters and all are being shifted very shortly on Automatic Meter Reading (AMR) system. The electro-mechanical meters of urban area have been replaced by static meters. Unmetered domestic connections have been provided with proper meters and sample metering has been done on agricultural consumers to assess their consumption. Revenue Management System Revenue management system is a software solution for revenue functions of DISCOMs. The software has been developed in-house by the Capacity Building Group of MPSEB. It can handle various issues of power distribution business and has the flexibility/features of upgrading and updating the software by way of developing
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the additional modules. The software is capable of handling metering, billing and other consumers service related issues. This is being introduced in phases and in the first instance, Information Technology (IT) enabled RMS package has been implemented in 27 divisions of 7 regional headquarter cities (called priority divisions). The implementation of RMS on decentralised architecture in offline mode has been initiated for all divisions under Poorv Kshetra DISCOM. 4.2 OBSERVATIONS / COMMENTS The three DISCOMs were wholly-owned Government of Madhya Pradesh Corporations, functioned as agents of MPSEB under O&M agreement with the MPSEB from July 2002 till 31-05-2005. Only recently, the DISCOMs in Madhya Pradesh have started functioning independently. Therefore the actual performance evaluation of the DISCOMs in respect of their operation as independent corporate entities can be done only after a certain period of time. So far, their operational performance represents a mixed picture. The failure rate of DTs in MPSEB system has increased by 4.75 percentage points (from about 18.13% in 2001-02 to 22.88 per cent in 2004-05). The failure rate of distribution transformers for the individual DISCOMs also reveals a similar trend with the DT failure rate as high as 22 per cent for Poorv Kshetra and 16 per cent for Paschim Kshetra DISCOM during 2005-06. Causes of high failure rate of DTs should be analysed. Though very important, but other than quality aspects, overloading and ageing of transformers have to be addressed to avoid high failure rate of DTs. Better quality materials, maintenance schedule/maintenance practices also contribute to better performance of the transformers, thus existing O&M practices should be reviewed. Metering in respect of agricultural consumers is quite low and in respect of the domestic sector, it is about 81 per cent. In view of this, it is clear that the figures of consumption and consequently loss figures are not realistic. Correct and adequate instrumentation is a must to address the above issue. Energy Audit should be introduced on feeder/distribution transformer-wise and accountability of energy handled and corresponding revenues fixed at all levels of the organisation, which has not yet has not started.
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Due intelligence and vigilance should be exercised well in time so that the legal disputes get minimised and consumers have full faith in the working of the power utility. It is understood that a lot of manpower and resources are employed to prepare, present and defend cases in courts of law from the Utility side also. Thus along with the technological innovation, human resources to tackle the consumer and commercial affairs should be developed. Measures such as Meter Reading Instrument (MRI) based billing for high value consumers, introduction of spot billing, collection of bills by cheque, introduction of mobile vans for collection of bills, periodic inspection of feeders to identify the feeders having high T&D losses, etc., initiated by the DISCOMs should be speeded up.

5. Regulatory Framework
MPERC was established in August 1998 and started functioning from January 1999. Since its inception, MPERC has issued five tariff orders with a view to gradually reduce the cross subsidy. Besides, the Commission has also issued the Supply Code for ensuring better and quality service to consumers. 5.1 TARIFF REVISION MPERC has been quite effective in rationalisation of tariff in the State and in meeting the stipulations of MP Vidyut Sudhar Adhiniyam, i.e., to eliminate cross-subsidisation in the tariff. The provision stipulates that the tariff to any class of consumer should reflect a level at least 75 per cent the cost of supply to that particular class of consumer with in the next five years. It has been seen that a gap exists between ACS and ARR. This gap prevails primarily for agricultural pumpset consumers and is nearing the cost to supply for the domestic category. The realisation attained for the domestic consumers is at 86 per cent of the average cost to serve and for the rest of the categories the revenue realised is more than the ACS. 5.2 IMPLEMENTATION OF CURRENT ISSUES UNDER THE EA, 2003 5.2.1 Open Access Open Access regulation has been notified by MPERC on 24 June 2005. Open Access to users of non-conventional energy sources and captive generating plants of conventional energy was provided with immediate effect. Accordingly, Open Access to users other than non-conventional energy source and captive generating plants of
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conventional energy has been provided as per the load profile of consumers effective from October 2005. For non-discriminatory Open Access applicable surcharge has not been fixed as yet. The framework for competition in the choice and Open Access is in place but the principles for determination of surcharge payable by the Open Access consumers has not yet been formulated. 5.2.2 Directives Issued by MPERC MPERC has so far issued about 25 final/draft regulations on several issues. The Commission from time to time is also issuing concept papers and relevant directives. The Commission has played a proactive role in making the process of reform a success. However, the DISCOMs have not been able to comply fully with the directives issued by the Commission. It is apparent that non-compliance with the Commissions directives is affecting the DISCOMs itself. The Commission in its recent tariff order for distribution and retail supply for the three DISCOMs for 200607 has disapproved the cost on capital expenditure and interest cost. This is on account of the fact that the DISCOMs could not submit the business plans as also the capex plans for the expenditure proposed to be incurred by them in the ensuing year.

6. Role of the State Government


The State Government expects the outcome of reforms as to attain the financial viability of the power sector, better service quality for consumers, more affordable access to electricity for consumers, improvement in Government fiscal position and redefining the role of public sector. The State Government has shown commitment for the reforms and is getting assistance form ADB to implement the reforms. Financial support for the DISCOMs to meet the revenue deficit as well as subsidy for agricultural consumers does indicate its commitment to facilitate the reform process during the transition period.

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7. Electricity Act 2003 and the Reform Process


The status of implementation of certain key provisions of the EA, 2003 in Madhya Pradesh is as under:
MP Power Transmission Co. Ltd. (MPTRANSCO) was notified as State Transmission Utility (STU) on 17-05-2004. Vide Notification No. 3474/FRS/17/XIII/2002, dated 03-06-2006 the MP Power Trading Company Limited (TRADECo) has come in existence in the State and all the existing PPAs of MPSEB/MPPTCL shall be taken care of by the newly established TRADECO. As per directives of MPERC Electricity Consumer Grievances Redressal Forum has been formed in all three DISCOMs. Electricity Ombudsman has also been established MPERC under second proviso of Section 55(i) of EA, 2003 through Notification, dated 28.10.2005 has directed all the three DISCOMs to complete the work of metering of all the balance unmetered connection within the time limit. Officers nominated in all the three DISCOMs as Assessing Officers with powers to search and confiscate in cases of electricity theft under sections 126 and 135(2) of the EA, 2003. (Source: MP Govt.)

Section 172

Separation of transmission Utility

Section 42(5)

Forum for redressal of consumer grievance Supply of electricity through metering Implementation of anti-theft measures

Section 55

Section 135

7.1 ESTABLISHMENT OF SLDC AND INTERCONNECTION WITH MPTRANSCO SYSTEM The State Government has constituted the existing load despatch centre as State Load Despatch Centre vide its Order dated 17 May 2004. The SLDC is the apex body responsible for the operation, planning, monitoring and control of the power system in the State. The SLDC is well connected with the western regional load despatch centre for efficient and integrated operation of the grid. 7.2 ADEQUACY OF THE PROVISIONS OF THE CENTRAL ACT The State Government has stated that the Act seeks to create liberal framework for development of the power sector and strike a balance, which takes into account the complex ground realities of the power sector in the State. Timely and committed support from the Government and the established regulatory framework in the State are paving the way for the reforms to succeed.

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7.3 SUGGESTIONS FROM THE STATE GOVERNMENT AND SUPPORT EXPECTED BY THEM 7.3.1 Setting up of a Mechanism for Price Regulation of Fuel Absence of regulator for the fuel is impacting the cost of fuels, which lead to increased cost of power generation. Need of regulator and transparent public participation in fuel sector pricing has been emphasised by the State Government. 7.3.2 Green Power At present cost of generating non-conventional energy is high. The capital subsidy and the tariff related issues need a fresh look in order to incentivise the use of small hydel power in the portfolio of power purchase. 7.3.3 Regulatory Understanding There appears to be a mindset issue with regard to the role, which the MPERC is required to perform. The State Government feels that MPERC should not interfere in day-to-day affairs of the power companies beyond a point. The State Government expressed that in order to protect the interest of companies, the ground realities should also be looked in to by MPRC. There is a need for greater communication between the stakeholders to overcome the same. MPGENCO is finding it difficult to get loans from FIs and PFC. The State Pollution Control Board (SPCB) is also imposing restrictions on running of some of the power units because of high level of emissions from them. Such emissions are attributable to poor quality of coal and limitation of space for extension of Electrostatic Precipitator (ESP) fields. In case of joint venture projects like Satpura Power House, consent of the partner State has delayed the taking up of R&M activities. This and similar other issues relating to pollution control would require intervention and coordination of the concerned Central ministries. The State Government feels that the coal and fuel linkages mechanism should also be strengthened in respect of the State power sector project also. Government of Madhya Pradesh expects a proactive role by the Ministry of Power (Government of India) in extending more support to the State by way of better coordination with other Central ministries/departments in quick redressal of some of the pending issues with the concerned ministries.
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In regard with the RGGVY scheme, the State Government feels that it should cover the works at voltage level of 132 kV and above for extending the supply lines to remote villages to reduce T&D losses.

8. Lessons Learnt and Way Forward


8.1 REORGANISATION OF THE STATE There are outstanding issues relating to transfer of assets, liabilities and staff, which have not been resolved as yet. It is not easy for the State Government to come to a settlement unless there is equally a positive response from State Government of Chhattisgarh. Since these are post-reorganisation matters between the two States it would require intervention by the Central Government to bring about amicable settlement of the outstanding issues. As a result of reorganisation, the availability of power has been adversely affected. Out of a total capacity of 4,260 MW of the undivided State, 2,940 MW of generation assets were only left with Madhya Pradesh. The State has also not taken suitable measures to improve the condition of its generation facilities through R&M interventions. 8.2 OPENING BALANCE SHEET OF THE UTILITIES The Government of Madhya Pradesh has notified the provisional opening balance sheets and cash flow mechanism to be followed by the generation, transmission, distribution, and trading companies. Further, the companies have not finalised their balance sheets, as the State Government has reserved the right to modify values in the opening balance sheets. The State Government is yet to finalise the opening balance sheets of the new generating, transmission, distribution, and trading entities. This obviously, leads to insufficient filing of the ARRs by the Utilities with their provisional figures of gross block of fixed assets and liabilities for the purpose of determination of return on equity (ROE), depreciation and revenue gap. 8.3 LICENSE FOR TRADECO The trading function had been retained by MPSEB until recently and has now been transferred to MPTRADECO, which has been set-up in June 2006. This arrangement was agreed to by the Ministry of Power as per the proviso to Section 172 (a) of the
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EA, 2003. However, the TRADECO has not applied for bulk supply license under the EA, 2003. This is a grey area as to whether distribution of power purchased by the TRADECO is permissible without license under section 14 of the EA, 2003. 8.4 FINANCIAL RESTRUCTURING PLAN AND CASH FLOW MECHANISM The State Government ownership for the reform is demonstrated by the FRP, which stipulates the total transition cost involved for the power sector in the State. The State Government is providing financial support is provided to the tune of Rs 6,881 crore to the DISCOMs. The role of the MPSEB has some advantages. However, in actual practice, it amounts to concentration of decision-making with MPSEB in several areas, which are normally in the jurisdiction of the DISCOMs. Since MPSEB is no longer a licensee now and, therefore, not answerable to the MPERC, there is a likelihood of conflict with the objectives and spirit of the EA, 2003. The objectives of the CFM and the FRP could be achieved through a holistic approach, which guarantees prior consultation with the MPERC and control and responsibilities on the DISCOMs for implementation of the FRP and targets. The FRP has been revised to cover the period from 2006 to 2012. The FRP provides for the reduction of AT&C losses from 50 to 32.5 per cent in a seven years period, i.e., around 2 per cent on a yearly basis, which appears to be low. The targets of AT&C losses given in the FRP and those prescribed by the MPERC do not tally. In fact, the targets prescribed by MPERC are aimed at bringing down the targets so as to come closer to the target of 15 per cent as prescribed in the NTP. In view of the above, there is a fresh need to look for the targets set for AT&C losses in FRP and also those fixed by MPERC. 8.5 REGULATORY PROCESS 8.5.1 MYT Framework MPERC is one of the few Electricity Regulatory Commissions in the country to issue MYT order providing a control period with specific efficiency and loss reduction targets. The AT&C loss reduction roadmap has been fixed for the three DISCOMs, which gives differential loss reduction trajectory for these DISCOMs. The rationale appears to be: the geography, past legacy and the extent and nature of the problems in each of the DISCOMs.

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8.5.2 Directives Issued by MPERC MPERC has taken significant steps for directing the DISCOMs to initiate action in the critical areas, such as, intra-State ABT, MYT framework, franchisee model for rural areas, SCADA implementation, installation of high voltage distribution system (HVDS), implementation of pre-paid meters, re-conciliation of asset registers, etc. However, MPERC does not set any time frame to achieve the directives issued in this regard. It is apparent that given the appropriate support in terms of financial independence and capacity building, MPERC can play an important role in creating a credible regulatory framework for the success of the reforms. There was a noticeable tendency on the part of the MPSEB/DISCOMs not to comply with the directives issued by the Commission. Since these are Government owned companies, the MPERC finds it difficult to obtain compliance. However, it has taken some strong position on non-compliance of its directive regarding submission of Capex Plans for scrutiny and not obtaining its prior approval. 8.6 GENERATION SECTOR 8.6.1 Inadequate Capacity Addition Generating capacity addition in the State sector had been lagging. A number of MoUs were signed with the independent power producers (IPPs, 22 Nos.). However, like other States owing to the poor paying capacity of the power Utilities, the same could not materialise. Only 50 MW capacity additions could be achieved since 2002-03 in the Hydro sector and thermal capacity stands at 2,147.50 MW from 2000-01 onwards. The State must vigorously explore other avenues to bridge the demand-supply gap if adequate power by way of capacity addition is not made available in the State. 8.6.2 Low Investment on R&M of Generating Stations Most of the generating stations in the State are 25 years or older and require frequent shutdown for maintenance. The generating stations need frequent overhaul and are in urgent need of R&M interventions. However, the level of investment in R&M activities had been at a very low level. The SERC has taken a serious note of underutilisation of the approved funds allowed in the ARRs. The Commission has refrained from clawing back the amount retained and not utilised for R&M purposes. R&M activities should be given due priority so as to increase the generation as also the PLF of the stations.
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8.7 TRANSMISSION SYSTEM 8.7.1 Loss Reduction and System Availability While there has been an increase in the quantum of energy handled by MPTRANSCO by about 7 per cent in the year 2004-05 from year 2003-04, the overall losses in the transmission system for the year 2004-05 have come down to 5.62 per cent from 6.12 per cent in the year 2003-04. Also, there has been no failure of power transformers during the years 2003-04 and 2004-05. MPPTCL has also claimed that there were no grid disturbances or major breakdowns during the year 2004-05. There has been an increase in the transmission system availability from 97.59 per cent in 2000-01 to 99.53 per cent in 2003-04. In a positive development for providing incentive for high level of transmission availability, MPERC has devised a formula for incentive to promote high standards of performance by the transmission Utility. 8.8 DISTRIBUTION 8.8.1 Transition Support by Government of MP The reform model in Madhya Pradesh has provided for independent companies inheriting the functions and assets of the erstwhile MPSEB, but the latter continues to be exercising control over the Utilities. MPSEB will exercise powers for revenue and cash management till such time each of the Utilities becomes capable of managing their revenue and expenditure requirements and become self-sustainable. In the present scheme of the reforms the control of the MPSEB is justified by the State Government on the ground that during the transition period the State is providing transition support for the implementation of the reforms and therefore close monitoring and management of revenue and expenditure was necessary in the interim period. 8.9 SUSTAINABILITY OF THE STATE POWER SECTOR 8.9.1 Dependence on Government Subsidy MPSEB is heavily dependent on subsidy support from the State Government. The amount of subsidy is around Rs 794 crore in 2004-05 and around 15 per cent of the revenue earned by the DISCOMs from sale of power. This dependence is expected to increase as Government of Madhya Pradesh has committed to continue to subsidise
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agricultural consumers and also to meet the cash deficit of the distribution Utilities. The burden as projected in the FRP is approximately around Rs 5,000 crore. However, the additional subsidy burden could be a constraint on the States finances. The financial position of the Utilities in 2004-05 shows cash losses to the tune of Rs 296 crore even after receiving the subsidy. 8.9.2 High Failure Rate of Distribution Transformers The failure rate of DTs in the MPSEB system has increased by 4.75 percentage points (from about 18.13 per cent in 2001-02 to 22.88% in 2004-05). The failure rate for the individual DISCOMs also reveals a similar trend with the failure rate as high as 22 per cent for Poorv Kshetra and 16 per cent for Paschim Kshetra. It is desirable that maintenance schedule and maintenance practices under the existing O&M practices should be reviewed. MPERC must rigorously monitor the standards of performance of DISCOMs to ensure requisite reliability and quality of power to the consumers. 8.9.3 Efforts Needed to Improve Metering The DISCOMs must enhance action on the metering front. Besides poor metering status in the agricultural segment, the extent of metering in the domestic segment is merely around 81 per cent. As the consumer base is quite large, significant efforts would be required to install meters for all the service connections consumers. Further, checking/verifying the accuracy of the already installed meters of all categories of consumers must be ensured. Energy audit should be introduced on feeder/distribution transformer wise and accountability for energy handled and the corresponding revenues be fixed at all levels of the organisation. 8.9.4 Need to Improve Collection Efficiency The collection efficiency in respect of DISCOMs is not up to the mark. While the revenue collection efficiency from sale of power to the agricultural consumers has decreased from 88 per cent in 2000-01 to as low as 21 per cent in 2004-05, it is equally bad for the domestic consumers, i.e., 95 per cent in 2000-01 to 79 per cent in 2004-05. Besides these, the collection efficiencies for industrial and commercial categories are also declining.
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The DISCOMs must therefore enhance their enforcement initiatives by forming strong a legal task force to expedite such efforts. Adequate protection and empowerment should be provided to employees involved in detection of cases of malpractices, electricity theft, verification of consumer connections, etc. Adequate authority and responsibility should be assigned to employees to perform their task. 8.9.5 AT&C Losses Reduction Targets The percentage of T&D losses from 1995-96 to 1998-99 have been shown to be in the range of 19 to 21 per cent and thereafter as 31.94 per cent in 1999-2000, 47.18 per cent in 2000-01 and further showing a very slow reducing trend (43.48 per cent in 2004-05). The Commission, under the MYT framework, has set a loss reduction trajectory for the individual DISCOMs. While the target for 2005-06, as prescribed by the Commission, has been achieved by the Western and Central DISCOMs, the same has not been achieved by the Eastern DISCOM (a gap of 3.23 % is yet to be met). 8.9.6 Generic Loans The DISCOMs are carrying a sizeable component of generic loan liabilities of the prereform period. Amounts of Rs 252 crore, Rs 494 crore and Rs 316 crore has been shown against the DISCOMs of Poorv Kshetra, Paschim Kshetra and Madhya Kshetra respectively. In regard to these generic loans shown in the opening balance sheet of DISCOMs, MPERC has said that unless full details are provided to it and it is proved that these loans have been utilised towards creating assets, the Commission will consider these as working capital loans and will allow interest to the extent of normative working capital requirements. Unless there is clear understanding about the rationale for these loan liabilities the legitimate claim for expenses, etc., of the DISCOMs may defy a practical solution. 8.9.7 Promoting New Initiatives i) Distribution is the ultimate link in the power system and is nearest to the consumers. The security, reliability and quality of power supplied to consumers eminently rests with the state of the distribution system and its performance. One of the main important aims of the power sector reforms is to bring about visible improvements in terms of commercial viability, improved availability of power
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and rationalisation of tariff in the power sector. This has been aimed at by mobilising additional resources in the sector, promoting competition, adoption of IT in the power sector and harnessing its benefits by bringing transparency in the system, creating consumer-friendly atmosphere and making the sector consumer-oriented. The aim of the reform could be achieved by improving the technical and commercial performance of the distribution sector. Recently, efforts have been initiated by the Ministry of Power to improve the distribution sector that was neglected in the past and was exhibiting a poor performance. APDRP was launched which focussed attention specifically on strengthening and improvement of sub-transmission and distribution (ST&D) systems and its commercial health. There is a need to consider other strategies to achieve the above objective. ii) Involving the public at large in controlling electricity thefts through social awareness can further strengthen the reform process. The same can be implemented by providing discounts in the electricity bills of the consumers either on an area or feeder basis that helps the Utilities in controlling/eliminating electricity thefts. It would help in creating a better public consciousness about the need for cultivating social responsibility. Such a cultural change is extremely important for effectively addressing the menace of electricity thefts, which is the single largest factor responsible for overwhelming losses suffered by the Utilities, and thereby depriving the consumers of the benefits of lower tariffs. This may be done by the Utilities in consultation with the Electricity Regulatory Commissions or by suitable amendment to the National Tariff Policy.

iii) Imperatives of gradualism in the approach as seen in some of the States should be reviewed. The consequences of gradualism have given a space to those who are opposed to reforms Effective strategy should be designed to counter the opposition to reforms. iv) The most significant lesson from the reform study is that power sector reform needs continued support from the Government both in terms of financial support and institutional and independent regulatory development. States like, Madhya Pradesh have committed financially for restructuring the power sector during the transition period to enable the Utilities to achieve a turnaround. The State should commit on the reform choices as regard competition, privatisation, etc. Discussion with the State Governments indicate that private sector participation is not a closed option but the more immediate concern is about the existing
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DISCOMs which in their present condition may not appear to be ideal for private sector participation. Alternative models for improving the financial and operational efficiencies, public-private partnership in network management activities, SCADA, DMS application, customer relation management (CRM), etc., may require consideration by the State Utilities. v) For distribution reforms to lead to appreciable/demonstrable impact in delivery of quality power supply, a road map for network upgradation and reliability of sub-transmission and distribution will have to be accorded high priority. This should be preceded by detailed study of the condition and problems of the network.

vi) Meetings of the MDs and the key personnels of the distribution Utilities should be considered as an annual feature by the Ministry of Power. This may provide useful inputs from the different programmes undertaken by the Utilities for system improvement and improving the financial health of the Utilities and create an competitive environment. vii) Promotion of energy conservation measures, both from the Utility side as well as at utilisation end and promoting the use of energy efficient pumpsets in the agricultural sector and introducing tradable incentives such as interest subsidy on purchase of energy efficient pumpsets should also be considered. viii) To avoid the cascading effect of the power systems fault, measures to enhance grid security must be devised and separate funds should be earmarked for devising and implementing the appropriate islanding schemes for DISCOMs. Although this may not be right time to introduce the MoU mechanism for making them achieve the predetermined productivity and other efficiency targets, yet some steps are needed to promote competition among the DISCOMs. Unless some interDISCOM competition or incentives are built, there would be no pressure on them for under or poor performance. There would be no tangible benefits to consumers in terms of low prices or benefits. Utilities which are ready to introduce better pricing for certain categories of consumers such as industrial, commercial, etc., should be encouraged to do so. In this direction, a positive move by the MPERC to consider Differential Retail Supply Tariff (DRST) for DISCOMs was dropped as the State Government conveyed to the Commission its intention in its letter dated 7 March 2006 to have similar tariffs for various consumer categories in the foreseeable future. It
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is felt that the intention to provide lower tariffs for domestic and agricultural consumers on socio-political grounds should not prevent the Commission to attempt rebalancing of tariffs to translate efficiency gains into better pricing for industrial and, commercial categories of consumers.

9. Conclusions
9.1 ESTABLISHED REGULATORY FRAMEWORK The above analysis and evaluation shows that the enabling environment for the power sector reform in the State is positive. The regulatory framework is fairly well developed and a number of initiatives of the Commission have ensured better cost of service recovery and prudent investments, Open Access, MYT, etc., are aimed at creating a predictable regulatory regime. 9.2 SUPPORT FROM THE STATE GOVERNMENT There is a strong commitment of the State to continue the reforms and for that purpose the measures like financial support to the sector through FRP and setting up of the special courts for speedy trial of cases of electricity theft would contribute to the implementation of the reforms in the State. Proper Government and legislative support is in place to make the reforms a success. Relatively, the involvement of the DISCOMs which earlier functioned as franchisees of MPSEB will under go qualitative change with the full assumption of their responsibility and control as independent corporate entities under the direct over sight of MPERC. 9.3 STRUCTURAL ISSUES There are structural issues relating to the role of MPSEB and TRADECO, which may create conflict of interests and impact on the autonomy of the Utilities. This needs to be addressed. Better understanding of the respective roles and responsibilities by the various organisations will provide conditions for the reforms to move in the positive direction.

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LIST OF OFFICIALS WITH WHOM DISCUSSIONS WERE HELD


Shri Rakesh Sahni Shri Sanjay Bandopadhyaya Shri Mukul Dhariwal Shri P.K. Mehrotra Shri Vivek Mishra Shri P.K. Vaishya Shri R.K. Verma Shri D.N. Prasad Shri Ajit Kesari Shri Pramod Agarwal Shri Pankaj Agarwal Officers and Staff of DISCOM Madhya Kshetra Chief Secretary (Government of MP) Secretary Energy (Government of MP) Dy. Secretary (Government of MP) Chairman (MPERC) Director (MPERC) Secretary (MPSEB) CMD, MPTransco CMD, MPGenco CMD, DISCOM Madhya Kshetra CMD, DISCOM Poorv Kshetra CMD, DISCOM Paschim Kshetra

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TABLE OF CONTENTS
Background ................................................................................................................5.1 Imperatives of Reforms .............................................................................................5.1 First Phase of Reforms ..............................................................................................5.2 Second Phase of Reforms ..........................................................................................5.3 Private Sector Participation in the Distribution Segment .....................................5.3 Objectives of Reforms ...............................................................................................5.3 Private Sector Participation in Generation.............................................................5.5 Restructuring of GRIDCO........................................................................................5.6 Chronology of Events of Power Sector Reforms in Orissa ....................................5.7 Assumptions That Went Wrong...............................................................................5.9 Transfer of Assets ....................................................................................................5.11 Central Electricity Supply Company of Orissa Limited (CESCO) ....................5.13 Impact of Reforms on NESCO, WESCO and SOUTHCO..................................5.14 Impact of Reform Approaches ...............................................................................5.16 Performance of DISCOMs......................................................................................5.16 Contributions and Achievements of DISCOMs....................................................5.17 BST Bill, Collection And Payment To GRIDCO..................................................5.18 Improvement in Performance of DISCOMs .........................................................5.19 Surplus To GRIDCO/NTPC ...................................................................................5.20 Improvements in Technical Performance .............................................................5.21 Feeder, Distribution Transformer and Consumer Metering ..............................5.21 Quality of Service.....................................................................................................5.21 Process Improvements.............................................................................................5.21 Consumer Care Centres..........................................................................................5.22 Recruitment ..............................................................................................................5.22 Views Of The State Government on IIPA Questionnaire....................................5.23 Benefits of Power Sector Reforms..........................................................................5.24 Stabilisation of GRIDCO ........................................................................................5.25 Issues and Concerns Regarding Privatisation .....................................................5.27 Action Taken on The Kanungo Committee Report..............................................5.29 Reforms Process In Two States Comparison between Delhi and Orissa ........5.31 OERC and the DISCOMs .......................................................................................5.32 Conclusions...............................................................................................................5.33 Financial Performance of the Utilities ...................................................................5.36 OERCs Assessment ................................................................................................5.42

ORISSA
BACKGROUND Orissa was the first State in the country to initiate reform in its electricity sector in a big way. For this purpose, the State received encouragement from the Government of India. The Orissa Electricity Reform Act, came into force on 1 April 1996. The principal objectives of the reform, were as under: (a) Restructuring of the electricity industry by bringing in improvements in generation, transmission, distribution and supply functions of electricity; (b) Development of the industry in an efficient, economical and competitive manner; (c) To provide avenues for participation of private parties and reduce dependence on Government funding in the electricity sector; (d) To improve the quality of service to the consumer; (e) To enhance operational efficiency and reduce losses; (f) To provide for a transparent mechanism for development and regulation of the industry, including tariff fixation and settlement of disputes, through an independent statutory body, the Orissa Electricity Regulatory Commission (OERC);

(g) To contribute to economic growth of the State by ensuring better quality of electricity supply; and (h) To create opportunities for increasingly rewarding employment for technical personnel and provide a stable environment for career development in the electricity sector. The reform process was conceptualized and the road map for its implementation was drawn up after an elaborate exercise by taking support of reputed National and International consulting firms. IMPERATIVES OF REFORMS Reforms became imperative since the power sector in the State had become unsustainable due to various factors as mentioned below: (a) Vertically integrated monolithic structure of Orissa State Electricity Board (OSEB), which did not engender either efficiency or effectiveness; (b) Lack of commercial orientation; (c) Adverse capital structure;

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(d) High transmission and distribution losses - both technical and commercial; (e) Non-remunerative tariffs; (f) Downward trend in industrial consumption and increase in domestic and agricultural consumption which entailed a high level of cross-subsidy;

(g) Inadequate investment in generation, transmission and distribution sectors; (h) Widening demand-supply gap; (i) Inadequate maintenance of the existing generating stations and transmission and distribution network resulting in low plant load factor (PLF) of generating stations and poor reliability of transmission and distribution network; Poor billing and collection;

(j)

(k) Poor quality of service to the consumers; (l) Manpower related problems; and

(m) Misuse of Section 78A of the Electricity (Supply) Act, 1948 which stipulated that the Government should provide policy directives to the State Electricity Boards (SEBs). Under the provisions of the Electricity (Supply) Act, 1948, the State Government had to ensure three per cent rate of return (ROR) on net fixed assets. OSEB was not able to achieve the same. The subsidy burden on the State Government increased from Rs 14.00 crore in 1989-90 to Rs 257.62 crore in 1995-96, (the last year of OSEB). Although OSEB was incurring heavy losses, huge investments were necessary for creation of additional generating capacity to bridge the demand-supply gap. The State Government was not in a position to provide the requisite resources to meet the current as well as future demands of the power sector in the State. FIRST PHASE OF REFORMS In November 1993, a decision was taken by the State Government to reform and restructure the power sector in the State. The restructuring process contemplated the following actions on an emergent and time-bound basis:
Restructuring Private sector participation Competition By separation of generation, transmission and distribution functions of OSEB. Through private sector participation in electricity generation and distribution sectors Through competitive bidding for new generation projects.

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Regulation

Tariff

By establishment of an independent State regulatory body, which would address the problems of the power sector. The State Government decided to distance itself from the power sector and confine itself only to broad policy issues. By tariff reforms at various levels

The following steps, as envisaged under the reform and restructuring process, were taken: (1) OSEB was restructured and corporatised into Grid Corporation of Orissa (GRIDCO) and Orissa Hydro Power Corporation (OHPC) w.e.f. April 1996. (2) Orissa Electricity Regulatory Commission (OERC) was established in April 1996 and became functional from 1 August 1996. (3) Orissa Power Generation Corporation (OPGC) was privatised with disinvestment of 49 per cent stake and the management control was transferred to a private sector company, M/s AES, in January 1999. SECOND PHASE OF REFORMS Private Sector Participation in the Distribution Segment Pursuant to the Orissa Electricity Reform (Transfer of Assets, Liabilities, Proceedings and Personnel of GRIDCO to Distribution Companies) Rules, 1998, the Government of Orissa transferred the distribution assets and properties along with personnel of GRIDCO to four DISCOMs w.e.f. 26 November 1998. These distribution companies namely CESCO, NESCO, WESCO and SOUTHCO continued to function as affiliates of GRIDCO up to 31 March 1999 and thereafter functioned under the distribution and retail supply license granted by OERC. OBJECTIVES OF REFORMS A. Operational Improvements (i) Improve the quality of service to the consumers; and

(ii) Improve operational efficiencies and reduce losses. B. Financial Benefits Envisaged (i) Attract private investment in the distribution business;

(ii) Reduce dependence on Government funding in the electricity sector; and (iii) Contribute to increased economic development of the State.

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C.

Employees Considerations (i) Create secure, conducive and rewarding employment opportunities for qualified personnel; and

(ii) Provide a better working environment for the employees. D. Private Sector Participation to Promote Competition in the Distribution Sector

One of the alternatives considered towards achieving the objectives of power sector reforms was private sector participation in the electricity distribution segment. After considering various options available for private sector participation, GRIDCO decided to adopt the joint sector/joint venture route, which was considered to be the most suitable model. The following sequence was approved: The four distribution zones, which were functioning under GRIDCO, would be converted into four distribution companies as its wholly owned subsidiaries at the first stage before the private sector participation is invited; Private sector participation was accomplished in three stages: o Qualification of companies/consortia (November 1997 to June 1998); o RFP and lodgement of bids (July 1998 to November 1998); and

o Negotiation and completion (Dec 1998 to September 1999). 51 companies/consortia initially participated in the International Competitive Bidding (ICB). Of these, only 13 furnished their Statements of Qualification (SOQ). 11 companies were pre-qualified by the GRIDCO Board, out of which four companies did not participate in the bidding process because of reasons like Asian Economic Crisis, Pokharan-II blast and perceived unviable business and regulatory risks. Four more companies also did not participate in the bidding process. Out of the remaining bidders, the following three were found to be technically qualified: BSES (Now Reliance Energy Limited); Singapore Power-Grasim Industries; and TEC-Viridian.

BSES was selected for the areas coming under WESCO, NESCO and SOUTHCO and the management was handed over to it w.e.f. 1 April 1999. As TEC-Viridian failed to honour its offer, the earnest money guarantee clause of Rs 5 crore was invoked by
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GRIDCO. Dispute raised by TEC-Viridian is pending in arbitration. AES-Jyoti Structure, the pre-qualified bidder was selected to manage CESCO through a process of negotiation and the management was handed over to the company w.e.f. 1 September 1999. Thus, through a process of ICB, GRIDCO offered 51 per cent stake to private sector investors, retaining 39 per cent shareholding with it and 10 per cent share for the Employees Welfare Trust. It may be mentioned here that no sale of assets had actually taken place, and the assets have only been assigned to the respective companies. 51 per cent of the share capital of the distribution business has been sold at a premium to the private investors. As a result the following scenario emerged: (i) Thus four DISCOMs, initially incorporated as wholly owned subsidiaries of GRIDCO, came under the management control of private companies and 51 per cent stake was transferred of to them. Three of these, namely, NESCO, WESCO and SOUTHCO were acquired by BSES in April 1999 and the fourth, viz., CESCO by M/s AES in September 1999.

(ii) Trading and transmission functions of GRIDCO have been separated w.e.f. 1 April 2005, with GRIDCO looking after trading and Orissa Power Transmission Corporation Limited (OPTCL) looking after transmission functions. The new structure of the electricity sector that emerged in Orissa was as follows: (i) There are independent players like NTPC, OHPC, OPGC, IPPs and CPPs in the generation sector;

(ii) GRIDCO purchased power under PPAs from the independent generators and supplied bulk-power to privatised DISCOMs at a bulk-supply price called BST, fixed by the OERC; and (iii) DISCOMs, viz., WESCO, NESCO, SOUTHCO and CESCO, under the management of private sector companies, came into existence. Private Sector Participation in Generation In January 1999, 49 per cent share capital of OPGC with 420 MW thermal generation capacity, having face value of Rs 240.21 crore (approximately), was sold to AES Trans Power along with management control at a cost of Rs 603.2 crore. Another State sector power generation concern, Talchar Thermal Power Station (TTPS), with an installed capacity of 460 MW was sold to NTPC in 1995.

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The entire generation of TTPS and OPGC is dedicated to the State of Orissa. After sale of 49 per cent shares of OPGC and sale of TTPS to NTPC, more power is available at a reasonable price to the electricity consumers in the State. The table below shows the profit levels of all three major constituents of the Orissa Power Sector: Accounting Profit/Loss
(Rs crore)
Utility OPGC OHPC GRIDCO TOTAL 1996 -97 104.6 69.85 -294.99 -120.55 1997 -98 66.15 77.79 -319.11 -175.17 1998 -99 112.8 55.21 -578.61 -410.6 1999 -00 124.39 50.38 13.73 188.5 2000 -01 109.88 -27.44 -85.24 -6.53 2001 -02 132.22 -.3.89 74.50 202.83 2002 -03 181.70 -41.92 -598.08 -458.3 2003 -04 136.23 6.17 417.77 560.17 2004 -05 143.39 64.08 357.38 564.85

Cash Profit/Loss
(Rs crore)
Utility OPGC OHPC GRIDCO TOTAL 1996 -97 144.96 114.26 -162.03 97.18 1997 -98 147.31 122.06 -177.45 91.92 1998 -99 195.68 99.93 -428.7 -133.09 1999 -00 208.97 100.19 86.85 396.01 2000 -01 194.68 65.92 -4.91 255.69 2001 -02 215.91 92.69 112.44 421.04 2002 -03 264.93 -59.11 -504.25 -298.43 2003 -04 194.95 118.50 523.34 836.79 2004 -05 202.28 174.93 462.92 840.13

RESTRUCTURING OF GRIDCO Till 31 March 2005, GRIDCO continued to undertake: (i) Transmission and bulk supply activities in the State;

(ii) Sale of energy outside the State; and (iii) State Load Despatch functions. Prior to enactment of the EA, 2003, GRIDCO was undertaking the unified business of transmission and bulk supply of electricity in the State based on the license granted by the OERC. GRIDCO was also undertaking the functions of State Load Despatch Centre (SLDC) and was notified as the STU under the provisions of the EA, 2003. The EA, 2003 has recognised trading in electricity as a distinct licensed activity that can only be undertaken by a licensee to be granted by the appropriate Commission. The Act specifically prohibits the STU/transmission licensees from engaging in trading of electricity. GRIDCO, being an STU, was not permitted to engage itself in the trading in electricity, i.e., purchase of electricity for resale and was required to segregate its activities in a manner that the entity (which will undertake transmission,
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Orissa

STU and SLDC functions) will not undertake the activities of trading and bulk supply of electricity. Keeping in view the statutory requirement of the EA, 2003 for separation of trading and transmission functions into two separate entities, the State Government, on 27 March 2004, incorporated the OPTCL as a wholly owned undertaking of the State Government to take over the transmission, STU and SLDC functions of GRIDCO. Subsequently, the State Government in exercising the power conferred under Sections 39, 131, 133 and 134 of the EA, 2003, read with Sections 23 and 24 of Orissa Electricity Reform Act, 1995, issued the Notification on 9 June 2005 The Orissa Electricity Reforms (Transfer of Transmission and Related Activities) Scheme, 2005 for the purpose of transfer and vesting of the transmission undertakings of GRIDCO with OPTCL. By virtue of this Notification, the transmission undertaking, assets, liabilities, properties, personnel including the assets of SLDC and sub-LDCs were transferred and vested in the OPTCL. OPTCL has also been declared as the STU and is also discharging the functions of SLDC. GRIDCO continues to undertake bulk supply and trading functions. CHRONOLOGY OF EVENTS OF POWER SECTOR REFORMS IN ORISSA
April 1992 November 1993 Government of Orissa, OSEB and the World Bank discussed the problems of Orissa Power Sector and their possible solutions. Government of Orissa and OSEB agreed upon a Power Sector Reform programme. The programme envisaged substantial private sector participation and separation of the power utilities from Government control. M/s ECC engaged for a review of the reform proposals put forth for Orissas power sector. The Steering Committee (chaired by the Chief Secretary) and Task Force (chaired by the Secretary Energy) for Power Sector Reform are constituted through a Government of Orissa Resolution. KPMG begins Financial and Management consulting work on the reform project. Nine Working Groups constituted for implementation of the reform programme. The Working Group Reports finalised. The nine Working Groups merged and seven Working Groups created. The work is internalised in OSEB. 5.7

January 1994 March 1994

May 1994 July 1994 June 1995

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs

Nov. 1995 3 January 1996 March 1996 1 April 1996

The Orissa Electricity Reform Act, 1995 passed. The Orissa Electricity Reform Act, 1995 assented by the President of India. The State Government notified 1 April 1996 as the date on which the Orissa Electricity Reform Act, 1995 shall come into force. OSEB split into GRIDCO and OHPC. GRIDCO takes over the transmission and distribution and OHPC takes over the hydel generation business of OSEB. Orissa Electricity Regulatory Commission constituted. GRIDCO divided its distribution functions into four geographical zones, namely, Western Zone, Northern Zone, Southern Zone and Central Zone. GRIDCO incorporated four wholly-owned subsidiaries namely, WESCO, NESCO, SOUTHCO and CESCO under the Companies Act, 1956. The process of private sector participation in distribution segment initiated with the issue of press advertisements inviting Request for Qualification (RFQ) regarding disinvestment of 51 per cent equity share capital held by GRIDCO in the distribution companies. 54 companies purchased RFQ from GRIDCO 13 companies/consortium submitted Statements of Qualification 11 companies/consortium qualified to participate in the privatisation process Due diligence process completed.

July 1996 19 November 1997

28 November 1997

February to November 1998

26 November 1998

Section 23 of the Orissa Electricity Reform Act amended, empowering the State Government to notify the Transfer Scheme to transfer and vest in a subsidiary company of GRIDCO, any undertaking or part thereof comprising property, interest in property, rights and liabilities and personnel, etc., on such terms and conditions as may be specified in the Transfer Scheme. Pursuant to the above, Orissa Electricity Reform (Transfer of Assets, Liabilities, Proceedings and Personnel of GRIDCO to Distribution Companies) Rules, 1998 notified by the State Government. Three companies/Consortium submitted their Technical and Financial bids namely BSES Ltd., TEC-Viridian Consortium and Singapore-Grasim Industries Consortium. State Government accepted the recommendation of the Board of GRIDCO and conveyed its approval for the disinvestments of equity in distribution companies.

14 January 1999

27 March 1999

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Orissa

31 March 1999 1 April 1999 1 September 1999

BSES signed Shareholders Agreement and Share Acquisition Agreement. The management of the three companies was handed over to BSES. GRIDCO disinvested 51 per cent of its equity held in CESCO in favour of the consortium led by M/s AES Corporation, USA, after obtaining approval of the State Government. The management of CESCO handed over to AES. A new public Limited company under the name and style Orissa Power Transmission Corporation Limited (OPTCL) was incorporated to carry on the business of transmission, STU and SLDC functions of GRIDCO. The new company obtained the Certificate for Commencement of business, which entitles the company to carry on any business. OPTCL became functional. GRIDCO continue to carry on the bulk supply and trading functions.

29 March 2004

31 March 2004 1 April 2005

ASSUMPTIONS THAT WENT WRONG: HOW THESE AFFECTED GRIDCO ADVERSELY The Staff Appraisal Report (SAR) of April 1996 estimated the T&D losses in the State at 39.5 per cent, which was to be brought down to 24.3 per cent by 1998-99. Accordingly, the financial projection was made which estimated that GRIDCO would break even during the financial year 1997-98. The real magnitude of the distribution losses, which were about 50 per cent was not known at that time. Based on the SAR and in the absence of reliable data based on the detailed studies, OERC in its First Tariff Order (effective from 1 April 1997) directed that the losses be brought down to 35 per cent at the end of the year 1997-98. This was a very difficult target. During November 1994, the final executive project summary prepared by the World Bank had anticipated that while the assets and liabilities of OSEB would have to be transferred to the new entities, not all liabilities could be transferred, as it would burden the newly established Corporation with the same kind of liquidity crunch that OSEB had faced. At that point of time, it was hoped that a restructuring loan on soft terms would be available to GRIDCO to meet the urgent overdue liabilities to suppliers and contractors, which did not materialise. The SAR had assumed load growth of 11.4 per cent in 1997-98, 16.7 per cent in 199899 and 9.2 per cent in 1999-2000 but in actual practice, it turned out to be substantially less. The SAR did not anticipate the industrial recession in the last few years, which led to a lower industrial load than, was projected. The preference for
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State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs

captive generation on the part of EHT consumers in the context of rising tariff was also not anticipated in the SAR. The SAR had not anticipated that in order to make the DISCOMs attractive to the private investors, GRIDCO would have to retain in its own books about three times the quantum of liabilities passed on to the four DISCOMs. In order to make the distribution business attractive to private investors, only around Rs 650 crore of total liabilities were passed on to the four DISCOMs while GRIDCO, the transmission company, retained Rs 1,950 crore of liability in its own books as all the DISCOMs were loss-making undertakings. The SAR had assumed a 16 per cent Return on Equity (ROE), OERC in two of its tariff orders, issued in respect of GRIDCO, had indicated that unless the losses are brought down to 35 per cent, there would not be any question of ROE. OERC allowed T&D loss at 35 per cent, which resulted in a tariff lower than the requirement, in view of the higher T&D losses prevailing during the same period as mentioned above. The SAR had assumed an average increase in tariff of 16 per cent in 1996-97 and 18 per cent in 1997-98. This also did not materialise. Inadequate cost recovery, because of lower tariff than the one projected, has affected the financial performance of GRIDCO from its inception. The increasing cost of power did not match the retail tariff realised. The cost of power purchased from OHPC was much more compared to its cost during the OSEB period. The power purchase cost accounts for nearly 70 per cent of the total expenditure of GRIDCO. There has been a heavy industrial recession in Orissa due to which industrial consumption has gone down, leading to increase in financial loss levels which has been responsible for higher cash deficits of DISCOMs and in turn of GRIDCO, although there is substantial improvement in collection of revenue in the LT sector. The drop in HT and EHT consumption, coupled with an increase in LT consumption (the segment which pays less than the cost of supply), has also aggravated the losses in GRIDCO. On the collection front, the assumption in the SAR was that 100 per cent of the amount billed would be collected from the year 1997-98 onwards but even by end of 1998-99, the collection was only about 83 per cent of the amount billed. With the disinvestments of Government shareholding in OPGC, the private sector company M/s AES insisted on the liquidation of GRIDCO's entire dues to OPGC as a
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Orissa

pre-condition for the deal. GRIDCO had to liquidate the entire loan and also make an escrow arrangement for payment of the current dues in full. Adjustment of Rs 343 crore by Government of Orissa while vesting the transmission and distribution assets in GRIDCO severely affected its liquidity position. This amount was payable by the State Government to OSEB/GRIDCO as subsidy (Rs 301 crore) and energy charges (Rs 42 crore) due from Government Departments. GRIDCO continued to carry out un-remunerative activities such as rural electrification work on behalf of the Government of Orissa without any subsidy support from the Government, either capital or revenue. DISCOMs did not agree to take over the dues receivable from State PSUs and State Government Departments towards power supply and the same were retained with GRIDCO. GRIDCO is yet to receive the dues. TRANSFER OF ASSETS Restructuring was done in two steps through the instrumentality of Transfer Schemes framed under the Orissa Electricity Reform Act, 1995. Under the first Transfer Scheme (effective from 1 April 1996) the assets, liabilities, proceedings and personnel of the erstwhile OSEB were transferred to OHPC (for hydel generation), and GRIDCO (transmission and distribution). The second Transfer Scheme (effective from November, 1998) further transferred the distribution related assets, liabilities, proceedings and personnel of GRIDCO to four wholly owned companies of GRIDCO. Details of Revaluation done in Transfer Scheme dated 1 April 1996 (Rs crore)
Book value of T&D assets Interest and expense capitalised Total Uplift in value of assets Total Depreciation Net fixed assets of GRIDCO as on 1 April 1996 Total Revaluation Uplift in assets Further adjustment Total Adjustment Subsidy due to OSEB Electricity charges receivable from Government Reduction in O&M stock Total (A) 1103.2 97.5 1200.7 1120.0 2320.7 363.0 1957.7 1120.0 74.0 1194.0 301.2 39.2 50.6 391.0

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Study on `Impact of Restructuring of SEBs


Fresh equity to State Government Zero coupon bond to State Government Bonds issued to Pension Fund Total (B) Total (A+B) 253.0 400.0 150.0 803.0 1194.0

Restructuring exercise involved certain measures, which cast a heavy strain on the finances of GRIDCO. Under the Transfer Scheme of April 1996, the State Government took over the transmission and distribution assets of OSEB (book value plus capitalised expenses and interest at Rs 1,200 crore) and re-vested them in GRIDCO after up-valuing by an additional Rs 1,194 crore, the State Government adjusted the subsidies and electricity charges payable to OSEB/GRIDCO totaling Rs 340 crore. In addition, GRIDCO issued Rs 253 crore worth of shares and Rs 400 crore worth zero coupon bonds to the State Government. This left GRIDCO with a serious cash shortage right from day one and compelled it to default to the generating companies and other suppliers. In addition, Rs 1,146 crore of loan and liabilities were also assigned to GRIDCO. The up-valuation exercise was prompted by considerations including the need to have a capital base capable of absorbing substantial debt funds needed for the upgradation of the T&D system and the requirement of having a self-financing ratio of 20 per cent and an adequate debt-equity ratio as per the conditions of FIs. It was also felt that the assets should be valued on the basis of their business potential and replacement value, not their book value. The revaluation exercise also enabled the cash strapped State Government to "adjust" dues totaling Rs 340 crore payable to OSEB/GRIDCO against the up-valued amount. The impact of revaluation of assets on the DISCOMs has been lower than that on GRIDCO as they were allocated only project specific liabilities totaling Rs 630 crore for all four DISCOMs put together, while GRIDCO retained in its books liabilities (including accumulated losses) totaling about Rs 1,950 crore. While the assets were up-valued, there was no such up-valuation of the liabilities. Besides, as stated earlier, the DISCOMs were assigned only project related liabilities. The only component of the assets up-valuation, which has a bearing on tariff is depreciation, which stood at Rs 81.69 crore in 1996-97 on the eve of the up-valuation and was pegged at Rs 128.02 crore for 1998-99 by OERC in their tariff order effective from 1 April 1997.

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Orissa

The difference of Rs 46.33 crore (Rs 128.02 crore - Rs 81.69 crore) in the depreciation (which also included depreciation of assets created during 1997-98) formed only 3.2 per cent of GRIDCO's total revenue requirement of Rs 1,451 crore allowed by OERC. Hence the impact of up-valuation on distribution tariff has been estimated to be only about 2.5 per cent. Further, it must be emphasised that it is not the up-valuation exercise per-se that resulted in GRIDCO's cash crunch, the cause is rather the adjustment of the totality of its receivables from the State Government (about Rs 340 crore) right from the inception. CENTRAL ELECTRICITY SUPPLY COMPANY OF ORISSA LIMITED While AES was acquiring CESCO, it was assured that GRIDCO would allow CESCO cash accommodation up to Rs 174 crore. This amount, along with interest, was to be repaid after 1 September 2002. There was a dispute between M/s AES and the State Government over financing the required working capital over and above this amount. AES provided Letter of Comfort to GRIDCO promising assistance to the CESCO management in raising funds for working capital, which never happened. GRIDCO took CESCO to court for violation of escrow arrangements as, instead of paying fully for the bulk supply bill, CESCO was diverting part of the money for payment of salaries. OERC intervened and directed CESCO to do its job of distribution properly. In July 2001, AES sought GRIDCO's permission to sell its stake in CESCO to a third party or to GRIDCO. However, this was against the shareholders agreement, which provided for a lock-in-period of five years ending on 31 March 2004. CESCO's overdues to GRIDCO have reached Rs 577 crore including the initial cash accommodation of Rs 174 crore. AES management abandoned its responsibility from CESCO and disappeared. OERC appointed an Administrator to run CESCO. Similar arrangement continues till date. OERC is trying to induct a new management and is hopeful of succeeding. CESCOs peak load is of the order of 676.22 MW. There is no power shortage. Therefore, no load shedding is resorted to. Energy requirement is around 4000 MU on an average per year. There were 20 cases of power failure in 2004-05 with an average restoration time of 12 hours. Average number of interruptions per month was five. There were 182 cases of distribution transformer failure with an average restoration time of four hours in the urban areas and 24 hours in the rural areas. Distribution loss was of the order of 41.49 per cent in 2004-05. The progress of metering till the end of 2004-05 was as under: 100 per cent in respect of industrial consumers and commercial HT consumers;
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State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs 95 per cent in case of commercial LT consumers; 86 per cent in case of domestic consumers; and 38 per cent in case of agricultural consumers. The company has not made any estimate of the revenue loss on account of theft or commercial and technical losses. However, in 2004-05, 3,721 raids were conducted and penalty amount of Rs 4.353 crore was collected. IMPACT OF REFORMS ON NESCO, WESCO AND SOUTHCO The three DISCOMs, i.e., NECSO, WESCO and SOUTHCO, are owned by Reliance Energy Limited (REL) Brief Profile of DISCOMs
Particulars Area covered (sq. km) Population (Lakh) Consumer (Lakh) Primary sub-station (No.) Distribution sub-station (No.) 33 kV line (ckt km) 11 kV line (ckt km) No. of employees NESCO 28,000 91.8 4.44 104 10,678 1,833 11,256 3,918 WESCO 48,000 94 4.66 108 10,744 2,673.5 15,560 5,014 SOUTHCO 47,000 87.1 4.4 115 9,046 2,822.32 12,330.87 3,959

Management of DISCOMs Three DISCOMs commenced operations from 1 April 1999 with the requisite distribution Licenses from OERC. 51 per cent of equity share capital of each DISCOM is held by REL (formerly BSES Limited) and its associate companies. Each DISCOM is managed by a Board of Directors as per the following compositions: Nominees of REL and its associates 5 Nominees of GRIDCO 3 Total 8 Chairman (non-executive) of each DISCOM is nominated by GRIDCO. CMD, GRIDCO, is the Chairman of all the three DISCOMs. CEO/MDs are nominated by REL, Mumbai.

Power Sector Scenario Prior to Reform Weak technical/network system;


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Orissa

Very high T&D losses: 44 per cent as against declared value of 32 per cent; Commercial inefficiency: which resulted in accumulating unrealistic receivables on the books; AT&C losses: around 55 per cent; Lack of commercial orientation; Manual accounting system and lack of control and checks on billing hardware and software; and Unreliable power supply and lack of consumer services support. Subsidy/grant from Government of Orissa amounting to Rs 250 crore (in 1996).

All these resulted in huge revenue losses to OSEB. Post-Reform Difficulties Faced Up-valuation of assets by over Rs 2,000 crore (128 per cent) resulted in increase in BST by 24 paise per unit (cumulative financial impact Rs 590 crore); Unrealistic determination of distribution loss level targets in retail tariff structuring. Retail tariff set at 32 per cent distribution loss level against actual loss level of 42 per cent (cumulative financial impact Rs 358 crore); Non-recognition of collection efficiency. Retail tariff set at conventional distribution loss level target without considering collection efficiency component (i.e., the AT&C Loss concept); Retail tariff set with negative clear profit for consecutive seven years, which resulted in financial sickness of DISCOMs; Billing to ghost consumers and bogus receivables; Excess manpower and inadequate qualified staff; The State Government withdrew subsidy support to the DISCOMs.The support was to the tune of Rs 250 crore per annum; Non-payment of outstanding dues (amounting to over Rs 170 crore) by Government departments/PSUs; Delay in receipt of the World Bank fund aggregating Rs 326 crore. This led to non-achievement of desired result for reduction in technical losses; Delay in receipt of funds under Accelerated Power Development and Reforms Programme (APDRP) for capex;
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Study on `Impact of Restructuring of SEBs

Stringent escrow mechanism, which resulted in poor maintenance of network. As a result, quality of power supplied to consumers was adversely affected; Non-existence of special courts as envisaged in the EA, 2003; No retail tariff hike for the last six years, which resulted in absorbing the inflation and other rise in the costs of DISCOMs. There is always paucity of funds with the DISCOMs for expenditure on O&M of the distribution system; and DISCOMs are operating in an extremely negative business environment.

IMPACT OF REFORM APPROACHES Performance of DISCOMs


Performance of WESCO
Parameters Energy input (MU) Energy billed (MU) Billing (Rs crore) Collection (Rs crore) Collection efficiency (%) T&D loss (%) AT&C loss (%) 1999-00 2,688 1,501 417 348 83 44 53 2000-01 2,868 1,639 467 364 78 43 55 2001-02 2,979 1,596 509 400 9 46 58 2002-03 3,354 2,069 620 527 85 38 48 2003-04 3,789 2,408 674 582 86 36 45 2004-05 4,003 2,530 712 679 95 37 40

Performance of NESCO
Parameters Energy input (MU) Energy billed (MU) Billing (Rs crore) Collection (Rs crore) Collection efficiency (%) T&D loss (%) AT&C loss (%) 1999-00 2,258 1,270 309 215 70 44 61 2000-01 2,436 1,357 343 278 81 44 55 2001-02 2,303 1,128 316 233 74 51 64 2002-03 2,395 1,405 384 315 82 41 52 2003-04 2,645 1,491 379 356 94 44 47 2004-05 2,964 1,874 476 461 97 37 39

Performance of SOUTHCO
Parameters Energy input (MU) Energy billed (MU) Billing (Rs crore) Collection (Rs crore) Collection efficiency (%) T&D loss (%) AT&C loss (%) 1999-00 1,433 833 220 170 77 42 55 2000-01 1,523 875 235 190 81 43 54 2001-02 1,520 906 264 206 78 40 53 2002-03 1,556 947 280 228 81 39 50 2003-04 1,607 925 272 236 87 42 50 2004-05 1,608 960 295 270 92 40 45

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Orissa

Savings of Government of Orissa after Restructuring of OSEB


Description Sale proceeds from sale of: (a) TTPS to NTPC (includes benefits of revaluation) (b) 49 per cent equity divestment in OPGC to AES (c) 51 per cent equity divestment in four DISCOMs to the private sector Savings in subsidy support Electricity Duty/Inspection Fees Dividend from OPGC Total Rs crore 1,118 356 603 159 4,430 927 441 6,916

Besides the above, Government of Orissa has been benefited by Rs 2,000 crore by upvaluation of GRIDCO and OHPC assets, thereby resulting in total saving of around Rs 8,916 crore after privatisation of DISCOMs. Assessment of performance of DISCOMs by OERC is at Annexures-I to III. CONTRIBUTIONS AND ACHIEVEMENTS OF DISCOMS Streamlined billing function; Installed more than 6.5 lakh consumer meters; Appointed franchisee for collection of revenue from rural areas; Formation of squads for collection of outstanding dues from consumers and for de-hooking the unauthorised connections; Re-structuring and re-organisation of circles, divisions, sub-divisions for effective monitoring and enhancing efficiency; Introduced spot billing; Enhanced vigilance activities; Installation of meter cubicles, XLPE cables and check meters to curb theft in HT category and appointment of security guards for vigilance; Full payment of BST bills since April 2002 and payment through letter of credit (L/C) since January 2004; Payment of salaries, O&M expenses and ad-hoc instalment payment of Rs 110 crore to NTPC by WESCO, NESCO and SOUTHCO. Besides, three DISCOMs made ad-hoc payment of Rs 130 crore to GRIDCO against the past outstanding dues; Meter reading through meter reading instrument (MRI);
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Study on `Impact of Restructuring of SEBs

Strengthened manpower by inducting personnel in technical, finance, commercial and HR disciplines; Better consumer services through creation of Bijli Adalats/Grievance Redressal Forum; and Collection of three DISCOMs has increased from Rs 760 crore in 1999-2000 to Rs 1,560 crore in 2005-06. BST Bill, Collection and Payment to GRIDCO (Rs crore)
1999-00 WESCO NESCO SOUTHCO Total WESCO NESCO SOUTHCO Total Payments Payment as % of BST bill 348 244 168 760 346 286 182 814 576 71 2000-01 2001-02 2002-03 526 310 227 1,064 453 298 194 945 932 99 2003-04 582 356 242 1,180 509 330 201 1,040 1036 100 2004-05 679 451 268 1,398 543 363 202 1,108 1137 103 COLLECTION 364 400 276 228 190 206 830 833 BST BILL 402 424 295 320 189 198 886 942 BST payment 808 710 91 75

FEEDER AND DISTRIBUTION TRANSFORMER METERING


No. of Meters Particulars To be installed 87 417 12,975 52 393 12,199 159 416 9,302 Installed till March 2005 Balance to be installed Installed during 2005-06 Balance to be installed

WESCO
33 kV feeders 11 kV feeders Distribution transformers 33 kV feeders 11 kV feeders Distribution transformers 33 kV feeders 11 kV feeders Distribution transformers 87 417 11,631 1,344 2 13 974 104 12 444 537 2 13 226 84 12 331 807 748 20 113

NESCO
50 380 11,225

SOUTHCO
55 404 8,662

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Orissa

ISSUES In the interest of consumers of the State, the Government of Orissa should come forward to accept the one time settlement (OTS) scheme of Government of India as recommended by Ahluwalia Committee for conversion of Rs 400 crore bonds issued in favour of NTPC. The interest rate will be reduced from 12.5 to 8.5 per cent and incentive of Rs 83 crore could be received from NTPC. Apart from the above, there will be a longer period of repayment of the said loan, which will improve the present financial liquidity. OERC is also recommending time and again for the same. As DISCOMs are ready to pay upfront the equivalent amount in cash by availing loan from banks, Government of Orissa as well as GRIDCO should agree on the terms and conditions put by the bank. If it will not be accepted, there will be requirement of tariff hike of 21 paise per unit, which can be avoided without any burden to the consumers of the State. APDRP Cash Incentive component to the tune of Rs 52 crore to be passed on to DISCOMs. Securitisation of outstanding dues of GRIDCO (BST and outstanding loan), which is already reconciled with GRIDCO with practicable moratorium and repayment period. Continuation of 30 per cent grant under World Bank Loan in line with the Government of Orissa notification and the interest to be charged on the loan portion at the rate at which the State Government received from Government of India. Establishment of special courts for speedy disposal of the electricity theft cases. As law and order are the duties of the State, Government of Orissa should bear the cost of establishment and operation of such courts and police stations.

IMPROVEMENT IN PERFORMANCE OF DISCOMS Reduction in AT&C Losses The DISCOMs have substantially reduced AT&C losses through various measures. a. Details of reduction of AT&C losses achieved by the three DISCOMs are as follows:

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Study on `Impact of Restructuring of SEBs


2006-07 (Estimated) 40 38 45 Reduction (%age points) 17 26 11

DISCOM WESCO NESCO SOUTHCO

2002-03 57 64 54

2003-04 47 51 50

2004-05 46 49 50

2005-06 41 41 46

Improvement in Cash Collection vis--vis BST Bill The three DISCOMs substantially improved the cash collection from Rs 760 crore in FY 1999-2000 to Rs 1,410 crore in 2004-05. The details of cash collection vis--vis BST bills of last six years are given below: (Rs crore)
2000-01 Total TOTAL BST payment Payment as % of BST bill Surplus over BST 760 814 576 71 2001-02 2002-03 2003-04 2004-05 1,180 1,040 1,040 100 140 2005-06 1,410 1,100 1,137 103 273 2006-07 (Estimated) 1,560 1,180 1,277 108 283 COLLECTIONS 830 834 1,063 BST BILLS 886 942 945 808 710 932 91 75 99 131

Establishment of Letter of Credit Since January 2004, three DISCOMs are making payment of bulk supply energy bills to GRIDCO through LC. These DISCOMs have established irrevocable LC of Rs 98.50 crore for payment of full bulk supply energy bills to GRIDCO. Surplus to GRIDCO/NTPC (a) The three DISCOMs together made a payment of Rs 111 crore to GRIDCO/NTPC against the Bonds in the last 20 months. (b) In addition to the above, the three DISCOMs made ad-hoc payment of Rs 130 crore to GRIDCO against the past outstanding dues. (c) After meeting all the escrowed commitments, DISCOMs are incurring necessary operation and maintenance expenses for maintenance of distribution network besides paying salary to more than 12,000 employees on time. This speaks of a substantial improvement in quality and supply of power.

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Orissa

Improvements in Technical Performance Feeder, Distribution Transformer and Consumer Metering In order to reduce distribution losses and to control theft of electricity, the three DISCOMs together installed over 1,400 feeder meters and over 31,000 distribution transformer meters. This has enabled the DISCOMs to take up energy audit. Consumer metering Prior to 1999, i.e., before privatisation of the distribution sector in Orissa, more than 70 per cent of the households were either having defective meters or no meters at all. The billing was done based on the load factor basis. Immediately after taking over the distribution function, the three DISCOMs introduced a meter installation drive and installed over 6.5 lakh consumer meters. This has helped DISCOMs to improve billing and collection and bring about a reduction in AT&C losses. Quality of Service The quality of service and customer care has considerably improved since power sector reforms were initiated. This is clear from the table given below:
Pre-reform Distribution transformer failure rate (%) Consumer redressal rate (%) Time taken for release of new service connection 24 75 60 days Post-reform 9 95 7 days

Centre for Multi Disciplinary Research findings. Process Improvements

(CMDR) has also confirmed the above

The DISCOMs have initiated several business process improvement initiatives covering all aspects of the revenue cycle. Organisational Restructuring: The DISCOMs have reorganised circles, divisions and sub-divisions for effective monitoring and enhancing efficiency. A pilot project on feeder management concept is being carried out in one division having predominantly LT consumers.

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Meter Reading and Spot Billing: The DISCOMs have introduced reading of consumer meters through meter reading instrument (MRI) and initiated spot billing in some of the divisions. On account of this initiative, billing errors have been substantially reduced and consumer reach has also been increased. Installation of Metering Cubicles, Check Meters and XPLE Cables: The three DISCOMs together installed over 500 metering cubicles at the premises of the industrial consumers along with check meter, XLPE cables and automatic meter reading (AMR) to arrest theft of power. Large scale meter checking, installation of metering cubicles, AMRs and audit metering have helped to reduce the losses significantly. To control and deter theft of electricity, the DISCOMs are providing watch and ward services at metering installations in theft prone areas. Consumer Care Centres For speedy redressal of consumer grievances, DISCOMs have taken several initiatives.. WESCO and SOUTHCO have established consumer care centres while NESCO has set up mobile fuse call centres in four divisions. Three DISCOMs have created Grievance Redressal Forums for quick redressal of consumer grievances. Recruitment Perhaps in the whole of Orissa, the three DISCOMs were the largest recruiters in 2005-06. The DISCOMs have strengthened manpower by inducting personnel in technical, finance, commercial and HR disciplines. Around 1,550 personnel including 1,400 GET/DET/ITIs have been recruited for revenue improvement initiatives and maintenance of the network system. In addition, the three DISCOMs together outsourced various activities for performance improvement. Besides these measures, employees are also sponsored on a regular basis to in-house training institute at Mumbai and ASCI, Hyderabad.

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Orissa

VIEWS OF THE STATE GOVERNMENT ON IIPA QUESTIONNAIRE 1. The main drivers of power sector reforms in order of priority are as follows: (i) Inability of State sector to finance needed expansion/modernisation.

(ii) Poor performance of SEB in terms of high cost, inappropriate pricing, inadequate expansion, unreliable power supply, etc. (iii) Need to remove subsidies to the sector in order to release the States resources for other priorities. (iv) Attract private sector participation in the sector. 2. The desired outcomes and deliverables of the reforms (in order of priority) are as follows: (i) Better service quality for consumers.

(ii) More affordable access to electricity for consumers. (iii) Improvement in the Governments fiscal position. (iv) Redefining the role of public sector. 3. The financial restructuring implemented through valuation of assets and their transfer to new entities like GRIDCO and OHPC through enactment made by the State Government. However, in case of privatisation of distribution system it was transferred through transfer scheme, to bidders selected through competitive bidding. The existing liabilities of OSEB were settled through transfer of the same to the books of the new entities. Details of Government support (a) Equity - Rs 793 crore (GRIDCO Rs 493 crore + OHPC Rs 300 crore) (b) Guarantee - About Rs 1,700 crore to GRIDCO and OPTCL. (c) Subsidy - Nil (d) Loans - Rs 704 crore (GRIDCO, Rs 180 crore - OHPC, Rs 524 crore) (e) APDRP incentive component - Nil (f) Any other firm support - State Government have issued bonds to the extent of Rs 1,102.87 crore to NTPC towards power purchase cost of GRIDCO.

4. 5.

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6.

The State is surplus in power and there is no statutory power cut in the State since 1993.

There has been no tariff hike since 2001. BENEFITS OF POWER SECTOR REFORMS (Comments of the Member of the Group of Experts are given in bold letters within brackets) (i) Consequent to power sector reforms, T&D losses have been brought down from 50.6 per cent in 1995-96 to about 41.4 per cent in 2004-05.

(ii) Tariff is determined by an independent agency, namely Orissa Electricity Regulatory Commission after a process of public hearing. Although there was some increase in retail tariff in the initial years of reform, this was much less compared to the tariff hike in pre-reform period. There has been no revision in retail tariff since 1 February 2001. The tariff in Orissa is one of the lowest in the country. (iii) The power deficit scenario in the State has been transformed to a power surplus one during the post reform period. Orissa is now selling power to States like Haryana, Rajasthan, Gujarat, Maharashtra, Chhattisgarh, Punjab, etc., through PTC and NTPC Vidyut Vyapar Nigam. (iv) Each year, the State Government was providing huge subsidy to OSEB prior to Reform. This has been stopped since 1 April 1996. (v) As a result of reform, the State power Utilities could mobilise resources from financial institutions for investment in power sector. Upper Indravati Hydro Electric Project with a capacity of 600 MW was commissioned in 1999-2000 after the reform was undertaken with loan assistance from PFC. (vi) The three DISCOMs, namely WESCO, NESCO and SOUTHCO are able to pay monthly BST in full for the last three years. The fourth DISCOM, namely CESCO, is paying the monthly BST in full from April 2005 onwards. (But the first three companies are taking escrow relaxation from GRIDCO for payment of salaries. In other words, GRIDCO has been paying salaries to 75,000 employees.) (vii) Disinvestment of 49 per cent of Government share in OPGC has unlocked a substantial amount of funds, which could be utilised for development in other sectors.
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(This amount should have been invested in the power sector.) (viii) OPGC, being exclusively in charge of thermal generation, has been consistently maintaining high PLF above 80 per cent (a performance level comparable to that of NTPC). It had paid dividends amounting to Rs 467.76 crore from 1999-2000 till 2004-05 to the State Government after privatisation. (ix) OHPC, being exclusively in charge of hydro power stations, could give undivided attention and bring back the two units at Burla to operation after renovation. (They are not allowed to charge extra for picking power by the OERC.) (x) OHPC and OPGC, which are exclusively looking after hydro and thermal generation of power respectively, are now profit-making Corporations of the State. (GRIDCO has cleared its dues to OPGC.) (xi) TTPS, after being taken over by NTPC in 1995, is now operating at a PLF of 75.1 per cent, whereas, prior to restructuring, it never operated beyond 30 per cent PLF. (xii) Outsourcing of meter reading and disconnection of services of defaulters were possible due to privatisation. (This is more true in case of CESCO than the other three DISCOMs.) (xiii) Orissa is one of the few States where 24 hours power supply has been maintained. Stabilisation of GRIDCO The transmission business, which is under GRIDCO, a State PSU, has turned around: (xiv) GRIDCO has earned a profit of Rs 411 crore in 2003-04 and Rs 182 crore during 2004-05. (xv) GRIDCO has traded power worth Rs 638 crore and Rs 1130 crore during 200304 and 2004-05 respectively. (xvi) GRIDCO has paid the current dues to the generating companies and financial institutions in full from October 2003 till date. It has saved interest to the tune of Rs 80 crore per annum through swapping of high cost borrowings. (xvii) GRIDCO has prepaid to Government of Orissa during 2004-05 towards IBRD Loan (Principal).
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(xviii) GRIDCO has completed Meramundali-Chandaka-Bidanasi line, ensuring an alternative source of power supply to Bhubaneswar and Cuttack areas. It has commissioned 100 ckt km of 400 kV D/C line, 91 ckt km of 220 kV D/C line, 64 ckt km of 132 kV D/C lines and three No. of 220/132 kV sub-stations, four No. of 132/33 kV sub-stations improving the quality of power supply in the State during the last two years. The above has been achieved in spite of no increase in bulk supply tariff from 200102 except for 15 per cent upward revision in the current year and without any subsidy or budgetary support from the Government of Orissa. Stabilisation of Distribution Companies. The distribution companies (DISCOMs) have stabilised and the following features are worth mentioning: (xix) The DISCOMs have streamlined billing function, installed more than 6.5 lakh consumer meters, metering cubicles, XLPE cables and check meters have been installed to arrest theft in HT category consumers. Security guards for vigilance have been appointed. (But the DISCOMs are not collecting the old dues. Further, arrears are mounting. They have defaulted to GRIDCO in loan repayment.) (xx) 33 kV and 11 kV feeder metering has been completed. Metering of 33/11 kV transformers and distribution transformers is under progress. (The DT metering needs to be expedited.) (xxi) DISCOMs have formed squads for collection of outstanding dues from consumers and for de-hooking. They have introduced spot billing, enhanced vigilance activities and are conducting meter reading through hand held meter reading instruments. Energy audit is being implemented. (This is more true of CESCO than the other three DISCOMs.) (xxii) Better consumer services through establishment of consumer grievance redressal forum/consumer care centres have been provided. Stabilisation of Thermal Power Generation (xxiii) OPGC is a successful company in the thermal power generation sector and has been performing consistently at high PLF (about 85 per cent during 2004-05). It has paid a dividend of Rs 467.76 crore to the State Government from 1999-2000 to 2004-05.
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(xxiv) Substantial progress has been achieved in conceptualisation and formulation of strategic business plan for capacity addition through setting up of two more units of 250 MW each. (Disputes between OPGC and the State Government about the sale of power are holding up further developments.) Stabilisation of Hydro power generation (xxv) As part of creating additional generation capacity and also to increase its profitability the following measures have been taken up by OHPC:

Completion of Upper Indravati Hydro Electric Project (Capacity 600 MW); Renovation and Modernisation of Units-I and II, III and IV of Burla (40 MW); and Started construction of Balimela Extension Project (which would provide peak capacity of 150 MW).

(In drought years OHPC is allowed to charge fixed costs in spite of generation shortfalls. Therefore the OERC does not allow peaking tariff in surplus years.) (xxvi) OHPC has recorded highest generation 6868 MU during 2004-05. (OHPC continues to remain dependent on the monsoon, particularly in respect of the hydro-stations located in south Orissa.) (xxvii) OHPC has made a profit of Rs 64.08 crore during 2004-05. Lastly, some of the issues emanating from privatisation experience, which are areas of concern, are mentioned below: Issues and Concerns Regarding Privatisation (i) The Shareholders Agreement between the BSES limited (now taken over by Reliance Energy Limited) and GRIDCO expired in March 2004. Despite persistent reminders by GRIDCO and the State Government, Reliance Energy Ltd has not come forward to extend the Shareholders Agreement beyond March 2004. One of the clauses in the Shareholders Agreement provided that the investor should endeavour to obtain further finances to meet the financial requirements of the DISCOMs. Due to non-signing of the Shareholders Agreement, there is no obligation on the part of the shareholders namely Reliance Energy Ltd. to bring in additional finance to support the distribution companies under its management.
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(ii) The repair and maintenance activities undertaken by the DISCOMs leave much to be desired. Although the Regulatory Commission allows 5.4 per cent of the gross fixed assets (at the beginning of the year) to be recovered through tariff, towards R&M expenses, the distribution companies do not spend the required sum. This has resulted in inadequate maintenance of lines and substations. (iii) In the business plan, the Regulatory Commission has fixed a benchmark for reduction of distribution loss by three per cent each year till 2007-08. The DISCOMs are required to achieve this loss reduction. In the event of failure by the DISCOMs to achieve this loss reduction, the investor should come forward to provide necessary fall-back arrangement/arrange necessary funds to pay to GRIDCO towards BST dues and other loan repayments. This has not happened because the investor is unwilling to invest any fresh capital in the sector. (iv) As on 31 March 2005, the liabilities of the DISCOMs were as follows: Rs 1,291.99 crore to GRIDCO as outstanding BST dues; and Rs 1,535.63 crore towards loan repayment of PFC/REC and World Bank relating to distribution assets transferred to the distribution companies.

GRIDCO being a commercial entity is unable to find ways and means for payment to the generating companies like NTPC, OHPC and repayment of its loan to financial institutions. The investor should have arranged funds to ensure liquidation of arrear liabilities of the DISCOMs to GRIDCO, as the DISCOMs are unable to repay the dues to GRIDCO from their own income. (v) During the super cyclone in 1999 there was substantial damage to the distribution system in the State, specifically in the coastal areas. There was inordinate delay in rehabilitation of the distribution system in the affected villages. Even today, there are 75 villages in the coastal areas of the State, where electricity distribution network has not yet been restored. This has created adverse criticism from all concerned about the working of DISCOMs as well as the reform process. (Bulk of the arrear dues in these areas needs to be written off.) (vi) There is reduction of only 10.16 per cent in AT&C losses during 2000-01 to 2004-05 by the distribution companies, which is not up to the mark. (vii) The entire funding of distribution business has been financed through default in payment of monthly BST bills/instalment of interest and principal payable to GRIDCO. In the process, GRIDCOs financial position has deteriorated substantially.
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Orissa

(Injection of capital to strengthen the distribution system launching a special drive to collect arrear dues and introducing energy audit at all levels are the urgent needs.) Action taken on the Kanungo Committees Report Government of Orissa had constituted a Committee of Independent Experts to review Power Sector Reforms in Orissa on 30 May 2001. This Committee, known as the Kanungo Committee, had submitted its report to the State Government on 2 November 2001. After taking into consideration the recommendations of the Committee of independent experts and the correctives suggested by OERC, the State Government issued orders on 29 January 2003. The salient points are as follows: (i) The effect of up-valuation of assets of OHPC and GRIDCO indicated in Notification No. 5210 dated 1 April 1996 and No. 5207 dated 1 April 1996 would be kept in abeyance from 2001-02 prospectively till 2005-06 or the sector achieves a turnaround, whichever is earlier, to avoid re-determination of tariff for past years and also re-determination of assets of various DISCOMs. For this purpose, depreciation would be calculated at pre-1992 norms, notified by Government of India.

(ii) Moratorium on debt servicing by GRIDCO and OHPC to the State Government would be allowed from 2001-02 till 2005-06 except the amount in respect of loan from the World Bank to the extent the State Government is required to pay to the Government of India. (iii) The outstanding dues payable to OHPC by GRIDCO till 31 March 2001 on account of power purchase would be securitised through issue of Power Bonds by GRIDCO to OHPC. (iv) GRIDCO and OHPC shall not be entitled to any Return on Equity till the sector become viable on cash basis, or 2005-06, whichever is earlier. (v) Under conditions of normal hydro availability and the State becoming surplus in power, GRIDCO may take steps for export of power to other States. GRIDCO would take steps to procure cheap power from CPPs like NALCO and ICCL. OHPC and OPGC may be allowed to undertake third party sale outside the State, subject to permission from appropriate authorities.

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(vi) OERC would consider implementation of multi-year tariff (MYT) framework, which would help the utilities like GENCO, GRIDCO and DISCOMs to embark upon long-term business plans. (vii) The World Bank loan would be passed on by the State Government to GRIDCO and DISCOMs as 70 per cent loan (@ 13 per cent interest per annum). The balance 30 per cent would be as a grant. (viii) Tax-free bonds @ 8.5 per cent interest would be guaranteed by the State Government for PFC and REC loans. (ix) There shall be five per cent overall reduction of distribution losses every year from 2002-03 to 2005-06 bench-marking the starting distribution loss of 42.21 per cent in 2001-02. (x) Collection efficiency of revenue to be calculated as 85 per cent for the financial year 2001-02 reaching 95 per cent in 2005-06. (xi) Aggressive feeder metering in LV side of distribution transformers should be made within 12-18 months to identify loss prone areas. OERC would be requested for compliance of the same by the DISCOMs. (xii) Swapping of Government dues from GRIDCO against dues to GRIDCO from Government and balance receivables, if any, be settled. (xiii) Suitable budgetary provisions be made after actual verification for payment in full of the electricity dues to GRIDCO/DISCOMs against various Departments of the State Government. Such dues could be paid directly to the OHPC Ltd and the books of accounts of the concerned DISCOMs and GRIDCO adjusted as paid and received. (xiv) Government would exempt water cess on the volume of water used by OHPC for generation of electricity. (xv) GRIDCO is also advised not to initiate new contracts unless the position is reviewed by its board of directors and approved by the Energy Department. (xvi) GRIDCO should take prompt and effective action for payment of interest towards World Bank loan. In case of default, this should be adjusted out of any release to GRIDCO. (xvii) A year-wise target of reduction of cash losses should be fixed and monitored.

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Orissa

REFORMS PROCESS IN TWO STATES COMPARISON BETWEEN DELHI AND ORISSA Delhi could avoid the pitfalls as it had taken note of the Orissa experience. Government stopped supporting the power sector as soon privatisation took place in Orissa. In Delhi, the Government remained committed to the success of reforms with a five year committed support of Rs 3,450 crore. In Orissa, the loss levels were not realistically assessed. In Delhi, the concept of AT&C losses reduced the scope of base line data errors. Realistic loss figures, duly approved by the Commission, provided comfort to the investors. In Orissa, there was absolutely no support from the commercial lenders. The promoter companies namely M/s AES and Reliance Energy Ltd refused to pump in even the working capital into the sector. In the case of Delhi, there is fund assurance under APDRP and from the PFC. The bidding structure assures guaranteed returns, which facilitates commercial loan availability. In Delhi, the non-serviceable liabilities were retained in the holding company. Only the serviceable liabilities were transferred to the DISCOMs. In Orissa, the receivables were very high. In the absence of audited data, bad debts were not allowed by the Commission. In Delhi, the past receivables were to the account of the holding company. In Delhi, DISCOMs were given an incentive of 20 per cent for collecting the past dues. (In Orissa it is 50 per cent but DISCOMs have not shown desired interest in collecting the past dues.) There was no Regulatory involvement in Orissa, whereas in Delhi there was full involvement leading to greater practical orientation in decision-making. There have been problems with audited accounts not being available both for Orissa as well as Delhi. But in Delhi, clear balance sheets were assured to the DISCOMs. The business valuation approach mitigated the risk of asset valuation. In Orissa, the assets were revalued at high levels prior to the bidding process. This created serious problems, which the Kanungo Committee report sought to remedy. The State Government agreed to keep the revaluation in abeyance till 2005-06.

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In Delhi, the assets were valued through a business valuation process, based on revenue earning potential. This ensured a sustainable level of liabilities. OERC AND THE DISCOMS Orissa has four DISCOMs. Of these, CESCO, abandoned by M/s AES, is going to be handed over to a new investor company. As regards the other three DISCOMs, viz. NESCO, WESCO and SOUTHCO, which are with Reliance Energy Ltd, the OERC has asked them to show cause as to why their distribution licenses should not be suspended. This is because of the refusal of the promoter company, Reliance Energy Ltd, to bring in investment required for system improvements in distribution segment. The three DISCOMs have also been resisting renewal of the Shareholders' Agreement. It is understood that the DISCOMs have gone on appeal to the Appellate Authority in Delhi. Thus, the entire distribution business in Orissa is mired in uncertainty. All the DISCOMs have shown some progress in metering, billing and collection. They are paying the BST bill of GRIDCO and are also able to pay salaries. But they are yet to clear Rs 1,000 crore of loans and about Rs 1,200 crore of old electricity dues. There has been no retail tariff revision during the last five years. Only recently, BST has been revised upwards by 15 per cent but no increase has been allowed by the OERC in retail tariff. The OERC apparently thinks that the DISCOMs should collect old arrears to the tune of Rs 2,000 crore and also reduce the losses (one per cent improvement in T&D loss indicates additional collection of about Rs 43 crore). It is interesting to note that the State Government has not opposed the revision of tariff. The law enforcement machinery seems to think that it should not get involved in the matter of collection of dues of the private companies although even now 49 per cent of stake in the DISCOMs is held by a para-statal entity. It is one thing to have a dispensation in place, it is yet another thing to ensure that it works. The neighbouring States of West Bengal and Andhra Pradesh seem to have fared much better in this regard. A special collection drive needs to be undertaken throughout the State in order to recover the past dues. One time settlement of the long pending dues of consumers could be taken up through holding of Bijli Adalats. Penal dues could be waived off for those who pay their arrears at one go.

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Although T&D loss has come down from more than 50 per cent to around 40 per cent, this is still above the permissible limit. Significant T&D loss reduction could be achieved if fresh investments are made by the DISCOMs. CONCLUSIONS Orissa was the first State in the country to go in for reforms in the electricity sector in a big way. OERC was the first Electricity Regulatory Commission. Restructuring of the sector was taken up in right earnest. Separating hydro and thermal generation was a good idea, leading to the setting up of the OHPC. Selling TTPS to NTPC, partially privatising OPGC and creating the transmission company called GRIDCO were right steps. The only problem was the absence of transmission sector management and overall planning for the power sector. Privatisation of the distribution segment into four DISCOMs was done in a hasty manner, without proper assessment of the parameters. Government should not have withdrawn from the scene at one go. Assets were over-valued. This was corrected by the Kanungo Committee by postponing the revaluation of assets by five years, which is just over. Such revaluation should be postponed by another five years, as recommended by the OERC. DISCOMs have project related liabilities to the extent of Rs 660 crore. They are not making any payment to GRIDCO in this regard. They will have to do it by increasing their collection efficiency. Arrear receivables Rs 1,500 crore including delayed payment surcharge (DPS) remains payable by the DISCOMs. If the DISCOMs collect old dues, 50 per cent can be retained by them and the other 50 per cent will have to be paid to GRIDCO. If each bill is scrutinised it will be found that there are lot of bogus and un-collectable dues. This can be written off. The super cyclone of 1999 caused severe damage to the distribution infrastructure in the coastal areas. In the absence of privatisation the bill for restoration works would have been paid by the Government. But nothing was paid from the Calamities Relief Fund. Many of the consumers have disappeared. In quite a few villages, even restoration work has not been done. A lot of dues relating to the coastal districts will have to be written off after proper scrutiny.

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The four DISCOMs should arrange funds from the banks duly guaranteed by the respective promoter companies in order to take up capital improvement works. With this they can avail of APDRP benefits. Only CESCO is doing it. Dues of the State Government as well as PSUs amount to Rs 250 crore. A special reconciliation drive should be undertaken with the initiative of the State Government and prompt payment made. For the last five years, there has been no revision in retail tariff because the cost of electricity came down as a result of the postponement of asset revaluation and because of the CERC's tariff orders relating to NTPC. It is high time to go in for revised tariff particularly when bulk supply tariff of GRIDCO has been revised upward by 15 per cent recently. Depreciation calculations should be on the basis of the life of the asset, which will have a favourable impact on the tariff. This should be done in preference to calculating depreciation for recovery of 90 per cent of the total investment in 12 years. Government of India should ease the norms for raising loans from PFC and REC by the privatised distribution companies. Second mortgage of assets should be permitted. Special courts are yet to be set-up for trying cases of electricity theft. Only three out of 30 police stations have come up. The State Government should undertake both the responsibilities immediately. Even the OERC has permitted the cost of setting up of special courts estimated at Rs 8 crore to be paid from the system and to be passed on to the tariff. In case of low hydro availability, GRIDCO is required to purchase high cost power from other sources. This should be subsidised from the Calamities Relief Fund. The problem arose in 2002-03 when GRIDCO had to spend additional Rs 600 crore for purchase of alternative power. The Government of Orissa has decided to pass on the World Bank loans to GRIDCO and DISCOMs as 70 per cent loan (@ 13 per cent interest) and 30 per cent as a grant, but this decision is yet to be implemented. This should be done immediately. The Deepak Parekh Committee had recommended setting up of a Power Sector Reforms Fund (PSRF). The OERC has recommended setting up of such a fund. Last year, the State had a record collection of Rs 320 crore of electricity duty.
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Over a period of time, such a fund can be created by crediting all the duty collected. Money raised through divestment of the States share should also be credited to this fund. The equity of NTPC stations is being computed as 50 per cent of the total investment where as the actual equity comes to below 30 per cent. This should be realistically calculated so as to have a favourable impact on the tariff. The DISCOMs have neglected the task of rural electrification. OHPC should be encouraged to take up new projects like Sindhol I, II and III as run-of-the river schemes on the Mahanadi. A pump storage project should be set up below the Indravati dam. NHPC could collaborate with OHPC. OHPCs dues should be cleared by GRIDCO. With an improved balance sheet, OHPC can be partially privatised, which could generate substantial funds for further investment. The State Governments share in the OPGC should be brought down from 51 to 26 per cent. Even now the OPGC is not under the management control of the State Government. Consumer grievance redressal mechanism should be strengthened in all the four DISCOMs. There is an acute shortage of technical manpower at all levels. This should be promptly remedied by GRIDCO, OHPC and all the DISCOMs.

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FINANCIAL PERFORMANCE OF UTILITIES Financial Performance of CESCO


(Rs in million) Particulars I Revenue from sale of power Non-operational/other income Total revenue Purchase of power Repairs and maintenance Salaries and wages Administrative and general expenses Net prior period credit/charges Total cash operating expenditure Surplus after cash operating exp. (EBITDA)(I-II) Provision for bad and doubtful debt Depreciation Interest and financial charges Less: interest and financial charges capitalised Taxation Profit/(Loss) after tax 2000-01 4,326 232` 4,855 4,536 1,544 2001-02 5,844 208 6,051 5,109 1,076 2002-03 6,381 227 6,608 5,748 1,328 2003-04 6,669 250 6,919 5,306 1,371 2004-05 6,849 89 6,938 5,189 1,477 2005-06 6,910 58 6,968 5,164 1,433

134 6,214 (1,359) 195 261 0 0 0 (1,815)

10 6,194 (143) 221 329 360 0 0 (1,052)

86 7,162 (554) 278 365 336 (39) 0 (1,493)

1,227 7,904 (985) 317 395 357 (48) 0 (2,006)

143 6,809 129

3 6,600 368

II III IV V VI VII VIII IX

404 353 0 (629)

467 308 0 (409)

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Financial Position of NESCO


(Rs in million) Particulars I Revenue from sale of power Non-operational/other income Total revenue Purchase of power Repairs and maintenance Salaries and wages Administrative and general expenses Net prior period credit/charges Total Cash Operating Expenditure Surplus after cash operating exp. (EBITDA)(I-II) Provision for bad and doubtful debt Depreciation Interest and financial charges Less: Interest and financial charges capitalised Taxation Profit/(Loss) after tax Revenue subsidies and grants Statutory Appropriations 2000-01 3,045 55 3,100 2,865 1,081 2001-02 3,281 165 3,447 2,950 1,273 2002-03 3,011 162 3,173 3,196 1,606 2003-04 3,668 183 3,852 2,982 1,979 2004-05 3,873 178 4,050 3,297 1,464 2005-06 4,614 192 4,806 3,643 1,160

(9) 3,937 (837)

(9) 4,214 (767)

33 4,836 (1662)

1 4,962 (1111)

(5) 4,756 (706)

3 4,806 0 757

II III IV V VI VII VIII IX

173 (70)

301 (41)

301 (42)

276 (54)

83 (14)

145 (9) 0 (893) 0 15

0 (939) 0 9

0 (1,027) 0 11

0 (,1403) 0 12

0 (,1331) 0 13

0 (775) 0 14

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Financial Performance of SOUTHCO
Particulars I Revenue from sale of power Non-operational/other income Total revenue Purchase of power Repairs and maintenance Salaries and wages Administrative and general expenses Net prior period credit/charges Total Cash Operating Expenditure Surplus after cash operating exp. (EBITDA)(I-II) Provision for bad and doubtful debt Depreciation Interest and financial charges Less: Interest and financial charges capitalised Taxation Profit/(Loss) after tax Revenue subsidies and grants Statutory appropriations 2000-01 2,074 33 2,108 1,827 727 (71) 2,483 (375) 2001-02 2,217 91 2,308 1,891 1082 (15) 2,958 (329) 2002-03 2,514 134 2,623 1,983 1189 (30) 3,142 (519) 2003-04 2,652 118 2,786 1,935 1410 (38) 3,307 (521) 2004-05 2,613 114 2,731 2,015 1201 (21) 3,195 (464) 2005-06 2,610 2,725 2,023 916 (129) 2,810 (85)

II III IV V VI VII VIII IX

134 295 190 0 (770) 0 8 (42) 0 (903) 0 10 279 (69) 0 (729) 0 10 253 (55) 0 (719) 0 11 240(41) 0 (663) 0 11

650 117(42) 0 (810) 0 12

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Financial Performance of OHPC


Particulars I Revenue from sale of power Non-operational/other income Total revenue Operational expenses Repairs and maintenance Salaries and wages Administrative and general expenses Net prior period credit/charges Total Cash Operating Expenditure Surplus after cash operating exp. (EBITDA)(I-II) Provision for bad and doubtful debt Depreciation Interest and financial charges Less: Interest and financial charges capitalised Taxation Profit/(Loss) after tax Revenue subsidies and grants 1997 -98 1,378 76 1,454 65 63 280 18 0 254 1,200 1998 -99 1,734 21 1,755 80 73 540 33 12 494 1,260 1999 -2000 1,600 43 1,643 77 129 424 50 87 509 1,134` 2000 -01 2,198 128 2,325 82 126 555 53 (9) 680 1,645 2001 -02 2,338 118 2,456 79 127 521 59 (3) 763 1,693 2002 -03 2,153 55 2,208 77 171 552 51 7 850 1,358 2003 -04 1,714 78 1,792 78 119 544 69 1 795 963 (Rs in million) 2004 2005 -05 -06 2,303 69 2,372 79 145 553 58 27 845 1,527 2,749 268 3,018 83 166 675 59 (25)

II III

IV V VI VII

444 294 (237) 0 699 0

443 1,685 (1645) 0 778 0

447 1,059 (924) 0 552 0

498 1,211 (568) 0 504 0

934 1,142 (108) 0 (274) 0

966 476 (45) 0 (39) 0

1,010 423 (51) 0 (419) 0

1,123 368

1,108

343 (56) 5 57 0 5 590 0

VIII IX

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Financial Performance of OPGC


1997 -98 3,253 52 3,05 784 95 28 0 54 45 (17.3) (98) 890 2,415 404 965 0 0 1,046 338 1998 -99 3,767 43 3,810 950 107 34 35 64 42 111 7 1,351 2,459 812 986 0 0 661 0 1999 -2000 4,057 247 4,304 1,153 159 23 41 77 45 (5) (2) 1,490 2,814 829 857 0 0 1,128 1,471 2000 -01 4,154 411 4,565 1,307 154 40 78 109 78 84 (4) 1,846 2,719 846 631 (2) 0 1,244 735 2001 -02 4,010 170 4,180 1,253 149` 84 40 136 59 30 (1) 1,750 2,430 848 485 (1) 116 983 1,471 2002 -03 3,866 250 4,116 11,551 146 59 0 111 73 1 0 1,545 2,571 837 412 0 101 1,221 1,716 (Rs in Million) 2003 2004 -04 -05 4,515 218 4,733 1,196 92 66 0 124 67 14 0 1,559 3,174 832 369 0 155 1,817 1,471 4,100 131 4,231 1,449 163 72 0 142 122 (11) 0 1,937 2,294 587 231 0 113 1,362 1,128

Particulars I Revenue from sale of power Non-operational/other income Total revenue Raw materials consumption Production expenses Power and electricity duty Rebate to GRIDCO Salaries and wages Administrative and general expenses Net prior period credit/charges Less: expenses capitalised Total cash operating expenditure Surplus cash operating expenditure (EBITDA) (I-II) Depreciation Interest and financial charges Less: Interest and finance charges capitalised Taxation Profit/(loss) after tax Dividend

II III

IV V VI

VII VIII

Total proceeds of disinvestment of 51% of equity shares of the four DISCOMs.


Name of the preferred purchaser BSES BSES 51% Equity offered for sale (Rs in lakhs) 5,842.56 1,920.66 11,471.94 Amount offered. (Rs in lakhs 8,819.94 2,880.99 15,900.93 Offered price per 10/- Face value share in Rs 15.10 15.00 13.86

Name of the Company

WESCO + NESCO SOUTHCO TOTAL

5.40

Orissa

Performance of Orissa State Electricity Board/GRIDCO (Pre-privatisation period)


Area of achievement Installed capacity (MW) Transmission and distribution lines (ckt km) Total energy input (MU) Energy sold (MU) Percentage loss to energy sold Energy billed (MU) Percentage loss to energy billed Revenue earned (Rs in crore) Consumers served (Nos.) Villages electrified (Nos.) Assets in use (Rs in crore) Employees (Nos.) Per capita consumption (kWh/Yr.) 1974-75 547.675 33,945.21 2,335.07 1,995.12 14.5 1984-85 1,134 83,414 4,348 3,566 17.9 1994-95 1,731.93 116,715 7,851 6,471.14 17.6 4,536.33 42.22 725.11 12,30,354 33,131 1,073.14 34,450 248 1995-96 1,731.93 118,286 9,244.93 4,560.36 50.4 4,560.36 50.4 912.14 12,73,844 32,088 1,022.85 34,732 292.5 1999-00 2,498.88 120,625 11,130 6,286.49 43.52 6,286.49 43.52 1547 16,00,551 35,190 28,309 352

23.31 2,34,977 11,525 133 18,224 73.3

116.09 7,16,706 23,762 498.3 33,000 137

Sales Over the Years


1974-75 Category DOMESTIC COMMERCIAL INDUSTRIAL RAILWAY TRACTION MISC. OUTSIDE STATE TOTAL MU 48.8 44 1,426.6 54 56.8 364.9 1995.1 % 2.4 2.2 71.5 2.7 2.8 18.3 100.0 1984-85 MU 355 94 2,420 157.4 177,3 3203.7 % 111.1 2.9 75.5 4.9 5.5` 100.0 1994-95 MU 2,024 305.5 2,940.2 167 681 105.2 6222.9 % 32.53 4.909 47.25 2.684 10.92 1.691 100 1999-2000 MU 2,053 405 2372 175 674 651 6330 % 32.43 6.4 37.47 2.76 10.65 10.28 100

Revenue Over the Years


1974-75 Rs in % Lakh 127 6.9 124 6.7 1,119 60.4 66 71 345 1,852 3.6 3.8 18.6 100.0 1984-85 Rs in % Lakh 1,241 7.5 686 4.1 12,125 73.0 1,266 1289 16,607 7.6 7.8 100.0 1994-95 Rs in % Lakh 8,264 11.45 4,194 5.811 47941 66.42 3,371 6,809 1,599 72,178 4.67 9.434 2.215 100 1999-2000 Rs in % Lakh 32,700 21.14 14,400 9.32 72000 46.54 6600 16100 12,900 1,54,700 4.25 10.42 8.33 100

CATEGORY DOMESTIC COMMERCIAL INDUSTRIAL RAILWAY TRACTION MISC. OUTSIDE STATE TOTAL

5.41

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs

OERCS ASSESSMENT ANNEXURE-1 OERCS ASSESSMENT OF PERFORMANCE OF DISCOMs


BST BILL PAYMENT (%) 2000-01 CESCO NESCO WESCO SOUTHCO ALL ORISSA 73.64 74.17 72.71 75.51 73.73 2001-02 64.82 620.28 80.29 91.65 71.68 2002-03 83.09 88.63 104.53 100.76 93.10 2003-04 86.11 100.01 101.36 99.66 96.44 2004-05 86.84 100 106.03 100 97.83 2005-06 (up to 9/05) 100.18 107.97 108.61 100 104.79

DISTRIBUTION LOSS (%) CESCO NESCO WESCO SOUTHCO ALL ORISSA 44.89 44.44 43.20 42.51 44.01 48.81 51.00 46.44 40.47 47.47 43.03 41.36 38.30 39.14 40.75 39.76 43.66 39.02 42.44 40.75 41.49 39.40 36.38 40.50 39.21 41.14 37.16 37.34 39.79 38.82

COLLECTION EFFICIENCY (%) CESCO NESCO WESCO SOUTHCO ALL ORISSA 74.93 82.12 79.32 83.32 78.47 71.04 74.34 79.95 79.29 75.24 78.91 81.46 85.40 82.55 81.69 81.18 88.11 88.26 84.15 84.87 83.66 90.90 91.96 91.14 89.00 85.11 90.79 93.32 89.04 89.65

AT & C LOSS (%) CESCO NESCO WESCO SOUTHCO ALL ORISSA 58.70 54.37 54.94 52.10 56.06 63.64 63.57 57.18 52.80 60.48 55.04 52.25 47.31 49.76 51.60 51.10 50.36 46.17 41.56 49.71 51.05 44.92 41.49 45.78 45.89 49.89 42.95 41.53 46.39 45.15

5.42

Orissa

ANNEXURE-II OERCS ASSESSMENT OF THE INFRASTRUCTURE OF THE DISCOMs (AS ON 30 SEPTEMBER 2005)
CESCO No. of circles No. of divisions No. of sub-divisions No. of sections Executive (tech.) Executive (non-tech) Non-executives (tech.) Non-executives (non-tech) No. of consumers EHT HT LT TOTAL FEEDER METERING No. of 33 kV feeders (excluding GRIDCO interface) No. of 33 kV feeder metering No. of 11 kV feeders No. of 11 kV feeder metering No. of 33 / 11 kV transformers No. 33/11 kV transformer metering position No. of distribution transformers (11/0.4 and 33/0.4 kV) No. of distribution transformer metering position Length of 33 kV line (ckt km) Length of 11 kV line (ckt km) Length of LT kV line (ckt km) 5 19 61 249 454 38 5,149` 1,358 12 591 8,97,488 8,98,091 125 122 584 579 347 81 16,915 4,274 2,741.80 15,215.62 18,735.21 12,199 11,451 2,052.00 13,331.00 15,501.00 12,975 12,168 3,294.15 18,736.29 15,610.50 NESCO 4 14 39 129 667 66 3,064 675 11 626 4,81,012 4,81,649 52 52 393 389 234 WESCO 3 15 55 202 443 65 3,671 835 16 430 4,43,742 4,44188 87 87 417 417 237 SOUTHCO 8 26 54 133 231 65 2,719 690 11 114 4,65,097 4,65,222 159 135 416 416 208 30 9,302 8,993 2,649.09 18,840.27 9,637.59 TOTAL 20 74 209 713 1,495 234 14,603 3,558 50 1,761 22,87,339 22,89,150 423 396 1,810 1,801 1,026 111 51,391 36,886 10,737.04 60,123.18 59,484.30

5.43

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs

ANNEXURE-III OERCS ASSESSMENT OF TECHNICAL AND COMMERCIAL PERFORMANCE OF THE DISCOMs (AS ON 30 SEPTEMBER 2005)
CESCO METERING POSITION No. of meters No. of working meters Percentage of working meters (%) No. of defective meters No. of disconnection made Revenue realised (Rs crore) New meters installed (3PH) No. of meters installed (1 Ph) No. of EHT meters tested No. of HT meters tested Interruptions of 33 kV feeders (from grid S/S) Interrupts of 11 kV feeders (from 33 /11 kV S/S) No. of power transformers failed No. of distribution burnt Cost involved (crore) Length of conductors stolen (ckt km) Cost involved (crore) No. of grievances received Disposed through CHP including Bijli Adalat No. of hooks detected No. of hooks repeated out of hooks detected No. of connections regularised Amount billed (crore) Amount collected (crore) No. of FIRs lodged 8,98,091 7,99,431 89 98,660 870 NESCO 4,39,071 3,37,306 77 96,797 WESCO 4,39,548 4,25,549 97 13,999 61,159 3.95 22,299 29 523 1,009 1,787 20 1,171 2.46 43.00 0.047 630 630 20,524 3658 1,618 2.14 1.19 1,554 0.56 0.41 11,814 189 15,274 6 320 8,872 22,862 19 1,058 1.17 51.82 0.051 765 711 127 5,011 1 246 8,352 47,377 15 230 0.21 34.75 0.050 11,979 10,801 11,920 SOUTHCO 4,57,232 4,41,772 97 15,460 41,083 1.92 570 18,078 32 548 8,787 70,733 7 378 0.25 48.15 0.050 8,745 6,775 3,294 932 1,853 0.57 0.20 65 TOTAL 22,33,942 20,04,058 90 2,24,916 1,03,112 5.87 886 60,662 68 1637 27,020 1,42,759 61 2837 4.79 177.72 0.198 22,119 18,917 35,738 4,590 16,839 3.27 1.80 65

5.44

TABLE OF CONTENTS

1 2 3 4 5 6 7 8 9

Introduction..8.1 Background ............................................................................................... 8.1 Progress of Restructuring........................................................................ 8.4 Electricity Regulatory Commission........................................................ 8.8 4.1 Memorandum of Uunderstanding................................................... 8.9 Present Status ........................................................................................... 8.9 Consultants Recommendations ........................................................... 8.10 Impact of Restructuring ........................................................................ 8.11 Targets ..................................................................................................... 8.12 Financial .................................................................................................. 8.12

10 Customer Services.................................................................................. 8.14 11 Specific Issues ......................................................................................... 8.14 12 Findings and Recommendations........................................................... 8.18

ASSAM RESTRUCTURING EXERCISE

INTRODUCTION The Assam State Electricity Board (ASEB) was established in the year 1958 in the composite State of Assam under the Electricity (Supply) Act, 1948. The ASEB has been restructured in September 2003 into five companies by separating the generation, transmission and distribution functions. Assam has an area of 78,438 sq km and a population of 26.6 million. The State is divided into 28 districts comprising of 87 towns and 26,247 villages, as per the 2001 Census. The State is largely agrarian with 87 per cent of the population being rural. About 63 per cent of its population is engaged in agriculture and tea plantation. The ASEB and its restructured utilities serve about one million consumers of whom more than half are in rural areas. The population is spread over a large geographical area and the power sector has grown on the States natural resources of oil, natural gas and hydropower in the northeast. The generation, transmission and distribution sectors have been facing problems of inadequate capacity, inadequate investments and also operational problems due to poor maintenance and lack of fuel. The combination of various factors has adversely impacted electricity supply in the State.

BACKGROUND (a) Generating Capacity

The installed capacity of ASEB stands at 575 MW out of which 2 MW is hydel, 300 MW, thermal and 273 MW, gas based. There has been no augmentation of the installed capacity for many years. The present effective capacity is only 150 MW. Chandrapur Thermal Power Station (60 MW) and Bongaigaon (240 MW) have been shut down since March 2002 and June 1999 respectively due to non-availability of fuel and other operational constraints. The total energy generated in 2005-06 was 808 million units. Assam has, however, a share of 546 MW in the Central power stations owned by NEEPCO and NHPC. The State has also committed to purchase the entire power generation of DLFs two combined cycle plants of 24.5 MW capacity. The availability of power from these sources currently is less in the four months from November to February. This shortfall is being met by purchasing power from traders like PTC, etc. The plant load factor (PLF) of ASEB owned plants

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs has been around 34.36 per cent. The details of capacity and energy generated and technical parameters are as under:
Table: Total Generating Capacity (MW) Category Hydel Thermal Gas Total 2000 -01 2.0 300.0 272.9 574.9 2001 -02 2.0 300.0 272.9 574.9 2002 -03 2.0 300.0 272.9 574.9 2003 -04 2.0 300.0 272.9 574.9 2004 05 2.0 300.0 272.9 574.9

Total Energy Generated (in MUs) Category Hydel Thermal Gas Total 2000 -01 0.0 96.7 838.2 935.0 2001 -02 0.0 46.2 794.2 840.4 2002 -03 0.0 0.0 746.1 746.1 2003 -04 0.0 0.0 710.7 710.7 2004 -05 0.0 0.0 756.4 756.4

Table: Improvement in the Technical Parameters Particulars PLF (%) Heat rate Sp. oil consumption (ml/kWh) Sp. gas consumption (M3/kWh) Auxiliary consumption (%) Plant availability (%) ABT Incentive Unscheduled breakdowns In terms of MWH Total manpower employed 435694 421701 448986 540694 1547 447519 1497 2000 -01 21.6 4145 56.1 0.4216 7.1 30.6 2001 -02 19.4 4145 64.5 0.4479 6.3 33.2 2002 -03 33.5 3956 ---0.4563 5.3 49.9 2003 -04 31.9 3736 ---0.4301 4.7 47.7 2004 -05 34.0 3322 ---0.3876 4.7 49.3

(b)

Transmission System

The length of the transmission system (220 kV, 132 kV and 66 kV) is 4129 ckt km. The transmission loss is about 9 per cent. The system does not have sufficient capability to meet the entire demand of Assam. Vital strategic transmission links need to be developed to enable the State to fully avail the energy from the Central sector generation projects coming up in the region. The lack of investment in the transmission sector has contributed to power
8.2

Assam

supply bottlenecks and low quality of supply. For efficient and dependable transmission system, the transmission network must have adequate capacity and be maintained in a good condition. Only a healthy network can deliver dependable and quality power to the consumers. Details of energy available, delivered, losses, and investments on new transmission lines are as under: Table: Performance Parameters: Transmission
Particulars Energy Available for Transmission (MUs) Energy Delivered (MUs) Transmission Losses (MUs) Wheeling cost of Energy (Paise/Unit) Transmission Losses (%) Availability of the transmission systems (%) 1999 -00 2811 2513 247 35 8.5 95.3 2000 -01 3215 2942 273 35 8.5 95.4 2001 -02 3294 3010 283 35 8.5 95.3 2002 -03 3298 3020 277 35 8.5 95.5 2003 -04 3389 3099 289 35 8.5 95.5 2004 -05 3431 3137 293 35 8.5 95.6

Investments made to improve transmission capacities and efficiency of the transmission system are as under. Table: Investment on Transmission Lines
(Rs lakh)

1999-00 545

2000-01 883

2001-02 305

2002-03 2264

2003-04 1370

2004-05 3648

2005-06 7038.72

2006-07 7038.72

2007-08 3519.36

(c)

Distribution

The present distribution system of 11 kV and 33 kV lines are of 28,190 ckt km and 4,766 ckt km respectively. The system has 42,693 ckt km LT lines and 291 sub-stations of 33/11 kV. Setting up of a number of new sub-stations and distribution transformers and augmentation of the distribution system has been taken up under the APDRP. About 278 ckt km of 33 kV line and 40 MVA of 33/11 kV new sub-stations are under implementation under the Non-Lapsable Central Pool Resources (NLCPR). There are other schemes under ADB finance and APDRP. The greatest challenge lies in interface with the consumers in the distribution of electricity. In 2004-05, the AT&C losses in the sector were of the order of 45 per cent. The level of loss is unacceptably high and has also led to poor quality of service to the consumers. It is also partly responsible for the poor financial health of the State utilities. The amount of energy sold is 3,302 MU. Details of energy sold from the State power utilities is as under:

8.3

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs Table : Amount of Energy Sold (MUs)


Category Hydel Thermal Gas Total 2000-01 0.0 74.8 793.8 868.6 2001-02 0.0 35.4 752.1 787.5 2002-03 0.0 0.0 706.5 706.5 2003-04 0.0 0.0 677.2 677.2 2004-05 0.0 0.0 720.9 720.9

(d)

Financial

The Board had been in the red as the net losses were in the range of Rs 500-600 crore each year up to 2003-04. The net worth of the utilities had been eroded and the old structure could not cope with the increasing power demand, both in terms of quality and affordability to the consumers. The operational and financial conditions of the utilities were such that the system could not be carried on without heavily eating into resources of the State Government, which it could hardly afford. The State Government realised that the process of reform and restructuring of the whole power sector had become inevitable. The data is as under:
Table: Financial Condition of ASEB/Utility Particulars Turnover PBT PAT Interest paid Wages & Salaries Equity Debt outstanding Net worth Govt. subsidy 1999-00
537.06 (-)577.82 (-)577.82 25.27 252.04 1350 1677.32 (-)1526.81 52.33

2000-01
631.34 (-)607.21 (-)607.21 28.58 298.41 1350 1735.56 (-)2152.53 52.65

2001-02
648.51 (-)631.98 (-)631.98 3.79 285.3 1350 1719.24 (-)2688.87 52.33

2002-03
754.77 (-)394.00 (-)394.00 9.83 260.99 1350 1809.39 (-)2166.45 80.06

2003-04
887.54 (-)522.73 (-)522.73 0.47 276.36 1350 1892.49 (-)2627.15 0.04

(Rs crore) 2004-05


1013.08 (-)1088.05 (-)1088.05 181.02 300.14 1350 1832.74 (-)3584.34 69.69

3 3.1

PROGRESS OF RESTRUCTURING ASEB is the first SEB, to be restructured after the enactment of the EA, 2003. In some ways, it is a unique model, which has been evolved under the new legislation, as concrete steps for reform and restructuring had been taken before the new Act came into force. A power sector policy was announced in January 2003 for reform and restructuring. The main objectives of this comprehensive policy, inter-alia, were:
8.4

Assam

(i)

To supply adequate quantity of electricity, in an efficient manner and at a reasonable cost to all consumers in the State;

(ii) To restore the financial viability of the power sector so that it is no longer a burden on the State exchequer; (iii) To provide for accountability and responsibility for all power utilities by restructuring and corporatising them; (iv) To provide an environment wherein tariff could be fixed in a transparent manner through an independent Regulator; and (v) To provide a suitable environment in which private sector investment could be attracted in the power sector. 3.2 The policy also broadly indicated the general strategy as to how the objectives outlined in the policy were to be achieved. The policy indicated that generation, transmission and distribution functions of electricity would be separated and the resultant entities corporatised to bring in more accountability and efficiency. It was visualised that the new entities would be incorporated under the Companies Act, 1956. The policy also visualised that financial restructuring would be done so that the new entities become financially viable. The new companies were to have managerial and operational autonomy. As the Regulatory Commission had already been set up under ERC Act, 1998, it was mentioned that this would be converted into a full-fledged multi-member Commission. The policy went into some important details of financial restructuring through a transfer scheme under which accumulated losses of SEB would be set-off against the Government equity and loans and provision will be made for the unfunded liabilities relating to pensionary and other retirement dues of staff. The Assam Legislative Assembly passed the Assam Electricity Bill to provide for restructuring and rationalisation of the power industry The Bill was, however, not enacted since the EA, 2003 came into effect in June 2003. An Appraisal Mission from the Asian Development Bank (ADB) came for discussions in August/September 2003 for the loan appraisal of Assam Power Sector Development Programme. Under the conditions agreed to by the Government of Assam, the Mission recommended a loan of US$ 250 million, out of which US$ 150 million were to be utilised in the programme component for independence and corporatisation of ASEB and US$ 100 million was the
8.5

3.3

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs project component mainly for transmission and distribution system strengthening and revamping. The Mission also agreed to provide technical assistance of US$ 1.5 million for funding the cost of consultants in the reorganisation of SEB. M/s P.A. Consultancy International were appointed to work out the viable structures for the restructured entities. The ADB loan was sanctioned on 11 December 2003; first Tranche of US$ 90 million was released on 12 December 2003 and the second Tranche of US$ 60 million on 28 June 2005. 3.4 The Government of Assam approved the following power sector structure for the State vide its letter dated 30 September 2003 as under: (a) Generation: Assam Power Generation Corporation Limited (APGCL); (b) Transmission and Transformation: Corporation Limited (AEGCL); and (c) Distribution: (i) (ii) (iii) 3.5 Upper Assam Electricity Distribution Company Limited; Lower Assam Electricity Distribution Company Limited; and Central Assam Electricity Distribution Company Limited. Assam Electricity Grid

These companies were incorporated under the Companies Act, 1956 on 23 October 2003. The Government of Assam had accepted the recommendations of the ADB Appraisal Mission that there should be a complete settlement of cross-liabilities between Government of Assam and ASEB under the Financial Restructuring Plan (FRP). An MoU was signed between the Government of Assam and ASEB in November 2003. The summarised position, as on 31 March 2003, is as under: Amount owed to ASEB by Govt. of Assam Amount owed by ASEB to Govt. of Assam Rs 5,389 crore Rs 4,560 crore

3.6

The Government of Assam also agreed to provide for the cash deficit (of the order of Rs 338 crore) of ASEB and its successor companies during the transition period The FRP order was issued by the Government of Assam on 28 October 2003. This spelt out how the outstanding dues and other claims of ASEB would be settled. The Government also committed to make on-going
8.6

Assam

payment to the existing pensioners and those who will retire up to 2008-09. An important event in the restructuring process of ASEB was the launching of Assam Electricity Reforms, First Transfer Scheme, 2004 on 10 December 2004. The Scheme provided for the transfer and vesting of functions, properties, obligations and liabilities of the ASEB in the State Government and re-vesting of the same by the State Government in the new corporate entities. The Scheme also covered the transfer of personnel of ASEB to the new entities. The opening balance sheets of the five successor companies were attached to the Transfer Scheme. The Scheme explicitly mentioned that the personnel who would be transferred under this Scheme would be governed by the new Regulations, which would not be in any way be inferior to those applicable to them immediately before the transfer. 3.7 As it was necessary to carry along the unions and the staff representatives of ASEB while implementing the policy of restructuring ASEB, a tripartite agreement between the Government of Assam, ASEB and the recognised associations/unions of ASEB was negotiated and signed on 9 December 2004. It was agreed that there would be no retrenchment of the existing employees on account of restructuring and rationalisation. Moreover, the terms and service conditions upon transfer to the new entities would not be in any way less favourable than the present terms and conditions under the ASEB. It was also mentioned that there would be no lateral entry from outside in case qualified and experienced persons were available in the cadre. It was also agreed that the State Government, the Board and the successor entities would be jointly and severally responsible to make payments in respect of pension, gratuity and other retirement benefits. The Government of Assam took a policy decision for taking over the unfunded liabilities relating to terminal benefits and General Provident Fund (GPF). The same was notified on 4 February 2005. As regards the unfunded terminal liabilities for which the undertaking had been given, the Government of Assam agreed to provide for the development of a plan for meeting those obligations. An actuarial valuation of ASEB as on 9 December 2004 was done for the unfunded liabilities. To estimate the current value of the liabilities, the exercise covered the period of service put in by the employees up to the date of valuation and the annual future rate of contribution to pay for the gratuity and pensionary benefits. The net present value of the ASEBs past unfunded terminal benefits on account of pension came to Rs 1,470 crore and, including gratuity and GPF, to Rs 2,169 crore. The plan envisaged that it would
8.7

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs be funded, among other things, by electricity duty @ 5 paise per unit and a special charge on the bulk supply tariff/transmission tariff subject to approval of the Regulatory Commission. If there was any shortfall, it would be made good by the Government of Assam. The Scheme, therefore, assured the employees that their future pensionary and other benefits would not be affected by their employment with the new entities. The Government of Assam constituted an independent Selection Committee for appointment of managing directors and part-time directors of APGCL, AEGCL and DISCOMs. As per the recommendations of the Selection Committee, the names of managing directors of the company were notified in February 2005 and those of part-time directors in May 2005. On 31 May 2005, ASEB transferred the existing employees who had opted for the five new companies. 3.8 A novel feature of the restructuring of the power sector in Assam is that the ASEB has been retained to carry out the function of bulk purchase of electricity from the generating companies including APGCL and supplying electricity in bulk to the DISCOMs. The implementation and coordination of the projects supported by ADB and through APDRP also continue to be with ASEB. The investments made in the new entities also vest with ASEB. It functions like a holding company and Chairman of ASEB is also the chairman of the new entities. Under Section 172(a) of the EA, 2003, the Government of Assam authorised ASEB to continue as a trading licensee for a further period of six months from 9 December 2005 to 9 June 2006 to enable the Board to continue with the bulk purchase and bulk supply of electricity. The Government of Assam, vide Order dated 16 August 2005, also issued formal orders to give effect to the reorganisation of ASEB and the finalisation of the provisional transfer. ELECTRICITY REGULATORY COMMISSION The Assam Electricity Regulatory Commission was established in September 2001 with a single Member. The State Government constituted the AERC as a multi-member Commission with a Chairperson and two Members in February 2005. The Commission has issued tariff orders for the periods 2002-03, 200304, 2004-05 and 2005-06. The Commission has notified 16 Regulations as per the EA, 2003. Utilities have already filed Tariff Petitions before the Commission for 2006-07.

8.8

Assam

About 1.61 lakh below poverty line (BPL) category of consumers have been provided subsidy towards their electricity consumption. Cross-subsidy still exists in ASEB. In the tariff petition for the year 2005-06, tariff increase demanded was 26 per cent, the Commission granted only 3 per cent. For the year 2006-07, the increase asked for is 21 per cent for which tariff order is yet to be issued. AERC has come out with regulations regarding Open Access in transmission and distribution of power. Open Access for customers with connected load above one MW will be completed in a phased manner by December 2008. Companies will have to pay transmission charges, wheeling charges, crosssubsidy surcharge (CSS) and additional surcharge payable to the DISCOMs for their fixed costs. CSS will not be payable by the captive consumers. ABT is, however, yet to be introduced. 4.1 Memorandum of Understanding Commitment made by the State Government in the MoU signed with Ministry of Power, Government of India and the status is as under: Table: Commitment Made by the State Government in the MoU
Commitment as Per MoU
Reduction of transmission & distribution losses 100% electrification of all villages 100% metering of all Distribution feeder 100% metering of all consumers Securitise outstanding dues of Central public sector undertaking On line computerised billing in all major towns To bring down the level of ASEBs receivables to 60 days billing

Targeted Completion Schedule


To reduce T&D losses to 20% by 31 March 2002 31 March 2007 31 July 2001 31 December 2001 30 September 2001 31March 2002 March 2002

Status as on 31 March 2005


T&D losses are 37.63% 62.3% villages electrified (as on 31.3.06) Completed 120942 un-metered connections yet to be converted to metered status. Power bond issued by Govt. of Assam Not yet achieved Not yet achieved. Receivable (revenue) 114 days billing

PRESENT STATUS The new entities are in a period of transition. 2004-05 was the first year of the independent operation of the newly created utilities. The commercial and
8.9

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs financial functions have not become independent due to shortage of personnel. The utilities are dependent on data and guidance from the ASEB. Maintenance of accounts is under a common financial head and full compliance as per the requirements of the Companies Act regarding maintenance, submission, auditing of accounts, independently, by each company has not been achieved. Similarly, the data and expertise on tariff filing is in the stage of development. The submission of tariff petitions to the Regulatory Commission has been largely made with the help of consultants. The utilities have to pay more attention to commercial orientation and consumer care. In the initial stages, help of consultants may be obtained in important activities like preparation and submission of data for tariff proposals, etc. However, gradually expertise in these areas should be built up in the organisation itself. There has been a strong political commitment to the reform and restructuring process. The support given by key personnel in the Government and at the helm of SEB, mainly its chairman, have been positive factors in implementation of the reform process. The requirement of qualified professional staff will be difficult to achieve unless suitable remuneration is given. It is understood that only two chartered accountants have joined in the last one year. There are three DISCOMs namely upper, lower and central Assam. The scope of their activities like the quantum of energy, supply to various consumers and the revenue involved does not appear to justify three separate DISCOMs. The Government of Assam may like to consider the merger of the same with a reasonable size so that control and manning of the organisation can be done more efficiently. 6 CONSULTANTS RECOMMENDATIONS The restructuring exercise was preceded by the groundwork done by ASEB and the ADB and the broad profile was discussed during the visit of the Appraisal Mission in September 2003. Financial provision and distribution configuration into independent DISCOM was made by M/s P.A. Consulting International, Jakarta under Technical Assistance Programme from ADB. Transfer Scheme and preparation of opening balance sheets of the new entities has been done by M/s PricewaterhouseCoopers (PwC) under technical assistance programme from ADB. M/s SMEC, Australia, were entrusted with the human resources assessment and final transfer of personnel to the new entities. They have
8.10

Assam

associated TCS on this assignment. Training and support for loss estimation and loss reduction in distribution, accounting and financial transfer programme was awarded under a separate contract to M/s PwC. The work assignments given to M/s PwC were comprehensive, requiring them to develop a strategy, plan and a vision for each company including business strategy and the commercial principles for operation, financial analysis support to each of the new companies, assess values of the assets and also identify the financial assets to be acquired by each company including identification of liabilities. They were also to provide regulatory support to the new companies in filing tariff petitions and licensing applications. M/s SMEC were mostly involved in the HR areas, HR Management Policy for the new companies covering recruitment, training, job descriptions, evaluation, promotion, compensation, IT and functional specifications for financial and accounting management reporting. The consultant was also required to assist in the appointment process for senior managerial positions and transfer of personnel to the new companies. The experience of restructuring in Assam highlights the critical role played by the well-known management and financial consultants in designing the structure, helping in the financial areas for starting the work on commercial basis and holding the hands of the involved utility personnel. The support in the implementation of the reform programme gives confidence to the managers and others who have to work under a different system. It is also important that there should be continuity in the position of the chief executives whose responsibility in the final analysis is to accomplish change over smoothly. In the case of ASEB, however, there were three changes. 7 IMPACT OF RESTRUCTURING ASEB has been restructured recently into five new companies, which are functioning as its subsidiaries. These companies were corporatised in October 2003. The chairman of ASEB currently is the chairman of all the new companies. The organisational pattern is: three Directors, comprising of the MD, Director (Finance) and a Director (Technical). The organisational structure proposed was: five positions of General Managers looking after commercial, finance, accounts, Human Resources, projects and operations. There is, however, an acute shortage of technical and managerial personnel. The staff has been transferred from the ASEB but they have to be absorbed in the respective companies. Because of the geographical location of Assam and
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Study on `Impact of Restructuring of SEBs the low remuneration package, companies are facing difficulty in recruiting the right type of qualified persons. 8 TARGETS The installed capacity of APGCL of 575 MW has not been augmented for more than a decade. The present effective capacity is only 150 MW and operational capacity is around 100 MW only. In view of the focussed attention on restoring the units which are under break down and augmenting the supply of gas from Oil India Limited, the operational capacity was likely to increase by the R&M scheme (financed by PFC) by 20 MW and Namrup TPC capacity by 36 MW by June 2006. The generation of 808 MU is better compared to that obtaining in the last three years prior to restructuring. 3,431 MU of energy available for transmission in 2004 (the first year of restructuring) was more than the energy available during any of the last five years. Similarly, the energy of 3,137 MU delivered by the transmission company in 2004 was higher compared to any of the previous five years. The target for reduction in the transmission loss has been kept so as to achieve a level of 6 per cent by 2007-08 from the current level of 8.55 per cent. This is likely to be achieved as substantial investment is being made under APDRP, NLCPR, ADB and other schemes. The target for reduction in the technical losses by 2007 is from 18 per cent to 14 per cent and in commercial losses, from 14 per cent to 5 per cent. In the first year of restructuring, there had not been any noteworthy reduction by the DISCOMs. 9 FINANCIAL In the restructuring of ASEB and as a part of the US$ 250 million assistance from ADB, US$ 150 million was meant for restructuring and corporatisation of ASEB. The cash deficit was envisaged up to 2005-06. Non-cash settlements were required to be made. The targets and the actuals are as under:

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Table: Financial Settlement at the Time of Restructuring


(Rs crore) 2003 2004 2005 2006 2007 2008 -04 -05 -06 -07 -08 -09

Particulars 1.FRP: Cross-Settlement a. Non-cash settlement b. Dues to CPSUs, post 30 September 2001 c. REC loans d. Dues to MeSEB, WBSEB, GRIDCO e. Receivables from municipal bodies f. Defaulted LIC loans g. Defaulted bonds Sub-Total 2. Cash deficits a. Current/future cash deficits b. Past cash deficit (for 2002-03) c. One time settlement of municipal dues Sub-Total Total Sources of funds Government of Assam ADB Policy Loan (Exchange rate US$1=Rs 47) Total

96 0 0 0 0 174 270 110 103 0 213 483 60 423 483

0 20 75 11 45 148 299 76 0 67 9 308 26 282 308

0 20 75 11 0 0 106 49 0 0 49 155 155 0 155

0 20 75 10 0 0 105 0 0 0 0 105 105 0 105

0 20 75 10 0 0 105 0 0 0 0 105 105 0 105

0 34 75 9 0 0 118 0 0 0 0 118 118 0 118

Payments made by Government of Assam against FRP are given below: Payments Made by State Government (Rs crore)
Particulars Municipal dues LIC Defaulted bond CPSU Non-CPSU Cash deficit REC Total 2004-05 28.00 38.95 156.57 95.00 50.00 160.82 529.34 2005-06* (partial figures) 14.00 06.05 23.89 01.00 106.39 58.03 38.60 247.96

*In the year 2005-06 (Budget provision Rs 372.60 crore) The State Government has taken over the unfunded liability relating to employees terminal benefits amounting to Rs 2,169 crore determined through actuarial analysis in December 2004.

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Study on `Impact of Restructuring of SEBs 10 CUSTOMER SERVICES In order to evaluate the performance of the suppliers of electricity and the related satisfaction level among the consumers, the Advisory Cell of AERC has carried out a survey. Questionnaires were distributed among the consumer groups for obtaining their responses and the period of survey was from August to October 2005. On the question of availability of power, the situation is somewhat better in Guwahati. The power supply and the quality of supply are poor in areas outside Guwahati. A massive programme of upgradation of sub-transmission and distribution network is an urgent requirement. Generation capacity needs to be increased. There is unauthorised use of power and utilities lose substantial revenue due to commercial losses. The survey indicated that only very few number of connections are disconnected due to unauthorised use of power. There is also a low billing efficiency across the State. The scheme of computerisation of billing has been introduced at some of the locations in Guwahati but has not yet been introduced at other places. The replacement of defective meters also takes a lot of time. If done promptly, it will enhance the satisfaction level of consumers. The utilities have to take concerted action in various areas after interaction with their customers. 11 11.1 SPECIFIC ISSUES Generation The present installed generating capacity in the State is 575 MW and the effective capacity is only 150 MW. It has allocated share of 546 MW in the Central sector projects located in the north-eastern region. The State is facing power shortage. The State has made a two-fold strategy to have more available capacity. The capacity addition programme in the Tenth and Eleventh Plans is 619 MW for thermal projects at an estimated cost of Rs 3,100 crore and 347 MW for hydro projects at an estimated cost of Rs 2,800 crore. The projected peak demand in the year 2006-07 and 2011-12 is 991 MW (restricted demand 700 MW) and 1,423 MW against the present peak demand of 690 MW. There are also a number of hydro and gas projects in the north-eastern region which may be implemented by NHPC and NEEPCO. Assam will have a share in these projects. The significant event has been for 500 MW Bongaigaon Project, which will be set up by NTPC with Assams share of 300 MW.

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The Strategy is also to have the repair and restoration work of the units at Lakwa and Namrup thermal power stations, which are under break down, to be completed between April 2006 and September 2007. This will restore a capacity of 93.5 MW. Currently APGCL imports around 465 MW power from outside agencies, which still leaves a shortfall of about 135 MW during peak hours. The new capacity addition of 966 MW by the end of Eleventh Plan will have a thermal-hydro mix of 64:36, which will ensure a better supply to the State of Assam. Most of the power stations are operating much below their rated capacity. There is also a shortage of fuel. Fixed cost and the variable cost of fuel had to be recovered on the sale price of 716 MU fixed by AERC at Rs 1.63 per unit for 2005-06 against Rs 1.80 per unit fixed for 2004-05. The cost of energy for the year 2004-05 was Rs 2.37. The accounts for the year 2005-06 are still under finalisation. It is a transition period and it is too early to make a comparison of the technical and efficiency levels as well as financial turn-around in the aftermath of restructuring. 11.2 Transmission Assam has a transmission network of 4,129 ckt km. ADB has sanctioned US$ 100 million for transmission and distribution system as a project loan mainly for the improvement in the transmission and distribution system. It included 44 ckt km of 220 kV lines and 505 ckt km of 132 kV lines. 12 new sub-stations of 132/33 kV were also included. The project covered augmentation of existing sub-stations, grid communication system and expansion of SCADA system. The projects are under implementation and investments in the transmission sector for the various years are under: (Rs crore) 2003-04 13.70 2004-05 36.48 2005-06 70.38 2006-07 70.39

The transmission loss is about 9 per cent and it is estimated by AERC that the loss cannot be reduced suddenly. With investments now being made towards improvement of the transmission system, the transmission loss should come down to about 6 per cent by 2006-07.
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Study on `Impact of Restructuring of SEBs 11.3 Distribution AT&C losses have been around 41 per cent. The final appraisal carried out by the ADB states that with the efficiency improvements and investments in the transmission and distribution sectors for upgrading the network, the target is to bring them to 25 per cent in the year 2007-08 which includes reduction in the technical loss from 18 per cent to 14 per cent and commercial loss from 14 per cent to 5 per cent. There is no perceptible reduction in the AT&C losses yet. M/s PricewaterhouseCoopers have been given a project assignment for training and support for loss estimation and loss reduction in the distribution system. The consultant will determine the total losses in the feeders and also identify the areas where higher losses are occurring. Consultants were also to carry out studies to segregate the technical and commercial losses and also train the DISCOMs field staff in the estimation methodology and techniques. The causes and estimation of the commercial losses due to various reasons like tampered meters, under-billing, under-recorded loads, etc., is also to be done. Pilot studies for reduction in commercial losses on the basis of the monitoring of consumer installation; on the job training to the DISCOMs staff is also in the scope of the study. This consultancy assignment is still under way. For handling of cases of electricity theft, exclusive courts have not been set up but the senior-most Sessions Judge has been asked to handle such cases. The billing is partially computerised and the plan is for fully computerised billing in the current year. The frequency of meter reading and billing is monthly. However, 100 per cent metering at the 11 kV feeder level has been achieved. Information Systems will improve after computerised billing is implemented on a large scale. The DISCOMs have not prepared separate unit cost for various categories of consumers like, agricultural, domestic and industrial. About 46 per cent of energy is supplied to domestic category, 15 per cent to industrial, 10 per cent to commercial and about 29 per cent to tea gardens and agricultural consumers, etc. Being in the transition period, commercial and financial capacity building is taking place. The schemes covered under APDRP are being implemented actively in various circles. Out of an amount of Rs 174 crore received under APDRP, Rs 171 crore has been utilised so far. Single Point Power Supply through Franchisee Scheme has been introduced to provide better electricity service to the rural population. Targets have been set
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to achieve 100 per cent electrification of villages in Assam by 2007. The Single Point Power Supply Scheme (Franchisee Model) has been a success in the State. The Scheme has received good response from the consumers and has contributed to increase in the revenue of the companies. About 1,000 DTs have been handed over to the Franchisees; the average revenue collection, as on 31 August 2005, has gone up from Rs 1.2 lakh to Rs 2.72 lakh. It has also generated employment for 492 persons in various circles. The Rural Electrification Policy, 2005 of the State is very comprehensive. At present, only 17 per cent of rural household are electrified, while 86 per cent of the population lives in rural areas. The IT applications and expansion of its SCADA system is under the scope of consultants assignment. Regulatory Commission is demanding efficiency improvements and the DISCOMs are accountable for their performance. The distribution sector could be turned around particularly with the availability of substantial funds. So far, High Voltage Distribution System (HVDS) has not been introduced in Assam. Introduction of HVDS will help in curtailing the theft of electricity and reducing losses. 11.4 Regulators A legal framework exists under the EA, 2003, which provides a wide mandate and independence to the SERC. The Commission was established in 2001 as a single Member body. It was reconstituted as a multi-Member Commission, i.e., with a Chairperson and two more members in February 2005. The Commission is functioning independently with grants from the State Government and receipts on account of petitions filed before it. The Commission has issued Tariff Orders for the years 2002-03, 2003-04, 2004-05, and 2005-06. The utilities have filed Tariff Petition for 2006-07. The Commission is considering issue of MYT to be reviewed annually. Time of the day (TOD) meters have been introduced in three blocks in HT category only. The commission may introduce it for the commercial power supply also. For the year 2005-06, subsidy of Rs 49 crore was provided by way of direct Government grant. The amount actually released was Rs 24 crore. Regarding the surcharge, the Commission has carried out a study and proposes to notify the surcharge in the tariff for 2006-07. One order of the Commission was challenged before the Tribunal but no stay order was granted to the applicant.
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Study on `Impact of Restructuring of SEBs The Commission has notified 16 regulations as per the EA, 2003. The regulations covered areas like procedure, terms and conditions for distribution license, intra-state trading license, intra-State transmission license, terms and conditions for Open Access, licensees standard of performance, grid code regulations, meter code, etc. At present, the staff strength of the Commission is 22 (including officers). Most of these officers are on deputation from ASEB and other offices of the State Government. Some have been appointed on contractual basis. The Commission should have its own cadre and organisational structure if it has to function effectively. 12 12.1 FINDINGS AND RECOMMENDATIONS Post-Reform Performance The power utilities in Assam after restructuring of ASEB were incorporated under the Companies Act, 1956 in October 2003. The appointment of managing directors was notified in February 2005 as per recommendations of the Selection Committee. The First Transfer Scheme under the Assam Electricity Reforms was notified in December 2004. The orders for the terminal benefits as well as the tripartite agreement with the unions and the associations of engineers was issued in February 2005. It is evident from these steps that 2005-06 was the first year of transition. The bulk purchase of power from the generators and supplying it to the DISCOMs is still being carried on by ASEB. Similarly, the AEGCL is carrying on transmission of electricity within and from outside the State as was being done by the transmission wing of the erstwhile ASEB. The main difference is in their working as a corporate entity and identified accountability. There is an awareness that the managements are responsible and have to show improvement in their working as compared to the pre-reform period. The filing of tariff petitions for approval of rates for their specific activities is a key area for judging the performance. The speed in decision-making in the post-reform period is better. The marginal improvement in the energy sold and turnover has also increased. The management of separate cadres for each of the restructured entities will pose a challenge with limited opportunities for growth. The induction of qualified personnel from the market is a key issue to be resolved. well-defined

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12.2

State Government Policy The drivers for the reform and restructuring of the power sector have been a strong political commitment for introducing efficiency and financial viability of the power utilities. The power policy announced in January 2003 on the reform and restructuring of power sector laid the road map for various initiatives to be taken. The Government was taking positive steps by clearing up the financial liabilities of ASEB and ensuring that the new utilities start on a clean slate. The note-worthy step was to take over all the pensionary and retirement benefits dues of the employees and involving through dialogue the staff, the workers and the engineers in the process of restructuring. The Principal Secretary (Power) and the Chairman of ASEB played a crucial role in introducing the reforms and restructuring process smoothly.

12.3

Recommendations A study of the reforms and the restructuring gone through by Assam brings out the following key points: (a) A strong political commitment to carry through the process of reforms is the primary driver for starting and completing the process. (b) A road map of the reform and restructuring in the form of policy, objectives, strategy and proposed steps including financial restructuring is necessary to give a clear vision how the various reforms processes have to be taken; (c) If the new entities have to be financially viable, they should be enabled to start on a clean slate; (d) Funding needs to be provided for the cross-liabilities between SEB and the Government with a clear provision of how the shortfall in the initial years of operation will be met; (e) Dialogue and agreements with the workers unions and staff and engineers associations needs to be done carefully so that the employees become willing partners in the reform process; (f) The expertise, experience and advice of competent consultants, particularly in the areas of corporatisation, organisational setup, training of staff and financial and accounting activities can be of great help in setting up the new processes;
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Study on `Impact of Restructuring of SEBs (g) Funding from international institutions like World Bank, ADB, etc., can assist the State utilities in meeting the needed investments in the areas of transmission and distribution. The rigorous examination and laying down the series of steps to be taken would also bind the utilities in concrete terms to the targets to be achieved; (h) The number of consumers in Assam is about one million and there are over 17,000 employees. Employees consumers ratio is very high at 1:57. The number of DISCOMs and other restructured entities is five against the single integrated SEB in pre-reform period. There is a shortage of technical and qualified staff for many new positions to be manned particularly in finance, commercial and HR functions. The justification for creating three DISCOMs may be reviewed and these may be combined into one or two DISCOMs. This will reduce the administrative difficulties in manning the new companies; (i) Loss estimation and loss reduction is a key area for the DISCOMs. As a pilot study is being conducted by the consultants M/s PricewaterhouseCoopers, the staff of the DISCOMs could be extensively involved in the above exercise and imparted training in segregating technical and commercial losses as well as investigating causes for commercial losses; The top personnel in the Government as well as at the utilities level should not be shifted too frequently. They must be retained for a reasonable period so that there is stability in the process. The independence in their functioning is to be respected. Also, mechanisms need to be designed to hold the hands of those who are venturing on the new path of accountability and result-oriented performance.

(j)

(k) The experience of Assam has shown that the schemes of franchisees in rural electrification can take off creating more revenues and employment opportunities.

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The Report is based on the information provided by State Government, the ASEB and the restructured entities, ASERC, consultants and questionnaire discussed with the following officers during the meeting held on 17 and 18 April 2006 at Guwahati: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Sh. S.K. Srivastava Sh.A.K.Bora Sh. N.C. Deka Sh.U.K. Goswami Sh. P.K. Bor Thakur Sh. U.C. Sarma Sh.B.K. Duari Sh. P. Basumatary Sh. T.K. Bose Sh. R.K. Sinha Sh. S.N. Saha Sh. D.K. Donitts Sh. A.K. Goswami Sh. S.K.Saha Sh. A. Debnath Sh. B.K. Sarma Principal Secretary (Power) MD (Assam Power Generation Company) MD (Assam Grid Corporation) MD (Central Assam Electricity Co. Ltd) MD (Lower Assam Distribution Co. Ltd) Member (T) ASEB Director Personnel Member (Finance) ASEB CE (D), LAEDCL SE, CAEDCL SE, UAEDCL CE, UAEDCL Senior Manager, PMU Office Chief General Manager (CF) Deputy Manager Addl. CE (Revenue) Regulatory Commission 1 2 3 Sh.J.P. Saikia Sh. H.Datta Sh. M.K. Adhikary Member Member Joint Director (Tariff)

Consultants 1 2 3 Sh. A.K. Ganguly Sh. D. Ghosh Sh. B. Mehta SMEC TCS PWHC

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TABLE OF CONTENTS
EXECUTIVE SUMMARY............................................................................................2.1 GENERAL OVERVIEW...............................................................................................2.8 Haryana State Profile.....................................................................................................2.8 Background of Power Sector Reforms in Haryana.....................................................2.8 The Reform Expectations ..............................................................................................2.9 GENERATION .............................................................................................................2.10 Haryana Power Generation Corporation Limited (HPGCL)..................................2.10 Generating Capacity in the State ................................................................................2.10 Capacity Before Restructuring ...................................................................................2.10 Capacity Addition After Restructuring .....................................................................2.10 Capacity Addition Initiatives in the State ..................................................................2.10 Capacity Addition.........................................................................................................2.10 Investment Plan of HPGCL.........................................................................................2.11 Capacity Addition through IPPs.................................................................................2.11 Renovation and Modernisation of Existing Plants....................................................2.12 Performance of the State Generation Units ...............................................................2.12 Technical Parameters...................................................................................................2.12 Plant Load Factor (PLF) .............................................................................................2.12 Fuel and Auxiliary Consumption................................................................................2.13 Plant Availability..........................................................................................................2.14 Financial Parameters ...................................................................................................2.15 Overall Performance....................................................................................................2.15 Fixed Cost......................................................................................................................2.15 Variable Cost ................................................................................................................2.16 Observations/Comments..............................................................................................2.17 TRANSMISSION .........................................................................................................2.18 Operational Parameters...............................................................................................2.19 System Losses................................................................................................................2.19 Establishment and SLDC and Interconnection With HVPNL System ...................2.19 Reactive Energy............................................................................................................2.20 Transmission System Availability...............................................................................2.20 Planned Maintenance...................................................................................................2.21 Capital Investment in Transmission Sector...............................................................2.22 Power Supply Position in the State .............................................................................2.22 Future Demand Projections ........................................................................................2.24 Future Strategy to Bridge the GAP ............................................................................2.24 Power Purchase HVPNL .............................................................................................2.24 Energy Balance .............................................................................................................2.24 Short Term/Unscheduled Interchange Purchases.....................................................2.26 Load Shedding ..............................................................................................................2.27 Open Access in Transmission......................................................................................2.27 Commercial Health of HVPNL ...................................................................................2.27 Payment of Outstanding Dues to CPSUs ...................................................................2.27 Observations/Comments..............................................................................................2.29

DISTRIBUTION SYSTEM......................................................................................... 2.30 Parameters to Measure the Effectiveness of Reforms.............................................. 2.32 Reliability and Quality of Power ................................................................................ 2.32 Extent of Load Shedding............................................................................................. 2.32 Number of Interruptions and Quality of Supply ...................................................... 2.32 Failure of Distribution Transformers (DTs) ............................................................. 2.33 Losses in the Distribution System............................................................................... 2.34 Theft Reduction Measures .......................................................................................... 2.36 Subsidy Support by the State Government ............................................................... 2.36 Agricultural Consumption .......................................................................................... 2.36 Subsidy Support........................................................................................................... 2.37 Commercial Viability .................................................................................................. 2.38 Receivables ................................................................................................................... 2.38 Financial Gap in Distribution Sector ......................................................................... 2.39 Capital Expenditure .................................................................................................... 2.42 Status of APDRP Funding .......................................................................................... 2.42 Standards of Performance (SoP) and Customer Related Measures ....................... 2.43 Metering........................................................................................................................ 2.43 Billing ............................................................................................................................ 2.43 Collection ...................................................................................................................... 2.44 Redressal of Consumer Grievances............................................................................ 2.44 REGULATORY FRAMEWORK .............................................................................. 2.45 Tariff Revision ............................................................................................................. 2.46 Implementation of Present Issues under the EA, 2003............................................. 2.47 Open Access.................................................................................................................. 2.47 Multi Year Tariffs........................................................................................................ 2.47 Power Trading.............................................................................................................. 2.47 Directives issued by the Commission ......................................................................... 2.48 MoU and the Achievements ........................................................................................ 2.49 ELECTRICITY ACT, 2003 AND THE REFORM PROCESS............................... 2.50 State Government and Governance Issues................................................................ 2.51 Regulatory Issues ......................................................................................................... 2.52 Generation .................................................................................................................... 2.53 Distribution................................................................................................................... 2.53 WAY FORWARD........................................................................................................ 2.55 State Government and Governance Issues................................................................ 2.55 Regulatory Issues ......................................................................................................... 2.56 Generation .................................................................................................................... 2.57 Transmission ................................................................................................................ 2.57 Distribution................................................................................................................... 2.58 CONCLUSIONS .......................................................................................................... 2.60

HARYANA
EXECUTIVE SUMMARY

GENERAL Haryana was one of the pioneering States in power sector reforms and restructuring. The study has been undertaken with the object of taking stock of the progress made by the State on the power front after restructuring of its SEB in 1998 and also to assess the extent to which the targets and goals set at the time of the implementation of the reform have been achieved. The role played by the State and efforts of the Regulatory Commission to steer the reforms in the early stages of the reforms has also been analysed. The study has analysed the data as furnished and information collected during discussions with the officials of the State Government and the Utilities. The total capital investments in the power sector in the State prior to the reforms were of order of Rs 1,053 crore during the period 1991-92 to 1997-98. The investments picked up considerable pace after restructuring of the sector into separate generation, transmission and distribution Utilities. The investments have grown fourfold after restructuring of the State SEB, compared to the corresponding period prior to restructuring. Haryana had been facing peak power demand shortage of 11 per cent and energy deficit of around 25 per cent at the time of restructuring of HSEB in 1998. The demand in Haryana has been rising consistently at an annual rate of around 8 per cent. This demand is likely to be higher with greater economic development on account of new industries including Information Technology (IT) and accelerated real estate and urban development in the National Capital Region (NCR), a large part of which falls in the State of Haryana. The States own power generation capacity is limited and has been heavily dependent on power imported from outside sources. An aggregate capacity of 724 MW has been added during the post-reforms period till date, comprising of 710 MW in thermal and 14.4 MW in hydel. A bulk of this capacity addition, has, however, occurred during the period 2003 to 2005. The power sector reforms process in the State has failed to involve the public at large with regard to the reform objectives, transitional problems and interplay of all the stakeholders in the entire process. Communication strategy, which was part of the power sector reforms, when the restructuring exercise of HSEB was initiated in 1998-

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99, has not been sustained to the desired level. This has resulted in lack of understanding and poor response from the public to the crucial issues relating to the reforms process. GENERATION Key Concerns The 16th Electric Power Survey (EPS) projections by CEA forecasted a demand of around 7,000 MW for Haryana in 2011-12. Considering the fact that Haryana has currently a capacity of around 4,033 MW, the State has taken some concrete steps for capacity addition of 3,000 MW during the next five years. The State has formulated an ambitious plan for capacity addition in the State sector during the Eleventh Plan with an outlay of around Rs 11,596 crore. Deenbandhu Chhotu Ram Thermal Power Project-II, (DCRTPP) Yamuna Nagar with a capacity of 600 MW (2x300 MW), is expected to be commissioned by February 2008, HPGCL has taken up 1,000 MW thermal project at Hissar and plans have been finalised for another 1,000 MW plant in Jhajjar district through the competitive bidding route. The State is taking initiatives for timely completion of the projects planned to be executed during the Eleventh Plan period. However, the investments would depend on the availability of the States budgetary resources and the degree of success in obtaining financial support from the Financial Institutions (FIs). The State has also received Expression of Interest from many Independent Power Producers (IPPs) for setting up gas-based projects within the State. However, owing to the uncertainty in availability of gas, it is unlikely that any of these would fructify in the foreseeable future. The power sector reforms in the State have not attracted private investments. But now the State Government is creating an enabling environment and making renewed efforts for attracting private investments in the generation segment and also to supplement its own plants for increasing the States share in generation capacity by 2011-12. The variable cost of generation is increasing rapidly for HPGCL plants. From 67 per cent of total cost of generation in 1999-2000, the same stands high at 72 per cent of the cost of generation in 2004-05. HPGCL has improved operating performance levels of the existing generating stations during the post-reform period. Apart from the addition in generating capacity, there is a substantial improvement in the Plant Load
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Haryana

Factor (PLF) of the thermal power stations. The average plant availability has improved up to a level of 78.11 per cent in 2004-05. HPGCL has reduced coal consumption and secondary oil consumption by about 8 per cent and 6.7 per cent respectively. Thermal power plants of HPGCL have attained improvement in respect of auxiliary consumption, which has been consistently coming down since 2000-01. TRANSMISSION Positive outcome A total of around Rs 1,453 crore had been spent on network augmentation and expansion of the transmission system since 1998-99, resulting in an increase in the number of 220 kV sub-stations by around 50 per cent and 56 per cent in 132 kV substations after restructuring. HPVNL has set an optimistic investment plan of about Rs 684 crore for 2006-07 and Rs 5,194 crore for the Eleventh Plan. The sources of funds to be deployed in the investment plan are, however, subject to prudence check and approval by HERC. HVPNLs achievement 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 3-4 per cent. There was a significant saving in outages to the extent of about 466 hrs on 220 kV lines on account of hotline maintenance carried out by the Utility staff. Around 9,000 hrs of planned maintenance was carried out, which enhanced the reliability of power supply in the State. Key Concerns It is desirable that the concerned State Utilities conduct requisite load flow studies to further improve the reliability and quality of power supply in the network. The network augmentation should be based on reliability principles and studies. This would ensure that the power system expansion is in line with the future demands. While State Load Despatch Centre (SLDC) has been set up as a separate entity presently working under the STU, however Area Load Despatch Centres (ALDCs) for the DISCOMs have not been established. Also, the interface metering consequent to network expansion has also not been completed. This is likely to lead to delay in the introduction of intra-State availability based tariff (ABT).

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DISTRIBUTION Key Concerns The investment in the distribution sector during the entire post-restructuring period has been around 21 per cent of the total investments made in the State power sector. Even after increase in investments into the distribution sector, the distribution losses still remain a major area of concern. The data with HERC shows that T&D losses have remained around 32 per cent and if the reduction in collection efficiency is taken into account, the losses would be still higher. It is obvious that the DISCOMs have negated the benefits of efficiency improvements achieved in generation and transmission to percolate down to consumers in the form of lower tariffs. The main objectives of the power sector reforms are to rationalise tariffs, remove inefficiencies and provide quality and reliable power supply to the consumers. On these counts the outcome does not appear to be encouraging. It is pertinent to note that: (a) AT&C losses have shown an increasing trend, with loss levels as high as 38.26 per cent and 42.59 per cent for DHBVNL and UHBVNL respectively; (b) The amount of receivables has almost doubled for both the DISCOMs taken together. While it was pegged at around Rs 1,119 crore for the two DISCOMs as on March 31, 2000, it has shot up to Rs 2,852 crore by 31 March, 2005; and (c) The average duration of interruption hrs/line has almost doubled, showing the negative trend and poor reliability of power supply to the consumers by the DISCOMs. Pumpset irrigation constitutes the major share towards agricultural consumption of electricity. At the time of restructuring, nearly 80 per cent of the agricultural pumpsets were unmetered. Not much progress has been made on this front and the unmetered agricultural pumpset connections are still as high as 67 per cent. The flat rate system and extremely low agricultural tariffs in the State can lead to misuse of electricity. This is also responsible for the excess drawl of underground water. Inefficiency in the use of water needs to be addressed by reviewing the existing flat rate system of tariff. Hence, the Government or the Regulatory Commission needs to address this issue. There is a progressive increase in the amount of of subsidy provided by the Government on account of agricultural consumption. The State has a consistent record

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Haryana

of providing timely subsidy to the sector. From Rs 5321 crore in 1999-2000, the subsidy support has grown three fold and has reached a level of Rs 1,686 crore for 2006-07. Increased level of subsidies provided to the DISCOMs by the State seems to have salvaged the financial performance of the DISCOMs. The Governments inability in the future to provide subsidy may seriously jeopardise the commercial viability of the sector. This may call for rethinking about the existing low tariffs for agricultural consumers, which continues to distort the financial health of the DISCOMs. Involving the public at large (through social awareness) in controlling electricity thefts can further strengthen the reform process. The same can be implemented by providing discounts in the electricity bills of the consumers either on an area or feeder basis that helps the Utilities in controlling/eliminating thefts of electricity. It would help in creating a better public consciousness about the need for greater social responsibility. Such a cultural change is extremely important for effectively addressing the menace of electricity thefts, which is one of the factors responsible for overwhelming losses suffered by the Utilities. This aspect may be addressed by the Utilities in consultation with the Regulatory Commission. While the ARR is met through revenue from the projected sale of power and subsidy available from the Government, in real terms, there is an increasing gap on account of underperformance by the DISCOMs to recover the amount billed. This leaves a huge gap in the revenue realised by the DISCOMs. A reversal of trend has been observed, with DISCOMs reporting a profit of Rs 70 crore in 2003-04 against a loss of Rs 414 crore in 1999-2000. In 2004-05, the DISCOMs again reported a loss of around Rs 397 crore, which reflects that the DISCOMs could not sustain the efforts of enforcement and other loss reduction initiatives. The consumers in the State are subjected to massive load shedding of about 4 to 5 hrs for various categories of consumers. The performance of DHBVNL has been deteriorating since 2001-02. The failure rate of distribution transformers (DTs) in DHBVNL increased to 19.4 per cent in 2004-05 from 17.9 per cent during 2001-02. There were a large number of complaints pertaining to meters, around 70,000 in 200203, which are high when compared to the initial number of complaints prior to
1

Source: HERC Tariff Order 1999-2000

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restructuring. More than one lakh consumer complaints related to billing issues in 2002-03 in respect of both the DISCOMs are still pending. REGULATORY PROCESS Haryana Electricity Regulatory Commission has revised the distribution and retail supply tariff only thrice in the last seven years. This is in spite of the increase in power purchase expenses of the DISCOMs. In the tariff setting philosophy of the Commission, it was envisaged that the tariff shall move towards cost to serve and cross-subsidy shall be gradually removed. Since tariff setting process has virtually come to a standstill, it has denied opportunities for bringing differential tariffs, e.g. Time of Use/Time of Day for certain categories to flatten the load curve and reducing the cross-subsidy. The regulatory oversight and monitoring, which is a necessary requirement for the sector, has been less effective, partly due to the attitude of the utilities towards the directives issued by the Commission and inability of the Commission to enforce compliance by the Government owned Utilities. This inherent dichotomy can be addressed by mutual understanding of regulatory process and cooperation with the Commission in achieving its objectives. The Commission has not undertaken periodic assessment on the performance standards set for the operations and service deliverable of the DISCOMs. This has been partly responsible for the poor public responsiveness in the State towards the mechanisms and regulatory oversight for bringing efficiencies in the sector. There is a need for capacity building for the Commission since its present capacity in terms of manpower is far too adequate to translate the objective of the EA, 2003. Separate regulatory fund as required under the EA, 2003 has not been constituted by the State. ROLE OF THE STATE GOVERNMENT The study reveals that the reforms critically depend on the continued support and strong commitment of the State Government. The Government is committed to providing subsidy support to meet the cost of supply of power to the agricultural consumers. The State has fulfilled this commitment by providing increased subsidy.

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Haryana

The State has yet to formulate a clear policy as to how it proposes to turn around the two DISCOMs and improve their performance. There is no Financial Restructuring Plan (FRP) for support to the DISCOMs whose losses have increased even after seven years of existence. The ad-hoc approach of assistance to consumers in the form of waiver scheme, as announced recently, may provide one-time infusion of funds to the Utilities but it would not serve the objective of holding the Utilities accountable for their performance. Key Concerns f.1 The State does not seem to have formulated a clear policy and strategy for the future direction for the reform process in the State, especially regarding competition in the generation and distribution segments. Institutional mechanisms would be necessary to monitor the performance of the DISCOMs, particularly towards achievement of critical targets on a yearly basis through MoU/MoA route or any other arrangement of a binding nature. There is a need to consider FRP of the Utilities, which should provide specific flow of any additional revenue support to the utilities and corresponding obligations of the utilities for bringing down the AT&C losses to acceptable levels. This would obviate the occasional ad-hoc support that the State has been providing in the form of waiver scheme, etc. The frequent transfers of the senior management, particularly the MDs, adversely affect the much-needed commitment and focussed attention for bringing improvement in the functioning of the Utilities. The State may, therefore, ensure a fixed tenure for the MDs and senior management personnel. The State Governments role was to provide the broad policy framework and allow the Regulatory Commission to bring about efficiencies through annual approval of the revenue requirement and expenditure of the Utilities. However, the study reveals that the Government has not refrained from micro-managing the Utilities. Also, the Commissions authority to strictly monitor the performance has been rendered ineffective by non-compliance of the directives issued by it.

f.2

f.3

f.4

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GENERAL OVERVIEW

HARYANA STATE PROFILE2 Haryana has a total area of 44,212 sq km with a population of around 225 lakh in 2004-05. The per capita income in the State at current prices is around Rs 32,712, next only to Punjab. The contributory factor towards the accelerated development of the State is on account of rapid growth in the services sector and economic advancementtaking place in the districts coming under the National Capital Region. The State had a total cropped area of around 64 lakh hectares in 2003-04 and has around six lakh agricultural pumpsets. About 80 per cent population of the State is engaged in agricultural activities, directly or indirectly. Apart from meeting its own requirement of foodgrains, Haryana also contributes about 45 lakh tonnes of foodgrains to the Central Pool annually. There is a network of canals and an effective lift irrigation system for the arid areas of the State and electricity is supplied on subsidised rates to the agricultural sector. The State achieved 100 per cent electrification of all its villages way back in November 1970. The average connected load of the agricultural consumers had reached 5.8 kW per pumpset in March 2000 from 4.7 kW in 1990. Electricity consumption increased to 2,543 MU in 1989-90 and to 4,570 MU in 1999-00. BACKGROUND OF POWER SECTOR REFORMS Haryana adopted the reform model based on the study of the power sector undertaken by the World Bank in 1995-96, which had recommended comprehensive reforms of the electricity sector in the State. In order to undertake power sector reforms, the State enacted the Haryana Electricity Reforms Act, 1997. The objectives of the reforms as per the said Act were: (a) Creating financially viable electricity sector; (b) Creating an environment to attract private investment; (c) Promote competition; and (d) Provide over all development of the electricity sector in an efficient, economical and competitive manner.

Source: Haryana Government website: http://haryana.gov.in/

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Haryana

The need for comprehensive reforms was felt as the Haryana State Electricity Board (HSEB) found it increasingly difficult to meet the demand for power, which witnessed a peak shortage of 11 per cent and energy deficit of around 25 per cent in 1997. No generation capacity had been added within Haryana till 1990 and the State was increasingly dependent on power imported from outside sources. Due to poor transmission and sub-transmission system in the State, supply from outside sources in the northern grid could not be fully availed. The situation further worsened due to lack of adequate funds for expansion of generation, transmission and distribution capacities and the States inability to control the cumulative effect of inefficiencies and mounting commercial losses. By March, 1998 the accumulated financial losses had reached Rs 16,079 million and continued to grow on account of non-compensatory tariffs, high energy losses and poor revenue collection. The financial health of HSEB did not improve despite huge support of Rs 42,613 million from the State Government during the five years preceding the reforms. Chronology of Restructuring HSEB was carved out from PSEB in 1967. Haryana Electricity Reforms Act, 1997 was enacted in August 1998. HSEB was restructured into Haryana Power Generation Corporation Ltd (HPGCL) and Haryana Vidyut Prasaran Nigam Ltd (HVPNL). Subsequently, through the Second Transfer Scheme (notified in July 1999), two distribution companies viz: (i) Uttar Haryana Bijli Vitran Nigam Ltd (UHBVNL) and (ii) Dakhshin Haryana Bijli Vitaran Nigam Ltd (DHBVNL) were incorporated by transferring distribution assets, liabilities and personnel of HVPNL to them. THE REFORM EXPECTATIONS When the reforms were initiated in the sector, it was expected that these would lead to conditions for self-sustenance and would be able to attract private investments and participation, improve availability, quality and reliability of power at reasonable prices to the consumers in the State. The reforms in the State have been in place for nearly seven years now. The direction, which the reforms have taken, and the efforts made in the reform process during the last seven years reflect a mixed picture of the entire reform process as elaborated in the subsequent sections of this Report.

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State Reports (Vol.-III)

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GENERATION
HARYANA POWER GENERATION CORPORATION LIMITED Haryana Power Generation Corporation Limited (HPGCL) was incorporated as a company under the Companies Act, 1956 and commenced business on 5 August 1997. HPGCL took over the functions of generation of power of the erstwhile HSEB on 14 August 1998, pursuant to the implementation of power reforms in the State. The key responsibilities of HPGCL are: (a) Generation and sale of power from the existing generating stations of Haryana and to sell the entire power generated exclusively to the Haryana Vidyut Prasaran Nigam Limited (HPVNL); and (b) To set up new power projects in the State sector. GENERATING CAPACITY IN THE STATE Capacity Before Restructuring At the time of restructuring, in 1998, the capacity under HPGCL was 863 MW with thermal share of about 95 per cent. There were two main generating facilities, viz., at Panipat with a capacity of 650 MW (4x110 MW + 1x210 MW) and at Faridabad with five units of 55 MW each. Besides the above, the State had a small hydel capacity of 48 MW at West Yamuna Canal. Capacity Addition After Restructuring Considering the widening demand supply gap in the State, significant capacity addition initiatives were introduced during the last five years after restructuring of HSEB. HPGCL has added around 724 MW with three units at Panipat (1x210 MW + 2x250 MW = 710 MW) and 14.40 MW at West Yamuna Canal. The State now has a total generating capacity of 1,587.40 MW. CAPACITY ADDITION INITIATIVES IN THE STATE Capacity Addition During the Tenth Plan period, the State has been able to add around 724 MW of generation capacity and has formulated an ambitious plan for capacity addition during the Eleventh Plan. The Deenbandhu Chhotu Ram Thermal Power Project-II, Yamuna Nagar with a capacity of 600 MW (2x300 MW) is expected to be commissioned by February 2008. The estimated cost of the project is Rs 2,400.23 crore, including
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Haryana

interest during construction (IDC). 20 per cent of the project cost, i.e., Rs 480.05 crore, is being contributed by Government of Haryana by way of equity and the balance 80 per cent of the cost, i.e., Rs 1,920.18 crore is proposed to be financed from PFC as a loan. Besides the above, there are other projects under consideration by the State as mentioned below: Table: Generation Projects Under Consideration (State sector)
Name of Project Coal-based plant at Hissar Coal-based plant at Matenhail (District Jhajjar) Coal-based plant in Faridabad District Pet-coke- based power plant at Panipat Capacity (MW) 1000/1200 1000/1200 1000/1200 500 Status M/s Desein, New Delhi have been engaged for preparation of DPR on 10 March 2006 HPGCL is in the process of inviting competitive bids. This project is in a preliminary stage. The detailed report of CEA in this regard is awaited. Feasibility is being explored.
(Source: HVPNL)

Investment Plan of HPGCL HPGCL has set an optimistic investment plan for the Eleventh Plan to further enhance the generating capacity. There is a Plan outlay of around Rs 11,596 crore for generating projects, viz., DCRTPP, Yamuna Nagar, Hissar TPP, Hissar, Coal Based TPP, Faridabad and Gas-based Project at Faridabad. The Plan Outlay and sources of funds to be deployed in the investment plan as envisaged by HPGCL are, however, subject to prudence check and approval by HERC. Capacity Addition Through IPPs The State Government has been endeavouring to promote IPPs to bridge the demand supply gap in the State and has received Expression of Interest from many Independent Power Producers (IPPs) for setting up gas-based projects within the State, the details of which are provided below:

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Table: List of IPPs who have given their Expression of interest


IPP showing expression of interest M/s Jindal Stainless Ltd., Hissar M/s Weizmann Private Ltd., Mumbai M/s Tayal Energy, Silvassa M/s Tata Power Company / NDPL M/s Aban Lloyd Chilies Offshore Ltd., Chennai M/s Torrent Private Ltd., Ahmedabad Proposed sites in Haryana Hissar Panipat Panipat Jhajjar Faridabad Panipat Capacity proposed by IPP (MW) 1080 600 400 1000 1065 MOA signed with GAIL on 06.09.2005 16.09.2005 14.10.2005 17.11.2005 03.05.2005 (Source: HVPNL)

Implementation schedule Not firmed up, as availability of gas is uncertain.

370

However, owing to the uncertainty in availability of gas, their schedule of implementation has not been firmed up and the State Government has not entered into any MoU/ PPA with the above IPPs. RENOVATION AND MODERNISATION OF EXISTING PLANTS In its submission to the Commission, HPGCL has mentioned that the R&M work of Unit-I of Panipat Thermal Power Station has already been awarded to M/s BHEL and it is likely to be completed by March 2007. The R&M of UnitII has been completed and the unit is performing satisfactorily. The scope of work for R&M for Units-III and IV has also been finalised. For the Eleventh Plan period, HPGCL has kept a total outlay of around Rs 375 crore to be spent on renovation and modernisation of the existing plants. Further apportionment of the investment outlay for specific units was not provided. PERFORMANCE OF THE STATE GENERATION UNITS Technical Parameters Plant Load Factor HPGCL has made a marked improvement in its overall performance. The gross generation has increased from 3,783 MU at the time of restructuring in 1998-99 to 6,784 MU in 2004-05. Apart from addition in generating capacity, there is a substantial improvement in the Plant Load Factor (PLF) of the stations. Prior to
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Haryana

restructuring, the average PLF was around 34 per cent, which increased to 67 per cent in 2004-05. The situation regarding PLF has been depicted in the chart below. The PLF has reduced from 74 per cent in 2003-04 to 69 per cent in 2004-05, which is a matter of concern and needs to be improved.
Plant Load Factor- HPGCL Stations (%) 80

70
Pre-Reform Period Prost Reform Period

60
Percentage

50

40

30

20
Plant Load Factor (%)

1991 33.89

1992 45.76

1993 50.03

1994 40.41

1995 44.7

1996 42.82

1997 47.66

1998 49.17

1999

2000

2001 49.73

2002 60.8

2003 66.44

2004 74.91

2005 69.46

2006 66.77

49.24 53.24

Year

(Source: HVPNL)

While on an individual basis the PLF of HPGCL stations shows a positive trend, however, in comparison with all India average, there is a wide for scope for improvement for HPGCL stations as is shown in the graph below:
Comparison of PLF- HPGCL Vs All India 80 74.8 75 69.9 70
PLF (%)

72.2

74.91 72.7 70.9 69.46 66.77

66.44 65 60.8

60

55

50 2002 2003 2004 HPGCL All India 2005 2006

(Source: HVPNL)

Fuel and Auxiliary Consumption The graphs below enumerate the detailed technical performance of HPGCL stations on various parameters. As is evident from the graphs, HPGCL is showing a reducing trend in coal consumption for per unit generation of electricity. Similar has been the
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Study on `Impact of Restructuring of SEBs

reduction in the secondary oil consumption, which has been reduced by 6.7 per cent from the initial level of 12 ml per unit. However, the secondary oil consumption is still on the higher side when compared to the CERC norms for usage of secondary oil for power generation (2 ml per unit) for Central Generating Stations.
Performance of HPGCL Stations
860 840
Coal Consumption (grams/Unit)

20 17.59 818 14.15 12.99 788 803 12.7 789 770 784 764 747 18.63 844 843 838 816 14
ml per unit

18 16

820 800 780 760 740 720

12 10 8 6

6.38

5.97 3.43 3.35 3.97

3.29 700 680 1995 1996 1997 1998 1999 2000 2001 2002

4.11 4 2 0

2003

2004

2005

2006

Coal Consumption

Sp. Oil Consumption

(Source : HVPNL)
Auxiliary Consumption HPGCL (%)
13

12.5

12

Percentage

11.5 Pre-Reform Period 11 Prost Reform Period

10.5

10 Auxiliary Consumption (%)

1995 10.89

1996 11.87

1997 12.61

1998 12.24

1999 12.04

2000 11.7

2001 11.8

2002 11.11

2003 10.56

2004 10.47

2005 11.04

2006 10.15

(Source : HVPNL)

Though auxiliary consumption has come down from 12.04 per cent in 1999 to 10.15 per cent in 2005, the figure is still high and needs to be brought down further. Plant Availability After restructuring, a 100 per cent increase in the availability of plants of HPGCL has been noticed. While the average plant availability was merely 31.96 per cent in 199899, it has improved up to 78.11 per cent in 2004-05.
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Haryana

A snapshot on HPGCL stations is provided below on various parameters: Table: Snapshot of HPGCLS Performance
Particulars Installed Capacity (MW) PLF Heat Rate Coal consumption Oil consumption Gross generation (MU) Auxiliary consumption Net generation (MU) Plant Availability 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 48 48 48 48 48 48 62.4 Hydro 815 815 815 1025 1025 1025 1525 Thermal 863 863 863 1073 1073 1073 1587.4 Total 49.24 53.24 49.73 60.8 66.44 74.91 69.46 % 3378 3505 3432 3365 3318 3287 kcal/kWh 838 803 816 789 770 764 784 gms/kWh 12.7 6.38 5.97 3.29 3.43 3.35 3.97 ml/unit 268.13 239.6 241.81 229.15 246.69 246.63 290.48 Hydro 4932 5965.4 6744.64 6624.46 Thermal 3515.41 3811.38 3550.6 Total % Thermal + hydro % 3783.54 4050.98 3792.41 5161.15 12.04 3359 31.96 11.3 3604 80.23 11.8 3372 72.37 11.11 4797 67.71 6212.09 6991.27 6914.94 10.56 5580 80.83 10.43 6283 69.31 11.04 5893 78.11

(Source: HVPNL)

Financial Parameters Overall Performance


After restructuring, there has been an improvement in the performance of HPGCL. The company has not recorded any profit after tax; there is a marginal increase in the cash profit of the company during the period 2002-03 to 2004-05, as elaborated in the table below: Table: Profitability of HPGCL (Rs crore)
Particulars Total Income Total Expenditure Cash Profit 2002-03 1,411 1,411 112 2003-04 1,543 1,543 128 2004-05 1,654 1,654 130 (Source: PFC)

Fixed Cost Data has been compiled and analysed for both pre-reform and current performance of the generating stations. The table below enumerates the overall composition of fixed cost elements and their relative movements in all the years after restructuring:

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Study on `Impact of Restructuring of SEBs

Table: Financial Performance of HPGCL


1999-00 Fixed cost (Thermal +Hydro) O & M Cost Depreciation Interest Charges Interest on Working Capital Total Fixed Cost Variable Cost Total Cost Net Generation Variable Cost per Unit Total Cost per unit
Rs Crs Rs Crs Rs Crs Rs Crs Rs Crs Rs Crs Rs Crs Mus Rs/unit Rs/unit

2000-01 180.97 50.57 55.82 10.43 297.79 566.32 808.29 3371.76 1.68 2.40

2001-02 236.28 -19.41 110.01 7.70 334.58 762.07 986.64 4611.48 1.65 2.14

2002-03 136.28 111.64 165.10 4.83 417.85 993.35 1411.20 5580.29 1.78 2.53

2003-04 313.8504 124.10 150.11 15.08 603.14 1095.60 1548.63 6283.07 1.74 2.46

2004-05 300.23 129.8 125.41 29.46 584.9 1191.62 1651.11 6180.00 1.93 2.67

188.94 61.53 81.08 10.26 341.81 547.09 807.82 3603.66 1.52 2.24

(Source: HVPNL)

Note: Return on equity has been allowed in Tariff @ 5 per cent in 2004-05 and @ 8 per cent in 2005-06 and @ 10 per cent in 2006-07 on capital at the beginning of the year.

HPGCL has been able to get only operational expenses as pass through as it was supplying power to HVPNL. It is only after enactment of the EA, 2003 that HPGCL was subjected to tariff approval by the State Electricity Regulatory Commission. The HPGCL has substantial loan portfolio from the new projects undertaken/planned by the utility. As on April 2006, HPGCL loans are of the order of Rs 3,200 crore of which
secured loans are Rs 665 crore only. As regard losses though the position has not deteriorated, yet HPGCL has not turned into a profit-making company. Now it is time for HPGCL to ask for return on equity and get the admissible return so that in course of time it turns into a profit-making entity.

Variable Cost The variable cost of generation is increasing rapidly for HPGCL plants. While the variable component was 67 per cent of total cost of generation in 1999-2000, the same stands high at 72 per cent of the cost of generation in 2004-05. The return on equity provides around 10 per cent, which is lower than the returns approved by CERC for the central sector generating stations. The lower returns are on account of the high cost of generation by HPGCL plants. A comparative analysis of HPGCL stations with the overall performance of Rajasthan Rajya Vidyut Utpadan Nigam Limited (RRVUNL) is provided below. The performance of the stations is almost comparable, however, the fuel cost in case of Haryana is on the higher side which may be partly attributed to the quality and cost of fuel (including transit and handling charges) being used in generation.

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Haryana

Comaprison of HPGCL with RRVUNL 0.5 0.44 0.41 0.4 0.33 1.78 0.3
Rs per Unit Power Purchase Cost (Rs per Unit)

2.5

1.93

1.74 0.26 1.47 1.33 0.21 0.2 0.16 0.12 0.1 0.17 1 0.26 1.5 0.21

0.3 1.39 0.19 0.15 0.2

0.2

0.1 0.04 0.01 0


RRVUNL

0.08 0.04 0.03 0.010


HPGCL RRVUNL

0.08 0.04 0.03 0.01 0.01 0.010


HPGCL

0.02
RRVUNL

0.010
HPGCL

0.5

-0.01

-0.03

-0.1

0 2004-05

2002-03 Employee Cost O & M Cost Interest Cost

2003-04 Depreciation Adm + Gen Exp

Other Exp

Fuel Cost

(Source: PFC)

OBSERVATIONS/COMMENTS 1. There are no CERC norms for the unit size of 60 MW (derated as 55 MW) (Faridabad Units-I to III) and 110 MW units (Panipat Units-I to IV) and hence no benchmark operational data is available to measure and monitor the performance of such generating stations. The RoE approved by the Commission is 10 per cent against the standard CERC norm of 14 per cent due to the high cost of generation by the plants. In tune with the power sector reform in the State, Yamuna Nagar Thermal Power Project was taken up through IPP route, which for certain reasons did not fructify. Thus the State lost precious time and has now tried to make up by focusing on optimising the scope for additional capacity in the existing thermal power station at Panipat. The exact progress made in taking up the projects planned to be executed during the Eleventh Plan period is not known and, therefore, any firm conclusion as to how much additional capacity could become available in the State by 2012 would be difficult to ascertain at this stage.

2. 3.

4.

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Study on `Impact of Restructuring of SEBs

TRANSMISSION
HVPNL is responsible for the transmission and bulk supply of electricity to the DISCOMs. In the single buyer model (SBM), the transmission company was entrusted with the bulk supply business and accordingly it was provided the license by the Commission in 1999. However, under the EA, 2003 trading of power by the transmission company is not permissible. The HVPNL is primarily responsible for: (a) Planning, designing, erection and maintenance of transmission lines, sub-stations and communication facilities and appurtenant works; (b) To maintain an integrated and efficient power transmission system network; and (c) Wheeling of power, purchase and sale of power in accordance with the policies and guidelines laid down from time to time. TRANSMISSION NETWORK HVPNL has a transmission network a total of 5,596 ckt km primarily at the 220 kV, 132 kV and 66 kV voltage levels. Prior to restructuring, the transmission system comprised primarily of 66 kV and 132 kV transmission lines and sub-stations. HVPNL has added a significant number of sub-stations and the associated lines to augment and expand the transmission network within the State. The transmission system augmentation is being planned over 66 kV, 132 kV and 220 kV for more efficient operations and to increase the voltage level for transmission, which, in turn, reduces the losses in the network. Details regarding the number of sub-stations at 220 kV, 132 kV and 66 kV are given below: Table: New Sub-stations Installed by HVPNL
Voltage level (kV) 220 132 66 Total No. of S/S# as on 1998-99 31.03.1998 24 0 72 2 68 1 164 3 No. of substations added during 19992000 2 1 3 6 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06* 0 2 0 2 0 1 6 7 3 5 3 11 4 15 4 23 3 13 7 23 0 1 4 5 Total 36 112 96 244

# S/S: Sub-stations * Till December 2005

Since the beginning of the restructuring in the State (1998-99), the following increase in the number of substations has been noticed: 220 kV sub-stations by 50 per cent; 132 kV sub-stations by 56 per cent; 66 kV sub-stations by 41 per cent.
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Haryana

Table: New Transmission Lines Added by HVPNL (ckt kms)


Voltage level (kV)

Line length 1998 as on -99 31.03.1998


75 45 6 126

Transmission Line length added during


1999 -2000 151 10 19 180 2000 -01 67 24 22 113 2001 -02 124 12 19 155 2002 -03 52 54 40 146 2003 -04 167 161 48 376 2004 -05 216 232 84 532 2005 -06* 186 42 72 300 Total 1645 2378 1573 5596

220 607 132 1798 66 1263 Total 3668 * Till December 2005

OPERATIONAL PARAMETERS System Losses HVPNL transmits power to the DISCOMs through 220/33 kV, 132/33 kV, 132/11 kV, 66/33 kV, 66/11 kV and 66/6.6 kV transformers. There are 519 inter-Utility metering points as enumerated below: Table: Inter-Utility Metering Points of HVPNL
Particulars No. of inter-Utility points with special meters No. of inter-Utility points with meters Total UHBVNL 223 61 284 DHBVNL 169 66 235 Total 392 127 519

Losses in the transmission system are made up of inter-State and intra-State transmission of electricity. While the inter-State losses are around 1.45 per cent, the intra-State losses are restricted between 3 to 4 per cent as seen from the table below: Table: Losses in HVPNL Network
Year Total energy purchased by HVPNL (MU) 19171 20499 21393 5795 Total energy received by HVPNL at the state boundary (MU) 18847 20191 20955 5711 Loss (MU) Interstate Intrastate Total Losses (%) Interstate Intrastate
Total

2002-03 2003-04 2004-05


2005-06 (up to June 05)

324 309 438 84

774 662 686 171

1098 971 1124 255

1.69% 1.51% 2.05% 1.45%

4.11% 3.28% 3.27% 2.99%

5.73% 4.74% 5.25% 4.40%

Establishment and SLDC and interconnection With HVPNL System The SLDC is the apex body to ensure integrated operation of the power system in the State. SLDC with state-of-the-art technology was established at Panipat along with
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two Sub LDCs at Dadri and Narwana at an estimated cost of Rs 34 crore in 2002 under the unified scheme of northern region. Presently, 41 sub-stations of HVPNL are covered and reporting the real time flows (MW, MVAR) and digital status values to the SLDC through Remote Terminal Unit (RTU). About 220 more sub-stations are being planned for integration with the existing SLDC at an investment of Rs 200 crore approximately with the consultancy support of Power Grid Corporation of India Ltd. Reactive Energy HVPNL is continuing to pay for the reactive energy charges to the NREB pool account. The trend analysis for HVPNL available with NRLDC suggests that HVPNL loses around Rs 4 to 5 crore per year due to reactive energy drawls. This is in spite of adequate capacitor banks installed by HVPNL as shown in the graph below:
Capacitors-Requirements Vs. Installed
3750 3250

MVAR

2750 2250 1750 1250 750


1994 1135 884 1995 1250 937 1996 1275 1076 1997 1300 1076 1998 1713 1467 1999 2040 1467 2000 2520 1467 2001 3080 1830 2002 3080 2547 2003 2992 2880 2004 3111 3269 2005 3290 3434 MVAR Required MVAR Provided

MVAR Required MVAR Provided

Year

TRANSMISSION SYSTEM AVAILABILITY Significant availability of the transmission sub-stations has been observed from the data in the following table:

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Haryana

Table: Availability of Transmission Sub-stations of HVPNL (%)


Name of Substation 220 kV Narnaul 220 kV Hisar 220 kV Rewari 132 kV S/S Dadri-II 132 kV Hansi (Hisar end) 132 kV Hansi (Bhiwani end) 132 kV Karnal 66 kV Daruhera 66 kV Gobindpuri (Y/Nagar) 2001 94.94 92.62 96.64 96.43 96.66 99.39 98.90 72.76 78.72 2002 100.00 98.00 91.81 99.85 100.00 99.40 100.00 88.98 98.80 2003 100.00 84.00 100.00 100.00 100.00 99.55 99.40 87.35 100.00 2004 100.00 95.00 100.00 100.00 100.00 100.00 99.70 83.00 100.00 2005 100.00 100.00 100.00 100.00 100.00 100.00 100.00 77.83 100.00

Planned Maintenance HVPNL has saved outage hours through planned maintenance schedule and through hot-line maintenance to improve the reliability of power. The following table indicates significant saving in outages to the extent of about 466 hours on 220 kV lines on account of hotline maintenance carried out by the utility staff. Time period of around 9,000 hours of planned maintenance was carried out which enhanced the reliability of power in the State. Table: Planned Maintenance and Savings due to Hotline Maintenance
Activity 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05

No. of hours of outage saved due to hotline maintenance 220 KV 132 KV 66 KV Total Average hours taken for planned maintenance Total time of outage (Hours)

117 257 752 1126 4760

220.3 255.3 241.3 716.9 15574

114 94 210 418 4961

197 335 194 726 6015

79 151 330 560 4999

69 86 521 676 10209

466 197 532 1195 9196

The average availability of various sub-stations depicts an overall improvement as shown in the chart below. The average interruption time owing to faults in the transmission lines has reduced significantly by about 50 per cent i.e., from 3,397 hours in 2002-03 to about 1,582 hours in 2004-05.

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Interruptions due to Faults


4000 3500 3000 2500 2000 1500 1000 500 0 2002-03 2003-04 2004-05 1965 1582 3397

CAPITAL INVESTMENTS IN TRANSMISSION SECTOR Total expenditure incurred/planned in the transmission sector in the State in the postrestructuring period is shown in the following table: Table: Yearly Investments for Network Strengthening (Rs crore)
1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06* 227.14 138.51 * Projected 163.78 107.92 229.18 206.8 254.07 126.18 Total 1453.58

Future Investments Going forward, HPVNL has set an optimistic investment plan of about Rs 684 crore for 2006-07 and Rs 5,194 crore for the Eleventh Plan. The investments are planned to further enhance the network capacity through suitable expansion, new additions and augmentation of transmission capacity in the State. The sources of funds to be deployed in the investment plan are, however, subject to prudence check and approval by HERC. POWER SUPPLY POSITION IN THE STATE At the time of restructuring, the generation capacity within in the State was not adequate to cater to the demand. The State had been observing energy shortage of 25 to 33 per cent prior to restructuring as provided in the following table:

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Haryana

Table: Widening Demand-Supply Gap in Haryana


Year 1995-96 1997-98
1999-00

Available (MU) 10899 12719


13388

Energy Demand (MU) 14572 16990


17872

Deficit (%) 25.21 25.14


33.5

Peak demand Available Demand (MW) (MW) 1947 2025 1970 2187
2215 2416

Deficit (%) 4.01 11.02


8.3

(Source: HERC Tariff Order 2000)

After restructuring, HPGCL has added around 724 MW and has increased the States generation capacity to 1,587 MW. The demand supply position in the year 2004-05 still reflects a situation of deficit. In 2004-05, Haryana had a peak demand of around 3,9313 MW with a peaking shortage of about 8 per cent. Currently, the State has a gross generating capacity of around 4,033 MW, which includes long-term power contracts from the various CPSUs and other bilateral shared projects as per details given below:
Power Sources for Haryana 2006

BILATERALS 2% HPGCL 38% BBMB 21% NHPC 8%

NJPC 2% MAGNUM 1% FGPP 11% I.P. 2% MALANA 2%

NTPC 11% NPC 2%

(Source: HVPNL)

Although Haryana has an installed capacity of 4,033 MW, the available capacity varies between 2,500 to 3,400 MW during various seasons. The availability variation is due to changes in inflows at hydro stations and planned/forced outages of the generating units.

Source: NRLDC Annual Report 2004-05.

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Demand Projections The demand of Haryana is increasing by more than 8 per cent on an annual basis. The demand is based on the economic and agricultural development that the State has witnessed as also on account of new industries, accelerated real estate and urban development in the NCR region most of which falls in Haryana State. Table: Demand Projections for Haryana
Peak Demand (MW) Peak Energy Requirement (MU) 2006-07 4899 25750 2011-12 7192 37807 2016-17 CAGR 10509 7.93% 55234 7.93% (Source: 16th EPS, CEA)

Strategy to Bridge the Gap Besides the initiatives to suitably augment the generation capacity within the State, the State has signed Power Purchase Agreement (PPAs) with upcoming CPSU projects to bridge the widening demand supply gap in the State. The State has taken initiatives to sign PPAs with upcoming projects in the Northern Region and pithead stations in the Eastern Region. POWER PURCHASE by HVPNL Energy Balance HVPNL has been the nodal agency to arrange for bulk power purchase and supply thereof to the DISCOMs. HVPNL has tied up with various sources to meet the demand within the State through long-term purchases and also from the share of the State in various bilateral projects. The details of energy received by HVPNL for the years 1999-2000 and 2004-05 respectively based on the tariff order issued by HERC have been compared in the table below: Table: Energy Receives by HVPNL from Different Sources
Source NTPC NHPC NPC NJPC HPGCL BBMB IP Station Short term 1999-2000 2004-05 MU Rs Million Rs/kWh MU Rs Million Rs/kWh 5,683 9,523 1.68 7,051 11,933 1.69 1,496 2,258 1.51 1,107 1,602 1.45 363 711 1.96 601 1,530 2.55 0 0 0.00 1,100 2,585 2.35 2,701 5,638 2.09 6,750 16,225 2.40 3,168 0 0.00 3,124 406 0.13 277 0 0.00 177 403 2.28 551 1,326 2.41 1,297 3,229 2.49 14,239 19,456 1.37 21,207 37,913 1.79 2.24

Haryana

Energy Balance HVPNL 1999-00 Vs 2004-05


3.00
2.55 2.49 2.35 2.40 2.28 2.09
Million Units

8,000 7,000 6,000 5,000 4,000


1.45

2.50

2.41

2.00
1.69
Rs/kWh

1.96 1.51

1.50

1.68

1.00

3,000 2,000

0.50
0.13 0.00 BBMB

1,000
0.00 NJPC 0.00 IP Station

0.00
NTPC NHPC NPC

0
Short term

HPGCL

1999-00 MU

2004-05 MU

1999-00 Rs/kWh

2004-05 Rs/kWh

Contribution of Sources to Quantum of Power Purchase and Total Power Purchase Cost
45% 60%

40% 50% 35%


% of total cost of power purchase % of Power Purchase (MU)

30%

40%

25% 30% 20%

15%

20%

10% 10% 5%

0% NTPC NHPC NPC NJPC HPGCL BBMB IP Station Short term

0%

Power Purchase 1999-00

Power Purchase 2004-05

Cost of Power Purchase 1999-00

Cost of power 2004-05

As can be observed from the graphs above, NTPC was the highest provider of power in the year 1999-00, HPGCL has shown substantial capacity enhancement to increase its share from a meagre 19 per cent to as high as 32 per cent.
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Short Term/ Unscheduled Interchange Purchases While there have been efforts to increase the in-house capacity of the generating infrastructure, however the quantum of power purchased from short-term has been increasing. As can be seen from the above graph, the contribution in cost of shortterm purchase is increasing from the previous level of 7 per cent in 1999-00 to 9 per cent in 2004-05. The actual power purchase cost provided for this report suggest that the cost of power from unscheduled interchange (UI) has been increasing both in terms of quantum as also the cost per unit.
Year 2003-04 2004-05 2005-06 Average cost of UI purchases (Rs/kWh) 2.08 3.65 5.42 Contribution of UI purchases in total power purchase cost (%) 10 9 -NA-

The latest trend analysis of 2005-06 of amount payable by HVPNL into the UI Pool Account of Northern Regional Power Committee (NRPC), as shown below, depicts that there are enough economic signals for increasing the generating capacity within the State both from the point of view of cost as also improving the quality and reliability of the power supply to the consumers. Fig: Amount Payable by HVPNL to UI Pool Account of NREB (2005-06)
(Rs Lakh)

(Source: NRLDC Pool Accounts)

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Haryana

Load Shedding To maintain grid discipline, the consumers of various categories are subjected to load shedding of four to five hours per day. The utility has anticipated that the extent of load shedding is equivalent to approximately ten per cent of the total consumption of electricity in the State. The extent of additional demand for electricity from various groups of consumers as anticipated by the utility is shown below: Table: Un-met demand on Account of Load shedding (%) Consumer category Domestic Industries Agriculture Extent of additional demand (Anticipated by the utility) 8 9 22

OPEN ACCESS IN TRANSMISSION HVPNL, vide its Notification dated 5 May 2006, has issued guidelines for implementation of short-term Open Access within the State of Haryana. This will be an enabler for the captive users having demand of 1 MW and above to source their own power through the grid by using the network of HVPNL, which shall act as the nodal agency for short-term Open Access transactions. No parallel operation charges/grid support charges are to be levied on captive generators. The Open Access charges set for use of transmission network have been worked out as Rs 0.14 per kWh plus a transmission loss of 4.5 per cent. Reactive Energy charges are placed at 5 paise/kWh in case the Open Access consumer undertakes actual drawl of reactive power. For captive generators, there is no cross-subsidy surcharge. For other consumers, HERC will determine cross-subsidy surcharge for distribution network under Open Access. COMMERCIAL HEALTH OF HVPNL Payment of Outstanding Dues to CPSUs At the time of restructuring of HSEB, the outstanding payment towards CPSUs was Rs 2,671.61 crore (which included a surcharge component of Rs 649.52 crore). The State adopted the one time settlement scheme based on the report of the Expert Group headed by Shri Montek Singh Ahluwalia. As per the scheme, the dues of the CPSUs outstanding as on 28 February 2001 were to be securitised by issue of the tax-free bonds by the State Government. The other features given under the scheme were:
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(i)

The power utilities were to establish Letter of Credit for 105 per cent value of the average monthly billing during the last 12 months;

(ii) The power utilities were to make full payment of the energy bills to the CPSUs after 30 September 2001; (iii) For establishing Letter of Credit, the CPSUs were to provide 2 per cent incentive on the amount of the bonds; and (iv) For making the full payment of the current dues, the CPSUs were to provide incentive @ 6, 5, 4 and 4 per cent respectively on the amount of bonds during the next four years. In case of default in payment, the power utilities were to be deprived of the admissible incentives. As per the scheme, these bonds were to be issued by the State Government and the power utilities of the State were to do the servicing. Bonds worth Rs 2,022.29 crore were issued by the State Utilities. Now, this liability has been assumed by the State Government to offset the States dues towards the Utilities, on account of default in payment of 2000-01 to 2002-03 and Fuel Surcharge Adjustment (FSA). As a general practice, FSA is a pass through in the tariff and is borne by the consumers. However, the current adjustments reflect a non-rational approach as it interferes with the determination of tariff by the Commission. The details of the liabilities taken over by the State Government are provided below: Table: Details of Liabilities of HSEB Taken Over by the State Government
Particulars Un-paid subsidy for 2000-01 13% interest on the liability dues to un-paid subsidy for the years 2000-01 and up to 30 September 2001 FSA up to 30 September 2002 Stamp Duty 40% Surcharge on CPSUs liabilities as a one time settlement FSA up to March 2003 FSA upto 31 March 2005 Total (Rs crore) Amount Committed by the State Government 474.86 96.61 481.16 2.00 433.01 143.10 391.55 2,022.09

On the whole, the scheme of One Time Settlement (OTS) of outstanding dues was beneficial both for the power Utilities as well as the State Government. The surcharge amount of Rs 649.52 crore was waived off. Further, under the scheme, various incentives to the tune of Rs 421.88 crore were also allowed to the power utilities.

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Haryana

OBSERVATIONS/COMMENTS 1. HVPNL has shown consistency by maintaining the availability of its network and sub-stations. To further improve the reliability of the transmission network, the Commission may provide an incentive or disincentive scheme, based on the availability of the network, and may set benchmarks on similar lines as CERCs guidelines for determination of tariff for Central Transmission Utility (CTU). The State should conduct requisite load flow studies to further improve the reliability and quality of power supply in the network. The network augmentation shall dwell upon N-1 reliability principles and the study so conducted shall serve as a pointer towards future network augmentation requirements to cater to the demand.

2.

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DISTRIBUTION SYSTEM

The following tables show the overall similarity in position of the DISCOMs from the pre-restructuring period wherein the DISCOMs faced severe power shortages and had to shed the load in order to maintain grid discipline. Also, the financial parameters reflect that nothing substantial has been done to turnaround the financial health of the DISCOMs during the last seven years of implementation of reforms in the State. Uttar Haryana Bijli Vitaran Nigam Limited Table: Technical Performance of UHBVNL
Particulars Peak load met (MW) Peak load shortage (MW) Assessed energy (MU) Energy met (MU) Energy shortage (MU) Extent of load shedding (MU) Number of interruptions (11 kV) Number of interruptions (33 kV) DTs failure rate (%) 2000-01 1,375 200 8,640 9,058 -418 4,180 1,50,298 5,916 18.73 2001-02 1,494 215 9,192 9,052 -140 4,543 1,35,611 5,583 15.62 2002-03 1,542 230 9,978 9,818 -160 4,938 90,295 1,993 13.48 2003-04 1,474 255 10,402 10,293 -109 5,367 1,45,777 4,482 14.30 2004-05 1,776 271 11,382 10,916 -465 5,963 1,52,198 6,501 13.85

Table: Financial Performance of UHBVNL


Particulars Turnover PBT PAT Interest paid Wages and salaries (Net) Equity Debt outstanding Net worth Return on Net worth (%) Government subsidy APRDP incentive 1999 2000 2001 2002 -2000 -01 -02 -03 979.21 1898.86 2070.14 2166.42 -234.16 -21.15 -29.78 10.31 -234.16 -21.15 -29.78 10.31 14.83 29.80 57.15 85.17 147.84 211.17 215.56 227.59 573.08 660.87 661.97 661.97 166.56 312.19 650.27 884.93 338.29 257.36 249.49 287.33 -69.22 -8.22 -11.94 3.59 189.62 505.67 519.19 539.66 (Rs crore) 2003 2004 -04 -05 2455.09 2597.40 37.02 -217.94 35.70 -217.94 93.40 74.68 228.09 347.26 691.93 663.54 908.26 872.59 380.30 160.77 9.39 -135.56 618.99 722.30 45.23

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Haryana

Dakshin Haryana Bijli Vitaran Nigam Limited Table: Technical Performance of DHBVNL
Particulars Peak load met (MW) Energy Required (MU) Energy met (MU) Energy shortage (MU) Extent of load shedding 2000-01 2001-02 2002-03 2003-04 2004-05

1,347.38 1,422.1 1,551 7,771 8,527 9,364 9,606 10,846 7,221 7,786 8,744 9,453 10,018 550 741 620 153 828 Approximately 7 to 8% of total consumption

Table: Financial Performance of DHBVNL


(Rs crore) Particulars 2000-01 2001-02 2002-03 2003-04 2004-05

1,575.87 1,771.35 1,948.10 2,125.14 2,288.07 Turnover -191.70 -75.40 21.33 43.14 -200.45 PBT -191.70 -75.40 21.33 43.14 -200.45 PAT 15.42 34.66 47.49 46.23 34.17 Interest paid 163.27 159.06 175.67 178.59 298.91 Wages and salaries 58.52 1.10 0.00 1.56 2.00 Equity 226.49 439.25 503.43 507.60 459.73 Debt outstanding 269.08 117.36 128.82 198.03 -17.85 Net worth Return on net worth -27.82 -133.56 7.12 18.7 -1078.69 (profit/net worth) Government Subsidy 263.63 244.35 289.44 304.88 380.00 APDRP incentive 0 0 2.86 57.40 0

Haryana has a widespread distribution system, which came up when the State became the first in the country to achieve 100 per cent village electrification in the 1970s. The distribution network is mostly on 11 kV and lower voltage lines which continues to be the backbone even today, as is evident from the table below: Table: Growth of Distribution System in Haryana
Year 1970 1980 1990 1998 Distribution lines (ckt km) Sub-stations LT 33 kV 11 kV 33 kV 11 kV (400 & 230 volts) 1,733 16,210 25,664 68 11,760 2,944 34,714 62,176 132 29,160 3,945 47,503 91,093 211 64,889 4,307 54,240 1,03,878 284 99938 (Source: HERC Tariff Order 2000)

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PARAMETERS TO MEASURE THE EFFECTIVENESS OF REFORMS The impetus of distribution reforms in the State was to bring in discipline and cost effectiveness in the following key areas: Reliability and quality of power; Reduction of losses; Reduced Government support in terms of subsidy; Financial viability of sector; Capital expenditure; and Consumer services. This section attempts to bring in clear perspective the achievements of the distribution licensees on the above parameters to highlight the impact and effectiveness of the restructuring process. Reliability and Quality of Power Extent of load Shedding Due to power shortage in the Northern Grid and to maintain grid discipline, both the DISCOMs shed around 2.5 to 3.0 MU on a daily basis. Besides the planned load shedding, the duration of unannounced load shedding remained 30 minutes to 1 hrs, three or four times a day in 2005-06 across all categories of consumers. Agricultural consumers are given priority over industries and urban/mixed urban consumers. The utilities claim to supply power for at least 7 to 8 hrs daily for running the agricultural tubewells. This fact is disputed as per the tariff orders of the Commission. Number of Interruptions and Quality of Supply The number of interruptions has shown a marked increase since 2001-02 for both the DISCOMs. The annual interruption level per line has decreased for DHBVNL from 75 in 2000-01 to 57 in 2004-05, but the average duration of interruption hrs/line has almost doubled showing the negative trend in reliability of power supply by the DISCOMs. The overall performance of 33 kV and 11 kV lines of DISCOMs is as follows:

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Haryana

Table: Interruption Indices for DHBVNL4


Year 2000-01 2001-02 2002-03 2003-04 2004-05 Note: Total no. of lines (11 kV & 33 kV) 1,287 1,326 1,403 1,594 1,775 Total No. Annual Duration of Duration of Reliability of interr- interrup- interruption interruption (%) uptions tion/line (Hrs) (annual) hrs/line 96,187 74.73 21,358 17.00 99.805 97,808 73.76 64,138 48.36 99.450 1,00,034 71.00 54,777 39.04 99.554 1,16,542 73.00 61,693 38.70 99.558 1,01,005 57.00 54,648 30.78 99.648 (Source: DISCOMs)

These interruptions are due to faults only which does not includes interruption due to system constraints/scheduled cuts on lines. (Interruptions in UHBVNL were 1,58,699 in 2004-05 against 1,56,214 in 2000-01.)

Failure of Distribution Transformers Performance of DTs indicates the level of quality of supply of electricity to the consumers. The DTs failure rate has been consistently reduced from 33 per cent in 1997-98 to 15.68 per cent in 2002-03. However, there was a reversal in trend in 200304 when the DTs failure rate increased to 16.15 per cent and further moved up to 16.3 per cent in 2004-05. The detailed yearly transformer failure rate for the DISCOMs, as also for the State as a whole, are depicted below: Table: Failure Rate of Distribution Transformers
Year 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 Failure Rate of Distribution Transformers (%) Total Haryana UHBVNL DHBVNL 33.00 27.80 25.73 27.8 22.9 20.19 18.7 22.3 16.56 15.6 17.9 15.68 13.5 18.7 16.15 14.3 18.6 16.30 13.9 19.4 (Source: DISCOMs)

Data for UHBVNL was not available.

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Distribution Transformer Damaged during 1999-2000 to 2004-05

30.0%
25.7%

27.8%

25.0%
22.9% 22.3% 19.4% 20.2% 18.7% 17.9% 16.6% 15.6% 13.5% 14.3% 13.9% 18.7% 18.6% 16.2% 16.3%

20.0%
% Damage

15.7%

15.0%

10.0%

5.0%

0.0% 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05

UHBVNL

DHBVNL

total

(Source: DISCOMs)

While the DTs failure rate in UHBVNL has been reduced from 27.8 per cent in 19992000 to around 13.9 per cent in 2004-05, the performance of DHBVNL has been deteriorating since 2001-02. The failure rate of DTs in DHBVNL has increased to 19.4 per cent in 2004-05 from 17.9 per cent during 2001-02. Losses in the Distribution System Losses in the distribution system have shown an increasing trend in the postrestructuring period. The AT&C losses of the DISCOMs have been showing an increasing trend with loss levels as high as 38.26 per cent and 42.59 per cent for DHBVNL and UHBVNL respectively. The net result in the DISCOMs is, however, not pursuant with the intent of the reform process. In 2004-05, the amount of losses suffered was around Rs 821 crore for DHBVNL and Rs 668 crore for UHBVNL. A summary of the same is given below: Table: AT&C Losses of DISCOMs
Particulars Energy purchased (MU) Energy sold (MU) Losses (%) Collection efficiency (%) AT&C losses (%) 2000 2001-01 02 DHBVNL 7221 7785 4894 5149 32.23 33.86 92.67 92.13 34.78 36.75 200203 8745 5682 35.02 95.39 36.71 200304 9453 6301 33.34 88.64 37.62 200405 10027 6746 32.72 85.51 38.26

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Haryana

Particulars Energy purchased (MU) Energy sold (MU) Losses (%) Collection efficiency (%) AT&C losses (%) Total Loss (%) in Haryana

2000 2001-01 02 UHBVNL 31.24 35.66 94.00 88.84 40.01 47.30 41.06 42.36

200203 9323 6058 35.02 92.15 43.67 42.62

200304

200405

10084 10213 6821 7095 32.36 30.65 87.04 81.93 41.73 42.59 40.36 41.40 (Source: HVPNL)

There have been variations in the collection efficiency computations by the utilities vis--vis the calculations of HERC. The collections efficiency as per HERC has declined from 87 per cent in 2002-03 to 80 per cent in 2004-05 for DHBVNL and from 76 to 74 per cent for UHBVNL for the same period.
2001-02 DHBVNL Collection efficiency (for current year) Collection efficiency (gross) UHBVNL Collection efficiency (for current year) Collection efficiency (Gross) 87.43 63.82 69.56 63.89 2002-03 87.57 64.11 76.32 63.44 2003-04 81.74 60.88 2004-05 80.47 56.59

75.42 74.30 58.77 51.93 (Source: HERC)

Figures of AT&C losses for the period 2001-02 to 2004-05 in respect of DISCOMs of Andhra Pradesh, Delhi, Rajasthan and Haryana are given at Annexure-I.
AT&C Loss Reduction Initiatives

A number of initiatives, as enumerated below, are planned by the DISCOMs to bring down AT&C losses: Augmentation and erection of new 33 kV sub-stations; Addition of new distribution transformers; Augmentation of conductor of 11 kV feeders; Special checking by the field officers to detect theft of electricity; Electromechanical and defective meters are being replaced with electronic meters on top priority; and Aerial Bunched Cables (ABC) and HVDS are proposed to replace bare conductor in rural areas.

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Theft Reduction Measures The Utilities have claimed that enforcement measures to bring down the losses in the State have been undertaken. The number of preventive raids were intensified during the two years for 2001-02 and 2002-03, but declined during 2003-04. The table below provides the details of preventive action taken by the DISCOMs between 2001-02 and 2003-04: Table: Preventive Action and Prosecution for Theft of Electricity
Category Preventive raids (No.) Demand raised (Rs lakh) Penalty amount realised (Rs lakh) Prosecuted (No.) UHBVNL DHBVNL 2000-01 2001-02 2002-03 2003-04 2000-01 2001-02 2002-03 2003-04 NA NA NA NA 2,58,697 2,19,047 1,34,922 2,58,697 2,19,047 1,34,922 1,39,193 28,119 21,624 14,164 28,119 21,624 1,486 1,046 14,164 1,551 672 16,686 1,801 981

1,842.89 1,486.03 1,551.08 1,842.8 NA NA NA 1,671

A large number of cases of electricity theft indicate that the problem is widespread and has been continuing for a long time. It also reveals that the DISCOMs have not been sufficiently vigilant. Further, the break-up of consumer categories is not available which could have brought out the consumer categories that are more involved in cases of electricity theft. Subsidy Support by the State Government Agricultural Consumption Pumpset irrigation constitutes the major share of agricultural consumption of electricity. At the time of restructuring, nearly 80 per cent of the agricultural pumpset connections were unmetered. Efforts were made by the DISCOMs to place meters for the pumpset connections. However, not much progress has been made on this front. The unmetered agricultural pumpset connections are still as high as 67 per cent. The DISCOMs were unable to install meters in respect of irrigation pumpset connections in a large number of cases because of stiff resistance by the farmers. However, all new agricultural pumpset connections released by the DISCOMs are metered. The following table provides a snapshot of the progress of agricultural pumpset metering in the State.

2.36

Haryana

Table: Metering of Agricultural Connections


Total Agricultural (pumpset) Consumers DHBVNL UHBVNL % % % % Metered unmetered No. Metered unmetered
32.90% 33.50% 37.20% 40.40% 43.40% 45.10% 67.10% 66.50% 62.80% 59.60% 56.60% 54.90% 222032 223946 227351 235753 241921 246597 14.10% 15.60% 17.30% 20.50% 23.30% 24.90% 85.90% 84.40% 82.70% 79.50% 76.70% 75.10%

Year Aug-01 Apr-02 Apr-03 Apr-04 Apr-05 Dec-05

No.
139433 138199 143148 149356 155961 160744

No. 361465 362145 370499 385109 397882 407341

Haryana % % Metered unmetered


21.30% 22.40% 25.00% 28.20% 31.20% 32.90% 78.70% 77.60% 75.00% 71.80% 68.80% 67.10%

It has been estimated that the electricity consumption by the agricultural sector contributes around 33 per cent of the total sales of the DISCOMs. The meters have been provided in respect of about 33 per cent of the agricultural connections. There exists a difference in estimates of DISCOMs and that of the Commission regarding the electricity consumption in respect of agricultural pumpsets in the State. For the sales to metered and unmetered agricultural pumpset consumers, the Commission had worked out a criterion in its tariff order of 2000-01. The Commission has since maintained its consistent approach of projection of consumption of metered agricultural pumpsets on the pattern of consumption of actual consumption and that of un-metered agricultural pumpsets on the basis of Annual Load Factor (ALF) The effect of the methodology on the determination of sale to agricultural consumers is depicted below: Table: Sales Estimate for Agricultural Consumption 2005-06 (MU)
Consumer Category Agriculture metered Agriculture unmetered DHBVNL Estimate FY 2005-06 956.42 1384.41 HERC approval FY 2005-06 835 1200 % of sales rejected by HERC -13% -13% UHBVNL Estimate FY 2005-06 715.5 2764.1 HERC approval FY 2005-06 640 2232 % of sales rejected by HERC -11% -19%

Subsidy Support Due to concessional tariff being provided to the agricultural consumers in the State, the State Government has been providing subsidy to bridge the revenue gap in the annual revenue requirement of the DISCOMs. There is a progressive trend in the provision of subsidy by the State Government. From Rs 532 crore as depicted in the tariff order for 1999-2000, the subsidy support has grown threefold and has reached a level of Rs 1,686 crore for 2006-07. The increasing percentage of subsidy support in
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the total revenue from sale of power of the DISCOMs is depicted in the graph and tables below:
Subsidy Support to Discoms in Haryana

1800 1600 1400 1200


Rs Crs
1301 1118 1102 969 1686

1000 800
820 764 664 540 506 314 519 289 305 829

801 722 500 380 569

600 400 200 0


2000-01 2001-02 2002-03
DHBVNL

244

2003-04
UHBVNL

2004-05
Total Haryana Discoms

2005-06

2006-07

(Source: HERC)

The amount of subsidy booked to revenue from sale of power is given below. The table shows the increased dependence of the DISCOMs on subsidy support to meet the revenue gap. Table: Subsidy Provided by the State Government
(Rs crore)
2002-03 DISCOM Subsidy booked 289 540 2003-04 2004-05 % of % of % of Subsidy subsidy Subsidy Subsidy subsidy Subsidy Subsidy subsidy received booked to booked received booked to booked received booked to revenue revenue revenue 289 19.15 362 305 21.10 380 380 20.71 540 38.58 664 619 43.62 722 722 46.80 (Source: PFC)

DHBVNL UHBVNL

Commercial Viability Receivables 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. An overall trend in the amount of receivables in respect of the DISCOMs in Haryana is as follows:
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St at us o f Gr o ss R eceivab l es o f D i sco ms i n Har yana

3000
2852

2500
1777 1605

2218

2000
1316 1119 819 586 695

1438

15 0 0

1128 900 1090 786 878 1414

10 0 0

500
533 621

0
31. 3. 2000 31. 3. 2001 31. 3. 2002 31. 3. 2003 31. 3. 2004 31. 3. 2005

DHB V NL

UHB V NL

T ot al Har y ana Di sc oms

The disturbing trend in the matter of receivables in respect of UHBVNL is that agricultural and domestic categories together accounted for about 82 per cent of the arrears that got accumulated in this period. Financial Gap in Distribution Sector The Commission has not made any tariff revision since 2001, except for domestic and agricultural consumers. While determining the revenue gap in the sector, HERC considers the approved Aggregate Revenue Requirement (ARR) for the year and works out the gap by matching the ARR against the total revenue from the current retail tariff for various consumer categories. The revenue gap so worked out is because of the fact that the approved tariffs for domestic and agricultural consumers are non-compensatory in Haryana. The amount of cross-subsidy generated by other consumer categories is used to fully cover the revenue gap in case of domestic category, leaving behind cross-subsidies available for the agriculture pumpset consumers. This cross-subsidy adjustment leaves a net revenue gap, which is to be provided as subsidy by the State Government towards the agricultural pumpset consumers. While the ARR is met through the revenue from sale of power and subsidy available from the Government, under-performance by the DISCOMs to recover the revenue billed leaves a huge gap in the sector. The financial gap in the distribution sector, as shown in the table, is supported by the subsidy support by the State Government. However, the gap is further increased in case it is calculated on a revenue-realised basis. The gap is showing an increasing trend. This is primarily on account of the large amount of receivables.
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Table: Financial Viability of the DISCOMs


ARR# Gap Gap Gap Gap ACS* (without (without (subsidy (subsidy (subsidy, revenue subsidy) subsidy) booked basis) realised basis) realised basis) DHBVNL UHBVNL DHBVNL UHBVNL DHBVNL UHBVNL 2.21 2.31 2.21 2.4 2.41 2.74 1.9 1.74 1.86 1.78 1.88 1.83 0.31 0.57 0.34 0.62 0.53 0.90 2002-03 -0.01 -0.01 2003-04 -0.04 -0.04 2004-05 0.15 0.2 -0.01 -0.01 0.02 0.01 0.15 0.2 0.16 0.17 0.11 0.19 0.25 0.48 (Source: PFC)

* ACS = Average cost of supply (Total Expenditure/Total Energy Input) # ARR = Average Revenue Realised

A similar analysis has also been performed in respect of some of the Utilities based on data given in the PFC report on the Performance of State Utilities for the years 200203 to 2004-05. The comparative graph reveals the poor performance of DISCOMs in Haryana. While most of the DISCOMs in the graph had a comparable gap in 2002-03, by 2004-05 the gap in case of Haryana had increased. The subsidy support was required by most of the States to cover the gap, however, the gap further aggravates when calculated on revenue-realised basis. The gap on revenue realised basis show a negative trend for most of the DISCOMs that implies the level of metering and collection efforts the DISCOMs have put to recover the revenues. However, in case of Haryana, the gap reflects a steep increase on account of increasing receivables. (Please refer Annexure-II) Profitability of the DISCOMs The trend of profit and loss of the DISCOMs is provided below. The curve shows a reversal of trends with DISCOMs reporting a profit of Rs 70 crore in 2003-04 against a loss of Rs 414 crore in 1999-00. The same may be partly attributed to the truing up of power purchase cost from Faridabad Gas Power Station, which led to reversal of the already paid cost by the consumers. In 2004-05, the DISCOMs again reported a loss of around Rs 397 crore, which reflects that the DISCOMs could not sustain the efforts of enforcement and other loss reduction initiatives. Reduction in the loss levels for initial years of reform may also

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be on account of the waiver scheme launched by the utilities on account of which significant arrears were recovered by the DISCOMs.
Profi/Loss of Discoms in Haryana
100
69.93 16.9 37.04 2003-04 2004-05

0
1999-2000 -23.28 -74.85 2000-01 2001-02 -34.05 -156.74 -192.58 -190.79 -234.16 2002-03

-100
-179.93 -98.13

Rs Crs

-200
-204.36

-300

-400
-414.09 -396.94

-500
DHBVNL UHBVNL Total Haryana Discoms

(Source: HERC)

An analysis to compare the overall profitability of the DISCOMs of Haryana with Utilities in other States has also been undertaken. The chart in Annexure-III indicates a comparative cash profit amongst the DISCOMs. In the year 2002-03, most of the DISCOMs like NDPL, BRPL and Haryana DISCOMs had a similar cash profit scenario wherein the Utilities reported a profit on revenue billed basis and making a loss when cash profit was calculated on revenue realised basis. However, most of the utilities have been able to turn around the revenue realisation and report an increasing cash profit even on revenue-realised basis. The DISCOMs in Haryana, on the other hand, report an increasing negative loss trend on account of huge receivables. Government Intervention to Reduce the Receivables To meet the challenge of increasing receivables in the State, the Government has introduced a scheme for current bill recovery from 17 June 2005. The scheme provided only for recovery of current bills and waiver of arrears subject to regular payment by the consumer for the next 20 months w.e.f. 17 June 2005. It is estimated that after 20 months from that date, arrears of around Rs 600 crore shall be waived off. The State Government has already started compensating the distribution companies in monthly instalments and will compensate for the principal component of arrears.

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Capital Expenditure While distribution sector holds the key to reforms in the power sector, investments to bring about reforms have mainly focussed on the generation and transmission sectors in Haryana. The investment in distribution sector during the entire post-restructuring period has been around 21 per cent of the total investments made in the State power sector. This was far below the projected level of investments, which were estimated for distribution sector. A detailed break-up of the capital investments on yearly basis is provided in the tables below. Table: Capital Investments in the Distribution Sector in Haryana
Particulars 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Total Distribution 0.00 52.97 132.26 218.04 210.50 228.13 213.80 190.93 1055.70 Total sector 378.60 542.65 510.18 496.45 727.35 1439.98 921.22 754.20 5016.44 Distribution (%) 0 10 26 44 29 16 23 25 21

The table indicates the year-wise increase in capex towards augmentation of distribution network from the level of Rs 53 crore in 1999-2000 to around Rs 190 crore in 2005-06. As a result of the capital investment in the distribution network, augmentation and expansion were undertaken in the post-restructuring period and the results are given in the table below: Table: Addition of Lines, Sub-Stations and Capacitors
Activity 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 New distribution Lines (ckt km) 247 697.53 938.517 1489.639 1874.868 1983.48 2863.461 756.86 577.675 696.446 939.373 2871.55 1099.881 Sub-stations and Capacitors 36.3 66.3 18.3 66 27.9 31.1 24.6 112.9 125 165.6 174.2 123.5 46.652

33 kV 11 kV LT New 33 kV sub-station Commissioned (Capacity in MVA) 33 kV S/S augmented (Capacity in MVA) Capacitor bank installed (MVAR)

(Source: DISCOMs)

Status of APDRP Funding The DISCOMs in Haryana have received funding under the APDRP scheme as elaborated in Annexure-IV. The DISCOMs have been making efforts to utilise the
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amount sanctioned to meet the goals and targets, which have been agreed under the MoA. The funds are being spent on installation of DTs, new/augmentation of 11 kV and LT lines, consumer metering, feeder metering, loss reduction measures, revamping of sub-stations, computerised data logging, consumer indexing, etc. However, the progress towards utilisation of APDRP funds is rather slow on account of non-availability of meters and shortages of materials and manpower required to implement the works. Consumer Services Standards of Performance and Customer Related Measures As per provisions of Section 57 of the EA, 2003, HERC has notified the regulations on standards for performance of distribution licensees and the same are to be implemented by the concerned Utilities. Metering The Utilities claim to have achieved 100 per cent metering in respect of all consumer services (except agricultural consumers). The number of complaints pertaining to meters, being around 70,000 in 2002-03, is high from the initial number of complaints prior to restructuring. Billing While computerised billing for domestic and non-domestic consumers exists, the billing complaints in the DISCOMs have increased to about 88,000 in 2002-03 in case of DHBVNL5 after the restructuring in the State wherein the number of complaints was around 75,000 in 1998-99. The problems are the errors due to manual entries and lead-time of two months for database updating. There is proposal for decentralisation of bill preparation work in the next one to two years at sub-divisional level to remove the existing deficiencies. In other categories, the billing is computerised and is done in-house at circle level.

Data for UHBVNL not available.

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Collection DHBVNL has made arrangements with commercial banks, post offices, private collection agencies and departmental counters for receiving the payment of electricity bills by the consumers. Collection has also been partly out-sourced. Redressal of Consumer Grievances There has been delay in setting up the grievance redressal mechanism as mandated under the EA, 2003. In 2004, HERC issued the regulation on the subject. During discussion held with the Commission, it was stated that the Government had objected to the Commissions right to issue regulations under the Act. The Commission had stood its ground that it had legal powers to frame regulations. The objections of the State Government appeared ingenious, since the Commissions in other States, by exercising powers under the EA, 2003, had issued similar Regulations. The Appellate Tribunal, taking suo-motu cognizance of the delay, had issued directions regarding creation of consumer grievance redressal forums. Accordingly, these forums have been created by the utility only recently. The composition of the forums with the serving members of the utility is against the regulations and creates a clash of interest and reduces the credibility of the grievance redressal machinery to act fairly and independently. The data furnished by the DISCOMs does not segregate the type of fault complaints received by the Utilities and merely depicts a gross picture of the number of complaints received. Though the number of complaints has reduced since restructuring, the number is still large. Necessary steps are, therefore, needed to remedy the situation. Table: Complaint Received by DHBVNL6 for faults
Name of Zone C.E., Delhi C.E., Hissar Total Status before restructuring of SEB 1993-94 38370 114221 152591 1994-95 399030 110322 509352.00 Status after restructuring of SEBs

1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 394227 106116 500343 391489 389946 388926 108281 110986 106801 499770 500932 495727 387270 106981 494251 383619 382635 377650 104971 99585 97209

488590 482220 474859

Besides the number of complaints, the data furnished by the DISCOMs suggests that the average time taken to rectify the faults has further deteriorated.
6

Data for UHBVNL was not available.

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OBSERVATIONS/COMMENTS

1.

Analysis of the above data indicates that performance of the DISCOMs has not been very satisfactory. It appears that the DISCOMs have not achieved efficiencies in operations and in delivery of reliable power to the consumers. The financial viability of the DISCOMs is adversely affected by the poor track record in reducing AT&C losses and receivables. The positive impact of improvements in the generation and the transmission utilities in the State has been negated by the under-performance of the DISCOMs. The analysis also reveals a significant difference in performance between the two DISCOMs when AT&C losses, collection efficiency and receivables, etc., compared. Increased level of subsidies provided to the DISCOMs by the State seems to have salvaged the financial position of the DISCOMs. The main reasons for under-performance of the DISCOMs are: (i) lack of necessary systems and applications to revamp their functioning, and (ii) the nature of operations of the State Public Undertakings (SPUs) where operations are performed by officers as managers and owner citizens (i.e., government and public) do not assert effectively to improve the working of the State-owned Utilities.

2. 3.

REGULATORY FRAMEWORK
Haryana Electricity Regulatory Commission was established in August 1998. The Commission has so far issued the following tariff orders pertaining to generation, transmission and distribution.
2006 23May 2006 on application filed by HPGCL for approval of generation tariff for 2006 -07 14 Nov 2005 9 Nov 2005 10 May 2005 02 May 2005 20 Apr 2005 18 Apr 2005 14 May 2004 9 Mar 2004 2005 on ARR of DHBVNL for D&RS Business for 2005-06 on ARR of UHBVNL for D&RS Business for 2005-06 on application filed by HVPNL for approval of ARR for T&BS for 2005-06 and determination of BST Tariffs on application filed by HPGCL for approval of generation tariff for 2005-06 on application filed by DHBVNL for approval of Revised ARR for D&RS Business for 2004-05 on applications filed by UHBVNL for approval of Revised ARR for D&RS Business for 2004-05 2004 on HPGCLS Filing for Generation Tariffs for 2004-05 on admissibility of ARR for D&RS Business for 2004-05

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8 Mar 2004 20 Aug 2003 12 Aug 2003 16Aug 2002 16Aug 2002 11 Aug 2001 06 Aug 2001 22 Dec 2000 14 Dec 2000 29 Nov 1999 26 Nov1999 on admissibility of ARR for T&BS Business for 2004-05 and T&BS Tariffs 2003 on ARR for D&RS Business for 2003-04 on ARR for T&BS Business for FY 2003-04 and T&BS Tariffs 2002 on ARR for D&RS Business for 2002-03 on ARR for T&BS Business for 2002-03 and T&BS Tariffs 2001 on ARR for D&RS Business for 2001-02 and D&RS Tariffs on ARR for T&BS Business for 2001-02 and T&BS Tariffs 2000 on ARR for D&RS business for 2000-01 and D&RS Tariffs on ARR for T&BS business for 2000-01 and T&BS Tariffs 1999 on ARR Filing by the HVPN for its Distribution and Retail Supply Business for 1999-2000 on ARR Filing by the HVPN for its Transmission and Bulk Supply Business for 1999-2000

TARIFF REVISION Since its inception, the Commission has issued seven orders on ARR for Distribution and Retail Supply (D&RS) business of the DISCOMs. However, the distribution and retail supply tariff have been revised only thrice in the last seven years. This is in spite of the increase in power purchase expenses of the DISCOMs. In the tariff setting philosophy of the Commission, it was envisaged that the tariff shall move towards cost to serve and the cross-subsidies shall be gradually removed. While there is no subsidy to domestic consumers, tariff for industrial and commercial categories have remained the same. But agricultural tariffs were reduced instead of being progressively increased towards the cost to serve. This is a matter of concern since it is a deviation from the basic principle of reforms and tariff rationalisation and phasing out of cross-subsidies. The following table shows the tariff structure across the years for the DISCOMs.

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Table: Details of Retail tariff Revisions by HERC


Particulars Agriculture Domestic 1995-96 50 Ist 40 units 90 paise, above 40 units 200 paise 1996-97 50 Ist 40 units 150 paise, above 40 units 225 paise 300 300 300 300 1998-99 50 Ist 40 units 191 paise, above 40 units 306 paise 392 392 392 392 2000-01 50 Ist 40 units 260 paise, up to 300 units 360 paise, above 300 units 425 paise. 409 425 409 419 2001-02 50 Ist 40 units 263 paise, up to 300 units 363 paise, above 300 units 428 paise. 409 428 409 419 2004-05 25 Ist 40 units 263 paise, up to 300 units 363 paise, above 300 units 428 paise.

Industrial Large HT Industrial Small LT Commercial HT Commercial LT

240 240 240 240

409 428 409 419

IMPLEMENTATION OF PRESENT ISSUES UNDER THE EA, 2003 Open Access HERC Regulations for Open Access have been notified and HVPNL, which acts as the nodal agency for Open access, has finalised the norms and procedures for the application of short-term Open Access. The Open Access has been allowed w.e.f. 1 October 2006 for the consumers with contract demand of 15 MVA and above. STU is in the process of implementing the regulations for all consumers with loads of 1 MW and above, keeping in view the power deficit situation and encouragement to bring more power to the State. The surcharge to be levied by the DISCOMs is yet to be specified in tune with the principles given for the same. Multi Year Tariffs National Tariff Policy stipulates creation of Multi Year Tariff (MYT) framework for operations by the DISCOMs. MYT envisages improvement in efficiency and degree of certainty in regulatory approach. The guidelines and regulations in this regard are yet to be issued by the Commission. Power Trading The Commission has notified the regulations for intra-State trading and eligibility criteria for electricity trading.

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Directives Issued by the Commission The Commission has provided the following key directives to the DISCOMs to effectively implement the reform process. A summary of the same has been provided below: All receivables accounts shall be computerised and detailed audit of receivables shall be undertaken; so that precise amount of consumer-wise position with age-wise break-up separately for sale of power, delayed payment surcharge, municipal tax and electricity duty with current and old arrears may be known. To submit a report giving details of the action taken in each case to recover arrears from the consumers having arrear above Rs 1 lakh. (Directions given in 11.8.2001 and 20.8.2003 orders) Financial To physical verify all the fixed assets, particularly the fixed assets created Management out of the consumers contribution. (Direction given in 16.8.2002 order) To reconcile the inter-company accounts between the transmission, distribution and generation companies. (Direction given in 16.8.2002 order) Metering The Commission directed the D&RS licensee to submit detailed metering plan for 100 per cent metering in the State. (Direction given on 16.8.2002) The Commission further directed that 100 per cent metering be completed by June 2005 as per Section 55 of the EA, 2003. (Direction given on 29.1.2004) Besides consumers metering, the licensee should also complete 100 per cent metering at feeders and distribution transformers for energy audit purpose. To put MDI meters at unmetered agriculture pump-set consumers. (Direction given in 16.8.2002 order) Performance To investigate the causes of high damage rate of distribution improvement transformers. To submit separate data for urban and rural areas. (Direction given in 20.8.2003 and 18.4.2005 orders) To carry out load survey for the consumers who pay on MMC basis or on average basis for a long time. (Direction given in 11.8.2001 order) Technical issues To establish the computerised State-of-the-Art Area Load Dispatch Centre. To undertake activity of consumer indexing and Geographical Information Systems (GIS) mapping. (Direction given in 18.4.2005 order) Receivables

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ROLE OF STATE GOVERNMENT The State Government is fully committed to implement the provisions of the EA, 2003 in respect of electricity pricing, subsidy, promotion of Open Access in the transmission and distribution sectors and enforcement of the anti-theft provisions. MOU AND THE ACHIEVEMENTS The activity-wise status of the MoU/MoA and the implementation status have been presented below:
Sl. No. Type of Activity Target/ Schedule Date Actual date/ Status of implementation

Reform Programme 1 Electricity Reforms Act 2 Formation of State Electricity Regulatory Commission 3. Restructuring of State Electricity Board 4. Energy Audit at all levels 5. 100 per cent metering of all consumer 6. 7. Installation of meters at 11 kV feeders Formation of distinct distribution profit centres at divisional level and preparation of separate commercial accounts balance sheets for such centres T&D losses reduction to 20 per cent (Input energy- Billed energy) Input energy

1997 16 August 98 HPGCL and HPVNL and subsequently UHBVN & DHBVN. Being followed All consumer connections are metered (except some of the agriculture category consumers) Metering is being done through existing electro-mechanical and electronic meters. In UHBVN, the matter regarding formation of separate profit centres at Divisional levels is under consideration.

31.12.2001

31.03.2001 31.03.2002

8.

2006

Computerised Billing at all major towns

2001-02 = 31.24 2001-03 = 35.66 2002-03 = 35.02 2003-05 = 32.36 2004-05 = 30.53 Steps are being taken to reduce the T&D losses through extensive checkings, replacement of electro-mechanical meters with electronic meters and by bi-trifurcation of 11 kV overloaded feeders. Computerised billing for HT industrial / DS and NDS consumers is already being done. A computerised billing centre has been established at Panchkula. Initially, computerised billing will be done for all LT industrial consumers under UHBVN.

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ELECTRICITY ACT, 2003 AND THE REFORM PROCESS


The status of implementation of certain key provisions of the EA, 2003 in Haryana is shown blow:
Section 172 Separation of transmission utility Forum for redressal of consumer grievance The bulk supply and trading business has been entrusted to HPGCL As per the provisions of the Section 42 (5), guidelines have been notified by HERC. The pay & allowances, terms and conditions for the members of the forum has been approved by the HERC and the State Government The ad-hoc forum is already functioning and appointment of members for regular forum is under process As per the provisions of the section-55 of the EA, 2003, 100 per cent metering is required to be completed by 10th June 2005 and as per NTP by 2007. However, as on date 1,85,465 tubewell connections are yet to be provided with the meters

Section 42(5)

Section 55

Supply of electricity through metering

The status of implementation of the Act in the State is tabulated as under:


Responsibility State Government State Government State Government State Government (Pending) Section 126 135(2) 152 153 Status of implementation Notification for assessing officer issued on 9 December 2003 Notification for inspecting officer issued on 9 December 2003 Notification for compounding officer issued on 9 December 2003 Notification and formation of special courts by the Government of Haryana is still pending. The State Government has recommended the formation of special courts to High Court to designate the existing courts of ADJ-2 & ADJ-3, two days a week at the district headquarters, as special courts for dealing the offences under Sections 135 to 139. Notification for form and procedure for appeal to appellate authority to appeal against order of assessing officer under Section-126 issued by HERC on 12.05.2004 Appellate authority under Section 127 has been notified. The utilities have issued instructions for dealing the cases under sections 126, 135 & 152 for dealing the cases of unauthorised use of electricity, Theft of electricity and compounding under section-152.

HERC

127

State Government Utilities

127 -

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LESSONS FROM THE RESTRUCTURING PROCESS STATE GOVERNMENT AND GOVERNANCE ISSUES The power sector reforms commenced in 1998 with a clear policy mission, which, inter-alia, aimed at creating a vibrant environment for attracting investments in generation, etc., in the State. The reform model was supported with substantial financial assistance from the multi-lateral agencies. The roadmap, which was prepared for the sector reforms, underwent a change with the change of Governments in the State. This not only caused a setback to the prospects of new/private investments in the sector and also deprived the State of substantial aid, which was promised by the International funding agencies. The continued commitment of the Government, as envisaged in the Haryana Reforms Act of 1997, did not come as was required to carry through the reforms. However, the State has maintained its commitment for implementing the reforms. Even though the power sector reforms in the state were initiated seven years ago, organisational autonomy in terms of administrative, technical and commercial decision-making has not been fully transferred by the State Government. One of the objectives of restructuring is that the restructured entities shall perform their functions in an efficient and autonomous fashion. All the restructured Utilities in the State have a common Chairman. While this arrangement may provide coordination between the Utilities, it also tends to dilute attention on specific issues and priorities of the individual utility. Added to this is the frequent transfer of the MDs, which affects continuity and accountability. The powers of the Managing Director and the Board of Directors and their accountability are not well defined in the existing organisational structure. The finances of Government of Haryana are marked by very high self-reliance to fund its revenue expenditure (85 per cent in 2004-05). High levels of subsidies to agricultural consumers could affect the transfer of resources to meet the needs of the social sector. The Governments inability in the future to serve the subsidy may seriously jeopardise the commercial viability in the sector unless the agricultural pumpset tariffs are gradually increased in a phased manner. The Government approach to bail out the Utilities by taking over the arrears of rural domestic and agricultural consumers may find some justification but such ad-hoc
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support (approximately Rs 1,537 crore), without proper financial restructuring plan for the support required by the utilities, would be self-defeating. The important lesson from the reform process is the lack of public awareness and participation in the process. This has led to total disconnect with regard to the objectives, transitional problems and interplay of all the stakeholders in the reform process. Communication strategy was part of the power sector reforms when these were initiated. However, the same was not sustained to the desired level thereafter. However, the required communication on different phases of the reforms did not materialise. There have been delays in setting up special courts for trying cases of electricity theft. The State Government is awaiting the requisite approval of the High Court. Once this is received, other measures such as creation of special police stations and special teams in the DISCOMs will also be needed. The State Government and the MoP may have to take up the matter at the appropriate level to expedite the matter. REGULATORY ISSUES The regulatory oversight and monitoring which is one of the necessary requirements for the sector has been less effective, partly due to the attitude of the Utilities towards the directives issued by the Commission and inability of the Commission to enforce compliance by the Government-owned Utilities. This inherent dichotomy can be addressed by mutual understanding of regulatory process and cooperation with the Commission in achieving its objectives. The Commissions overall role and responsibilities have also to be supported by the State Government. The treatment of pension liabilities of the staff at the time of restructuring of the HSEB was not pragmatic as seen from the impact of unfunded pension liabilities on the financial health of the successor entity, i.e., HVPNL. Unlike in the case of Utilities in other Group-1 States, the State Government did not take over the past pension and gratuity liabilities of the employees of the erstwhile HSEB. The entire burden of past liabilities was transferred to the restructured Utilities, which affected the financial health of the Utilities right at the beginning Regulatory uncertainty regarding funding of provident funds (EPF) on actuarial basis has not given full reimbursement from the approved ARR while the Utilities are required to provide their share as per the accounting standards prescribed under the Companies Act, 1956.
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GENERATION For capacity additions, the State seems to have limited options in view of its geographic location and has to depend on power supply sources outside the State. In tune with the power sector reform in the State, Yamuna Nagar Thermal Power Project was taken up through IPP route, which for certain reasons did not fructify. Thus the State lost precious time and has now tried to make up by focussing on optimising the scope for installing additional capacity in the existing thermal power plant in Panipat. The ABT regime is being misused in spirit by the States that are having surplus generation. The regime has led to predatory pricing in the reverse sense. Haryana, having tremendous shortages, has the Hobson choice, i.e., either to pay higher prices to meet peak demand or resort to massive load shedding. The phenomena of high spikes in prices caused by exploitation of ABT regime is similar to what happened in power crisis in California during 2000-01. The issue of unfair prices needs to be addressed by CERC and/or MoP. DISTRIBUTION While distribution holds the key to reforms in the power sector, the investments to bring about the reforms have been focussed on the generation and transmission sector in Haryana. The investment in distribution sector during the entire post-restructuring period has been around only 21 per cent of the total investments made in the State power sector. This was far below the projected level of investments, which were estimated for distribution sector as envisaged. The problem of widespread nature of electricity thefts and vested interests seems difficult to be solved since the utilities, which are Government owned, have a little motivation in making a drastic dent into these malpractices. There is strong evidence that lack of effective governance in terms of support of the Government machinery and sustained enforcement by the utilities; the theft of electricity by large consumers and persons with vested interests cannot be solved. Therefore elimination of electricity thefts should be taken up aggressively with the support of the State machinery at all levels, as rampant thefts of electricity will negate other efficiency measure undertaken by the Utilities. A reversal of trends has been observed with DISCOMs reporting a profit of Rs 70 crore in 2003-04 against a loss of Rs 414 crore in 1999-2000. In 2004-05, the DISCOMs again reported a loss of around Rs 397 crore, which reflects that the
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DISCOMs could not sustain the efforts of enforcement and other loss reduction initiatives. The key assumptions envisaged for the distribution reforms were to achieve financial viability through substantial loss reductions and improved billing and collection efficiencies. Merely by creations of separate DISCOMs, turnaround is not possible even after subsidy support by the State Government. The Gap between ACS and ARR in respect of DISCOMs on subsidy and revenue realised basis has in fact increased from about 16 paise to 25 paise per unit in case of DHBVNL and from 17 paise to 48 paise per unit for UHBVNL in the time period (2002-03 to 2004-05). The issues of employees identifying themselves fully with the new Utilities have not been adequately addressed. A comprehensive Human Resource Development programme is necessary to inculcate a sense of belonging and corporate loyalty towards the respective Utility. Such programmes would be helpful in building strong commitment with the managements vision and objectives of meeting the expectations of the consumers.

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Haryana

WAY FORWARD
STATE GOVERNMENT AND GOVERNANCE ISSUES For the reforms to succeed in the context of the EA, 2003, the State Government support is of utmost importance. There has to be an unequivocal commitment to the model on which the State has undertaken the restructuring in order to achieve the objectives. The Government support, in the transition period, should not only be in terms of handholding for providing equity support and financial support for subsidy but also for defining the roles and accountabilities for various stakeholders in the reform process. The support of the public to the reform process is crucial through appropriate communication and dissemination strategies aimed at participation of advocacy groups in the reform process. Since the Government is a shareholder, its approach should be to facilitate the corporate organisational structure of the utilities with adequate financial and functional autonomy to the power utilities. The number of Government nominees on the board of the utilities should be kept to the minimum and should preferably be experts from the related fields. The Government and the utilities should have mutually agreed areas relating to managerial and financial autonomy and accountability to achieve the targets and goals of efficiencies/performance over a defined period. Such MoUs/MoA have been introduced in the case of central public sector undertakings and similar models could be considered for power sector. At the time of restructuring, unfunded liabilities on account of Pension Funds and Provident Fund Bonds stood at Rs 673 crore and Rs 379.18 crore respectively for HVPNL and HPGCL. Such unfunded liabilities should have been retained by the State Government as has been done in other States who have undertaken restructuring of the SEBs. Transfer of such unfounded liabilities to the Utilities, have made them financially weak right from their inception stage. There is a need to consider financial restructuring plan of the Utilities which should provide specific flow of any additional revenue support to the Utilities and corresponding obligations of the Utilities for achieving the specified AT&C loss levels. This would obviate the occasional ad-hoc support, which the State has been providing in the form of waiver scheme etc. Arrears from the Government agencies are quite large which calls for creation of a separate budget provision for dues to DISCOMs. The same should be reflected in the
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State budget sub-head with a clear provision that the funds provided for such purpose shall not be diverted. For improving the ageing network infrastructure in rural areas of Haryana, which were created for 100 per cent rural electrification achieved as early as in 1970s, the grant funds under the Rajiv Gandhi Grameen Vidyutikaran Yojna should be tapped. This would help in stabilisation of retail tariffs and reduce the burden of cross-subsidisation on other category of consumers. This may have to be taken up by the State Government so that the benefit of this scheme gets extended to the DISCOMs in the State. The DISCOMs depend for support of the State machinery to curb the theft of electricity, which is endemic. The experience of AT&C loss reduction in States like Andhra Pradesh shows that enforcement measures with State support produces positive results. The State should have a risk-sharing role through agreement for AT&C losses reduction in a joint endeavour and the shortfall, if any, should be shared by the Government. Through such an arrangement, the State Government would receive benefits in the long run, possibly by way of subsidy reduction. The growing subsidy burden may call for rethinking the existing low tariffs for agricultural consumers, which continues to distort the financial health of DISCOMs. REGULATORY ISSUES Encouraging consumer advocacy groups and sharing of information by the Commission would create better participative space and lead to better understanding of regulatory process by the civil society at large. Role of media, particularly electronic media has been to downplay the serious issues in the sector. It has not attempted to highlight performance/underperformance on various aspects of deliverables of the Utilities. The regulatory certainty and predictability require that the HERC should formulate as early as possible the MYT framework and prescribe the control period for bringing in efficiencies in the operation of the utilities as also for the reduction of AT&C losses. Promotion of Competition The EA, 2003 has mandated the creation of competition and Open Access in the distribution end of the sector. The Commission has formulated regulations for Open
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Haryana

Access. HVPNL and the DISCOMs have allowed Open Access to their networks as per the recent notification. The surcharge was not levied on consumers in order to encourage bulk consumers to transport power during the deficit periods. For the competition and Open Access, an enabling environment is necessary. There should also be clarity regarding surcharge to be levied as per the NTP. HSERC is expected to play a vital role in promoting competition and efficiency across the value chain in the power sector. Its composition with personnel having domain expertise and experience can inspire confidence in the stakeholders. HERC, at present, is facing manpower shortage at different levels. Keeping in view the vital role of HERC, personnel with relevant expertise need to be inducted into the Commission. The EA, 2003 has provided for establishment of a separate regulatory fund, to be constituted by the State Government. This would ensure greater financial autonomy to the Commission. GENERATION Under the ABT regime, the State should suitably augment its generation capacity either through State owned generation projects or suitable tie-ups with upcoming CPSU projects. Considering the fact that the State at present has a generating capacity of around 4,033 MW, it must endeavour for a capacity addition target of around 3,000 MW in the next three to four years. This will be a prudent step given the fact that that UI charges, which are currently very high (between 9 to 10 per cent of the total power purchase cost of the State), might get an upward revision in the future and may adversely affect States who are overdrawing from the grid to meet their peaking requirements. TRANSMISSION To further improve the reliability of transmission network, there is a need to devise an incentives mechanism on the lines of guidelines issued by CERCs for determination of tariff for Central Transmission Utility. For the intra-State ABT regime, a number of preparatory steps are to be taken which shall be identified and implemented with adequate hand-holding by the Government of India, CEA and CERC and other related agencies.

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DISTRIBUTION Employee integration through commitment building shall require special change management and Human Resource initiatives, which shall be undertaken with support from Ministry of Power. Speedy redressal of consumer grievances would help the DISCOMs in increasing the collection efficiency. Consumer education and consumer care should be integral part of managing the distribution business by the utility. In the rural areas voluntary efforts for loss reduction during the peak hours have been found to be useful like the ones taken up by the Government of Maharashtra wherein a scheme called Akshay Prakash Yojna (APY) to restrict load on three-phase supply has been implemented. The arrears should not get built up as it happened in the past. Waiver of arrears is no solution as it causes burden on other sectors of the economy. Steps should be taken well in time to minimize legal disputes regarding electricity cases. Haryana Government has not set up Special Courts, so far, for speedy trial of cases of electricity theft. It is understood that a lot of manpower and resources are employed to present the cases in the courts of law from the Utility side also. Special legal cells should be established by the Utilities to deal with such matters. Going forward, the DISCOMs have the key role to implement the reform process in its true spirit. To bring about the same the DISCOMs need to undertake the following concrete steps within a given timeframe as may be approved by the Commission: AT&C Losses Reduction Technical initiatives for loss reduction including HVDS and Ariel Bunch Conductors (ABC) in high loss prone areas; Aggressive plan for installation/replacement of faulty meters in its distribution area; Feeder wise consumer indexing, energy auditing for efficient metering and billing with requisite IT applications and processes; and Creation of enforcement cells for undertaking anti-theft measures. The personnel posted in these cells should possess requisite expertise to deal with the cases involving the theft of electricity.
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Reliability and Quality of Supply Major focus should be on strengthening and augmentation of network and fault management to improve reliability and quality of supply. IT applications like GIS and SCADA should be adopted for detection, intervention and response to ensure the effective network monitoring. Through such measures, the prescribed levels of performance stipulated in Standards of Performance (SoP) could be complied with. Consumer Services and Deliverables The following suggestions are made to improve consumer services and deliverables: Setting up of Consumer Call Centres at vital consumer interface points would enhance consumer satisfaction and also improve the utilitys image. The call centres should serve as centres for all information and necessary consumer support for all billing, metering and other power related issues; Strengthening feedback/grievance redressal mechanisms in a structured format; The DISCOMs need to undertake these IT initiatives for timely monitoring of revenue management as also for accurate metering and billing, within a defined time period; and The DISCOMs should further enhance the payment options to the consumers as are prevalent in the telecom sector, etc.

Change Management and Human Resources Initiatives The following suggestions are made in the area of HR initiatives etc.: Since employees represent the face of the organisation the DISCOMs should undertake training and development of its employees especially the staff placed at consumer interface points; The departments role and responsibilities of individuals should be defined and personnel made accountable for their performance; There should be well-organised enforcement teams for conducting raids. The teams should be provided requisite legal knowledge for collection of evidence and reporting of the same; The organisational structures can be changed to bring about the change both from the perspective of autonomy and empowerment of employees for effective decision-making and implementation of reforms;
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Creating better commitment levels among the managers through managerial incentives and better HR policies; Encouraging successful initiatives in controlling expenses; and Enhancing productivity of employees.

The reform process can be further strengthened by involving the public at large, through social awareness in controlling thefts of electricity. The same can be implemented by providing discounts in the electricity bills of the consumers either on an area or feeder basis that helps the Utilities in controlling electricity thefts. Such a cultural change is extremely important for effectively addressing the menace of electricity thefts. CONCLUSIONS The study recognises the problems, which have arisen or not adequately anticipated at the time of reforms. The DISCOMs consequent to the EA, 2003 would have to face competition in the sector and, therefore, they need to address issues like: widespread inefficiencies and inadequate investments towards upgrading the distribution network, so that the DISCOMs are able to provide quality power to the consumers and become self-sustaining. The most significant lesson emerging from the Study is that the powers Utilities need continued support from the Government both in terms of financial restructuring and also in institutional development. Capacity building of all the stakeholders and active public participation in the reform process are also the essential ingredients for the success of power sector reforms. Finally, if the reforms have been somewhat slow and progress seems unsatisfactory after the restructuring, it only reinforces the need for reforms process to proceed more vigorously.

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10
2001-02 2002-03 2003-04 2004-05 2001-02 2002-03 2003-04 2004-05 2001-02 2002-03 2003-04 2004-05 2001-02 2002-03 2003-04 2004-05 2001-02 2002-03 2003-04 2004-05 2001-02 2002-03 2003-04 2004-05 2001-02 2002-03 2003-04 2004-05
BRPL BYPL DELHI

20

30

40

50

60

70

APCPDCL APEPDCL APNPDCL APSPDCL DHBVNL

ANDHRA PRADESH HARYANA

AT & C LOSSES FOR VARIOUS UTILITIES 2001-02 TO 2004-05

UHBVNL

2.67
NDPL AVVNL JDVVNL JVVNL RAJASTHAN

2001-02 2002-03 2003-04 2004-05 2001-02 2002-03 2003-04 2004-05 2001-02 2002-03 2003-04 2004-05 2001-02 2002-03 2003-04 2004-05 2001-02 2002-03 2003-04 2004-05

Annexure-1

There are wide variations in the trend of AT & C Losses across various utilities in the country. While the discoms in Andhra Pradesh and Delhi have substantially reduced their losses in the past three years from 2002-03 to 2004-05, on the other hand, there is a progressive increase in AT & C losses in utilities of Haryana and Rajasthan.

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Annexure-II
Comparison of Revenue Gap amongst Discoms
1

0 .8

0 .6

Rs/kWh

0 .4

0 .2

0 NDPL BRPL BRPL DHBVNL DHBVNL UHBVNL

JVV NL

DHBV NL

UHBV NL

APNPDCL

UHBV NL

APNPDCL

JVV NL

NDPL

NDPL

BRPL

-0 .2

-0 .4

200 2-03

200 3-04

20 04-05

Gap (without Subsidy)

Gap (Subsidy Booked basis)

Gap (Subsidy Realised Basis)

Gap (Subsidy, Revenue Realised Basis)

2.69

APNPDCL

JVVNL

Annexure-III

2.70

Comparitive of Profitability of DISCOMs

300

200

100

Rs Crs

APNPDCL

APNPDCL

-200

-300

2002-03
-400

2003-04

2004-05

-500

Cash Profit

Cash Profit- Subsidy Rcvd Basis

Cash Profit on revenue and subsidy rcvd basis

Annexure-IV Table: Status of APDRP Funds Utilisation in Haryana DISCOMs (as on 30.09.05)
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APNPDCL

JVVNL

JVVNL

DHBVNL

UHBVNL

DHBVNL

UHBVNL

DHBVNL

UHBVNL

JVVNL

NDPL

BRPL

NDPL

BRPL

NDPL

BRPL

-100

Power Utility

Project name

Sanctioned APDRP portion 13.66 101.70 115.36 24.11 125.01 149.12 264.48 Funded portion (PFC/REC) 13.66 101.70 115.36 24.11 125.01 149.12 264.48 Total APDRP portion 13.66 74.68 88.34 24.12 94.30 118.42 206.76

Received Funded portion (PFC/REC) 11.69 51.03 62.72 20.77 31.25 52.02 114.74 Total

Fig in Crores Actual Expenditure incurred APDRP portion 11.40 74.68 86.08 24.12 94.30 118.42 204.50 Funded portion (PFC/REC) 11.39 25.01 36.40 21.28 12.77 34.05 70.45 Total

Balance Total

APDRP Funded portion portion (PFC/REC) 2.26 0.00 2.26 0.00 0.00 0.00 2.26 0.30 26.02 26.32 -0.51 18.48 17.97 44.29

UHBVN Total UHBVN DHBVN Total DHBVN GRAND TOTAL

2000-01 2002-03 2000-01 2002-03

27.32 203.39 230.71 48.22 250.02 298.24 528.95

25.35 125.71 151.06 44.89 125.55 170.44 321.50

22.79 99.69 122.48 45.40 107.07 152.47 274.95

2.56 26.02 28.58 -0.51 18.48 17.97 46.55

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TABLE OF CONTENTS
BACKGROUND ................................................................................................................... 9.1 Restructuring Exercise............................................................................................. 9.2 Chronology of Events ............................................................................................... 9.3 Formation of four Distribution Companies ........................................................... 9.5 Effective Communication Strategy ......................................................................... 9.6 Transfer of Assets to GSECL, GETCL, four DISCOMs and Residual GEB ..... 9.7 FORMULATION OF FINANCIAL RESTRUCTURING PLAN (FRP)........................ 9.7 Financial support to be extended by Government of Gujarat ............................. 9.7 Inter-se Agreements................................................................................................ 9.11 Intra-State Availability Based Tariff .................................................................... 9.11 Professionalisation of Companies.......................................................................... 9.12 Summary ................................................................................................................. 9.12 NOTEWORTHY INITIATIVES IN POWER SECTOR OF GUJARAT .................... 9.13 Power Supply Position in Gujarat......................................................................... 9.13 Initiative of Jyoti Gram Yojna............................................................................ 9.13 Initiatives in Information Technology .................................................................. 9.16 e-Urja Project.......................................................................................................... 9.16 LESSONS LEARNT AND IMPORTANT RECOMMENDATIONS ........................... 9.18 Importance of Support of Government and Staff in Restructuring .................. 9.18 e-urja Project .......................................................................................................... 9.19 Way Ahead .............................................................................................................. 9.19 OTHER ACTION POINTS ............................................................................................... 9.21 SUPPLEMENTARY INFORMATION ABOUT UTILITIES....................................... 9.22 Gujarat State Electricity Corporation Limited .................................................. 9.22 Gujarat Energy Transmission Corporation Limited ......................................... 9.24 DGVCL/MGVCL/PGVCL/UGVCL..................................................................... 9.25 Way Ahead .............................................................................................................. 9.34 Important Data about Individual Distribution Companies................................ 9.35 Dakshin Gujarat Vij Company Limited (DGVCL)............................................. 9.35 Madhya Gujarat Vij Company Limited (MGVCL)............................................ 9.36 Paschim Gujarat Vij Company Limited (PGVCL)............................................. 9.37

GUJARAT

BACKGROUND Till the year 1998, Gujarat Electricity Board (GEB) was a profit-making SEB and one of the more efficiently run Boards in the country. It had made significant progress in installing 4,861 MW generating capacity, comprising of thermal, gas and hydro stations owned by GEB and Gujarat Electricity Generating Company and extensive T&D network covering the entire State. Gujarat enjoyed a high position amongst the highly industrialised States in the country. One of the important contributing factors for this achievement was the comfortable power supply position in the State. From the year 1998 onwards however, due to various circumstances, some of them being beyond the control of GEB, it started incurring losses year after year and total losses reached a staggering figure of Rs 6,233 crore by the end of 2002-03. It was clear to the Government of Gujarat and GEB that such huge loss levels were unsustainable. The quality of power supply and customer satisfaction levels had also gone down. To remedy this situation, it became necessary to restructure GEB to achieve its turnaround and ensure its sustainability. Faced with this grave situation, Government of Gujarat took a decision to restructure the Electricity Industry in the State. Government of Gujarat and GEB took a number of proactive decisions followed by timely supporting actions to ensure a smooth make over from a large monolithic vertically integrated organisation of GEB to seven distinct corporate entities. These actions have resulted into most successful and smooth restructuring of GEB into seven companies as under:
Gujarat Urja Vikas Nigam Ltd. (GUVNL) Gujarat State Electricity Corporation Ltd. (GSECL) Gujarat Energy Transmission Corporation Ltd. (GETCL) Madhya Gujarat Vij Company Ltd. (MGVCL) Paschim Gujarat Vij Company Ltd. (PGVCL) Uttar Gujarat Vij Company Ltd. (UGVCL) Dakshin Gujarat Vij Company Ltd. (DGVCL) A holding company A generating company A transmission company A distribution company A distribution company A distribution company A distribution company

All the above-named seven companies have become operational from 1 April 2005. The most noteworthy feature of this exercise was immediate inclusion of representatives of the unions and associations of the staff in the restructuring process, right from initial stage after deciding on reforming the sector. It convinced the staff that Government of Gujarat/GEB management were not pursuing any hidden agenda

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs and thus built a high trust and confidence about aims and objectives of reforms and the process proposed to be followed to achieve them. This ensured their full support to restructuring of GEB. The attitude of the staff in the entire restructuring process remained positive. If the restructuring exercise adopted by the Government of Gujarat/GEB (with full and active support of GEBs staff) were to be summarised in one word, it is Harmony. It is an object lesson worthy of emulation by other SEBs on their path of undertaking a similar journey. As stated above, a lot of proactive actions to improve the performance of the organisation were taken concurrently along with the restructuring exercise. As a result, continuous performance improvements were noticed from the year 2003 onwards. Therefore, instead of looking for specific improvements only in one year after restructuring, it would be worthwhile to look for progress achieved in the period 2003-05, steps taken by the restructured entities to identify future concerns and ensure preparedness to deal with these efficiently. This information would be useful for other utilities that have already been restructured and also to other SEBs, which are yet to be restructured. RESTRUCTURING EXERCISE Preamble Way back in 1990s, the erstwhile GEB had realised that it would become more and more difficult for it to mobilise funds required for its expansion plans on its own nor could it depend totally on Government of Gujarat and that it would be necessary to source the required funds from the market. It was clear that for mopping funds from the market, it would be necessary to create suitable corporate structures as a first step. With this in view a Generating Company named Gujarat State Electricity Corporation Ltd (GSECL) was incorporated by GEB in August 1993 under the Companies Act, 1956. To start with, construction of GEBs Wanakbori Unit No. 7 and Gandhinagar Unit No. 5 was taken over by this company. GSECL could raise around Rs 800 crore from the market. GSECL could repay all debts and became a profit making company. After the restructuring of GEB, the assets/liabilities of remaining generating stations of the GEB were transferred to GSECL. Later on, as a part of an agreement reached with the Asian Development Bank (ADB) while negotiating Gujarat Power Sector Development Programme Loan, in May 1999 Government of Gujarat incorporated Gujarat Energy Transmission Corporation Ltd (GETCL) under the Companies Act, 1956. Unlike GSECL, GETCL did not have any
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Gujarat

assets transferred to it from GEB at the time of its incorporation. GETCL acquired GEBs all the assets/liabilities pertaining to transmission only after GEB was restructured. From the above it would be noted that corporate structures for generation and transmission of energy were in place for quite some period even before GEB was restructured. SEAMLESS TRANSFORMATION FROM GEB TO CORPORATE ENTITIES Chronology of Events Major events associated with the restructuring process are noted below. Besides these, a number of supporting actions were taken by the State Government and GEB to ensure that the programme of restructuring of GEB was carried out smoothly without any obstructions. Chronology of Events
May 2003 August 2003 October 2003 Promulgation of Gujarat Electricity Industry (Reorganisation and Regulation) Act, 2003 Government of Gujarat suggests GEB to form four distribution companies Signing of Tripartite Agreement between Government of Gujarat, GEB and six recognised unions and associations in GEB Government of Gujarat notifies Scheme of transfer of assets to GSECL, GETCL, four DISCOMs and residual GEB

October 2003

December 2004/ Financial Restructuring Plan (FRP) submitted to Government of Gujarat. A new company March 2005 named Gujarat Urja Vikas Nigam Ltd. (GUVNL) was formed and provisional opening balance sheets of all companies notified April 2005 December 2005 May 2006 Formation of Committee for FRP and operationalisation of companies Government of Gujarat approves the FRP Government of Gujarat notifies final balance sheets of all companies

In achieving the above schedule, Government of Gujarats role was very positive and proactive. It also took stringent/strict measures against theft of electricity by enacting the Anti-Theft Law, creation of dedicated police stations and special courts to deal with this menace.

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Study on `Impact of Restructuring of SEBs The Government of Gujarat and GEB availed the services on related issues from a number of consultants, namely M/s CRISIL Infrastructure Advisory Mumbai, Administrative Staff College of India, M/s Feedback Ventures Mumbai, M/s K.S. Madhavan & Associates Hyderabad, P.A. Consultants Indonesia, PGCIL New Delhi, , etc., to name a few. The highlights of important milestones as well as other important supporting actions taken in the intervening period are explained below: Promulgation of Gujarat Electricity Industry (Reorganisation and Regulation) Act, 2003 With accumulated total losses reaching Rs 6,233 crore by the end of March 2003, it was clear to the Government of Gujarat and GEB that such huge loss levels were unsustainable. The quality of power supply and customer satisfaction levels had gone down. To correct this situation it was necessary to reform the power sector so that it could achieve a turnaround and be sustainable. On 12 May 2003, the State Government promulgated Gujarat Electricity Industry (Reorganisation and Regulation) Act, 2003. The Act inter ala provided for the following: Establishment of the Gujarat Electricity Regulatory Commission (GERC) Powers of GERC Reorganisation of the Government Electricity Industry, which paved the way for restructuring of GEB.

Important provisions in the Act from considerations of the staff, are indicated below: The first transferee to whom Government of Gujarat will transfer GEBs assets, will be companies or bodies corporate owned or controlled by the State Government. Only after due consultation with the first transferee, will the Government transfer such part of the undertaking to the second transferee (any other company, body corporate, person, etc.). Further, in case of transfer of controlling interest in the first transferee or the second transferee by the Government of Gujarat to any company, body corporate, person, etc., the same will be given effect only with the prior approval by a resolution of the State Legislature. For the Staff, this enabling provision provided comfort for expressing its dissent, if any, in future.
9.4

Gujarat

The transfers of the personnel from GEB to first transferee or to second transferee shall be subject to the following: i) ii) Emoluments and other monetary benefits applicable on transfer shall not in any way be less favourable than those applicable before the transfer; The personnel will have continuity of service in the first or second transferee; and

iii) The benefits of service accrued before transfer will be recognised and appropriately provided for to secure the interest of the personnel. FORMATION OF FOUR DISTRIBUTION COMPANIES The erstwhile GEB had five zones, viz., North, Central, South, West I and West II, each with a number of circle offices attached to it. In forming the distribution companies the same zonal areas with the same circles attached to each zone have been designated as new distribution companies (DISCOMs). As a result, North Zone has now become UGVCL, Central Zone is now MGVCL, South Zone is now DGVCL and West I and West II Zones have been merged into one company, PGVCL. With this, majority of the staff working in the distribution sector in individual circles continued to work in the same circle though under a new company instead of earlier zone, thus totally avoiding any possible grievances on account of relocation. SIGNING OF TRIPARTITE AGREEMENT The most noteworthy feature of the exercise is total and active support GEB could muster from its staff for its restructuring. With reform agenda of the State Government and enactment of Gujarat Electricity Industry (Reorganisation and Regulation) Act, 2003, unions and associations in GEB expressed apprehensions that if their services were privatised, there would be adverse impact on their service conditions, and likely retrenchments resulting in loss of employment. Though Government of Gujarat/GEB had from time to time declared that such apprehensions were unfounded, from the viewpoint of ensuring smooth implementation of the policy and allay fears of the employees, Government of Gujarat, GEB and recognised unions and associations of GEB signed a tripartite agreement. This agreement is the cornerstone of the success story. Hence, salient points of this agreement are noted below: Government of Gujarat/GEB confirmed that the status/service conditions in the new entities would not be inferior to those prevailing under GEB. Efforts would be made to rationalise the conditions to provide for career growth and welfare

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State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs measures more beneficial to the employees. Employees rendered surplus, due to a process of rationalisation, would be redeployed after training. Government of Gujarat/GEB/successor entities would guarantee continuance of pension/family pension, retirement benefits such as gratuity, encashment of leave and other existing welfare benefits like HBA, medical reimbursement, medical advance, festival advance, etc. The period of service of employees under GEB and its successor entities would be treated as continuous service for the purpose of service and terminal benefits. The successor entities shall be responsible for payment of superannuation benefits and, till this was organised, all such payments would be made by GEB. In case of subsequent transfer to successor entities not owned by Government of Gujarat, the Government would ensure that these are incorporated in the transfer scheme. All disciplinary cases already finalised and punishment awarded would not be reopened. All employees would be transferred to new companies on as is where is basis. A committee consisting of representatives of the management and one representative of each of the recognised unions/associations would be formed to decide the norms for disposal of representations for permanent absorption. Based on these norms, another committee, notified for the purpose, would decide on requests for transfer and permanent absorption. Provisions of Industrial Disputes Act, 1947 and Bombay Industrial Relations Act in-so-far as these are applicable would be continued to be operative; The existing recognition of the trade unions and associations would be continued by the successor entities; Services of those recruited under Vidyut Sahayak Scheme for Helpers would be regularised; and The agreement would be binding on the Government of Gujarat/GEB, successor entities and recognised unions/associations of GEB/successor entities.

EFFECTIVE COMMUNICATION STRATEGY GEB adopted an effective communication strategy in reaching all employees and making them aware of the need for reforming the sector, aims and objectives of the reforms, efficiency improvement agenda, etc. The Chairman sent a personal
9.6

Gujarat

communication to employees highlighting the related issues and the importance of their whole-hearted and active participation in the process. A set of champions and trainers were created from amongst the staff to spread the message to their colleagues. Structured meetings were held with unions/associations regularly to sort out misunderstandings if any. Similarly meetings were held with industries associations and consumers forums to inform them about the reform agenda of GEB. All these efforts helped in no small measure in the smooth restructuring of GEB. TRANSFER OF ASSETS TO GSECL, GETCL, FOUR DISCOMS AND RESIDUAL GEB As per the initial transfer scheme, the residual GEB was to retain certain functions in respect of bulk purchase of electricity and sale to DISCOMs, residual assets pertaining to Load Despatch Centre and those that had remained after transfer to other entities. Since trading of electricity is a licensed activity under the Electricity Act, 2003, it became necessary to transfer this function from the residual GEB to a corporate entity. Therefore in December 2004, Government of Gujarat decided to establish a new company under the Companies Act 1956, namely the Gujarat Urja Vikas Nigam Limited (GUVNL) and transfer all functions/assets earlier proposed to be kept with the residual GEB except the assets pertaining to Load Despatch Centre which were transferred to GETCL in the meantime. FORMULATION OF FINANCIAL RESTRUCTURING PLAN The Financial Restructuring Plan (FRP) is one of the most important components of the reform agenda. It defines a detailed road map for the successor entities in their effort to achieve turnaround by the year 2011 with improvements in their efficiency parameters and support from Government of Gujarat in subsidies and capital infusion. The highlights of FRP are noted below: Financial support to be extended by Government of Gujarat as indicated in the FRP Taking over the liability of payment of CPSU Bonds aggregating to Rs 1,628 crore; Converting the State Governments loans into equity aggregating to Rs 623 crore;

9.7

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs Providing moratorium on payment of interest on outstanding Government of Gujarat loan of Rs 842 crore for the period 2005-06 to 2010-11. Deferred interest to be paid after 2010-11; Subsidy has been capped at Rs 1,100 crore till review after 95 per cent of completion of Jyoti Gram Yojna. Thereafter, this cap will be removed and subsidy will be computed as per formula of agricultural subsidy. However, subsidy will be capped at the amount of electricity duty collected during the year (which presently is more than Rs 1,600 crore). Government of Gujarat to provide capital grant of Rs 250 crore per year for strengthening the power sector; and Government of Gujarat/profit making State PSUs to provide capital support of around Rs 600 crore per year.

The above commitments from Government of Gujarat for the period 2006 to 2011 translate into: A total revenue support of Rs 9,498 crore; and A total capital support of Rs 5,854 crore;

The total revenue and capital during the above-mentioned period would thus be Rs 15,352 crore, i.e., approximately Rs 2,558 crore per year. Improvements to be Achieved by the Companies, as Indicated in the FRP The restructured entities need to improve their efficiency parameters like reduction in power purchase costs, fuel costs, general purchase costs, interest costs, aggressive reduction in T&D losses and bring about improvement in generation efficiency, etc. It is proposed to bring down T&D losses from 29.79 to 18.5 per cent and improve overall generation efficiency from 72 to 76 per cent. The total savings envisaged during the period 2006 to 2011 are indicated below:
Targets to be Accomplished (As per FRP) Particulars Power purchase cost reduction Reduction in general purpose costs T&D loss reduction Improvement in generation efficiency Fuel cost reduction Reduction in interest costs Total savings envisaged Average savings per year (Rs crore) Savings in costs 1,761.00 84.00 3,661.00 510.00 869.00 4,024.00 10,909.00 1,818.00

9.8

Gujarat

The following table gives financial projections for the turnaround period of 2005-06 to 2010-11:

Government of Gujarat conveyed its approval to the FRP in December 2005. The Final opening balance sheets of all companies (as on 1 April 2005), as approved by Government of Gujarat, were issued in May 2006. BETTER FINANCIAL MANAGEMENT AND CONTROL ON COSTS The impact of actions of Government of Gujarat/GEB/GUVNL in financial management and impact of performance improvements in the areas of generation, transmission and/distribution are as follows:

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State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs Results Achieved by Better Financial Management and Control
(Rs crore) Particulars By re-negotiating the PPAs -1st phase By re-negotiating the PPAs - 2nd phase Interest cost reduction by restructuring loan portfolio of Rs 4,191 crore Savings in fuel costs due to use of washed coal/better quality coal, negotiated price for LSHS Besides the above, because of payment of CPSU dues, GUVNL earned an incentive of Rs 312 crore. Reduction in T&D losses Improvement in PLF of GSECL Improvement in monthly revenue collection (without any major tariff increase) Savings 495.00 64.00 299.00 102 .00

From 30.9% in 2003-04 to 26.28% in 2005-06 (estimated) From 70.27% in 2003-04 to 72.48% in 2005-06 From Rs 750 crore in 2003-04 to Rs 955 crore in first quarter of 2006

The above has resulted in improving the financial position as under:


Improvements in Financial Position Particulars Units sold (MU) Revenue from sale of power Subsidy Other income Total income Purchase of power Generation of power Other expenses Total expenses Surplus/(Deficit) Cash profit/(Cash Loss) 2003-04 31001 8545 1101 458 10104 5578 2905 3553 12036 (1932) (1153) (Rs crore) 2004-05 2005-06* 31005 16365 9050 4900 1101 550 441 110 10592 5560 5358 2540 3288 1460 2981 1695 11627 5695 (1035) (135) (266) 265 (Source: GUVNL)

* The information pertaining to half-yearly period.

UPWARD REVALUATION OF ASSETS The assets of the erstwhile GEB were restated upwards in order to ensure that financial parameters of the newly formed entities project a realistic and healthy picture. The net value of assets of GEB, after allowing for accumulated depreciation, stood at Rs 5,950 crore as on 31 March 2005. With a view to strengthen the balance sheets of the new companies, the net value of the assets has been restated at Rs 11,246 crore by reducing the accumulated depreciation amount by Rs 5,296 crore.

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Gujarat

OTHER IMPORTANT SUPPORTING ACTIONS BY GEB In addition to these important milestones in the journey towards formation of new corporate entities, a number of actions were concurrently taken by GEB in the intervening period to ensure that the journey towards restructuring is smooth as well as the new entities work in a disciplined and professional manner in a new environment. These are reported below in brief. OPTIONS FOR TRANSFERS AND PERMANENT ABSORPTIONS OF EMPLOYEES In accordance with the guidelines for deciding applications for permanent absorptions to the choice of employee, a total of 811 applications were received in respect of class 1 and 2 employees. Of these, 771 cases (95.07 per cent) were decided as per the choice of employees, 16 cases (1.97 per cent) were decided as per discretion of the committee and 24 cases (2.96 per cent) were decided as per discretion of the management. It would thus be noted that more than 95 per cent of applicants were satisfied with the result. INTER-SE AGREEMENTS In the new set up, GUVNLs role is that of a trading company as well as a company coordinating with other restructured companies. It purchases power in bulk from the generating companies and sells this to the four DISCOMs at Bulk Supply Tariff (BST). It is responsible to obtain funds for expansion at competitive interest rates as well as to manage loan repayments. To maintain commercial relationship in its role, it has signed power purchase agreements (PPAs) with GSECL, State IPPs and Central Generating Stations for purchase of bulk power. Similarly, it has signed power supply agreements (PSAs) at bulk tariff with the four DISCOMs. Transmission services agreements have been signed by GUVNL and the four DISCOMs jointly with GETCO on payment terms for transmission charges and for carrying out the function of load despatch for inter-State as well as intra-State despatch. The agreement also delegates responsibility of installing and maintaining interface-metering systems. INTRA-STATE AVAILABILITY BASED TARIFF With a view to bring discipline in the operation of generating plant and the four DISCOMs, it has been decided to implement intra-State ABT. The discipline is realised in terms of adhering to defined schedules and actual despatches and payments
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State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs for unscheduled interchanges (UI). Gujarat may be the first state in the country to have proceeded in adopting intra state ABT mechanism. The job of installing meters at interface points is entrusted with GETCL. The work is in advance stage in DGVCL and UGVCL and trials are expected to be taken in August 2006. It is expected that entire system will be operational by the end of this year. PROFESSIONALISATION OF COMPANIES All the companies have formulated their mission and vision statements. They have formulated their business plans for a longer period. Each of the companies has its own planning and finance departments in place. Each company has set targets for improvement in respect of defined key performance indicators (KPI). Independent professional directors are appointed on the boards of GSECL and GETCL. It is expected that with the signing of PPAs and PSAs and implementation of intra-State ABT, the working of all companies will turn more and more commercial and independent of each other. SUMMARY The above gives an overview of the restructuring exercise carried out by Government of Gujarat/GEB. Efforts of the staff continued to be productive in the entire period from the time of deciding to reform the electricity sector in the State, till extremely smooth completion of the restructuring process, resulting in the formation of seven distinct corporate entities and thereafter. Therefore, achievements during entire period from 2003 to 2005 (and not only the short period after April 2005) should be considered as due to impact of restructuring. The progress achieved in this period in generation, transmission and distribution sectors is noted in the subsequent chapters.

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Gujarat

NOTEWORTHY INITIATIVES IN POWER SECTOR OF GUJARAT


POWER SUPPLY POSITION IN GUJARAT The State has a total installed capacity of 8,974 MW comprising of powers stations of GSECL, private sector and states share of power from central sector power plants. The total capacity of GSECL consists of 4,179 MW thermal, 242 MW gas and 547 MW Hydro totalling 4,968 MW. Private sector has a total of 2,166 MW capacity and States share of central sector plants is 1,840 MW. The States unrestricted peak demand is estimated to be 10,188 MW. The peak demand served and maximum daily energy supplied in October 2005 were 8,163 MW and 186.84 MU respectively. The maximum daily generation of GSECLs thermal and hydro power stations was 91 MU. Plant load factor (PLF) of thermal power plants was 83.19 per cent. GSECLs power stations have achieved a PLF of 72.48 per cent in the year 2005-06, a remarkable feat considering the fact that many of the generating units are very old. Total energy input into the transmission grid of the State in 2004-05 was 50,340 MU of which, energy supplied by GSECL has been of the order of 28,000 MU. There is no power cut in major urban areas, for HT consumers, industrial estates, Gujarat Industrial Development Corporation (GIDC) areas and in 168 Nagar Palikas. A total of 17,773 villages under Jyoti Gram Yojna (explained below) are supplied with 24 hours three phase power supply. Remaining areas have power cuts for four to five hours a day. INITIATIVE OF JYOTI GRAM YOJNA The 11 kV feeders in rural areas are composite feeders that supply agricultural pumping load as well as other rural loads for the households and rural industries in the nearby villages. In order to restrict peak demand, agricultural loads are generally provided power supply for a limited number of hours during off peak period in a day (in many cases during the night). In the remaining period, these feeders are disconnected, which also results in disconnection of power supply to the villages connected on the feeder. The life in rural areas thus gets adversely affected. To remedy the situation some utilities have resorted to using single-phase transformers and providing single-phase supply.

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State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs To provide 24 hours three phase supply to the residential, industrial and commercial loads in rural areas, Government of Gujarat initiated a scheme of separating agricultural load from village loads by providing separate dedicated feeders for the villages delinking these from the existing composite feeders. This scheme, namely Jyoti Gram Yojna (JGY), was initiated in September 2003. The State has a total of 18,065 villages. Of these 17,738 villages are electrified in the conventional manner and 98 villages are provided with solar panels and 229 villages are not electrified due to no demand/less than 10 per cent demand/forest/submerged villages. Till May 2006, a total of 17,773 villages were covered under the JGY and three more villages will be covered after forest clearance is obtained. The physical achievements, related costs and benefits obtained are given below:
Cost Benefits and other Details of Jyoti Gram Yojna Description Number of villages covered Costs for above works (Rs crore) Cost of energy saved (Rs crore) Approximate energy saved (MU) Reduction in demand (MW) Network Addition Number of new JGY feeders erected Total length of HT line added (ckt km) Total length of LT line added (ckt km) Number of distribution transformers added 2003 -04 2,516 53.26 2004 -05 6,203 358.57 2005 -06 9,002 665.66 From April -May 2006 52 19.17 Total Up to May 2006 17,773 1096.66 498.93 1750.64 600 1,324 46,255 7,119 11,199

IMPACT OF JYOTI GRAM YOJNA The success of this scheme has dispelled the notion that investments in improving services in the rural sector do not pay back enough in financial terms. The average investment per village is seen to be increasing from Rs 2.12 lakh for the first lot of villages to Rs 7.39 lakh for the third lot of villages (Rs 36.36 lakh for last 52 villages) probably due to long lengths of 11 kV feeders in each subsequent lot of villages covered under JGY. It is, however, seen from the reported savings after almost completing the scheme, that in a period of less than three years, more than 45 per cent of investments in JGY are paid back. Apart from this favourable cost/benefit ratio to the Utility, this scheme will provide the required impetus for development of rural economy, creation of job opportunities, better health and education services, leading to an improved standard of living in the villages.

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Gujarat

It has opened up a number of new opportunities for the utilities. Firstly, it will lead to a better effort in conducting energy audit. Energy supplied from the new JGY rural feeders could be tallied with the sum total of energy consumptions in all connected villages till meters are provided to each distribution transformer and transformer-wise audit is conducted. Increasing consumption in rural areas will now bring additional revenue to the Utility, as this energy will all be metered. Energy consumption for agricultural pumping loads can be assessed more correctly from the energy meters provided in the sub-station on the now dedicated agricultural feeders. The tariff for agricultural pumpsets is based on horsepower (HP) of the connected motor and not on consumption of energy as no meters are provided to individual installations. Where groundwater level is high, this leads to pumpsets remaining in operation for the entire period when supply is on and no efforts are undertaken to conserve the available water and/or reduce energy consumption. Where groundwater level has gone down, low capacity motors get replaced with higher capacity motors and this does not get recorded in the Utilitys database, resulting in loss of revenue to the Utility. With separate feeders for agricultural pumps now available, energy consumed per HP of connected load can be worked out for each such feeder. It should now be possible to devise a new graded tariff structure, though still based on HP of the connected motor, in such a way that tariff is lowest for a slab where energy consumed per HP of connected load is lowest and increases according to increasing per HP consumption. With careful design of tariff structure, it should be possible to induce the consumer to report increased HP of the installation on his own or agree to fix an energy meter. Both these options would benefit the Utility as well as agricultural consumers. With active participation of consumers connected to agricultural feeders, as has been successfully demonstrated by villagers in Akshay Prakash Yojna in Maharashtra, it should be possible to reduce energy consumption and losses on these feeders by selfregulation of use of pumpsets in two or three groups, each group using energy at any given time for an agreed and defined duration. This will also reduce consumption of energy per connected HP and result in reduced tariff for agricultural consumers. It can be seen that JGY has been cost effective; it would improve standard of living in villages on account of availability of 24 hours of three-phase power supply and has opened new opportunities for the DISCOMs. Incidentally this initiative has come, not from the administrative/technical wing of Government of Gujarat/GEB, but from the political wing in Gujarat.
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State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs INITIATIVES IN INFORMATION TECHNOLOGY e-Urja Project With a view to help in streamlining processes and provide greater economic value to its customers and other stakeholders of all restructured utilities, an end-to-end ERPbased IT solution called e-Urja is being set-up. The project envisages substantial reduction in paper work through on-line documentation and approval process. The estimated cost of the project is Rs 109 crore. PFC have sanctioned a loan of Rs 87 crore at concessional interest of 6 per cent for IT initiatives. M/s TCS are providing technical support. The following Oracle Applications 11i solution has been proposed with specific 11i solutions for each company residing in a separate server: Oracle applications 11i ERP Financial Procurement Inventory Maintenance management Projects Human resource Process management for GSECL Customer relationship management for the DISCOM Collaboration suite (mails, files)

Other Applications Payroll Trading solution for GUVNL Utility billing solution for DISCOM Network analysis solution for DISCOM

Implementation of this solution is being carried out from a centralised station for seven pilot sites one for each company. Subsequently the following additional locations will also be included:
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Gujarat

GSECL GETCL DISCOMs

8 Power stations 11 Transmission circles 16 Distribution circles

The rollout in the pilot sites is currently on and complete rollout throughout seven companies is expected to be completed later this year. The following benefits will accrue to the companies after implementation: Integrated system covering major areas of each of the companies Streamlined and improved business processes On-time accurate MIS Workflow-based approvals and notifications Centralised Database - single source of truth

Other IT-related Applications in Service GIS mapping has been completed in Vadodara, Bhavnagar, Rajkot, Jamnagar and Junagadh cities and the system is operational. GIS system is proposed to be implemented in some more cities, namely Bharuch, Surat, Valsad, Vapi, Nadiad, Anand, Mehsana. These are planned to be operational in 2007-08. On line data monitoring is completed in respects of three transmission circles and is in implementation stage in six more circles. Hand-held machines are being introduced for spot billing. All company headquarters and power stations are linked to HO through WAN.

PERFORMANCE IMPROVEMENTS Progress of Gujarats energy sector is commendable. Its power stations have been receiving many national awards for meritorious performance. Under APDRP incentive scheme, the erstwhile GEB has become eligible to receive incentives from Government of India of over Rs 385 crore in the period 2001 to 2003 for reducing cash losses. In the studies by rating agencies, Gujarat has consistently improved its rating from 7th position in 2003 to 5th position in 2004 and to 2nd position in 2005. It was awarded the first prize by the India-Tech Foundation for the best performing state in the power sector in the country.

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State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs

LESSONS LEARNT AND IMPORTANT RECOMMENDATIONS


IMPORTANCE OF SUPPORT OF GOVERNMENT AND STAFF IN RESTRUCTURING For the smooth and successful implementation of restructuring of SEB, unflinching support of the State Government and the Staff in SEB is a must. Such unstinted support from the Government is possible only if there is a strong political commitment to the restructuring agenda. There should be a general agreement among all political parties in respect of aims and objectives of the reform programme as well as about process of realising the same. The Government needs to realise that the process of dismantling a structure, which is more than 50 years in existence, is hard and difficult. It will take some time for the restructured entities to stand on their own. In the transition period, the Government must provide administrative and financial support to the restructured corporate entities. Targets set for new entities should be such that these demand hard efforts on the part of utilities but are definitely achievable. Government must allay genuine fears of the existing staff about retrenchment and inferior service conditions in the restructured entities. Once the genuine fears of the staff, about their continuation of services and fair service conditions in the new entities, are assuaged by the Government, the staff should move out of their small ambit and be ready to concentrate on larger interest of the society in making restructured entities efficient and consumer friendly. SUCCESS OF JGY SCHEME JGY scheme has shown a deep concern about needs of villages in improving the most important infrastructure in the form of availability of three phase power supply for 24 hours a day. Contrary to the general impression, it has also proved that investments in the rural sector could also be cost effective. The scheme has thrown open new opportunities for the DISCOMs to improve their performance parameters. Most importantly, it has built a bridge of mutual understanding and respect between the utilities and the rural population. With backing of this fund of goodwill, the utilities have taken a firm step forward in their journey towards self-sustenance. Gujarat has definitely shown a way to others by successful implementation of JGY scheme.

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Gujarat

E-URJA PROJECT This is yet another important initiative taken by GEB to streamline operations of restructured companies. So far, no other Utility in the country is reported to have undertaken a similar initiative. When the system is fully operational, it would lead to many advantages in working of the new companies. Other companies in the power sector could benefit from following the Gujarat example and taking suitable actions in setting up a computerised Information System. WAY FORWARD Role of GUVNL GUVNL is entrusted with the task of bulk purchase and sale of power from GSECL to the four DISCOMs. It is required to organise loans on favourable terms from the market for the different power companies. It will also coordinate with the Government of Gujarat on behalf of these companies. Such umbrella type coverage of functions could lead to some difficulties in future. These need to be identified quickly for devising suitable solutions. With this in view the following suggestions are made. GUVNL has to guard against its assuming the role of a big brother and of micromanaging the affairs of other companies through an invisible hand. In such a situation, the companies will lose their freedom and initiative to come up with new and innovative ideas appropriate for adopting in their own areas of operation. As a result, the very concept of fostering competition in the four DISCOMs could suffer. GUVNL is quite aware of this possibility and has taken correct initiatives in formulating joint agreements between the DISCOMs and GSECL and GETCL. In order to further formalise these arrangements, principles for determining bulk rates for purchase and sale of energy on different considerations, such as quantum of energy from GSECL, mix of hydro and thermal contribution, energy from IPP and central sector plants, etc.; leaving enough room for the companies to generate more money by adopting innovative solutions within these defined parameters, could be discussed and finalised with the companies on a long-term basis. Similarly, the principles of distribution of Government grants, equity support, rural electrification subsidy, as well as savings which will have to be generated by individual companies by improving their performance could also be discussed and finalised for a longer duration on similar lines as is done in FRP. These targets and achievements thereof could be discussed twice a year for incorporating suitable corrections. With such a system in place, the individual
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State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs company will be encouraged to operate independently and can be held fully accountable for its performance. The initiative to maintain some distance from the different companies has to originate from GUVNL. Introduction of Intra-State ABT Introduction of intra-State ABT will surely lead to discipline in operation of all utilities. Till the time utilities get used to operate in strict regime of ABT, there will be instances of Unscheduled Interchanges (UI) and payment of penalties thereof. In order that the sole objective of avoiding UI and associated payment of penalties does not override and obscure the vision of the utilities of providing continuous supply as an important parameter of their operations, some guidelines will need to be discussed and finalised for operation in the interim period. Another aspect that needs to be addressed is the simplification of operation of ABT. Presently, a large number of interchange points have been identified for fixing meters. This may partly be due to 66 kV lines running across more than one DISCOMs area. In the next few years, efforts should be made so that 66 kV lines do not form any interconnection between different DISCOMs and such interconnections are only at higher voltage levels. 66 kV network in a DISCOMs area should remain exclusively for serving loads only in that companys area. Reduction of number of interconnection points will help in simplifying the ABT operation. CAPITAL INFUSION BY GOVERNMENT OF GUJARAT/PROFITABLE STATE PSUs In the FRP, every year an amount of about Rs 600 crore is proposed to be provided by Government of Gujarat/profitable PSUs of the State, towards capital infusion in restructured companies. This amount is in addition to Rs 250 crore per year of grant from the State Government. Since Government of Gujarat has other commitments like providing RE subsidy, etc.; most of this additional capital infusion may ultimately have to come from the identified State PSUs. The terms of such capital infusion or the identification of the PSUs is not yet known. During discussions, it was mentioned that various options such as direct equity support, equity support for specific projects, etc., are being considered. With no core competence in the energy sector available with them, PSUs may not be comfortable to be equity participants of such a large magnitude. GUVNL could check if some form of revenue sharing arrangement could be favoured by these PSUs.

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Gujarat

OTHER ACTION POINTS In the subsequent chapters on generation, transmission and distribution, certain areas requiring attention have been identified for the respective utilities to deliberate upon and take suitable necessary actions. These are listed below: GSECL Likely difficulties in achieving improvement in PLF of old thermal generating plant and remedies thereof; Risks associated with old generating units not achieving desired levels of performance even after carrying out Life Extension (LE) and R&M works: and Risks of non availability of required quantity and quality of coal for thermal stations.

GETCL Conversion of a single 66 kV meshed network for entire State into four meshed networks one each for individual distribution companys area; and Providing precision energy meters and high accuracy instrument transformers in generator transformer bays in EHV substations for measurement of energy delivered on the busbar wherever presently such provisions do not exist.

DGVCL/MGVCL/PGVCL/UGVCL The programme of fixing energy meters on distribution transformers and conducting DTC-wise energy accounting will also need preparation of DTC-wise route sequences; and While forming four DISCOMs, Government of Gujarat had considered making provision for separate electricity companies for the major cities of Vadodara, Rajkot, Bhavnagar, Jamnagar and Junagad. It would be advantageous for the DISCOMs to start maintaining separate accounts for such cities in addition to the consolidated account of the concerned DISCOM.

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State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs

SUPPLEMENTARY INFORMATION ABOUT GENERATION/ TRANSMISSION/DISTRIBUTION COMPANIES


GUJARAT STATE ELECTRICITY CORPORATION LIMITED (GSECL) Present Installed Capacity/energy generated/performance Out of the total generating capacity of 8,974 MW in Gujarat, GSECL has an installed capacity of 4,968 MW, private sector capacity is 2,166 MW and the States share in central sector plants is 1,840 MW. GSECLs capacity comprises of 4,179 MW thermal, 547 MW hydro and 242 MW gas based plants. The tables below give the details of capacity, energy generated and performance parameters:
Installed Capacity (MW) 2000 2001 2002 2003 2004 2005 -01 -02 -03 -04 -05 -06 Hydel 547 547 547 547 547 547 Thermal 4179 4179 4179 4179 4179 4179 Gas 234 201* 162** 269*** 269 242**** Total 4960 4927 4888 4995 4995 4968 * Dhuvaran 27 MW Gas Turbine and 6 MW of Utran old capacity derated. ** Utran Old 39 MW derated. *** Dhuvaran I 107 MW capacity added. **** Dhuvaran old 27 MW capacity derated. Particulars Energy Generated (MU) Particulars Hydel Thermal Gas Total 2000-01 436 24922 854 26212 2001-02 287 24970 819 26076 2002-03 588 25450 888 26926 2003-04 859 23800 934 25593 2004-05 832 25280 1876 27988 2005-06 795 24525 1810 27130

Performance Parameters Particulars PLF (%) Heat rate (kcal/kWh) Oil consumption (ml/kWh) Auxiliary consumption (%) Plant availability (%) Unscheduled breakdowns in terms of MWh1000 Total manpower employed 2000-01 67.85 2558 2.03 9.62 80.78 4,062 200102 68.14 2563 1.01 9.37 78.29 5,524 200203 70.58 2566 0.94 9.38 80.17 5,096 200304 70.27 2624 1.94 9.79 78.36 5,209 200405 72.02 2640 1.70 9.66 85.24 3,223 200506 72.48 2694 1.57 9.24 84.51 2,262

9,148 at plant locations plus 300 at head quartersTotal 9448

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Gujarat

Investments Made to Improve Generation Capacity and Efficiencies (Rs crore) 2000 2001 200 2003- 2004- 200 Particulars -01 -02 2-03 04 05 5-06 New capacity 7 28 24 36 Renovation and 21 76 282 38 107 16 modernisation

From the above tables it is seen that there is no significant addition to the generating capacity in GSECL in the last six years. The performance in the last two years has improved significantly, increasing the PLF to 72.48 per cent and availability to around 85 per cent. Oil consumption and unscheduled breakdowns have been reduced. Considering the fact that almost 90 per cent of the plants are about 20 years old, the performance is commendable. The manpower deployed per MW of installed capacity works out to 1.90. The company has submitted ARR in Jan 2006 and GERC has given its decision on the same. Planning for Capacity Additions The company has formulated its business plan for the period ending 2011-12. It is proposed to add 1,887 MW of new capacity with estimated investment of Rs 5,964 crore and carry out LE and R&M of old plants of 1,860 MW capacity with estimated investment of Rs 1,904 crore. Way Forward Life Extension Works Estimated requirement of investments for Life Extension (LE) works of Rs 1,904 crore appears to be on lower side. Government of Gujarat has indicated that in the bids received by it, cost/MW is not in the range of CEA estimates and that the agencies to be entrusted with LE works are reluctant to provide assurance of achieving desired performance levels over a long period. Gujarat has, therefore, almost decided not to proceed with LE works. Since GSECL is considering investments for LE works in respect of 1,860 MW, almost the same capacity as installation of new capacity, it would be advisable to identify related risks of not being able to achieve expected performance levels even after carrying out LE and R&M works and take suitable action.

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State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs Availability of Required Quantity and Quality of Coal For obtaining coal for the new power plants, GSECL would most likely be required to own and operate coalmines and coal washeries. Some advance action to scout for a partner and form a joint venture to own and operate coalmines may have to be taken quickly. Also, the option of finalising long-term contracts for imported coal will also need to be explored. These issues are also important in ensuring improved performance of existing thermal generating plants and are required to be sorted out quickly so as to ensure that savings anticipated from improved performance do materialise. GUJARAT ENERGY TRANSMISSION CORPORATION LIMITED (GETCL) GETCLs transmission network comprises of 400 kV to 66 kV lines and sub-stations spread across the State for evacuation of generation from GSECL, IPPs and States share of power from central sector projects and delivering the power to distributing companies. Details of the transmission in the State are as under:
Details of existing Transmission Lines and Sub-stations Voltage (kV) 400 220 132 66 Total Ckt km 1841 11149 4550 16941 34481 Sub-stations (No.) 8 63 48 721 840 Transformers (No.) 15 160 158 1509 1842

It is noted that 132 kV level will no more be extended further and all future expansion will only be in 400/220/66 kV levels.
Performance of Transmission System Year before restructuring 5th 4th 3rd 2nd 1st 41104 40627 44872 43633 50340 39339 38824 42923 41709 48152 1765 1803 1949 1924 2188 4.29 4.44 4.34 4.41 4.35 Availability of the Transmission systems (%) 99.35 98.99 98.46 98.83 99.18 99.61 98.7 97.89 98.56 98.98 99.21 99.04 98.73 98.98 99.51 99.84 99.1 98.9 99.24 99.67 99.84 Year after restructuring 1st 51175 48946 2229 4.36 99.35 99.27 98.86 98.79 99.57 99.67 2nd 52992 3rd 4th

Particulars Energy available (MU) Energy delivered (MU) Transmission losses (MU) Transmission losses (%) Overall Lines 400 kV 220 kV 132 kV 66 kV Sub-stations

4.37 99.35

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Gujarat

Investments Made to Improve Transmission Capacity (Rs crore) Particulars 2002-03 2003-04 2004-05 2005-06 New transmission lines 180.46 145.49 147.84 352.54 Strengthening of transmission system * The segregation of the investments for new transmission lines and strengthening of transmission system is not available.

It is seen from the above that the transmission loss is low and the availability of the transmission system is higher than norms. GETCL is understood to have formulated a long-term business plan. The total staff working in GETCL is 10,643. Therefore, MU handled per employee per annum comes to 4.98. GETCL had submitted ARR in January 2006 and GERC has issued its orders on this submission in May 2006. For 2006-07, transmission charge/MW/month approved by the Commission works out to Rs 86,142 in place of GETCOs request of Rs 1,03,539. These charges include return on equity amounts of Rs 196 crore in place of Rs 280.88 crore claimed by GETCO. Way Forward GETCL needs to look in the following issues and take suitable action: 1. 2. Conversion of a single 66 kV meshed network for the entire State into four meshed networks, one each for the individual DISCOMs area. Providing precision energy meters and high accuracy instrument transformers in generator transformer bays in EHV sub-stations for measurement of energy delivered on the busbar wherever presently such provisions do not exist.

DGVCL/MGVCL/PGVCL/UGVCL Distribution Companies in Gujarat Preamble The distribution sector of erstwhile GEB was restructured into four independent DISCOMs w.e.f. 1 April 2005. Gujarats reply to IIPAs questionnaire primarily contains data prior to restructuring. Information pertaining to individual companies after restructuring for the year 2005-06 is not yet compiled though the companies have taken actions in terms of formulating individual business plans and have identified investments required for capacity additions and improvements over a long term period. However actions for improvement of the distribution sector have been initiated
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Study on `Impact of Restructuring of SEBs since 2003 and are still continuing. A consolidated picture of distribution sector of Gujarat as available is given below: Various categories of consumers served by the DISCOMs are as under: Details of Consumers
No. of consumers Residential Commercial Industrial LT Industrial HT Public lighting Railways Agricultural Water works Licensees Others Total 1999-00 5342985 765997 159902 4546 17302 10 566232 22497 2 3 6369866 2000-01 5540354 802722 156259 4626 17595 10 581494 24327 4 2 7127393 2001-02 5700498 830226 153923 4678 17152 10 600414 26072 4 2 7332979 2002-03 5817482 850997 150760 4677 16686 10 606210 27576 4 0 7474402 2003-04 6099118 908412 153097 4820 16934 11 648053 29904 4 0 7860353 2004-05 6400626 947530 157691 5194 18583 11 664059 31793 7 0 8225494

Power Supply Position The table below indicates parameters related to quantitative and qualitative supply of power to various consumers. A peak load of 8,170 MW is met and a total of 59,078 MU was served by the DISCOMs in the year 2005-06. There is no power cut in major urban areas for HT consumers, industrial estates, Gujarat Industrial Development Corporation (GIDC) areas and the 168 Nagar Palikas. A total of 17,773 villages under JGY are supplied with 24 hours three-phase power supply. The remaining areas have power cuts for 4 to 5 hours a day.

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Gujarat

Performance Parameters of Distribution Companies Parameters Related to Quantitative and Qualitative Supply of Power
Particulars Assessed total demand (MU) Peak load met (MW) Peak load shortage (MW) Energy met (MU) Energy shortage (MU) Power Transformer a. Failure rate (%) Distribution Transformer Failure rate (%) b. Average restoration time Interruptions per feeder per month 2000 -01 2001 -02 54424 7064 383 50069 4355 1.61 20.4 2002 -03 60471 7743 638 55127 5344 1.68 19.7 2003 -04 60541 7605 1174 54727 5814 1.79 19.3 2004 -05 64784 8078 1403 58206 6578 2.44 19.7 2005 -06 63313 8170 344 59078 4235 2.07 18.2

2.1 24.6

On an average 48 hrs for rural area and 4 hrs for urban area 0.87 1.80 1.20 1.12 1.01 1.25*

* Increase in number of interruption due to heavy rain/cyclone during June/July 2005

It can be seen from the above table that the failure rate of distribution transformers, though reducing, is still high. The interruptions per feeder per month are low. Transmission and Distribution Losses The combined T&D losses have shown reduction in the year 2003 from the previous level but there seems to be no further improvement in next year. Considering that the transmission loss is of the order of 4.4 per cent, the level of distribution loss works out to 26.2 per cent, which is high. The data for the year 2005-06 is not available. Hence, the present level of losses is not known. However, it has been indicated in the FRP that distribution losses would be reduced progressively as under:
2005 -06 26.46 2006 -07 22.4 2007 -08 19.11 2008 -09 16.51 2009 -10 15.62 2010 -11 15.08

Distribution loss (%)

Now that the JGY scheme is almost completed, accurate consumption of agricultural consumers can be worked out from the energy meters installed on feeder panels. It is likely that it may reveal that actual consumption in the agricultural sector is less than that assumed and that the distribution losses are higher than the level indicated above. Therefore DTC-wise energy accounting will have to be done to target high loss areas for concentrating effort for reducing losses in future. The programme of fixing energy meters on DTCs needs to be expedited.

9.27

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs The efforts undertaken to reduce distribution losses entail replacement of faulty meters, provision of metal boxes for housing meters and sealing, checking of meter installation, etc. The tables below give the details of T&D loss and measures taken to reduce the same.
T&D losses (%) 2000-01 35.53 2001-02 34.61 2002-03 35.90 2003-04 30.90 2004-05 30.64

Efforts for Reduction of T&D losses


Particulars Faulty meters replaced Metal meter box provided Connections sealed Feeders bifurcated Numbers Line erected Amount spent Unit Lakh Lakh Lakh 2001-02 2002-03 2003-04 2004-05 2005-06 4.59 6.83 7.8 10.78 9.55 4.58 6.93 8.54 11.8 8.78 9.23 10.85 11.44 13.89 11.95 236 1305 2478 650 34885 617.92 808.58 332.78 21.48 2.14 107.98 12.41 93.91 223.93 267 22 1.1 360 2046 3879 1377 79880 1649.21 1995.48 1186.15 20.75 1.53 101.17 15.18 37.10 175.91 539 26 1.0 272 1898 3970 1619 73582 1868.09 2593.0 1130.74 21.52 1.58 96.24 16.22 45.76 146.74 21

No. 151 98 ckt km 759 473 Rs Lakh 1297 840 DTCs brought at load centres Numbers 580 648 Increase in kVA capacity kVA 31119 34247 Amount spent Rs Lakh 565.49 607.46 Renovation of conductor on Lines Length of replaced conductor ckt km 611.51 674.6 Amount spent Rs Lakh 216.57 160.54 No. of installations checked Lakh 18.74 19.67 Supplementary bills issued Lakh 1.67 2.04 Theft of energy No.x1000 60.66 79.64 Malpractice No.x1000 15.53 14.22 Other cases No.x1000 90.67 110.30 Amount assessed Rs crore 190.98 229.47 HT connections checked No. 763 439 CT operated meters checked No.x1000 16 19 LT capacitors checked Lakh 0.96 0.97

Vigilance Activities The vigilance department is headed by an IPS officer of the rank of IGP, posted on deputation from Government of Gujarat to GUVNL. In all, 70 vigilance squads attached to individual circles work in this department. Five separate police stations and five special courts have been set-up at Vadodara, Surat, Ahmedabad, Rajkot and Bhavnagar. Certain percentage of consumer connections of different categories are checked on a regular basis. The details are as follows:

9.28

Gujarat

Category of connection High tension Low tension Residential Commercial Agricultural

% Checks planned in a year 95 83 30 40 26

In addition to the above, special checking drives are conducted by the vigilance department (head office). Details are given below:
Details of Checking in Special Drives Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 Preventive raids 27 44 53 50 37 Penalty amount 14.71 57.50 59.18 42 23.19 (Rs crore)

It is noted that the vigilance activities are not hindered by any political interference. The results of these efforts seem to be fruitful. Commercial Progress of Metering: Except for the agricultural consumers, all other consumers are supplied energy through meters. 29.48 per cent of agricultural connections have been provided with meters till March 2006.
Details of Cost of Power and Recovery

(Rs/kWh)
Particulars I II a Cost to Serve Recovery Agricultural Agricultural tariff compensation Domestic HT industrial LT industrial LT commercial Public lighting Railways Water works Licensees Overall average 2000 -01 3.51 0.15 0.37 2.54 4.36 4.04 4.40 3.12 4.96 1.51 2.81 1.93 2001 -02 3.36 0.16 0.58 2.69 4.34 4.42 4.68 3.35 5.08 2.25 2.99 2.21 2002 -03 3.46 0.21 0.74 2.71 4.24 4.29 4.67 3.26 4.96 2.69 2.84 2.46 2003 -04 3.88 0.27 0.80 3.10 4.21 4.21 4.78 3.28 5.10 2.77 2.90 2.65 200405 3.52 0.48 0.98 2.96 4.35 4.14 4.65 3.35 5.04 2.73 2.77 2.85

b c d e f g h i J

9.29

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs Billing and Collection The billing system is computerised. All bills are issued on the basis of meter reading except for agricultural consumers where it is based on HP of connected load. The periodicity of billing is as follows: Periodicity of Billing
Particulars HT consumers Industrial consumers Residential Commercial Agricultural Railways Periodicity of billing Monthly Monthly for consumers having more than 10 HP load and bimonthly for others. In some areas monthly billing is also introduced. Bimonthly. Monthly billing is introduced in some areas. Bimonthly. Monthly billing is introduced in some areas. Bimonthly Monthly

All LT consumers are billed from 20th till 10th of the next month and HT consumers are billed on 1st of the subsequent month. The billing activity is generally on time and instances of delay are rare. Around 90 per cent of billed amount is collected within the due date. Billing efficiency has consistently been 100 per cent and collection efficiency has been over 99 per cent in the past two years and 100 per cent in 2005-06. Energy audit is conducted every month as per norms. No revenue is foregone through concessional tariff but made available by Government of Gujarat in the form of subsidy. The details of subsidy provided by Government of Gujarat to GEB are given below: Details of Subsidy
Particulars Subsidy booked Domestic Agricultural Water Works 2000-01 1100 74 331 84 2001-02 1100 90 663 82 2002-03 1100 92 684 80 2003-04 1100 0 619 82 2004-05 1100 0 480 100 (Rs crore) 2005-06 1100 0 478 100

Arrears of Revenue and Debt Details of arrears of revenue and long-term debt and the position in respect of cases and amounts locked up in disputes are given below. Through the medium of Lok Adalats, a total of 1.11 lakh cases were settled between the period 1998 and October 2005, realising an amount of Rs 50.82 crore. 65,708 cases involving Rs 865.79 crore are still pending in legal dispute.
9.30

Gujarat

Details of Arrears of Revenue and Debt Particulars Arrears of revenue Debt (long-term) 2000-01 1901 7443 2001-02 1941 6312 2002-03 1953 8228 2003-04 2195 8920 2004-05 2417 9618 (Rs crore) 2005-06 6943

Financial Data
Data on Turnover, PBT, PAT, Interest, etc. Particulars Turnover PBT PAT Interest paid Wages and salaries Equity Debt outstanding Govt. subsidy APRDP incentive 2000-01 6280 (2543) (2543) 1228 723 0 7443 1505 2001-02 7274 (622) (622) 1017 735 0 6312 1853 2002-03 7874 (476) (476) 772 746 0 8228 1876 236 2003-04 8545 (1932) (1932) 1345 777 0 8920 1719 2004-05 9137 (927) (927) 1211 869 0 9618 1578 (Rs crore) 2005-06

148

Investments made to Improve Distribution Capacities and Efficiencies Particulars ND Scheme System improvement Jyoti Gram Yojana Hamlet electrification Kutir Jyoti Scheme for meters 2000-01 144.65 37.78 2001-02 124.86 27.69 2002-03 130.83 29.44 2.65 2.51 42.30 2003-04 147.40 24.75 43.50 2.80 2.63 39.14 (Rs crore) 2004-05 175.59 25.47 243.92 2.64 2.50 33.29

8.55

APDRP Schemes In addition to the above, schemes for ten circles with investment cost of Rs 680.60 crore were sanctioned under APDRP in the year 2002-03. Thereafter, in 2004-05, schemes for setting up of 15 Nos. of 66 kV sub-stations in six circles and SCADA/DMS system for Vadodara city at an estimated cost of Rs 63.97 crore were sanctioned under APDRP. Major works completed under these schemes are as under: Replacement of 13.71 lakh single phase meters; 48,505 electronic meters provided on LT industrial consumers; 37,420 three phase meters provided on distribution transformers;
9.31

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs 494 feeders bifurcated and 3,339 DTCs installed; Computers provided up to sub-divisional level; 42 No. of 66 kV sub-stations commissioned, four more are to be commissioned this year; Replacement of 66 kV breakers and R&M of 66 kV sub-stations and lines; GIS mapping in four cities has been completed and is in process in 3 more cities; and SCADA/DMS for Vadodara in progress.

Major benefits of the scheme 100 electronic meters for all feeders; 80.24 lakh consumers out of 85.45 lakh (93.91) are metered; Consumer indexing upto DTC level in Vadodara city circle, Bharuch, Bhavnagar, Jamnagar and Junagadh cities; Reliability index of supply for towns covered in APDRP circles crossed 99 per cent and for the other circles, 98 per cent; Total savings of 511.67 MU corresponding to Rs 178 crore till March 2005; and Increase in yearly revenue from Rs 926 crore for March 2005 to Rs 1,072 crore for March 2006 with no major increase in tariff.

Due to actual cash loss reduction, GUVNL has received Rs 236.37 and Rs 148.08 crore as incentive for the years 2001-02 and 2002-03 respectively. Manpower The DISCOMs have a total staff strength of 27,345. With total energy of 59,078 MU handled in 2005-06, the energy handled per employee works out to 2.16 MU per annum. Improvements in Customer Services All DISCOMs have set-up consumer care centres at city/town/sub-divisional level. These are open round the clock. Besides, the DISCOMs have started web based complaint management system where consumers can lodge their complaints on telephone or website. On receipt of a complaint, it is directed to the concerned subdivision and followed up till its redressal.
9.32

Gujarat

Payment of bills is accepted at post offices and at outsourced agencies. Data about complaints handled is not maintained at headquarters level. Data regarding consumer complaints received in Vadodara city circle is given in the table below:
Details of Complaints Handled in Vadodara City Circle Year 2002-03 2003-04 2004-05 2005-06 No. of consumers 435460 457324 479876 508522 Bills No power Meter Billing Payment Issued complaints complaints complaints complaints 2671980 121851 9921 7014 4152 2800806 114514 9561 6624 3659 2952552 104702 9291 5987 3376 2979546 83562 5542 3562 3012

From the above, it is seen that the level of complaints have reduced considerably after implementation of GIS in 2005-06. Regulatory Issues Gujarat Electricity Regulatory Commission was established in 1998. ARR petitions were filed by the erstwhile GEB in 1999-2000 and 2004-05 and the Commission had passed its orders on these. All DISCOMs filed ARRs for 2005-06 and 2006-07 in January 2006 and the Commission has issued its orders for the year 2006-07 in respect of each DISCOM. The Commission has issued Regulations in respect of Open Access. These are to be made applicable in two phases as given below:
Phase I II Load Level 5 MW and above 1 MW and above Effective from After intra-State ABT is put in place or 1 January 2006, whichever is later 2 years after introduction of phase I

The Commission has issued a draft concept paper on MYT in August 2004 for comments by stakeholders and the general public. Further action is awaited. The Commission has issued Regulations in January 2005 defining performance of utilities in safety, complaint handling, quality of power, reliability of the system, complaints about meters/metering systems, release of new connections, complaints about billing, reconnection of supply, issue of temporary supply, etc. Forum for redressal of consumer grievances has been established and implementation of anti-theft measures is in place. Progress of extending agricultural supply through meters is around 30 per cent.
9.33

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs WAY FORWARD The companies will have to undertake a programme of providing energy meters on the DTCs and conduct DTC-wise energy accounting. For this purpose, it is necessary to identify and index consumers on the basis of transformer from which they are served. It is also necessary that the route sequences for meter reading programme will have to be so prepared that the meter on the DTC and the meters of consumers served through the DTC are read on the same day in a short period of reading the meter on the DTC. The above programme will need to be coordinated in such a manner that as soon as the meter is fixed on the DTC, the DTC-wise meter reading programme could be pressed in service.

9.34

Gujarat

Important Data about Individual Distribution Company Dakshin Gujarat Vij Company Limited (DGVCL) Salient features of the company are as under:
Area of operation in Gujarat Area served (sq km) Districts serviced Villages serviced Circles Division offices Sub-division offices No. of 11 kV feeders No. of consumers No. of employees South 23307 6 3,780 Three Surat, Valsad AND Baruch 16 78 803 15 lakh 4,519

The company had submitted ARR to GERC in January 2006 for the years 2005-06 and 2006-07. The Commission approved the ARR only for the year 2006-07. The details of ARR claimed by DGVCL for the year 2006-07 and approved by the Commission are given below. It would be noted that DGVCL had claimed return on equity of 14 per cent and the approval has been given for seven per cent. The break-up of the Annual Revenue Requirement approved for DGVCL for the year 2006-07 is given below:
As requested by DGVCL 337658 10369 1594 2117 7397 4530 5078 1301 1303 137 0 5218 0 374202 after non-tariff income of 2498 (Rs lakh) As approved by the Commission 307401 9756 1565 2079 3317 4530 5078 1301 1303 137 2609 339076

Details of expenditure heads Power purchase cost Employees cost Repairs and maintenance charges Administrative and general expenses Depreciation Interest on loans Interest on working capital Other debits Provision for bad debts License fee and other charges Less interest and other expenses capitalised Return on equity Provision for tax Total expenses approved

Bulk Supply Tariff for DGVCL is Rs 3.09 per kWh.


9.35

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs Madhya Gujarat Vij Company Limited (MGVCL) Salient features of the company are highlighted as under:
Area of operation in Gujarat Area served (sq km) Districts serviced Villages serviced Circles Division offices Sub-division offices No. of 11kV feeders No. of consumers No. of employees 23,854 5 4,426 Four Baroda Rural, Baroda City, Anand and Godhra 17 89 816 18,12,164 5,415 Central

The company had submitted ARR to GERC in January 2006 for the years 2005-06 and 2006-07. The Commission approved the ARR only for the year 2006-07. The details of ARR claimed by MGVCL for the year 2006-07and approved by the commission are given below.
As claimed by MGVCL 164044 13470 3257 2533 6768 4273 2729 874 668 70 (-) 3210 4802 0 198205 * (Rs lakh) As approved by the Commission 147568 12675 3198 2487 3765 4492 2617 857 668 70 (-) 3210 2233 177420

Details of expenditure heads Power purchase cost Employees cost Repairs and maintenance charges Administrative and general expenses Depreciation Interest on loans Interest on working capital Other debits Provision for bad debts Licensee fee and other charges Less interest and other expenses capitalised Return on equity Provision for tax Total expenses approved * after allowing non-tariff income, Rs 2,074 lakh

Bulk Supply Tariff for MGVCL is Rs 2.62 per kWh.

9.36

Gujarat

Paschim Gujarat Vij Company Limited (PGVCL) Salient features of the company are as under:
Area of operation Districts serviced Villages serviced Circles Division offices Sub-division offices No. of 11KV feeders No. of consumers No. of employees 8 5,216 Nine Rajkot, Rajkot City, Jamnagar, Porbandar, Bhuj, Junagadh, Surendranagar, Bavnagar and Amreli 40 236 2,415 29.9 lakh 10,406 Paschim Gujarat

The company had submitted ARR to GERC in January 2006 for the years 2005-06 and 2006-07. The Commission approved the ARR only for the year 2006-07. The details of ARR claimed by PGVCL for the year 2006-07and approved by the commission are given below.
As claimed by PGVCL 273829 22033 5398 4942 18717 8849 4465 2139 1066 120 (-) 1634 14409 0 (Rs lakh) As approved by the Commission 246440 20732 5300 4852 9574 9095 4437 2100 1066 120 (-) 1634 7015 309097

Details of expenditure heads Power purchase cost Employees cost Repairs and maintenance charges Administrative and general expenses Depreciation Interest on loans Interest on working capital Other debits Provision for bad debts Licensee fee and other charges Less interest and other expenses capitalised Return on equity Provision for tax

Total expenses approved 348675 * * after allowing non-tariff income, Rs 5,658 lakh

Bulk Supply Tariff for PGVCL is Rs 1.81 per kWh.

9.37

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs Uttar Gujarat Vij Company Limited (UGVCL) Salient features of the company are as under:
Area of operation Area served (sq km) Districts serviced Villages serviced Circles Division offices Sub-division offices No. of 11KV feeders No. of consumers No. of employees 39,074 6 4,690 Four Mehsana, Palanpur, Sabarmati and Himmatnagar 17 111 2,265 18.7 lakh 7,005 Northern Gujarat

The company had submitted ARR to GERC in January 2006 for the years 2005-06 and 2006-07. The Commission approved the ARR only for the year 2006-07. The details of ARR claimed by UGVCL for the year 2006-07 and approved by the commission are as follows:
Details of expenditure heads Power purchase cost Employees cost Repairs and maintenance charges Administrative and general expenses Depreciation Interest on loans Interest on working capital Other debits Provision for bad debts Licensee fee and other charges Less interest and other expenses capitalised Return on equity Provision for tax Total expenses approved * after allowing non-tariff income, Rs 2902 lakh Bulk Supply Tariff for UGVCL is Rs 2.11 per kWh. As claimed by UGVCL 251757 15132 4893 2865 11822 6397 3567 1242 866 104 (-) 533 7342 0 302552* (Rs lakh) As approved by the Commission 233424 14239 4804 2813 5832 6594 3559 1219 866 104 (-)533 3518 276439

9.38

TABLE OF CONTENTS
EXECUTIVE SUMMARY .................................................................................. 10.1 LESSONS LEARNT AND MAJOR RECOMMENDATIONS ............................... 10.2 Timely Capacity Additions ................................................................................................ 10.2 Positive Impact of Consumers Participation .................................................................. 10.4 Impact of Delay in Restructuring...................................................................................... 10.5 Setting up a Modern Information System ........................................................................ 10.5 Energy Audit ....................................................................................................................... 10.9 Discussions on Having one or more Distribution Companies ...................................... 10.12 RESTRUCTURING EXERCISE ....................................................................... 10.14 Introduction....................................................................................................................... 10.14 Financial Position of MSEB............................................................................................. 10.14 Need for Reforms.............................................................................................................. 10.15 Steps taken by Government of Maharashtra................................................................. 10.15 Government of Maharashtras Strategy for Reform .................................................... 10.16 Restructuring of MSEB.................................................................................................... 10.17 IMPACT OF RESTRUCTURING ..................................................................... 10.22 General Comments ........................................................................................................... 10.22 positive and sluggish indicators....................................................................................... 10.22 SPECIFIC ISSUES ........................................................................................... 10.25 Generation ......................................................................................................................... 10.25 Way Forward .................................................................................................................... 10.30 Transmission ..................................................................................................................... 10.31 Way Forward .................................................................................................................... 10.34 Distribution ....................................................................................................................... 10.36 Reduction in T&D Losses ................................................................................................ 10.37 Improvement in Services to Customer ........................................................................... 10.38 Distribution Losses ........................................................................................................... 10.43 Progress of APDRP........................................................................................................... 10.44 Commercial Performance ................................................................................................ 10.45 Billing and Collection Efficiency ..................................................................................... 10.45 AT&C Losses .................................................................................................................... 10.47 Preventive Action and Prosecution for Theft of Energy............................................... 10.47 Status of Regulation/Implementation of Provisions of the EA, 2003........................... 10.49 WAY FORWARD ............................................................................................................ 10.55

MAHARASHTRA EXECUTIVE SUMMARY

Till a decade back, Maharashtra State enjoyed a pride of place amongst the highly industrialised States in the country. One of the important contributing factors for this achievement was comfortable power supply position in the State. With adequate generating capacity and extensive transmission and distribution network, Maharashtra State Electricity Board (MSEB) not only provided 24 hours power supply to all its consumers including for agricultural pumps, but also assisted the needy neighbouring States. Later on, allocations of funds from Government of Maharashtra to MSEB started drying up and the sector started suffering adversely. To meet the growing demand of electricity in the State, Government of Maharashtra and MSEB embarked on setting up of a largest private sector generating plant at Dabhol. From the beginning, it ran into a number of controversies and after commissioning of first stage of this power project, it was abandoned midway through. A period of inaction in taking required steps to augment the generating capacity followed. As a result, no significant generating capacity was added in the State during the period 2000-05. Consequently, the consumers of MSEB continued to face increasing quantum and duration of load shedding year after year. Government of Maharashtra was quite aware of the large quantum of investments needed in the power sector to meet growing needs of the sector, the precarious financial health of MSEB and hence the urgent need to reform the sector. In the year 2002, Government of Maharashtra published a White Paper detailing the condition of the power sector in the State, urgent need of reforming MSEB and the policy of Government of Maharashtra with regard to reform agenda. Restructuring of MSEB into separate companies for generation, transmission and distribution (one or more) along with implementing an agenda of internal reforms (initially, while in ownership of the State) was proposed in this White Paper. At that stage, it was envisaged that the restructuring of MSEB would be taken up in the year 2003. However, the restructuring could not be accomplished in the year 2003. It was done later in June 2005 as mandated in the EA, 2003. Government of Maharashtra restructured MSEB into four companies under the Companies Act, 1956 namely a generating company, a transmission company, a distribution company, and a holding company, holding Governments equity in the other three companies.

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs The period after restructuring is just one year and it may be rather early to assess the impact of restructuring. One may have to focus primarily on identifying any significant new approaches/processes being adopted by the restructured companies rather than improvement in performance parameters in this short period. Nevertheless, even a limited review of performance could indicate areas showing signs of improvement as well as areas needing immediate attention and strong corrective action which would help in quickly improving performances of the resultant companies. This report aims at achieving above objective, by focusing on initiatives of the new companies in specific areas of: Planning for capacity additions; Management of demand; Services to consumers; Steps to improve performance parameters; and Building an efficient organisational set-up.

The conclusions arrived at are detailed in individual chapters. However, it can be stated that there are positive indications in respects of first three areas mentioned above but slow progress in the remaining two. These conclusions are based on inputs received through replies of the companies to IIPAs questionnaire, discussions with managing directors and officers of the companies, with Government of Maharashtra and representatives of the employees and consumers.

LESSONS LEARNT AND MAJOR RECOMMENDATIONS


TIMELY CAPACITY ADDITIONS Issues associated with running an electrical Utility efficiently are large and complex in nature. These issues become even more difficult to handle in respect of Government owned Utilities. In the past, Governments generally gave more emphasis on providing lower tariff for politically important sections of consumers than ensuring financial viability of the power sector. Having addressed this specific agenda, they could seldom exercise any pressure on the Utilities to improve their performance parameters. non-remunerative tariffs, coupled with below par performance, which adversely affected the financial health of the utilities.

10.2

Maharashtra

Though this situation changed completely after Regulatory Commissions were set up and they started rationalising tariffs, the Utilities continued to experience deep financial difficulties and could not cope up with the growing demands of the sector. MSEB was affected a in similar way, though probably less on account of Government and more due to its inability to take timely actions for improving its performance. As a result, MSEBs consumers have to face long hours of load shedding year after year. The foremost lesson learnt is that Utilities have to forecast load growth and requirement of energy over a longer period. They should proactively take timely necessary actions to organise setting up of the required generating as well as T&D capacity in advance of the time it is required, so as to take care of unexpected slippages in construction programmes. The argument that investments in capacity additions ahead of time of their actual requirement is not a financially sound proposal, pales when economic loss on account of load shedding for not having the required capacity is taken into consideration. Ours is an energy-starved country and to come to a stage, when investments for and requirements of, capacity additions synchronise in time, is a long journey. For economic growth and creation of jobs, rapid industrialisation is necessary. Before industries are established, infrastructure of generation and distribution of electricity is required to be in place and not the other way round. IMPROVEMENTS IN THE DISTRIBUTION SECTOR It is well acknowledged that for achieving overall improvement in electricity sector, improvement of distribution sector is of prime importance. If not handled properly and urgently, it would not only result in continued financial losses in the distribution sector, but would also resulting delayed payments for generation and transmission and will bring down the financial health of these sectors as well. As a result of inadequate investments in the distribution sector for long periods, the network has remained substantially weak, resulting in high distribution losses. It is incapable of serving the increased demand. Consumers face very low voltages and frequent interruptions of power supply. This definitely calls for increased investments in capacity additions by adding number of high voltage lines and sub-stations, increasing the number of high voltage transformers and feeders, more distribution transformers, reactive support in the network, etc. This will result in reducing technical losses in the distribution system.

10.3

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs For improving the financial position of the distribution sector, the single most important and known area that has remained to be adequately attended to, is reduction of commercial losses. A strong and sustained effort is needed for reducing commercial losses. In Maharashtra, the level of total T&D losses stood at 39.4 per cent in the year 2002 as mentioned in the White Paper. Targets of reducing commercial losses in urban areas by 3 per cent and rural areas by 2 per cent every year, as well as fixing energy meters on all feeders as proposed in the White Paper, have not been achieved (during the period of Internal Reforms) before restructuring or probably even after restructuring. This suggests a necessity of adopting a revised strategy aimed at ensuring a much more strong and pointed effort in quickly reducing commercial losses. POSITIVE IMPACT OF CONSUMERS PARTICIPATION Through active participation of consumers in rural areas, Maharashtra State Electricity Distribution Company Limited (MSEDCL) has successfully implemented a scheme named Akshay Prakash Yojana wherein a village opts to voluntarily participate in the scheme and ensures that no motive power would be used in 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 previous level. The villagers also take action to remove all unauthorised high consumption equipments such as heaters, hot plates and agree that meters be installed on all service connections. The villagers form a Village Dakshata Committee and ensure that there is no theft of electricity from the transformers serving their areas. On its part, MSEDCL ensures that there is no load shedding in these villages and supply is given for 23 hours a day. 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 concerned staff of MSEDCL at the field level, leading to understanding of each others concerns and the will to address these jointly, are the major gains achieved. This participative spirit of rural consumers is a treasure and no effort should be spared in future in protecting the same against all odds. With success of this scheme due to its win-win nature, MSEDCL can confidently devise more and more new schemes and use active participation of consumers as an additional powerful resource to supplement its own efforts in improving its performance.
10.4

Maharashtra

IMPACT OF DELAY IN RESTRUCTURING It is seen that though Government of Maharashtra had decided to restructure MSEB in August 2002 when the White Paper was published, restructuring could not take place as scheduled. Probably absence of strong political will and due to the opposition of the staff and unions, the schedule could not be adhered to. The Parliament Elections in early 2004 and subsequent State Assembly elections in later part of the year caused further delay. Thus a period of almost two years was lost in uncertainty about the future structure of MSEB. In such situations, when the financial health of the organisation is weak and its future uncertain, employees start losing their sense of belonging to the organisation. Due to paucity of funds, even minimal developmental activities have to be curtailed. Also, deciding priorities of works and allocation of available funds to these works gets distorted. This adversely affects the morale of the staff and their zeal to work for the betterment of the organisation. The demoralisation of the staff leads to total inaction and slowing down work momentum. This seems to have happened in MSEB. The new companies will now have to make considerable effort to build up involvement and commitment of this inherited staff, in adapting to a new consumer oriented and vibrant work culture. The staff and unions themselves had earlier proposed that functions of generation, transmission, and distribution be run as separate profit centres, retaining MSEBs identity. Looking back, it appears that, along with maintaining the consolidated accounts of MSEB, if separate accounts for these three entities were maintained for working out profit/loss of the individual profit centre, a fund of valuable information pertaining to each function for the period 2002 to 2005 would have become available and helped the restructuring exercise as well as successor entities. This period could also have been utilised in setting up of an efficient state-of-the-art Information System. SETTING UP A MODERN INFORMATION SYSTEM The importance of quick availability of correct information in any field and its efficient and easy handling needs hardly to be stressed. Efficient organisations of today, spend considerable time and effort in defining an Information Policy and in implementing a state-of-the-art computerised information system, encompassing, not only internal areas of operations, but also external areas such as market research, competitors operations, new technologies, and so on. The system design incorporates
10.5

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs information relating to, but not limited to, technical, financial, administrative, and operational and consumer service related areas and its generation, access and control at various levels. The system design ensures that the primary information, forming the basis of any computation/presentation later on, is captured and recorded in the database, at the instant and at the location only it is generated. This primary information so generated cannot be tampered with and can be modified through duly authorised high-level intervention after recording reasons needing such later modification. Such information in the database forms the base of any further compilation/analysis at various levels in the organisation. Presently such a system is not in place in the restructured companies. The existing IT department in the holding company of MSEB deals primarily with meter reading and billing activities including development of required software in respect of sale of energy to different categories of consumers of MSEDCL. Its role is thus very limited as compared to that required for setting up of a computerised information system elaborated above. This department fits in its role as a part of MSEDCL, rather than as a shared service as designated at present. It is very urgent that MSEB Holding Company (MSEBHC) attends to this important requirement of establishing a computerised information system designed to suit individual requirements of all the restructured entities as well as common business requirements for all companies, on top priority. This would avoid wastage of manhours and energy of the staff in collecting required information every time afresh besides ensuring availability of most recent and reliable information pertaining to any desired aspect by one and all in a transparent way. Such instant availability of information to all concerned, could also help in generating internal pressure on nonperforming persons/sections/areas/operations within the organisation by way of facilitating comparison of performances of similarly situated persons/sections/areas/ operations. For speedy results, the system design should be outsourced and the agency could be asked to work in close coordination with the end users so as to ensure that it is userfriendly and implemented in a short span of time. The entire work of running the system in the initial period could be entrusted to the agency. Departmental staff should be suitably trained in this period to take over the responsibility of operating/updating the system under agencys supervision for a comfortable period of support.

10.6

Maharashtra

PRIORITISING INVESTMENTS The yearly investments proposed in the next to two to three years are very large, of the order of more than three times the investments made so far in every year. The companies need to prioritise in selecting from amongst various schemes, for deciding investments. Schemes with higher returns and quicker pay back period as well as schemes to remove bottlenecks in the system, should be given higher priority, setting assessable defined targets in improving performance parameters to be achieved after completion. A special task force should be set up in each company to oversee and conduct technical and financial audit and certify the technical specifications, qualifying criteria for vendors, priorities of taking up schemes for investment, etc., before bids for selected schemes are invited, as well as for monitoring their implementation after work/purchase orders are issued. From amongst the schemes selected for investment, higher investments could be made in areas showing better improvements such as further reduction in AT&C losses and better management of peak demand and energy, etc. This principle of giving differential treatment on commercial considerations is adopted by MERC in ordering more hours of load shedding in areas having higher AT&C losses and less hours of the same in urban and industrial areas having lower AT&C losses. Courts have also found nothing objectionable in MERCs decision. This aspect of allocating investments on sound commercial principles is more important in respect of a DISCOM where there could be considerable pressure to spread equitable component of total investments on the basis of each geographical area irrespective of its revenue earning potential. The company has to guard against such demands. STRATEGY FOR OUTSOURCING OF SERVICES For various reasons, such as reducing cost of operations, faster implementation of work, need for availing of special expertise not available with the company, limiting the number of employees in the company, etc., the companies will in future need to outsource many services presently handled departmentally through in-house staff. Care should be taken in deciding works/services which could be and which should not be outsourced. Also, detailed specifications regarding performing the outsourced activity should be laid meticulously and performance of the agency doing the work should be checked and verified to ensure that it is in compliance with these specifications. Priorities in performing the outsourced activity by the agency, if any,
10.7

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs should be decided by the company and not by agency performing the activity. A recent case reported in the press would clarify this point better. An agency was given the job of meter replacement in a circle. Major portion of the work was completed. Due to delay in completion, the circle office decided to do the remaining work departmentally. It was then noticed that replacement of meters important from commercial considerations of utility (such as high consumption industrial/commercial consumers, long period for which these were faulty, etc.) were not changed in preference to meters belonging to consumers with low average consumption. This happened because either priority of meter replacement was not specified while outsourcing or, if specified, the agency did not follow the same and adhered to its own priority! SPECIFIC ISSUE OF OUTSOURCING OF METER READING So long as Automated Meter Reading (AMR) schemes or pre-paid meters are not installed for majority of the consumers, the activity of reading of energy meters at intervals is commercially very important for the company. Since it contributes directly to revenue earning of the company, total outsourcing of reading of energy meters may not be a proper commercial decision. It is only through this activity that the inspection of the meter installation is possible at regular intervals when, apart from reading of energy meters, other related information regarding faulty meters, meters not read, meters fixed at inaccessible locations, possible theft of electricity, etc., would be available to the company for taking timely corrective action. Therefore this activity should be considered as a value adding activity rather than an unimportant and routine activity that could be outsourced. Some managers express an opinion that departmental meter readers do not work honestly/diligently and hence the need for outsourcing. It is not clear on what basis they assume that persons employed by the agency for meter reading are honest and would be working properly. The remedy lies, not in totally outsourcing this commercially important activity but in installing a secure and reliable system of checking of meter readings recorded by the meter reader. If additional manpower is needed for this activity, either it can be redeployed from other departments of the company or recruited afresh. Since the companies will definitely need to move out of General Administration Department mode to HR mode, it should be possible to tap sizeable manpower for redeployment. The outsourcing could also be extended in areas of compiling meter readings recorded

10.8

Maharashtra

at the consumer end meters/DTC meters, etc, at regular intervals (other than for billing purposes) to cross-check the meter reading appearing in the billing data. Earlier it was reported in the press that Minister (Energy) had desired that the DISCOM would outsource the meter reading activity to Industrial Training Institutes (ITI) in the State and that, the students of these institutes will take readings for one month and the departmental staff in the subsequent month. ITI will give part of money received from the DISCOM to students and will retain part of it to itself. This process will ensure checking of readings taken by departmental staff by the ITI students and vice versa every month. This scheme should be given a sincere trial as it serves the objective of checking of readings recorded by one set of meter readers by the other. It would also provide financial help to needy students and thus serve a social cause. ENERGY AUDIT This is one of the most important resources, which, if used effectively, can help the Utilities to quickly regain sound financial health with the minimum need for major investments. The investments needed for this in the immediate future will only be for defining a foolproof information system and costs towards a maximum number of some two to three lakh electronic precision energy meters in the MSEDCL area (to be provided for all DTCs, all EHV transformers supplying energy to distribution company to record energy flows in primary and secondary, all bays for EHV consumers, all 33 kV and 11 kV feeders, both sides of 33/11 kV transformers, etc.). In fact, the number will only be less not more, as some meters may already be in place. Such electronic meters record many parameters besides energy, such as kVArh, kVA, power factor, etc., and can also be interfaced with a Data Acquisition System (DAS). Installation of a DAS should be planned for all EHV substations as well as important 33 kV, 11 kV sub-stations feeding express industrial feeders/MIDC areas, etc., to monitor and record important data such as status, manual switching/tripping on fault of circuit breakers, hourly recording of energy flows, kVA demand, power factors, parameters for monitoring health of transformers and important sub-station auxiliaries, etc. At pre-defined intervals, such recorded hourly information could be transmitted over data channels to assigned centres for analyses. In this process, human intervention in recording the energy meter readings manually should be done away with. This database will eventually form the input for the Energy Audit Module of the computerised Information System described earlier.

10.9

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs The module as described above is designed as a part of the computerised information system and such a system is in place in Maharashtra. The following procedure could be adopted in manual mode in respect of all EHV S/S, all express feeders, all MIDC areas, all DTCs in urban areas (where meters are provided on the DTC) to achieve faster results. At every location where staff is available for round the clock operation (generating stations, EHV sub-stations, etc.), primary data of meter reading, registering the energy input and output through an electric equipment as recorded, could be checked for working out the difference between incoming energy and outgoing energy through the equipment, or input on the bus and outgoing through a set of more than one element on an hourly basis. The same procedure is suggested in respect of an express feeder, if not possible every hour then at least at the beginning of each shift, ensuring three such readings per day for comparison. If any express feeder is emanating from an unmanned location, the energy meter readings of meters at both ends could be recorded at a pre-defined round hour. The frequency of recording such readings in a week could be decided on considerations of quantum of energy supplied from such express feeder. Energy meters of all consumers connected to a DTC and the energy meter on the incoming of the DTC should be read on the same day in same reading cycle. The reading of input energy meter on DTC and summated energy consumption of all consumers connected to the DTC as computed by the billing programme comprising of two parts, viz.: total energy in respect of meters actually read and total assessed consumption in respect of meters not read, as computed by computerised billing programme could be made available in digital format from the billing computer. In MIDC areas, the programme of meter reading should be so coordinated that readings in respect of energy meters of express feeders, HT feeders, HT consumers is done on the same day at a pre-defined round hour. Also meter readings of all DTCs in MIDC area and consumers connected to it at LT level should be taken within a couple of hours on either side of this pre-defined round hour. This meter reading data from the billing computer is to be made available for use in energy audit in digital format directly without any human intervention/manipulation.

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Maharashtra

Every element in the system, in or from which, energy is measured would have a Distinct Identification Number (DIN). From this number alone, it would be possible to link it to details of its electrical connection (e.g., from the DTCs DIN, one will know the 11 kV feeder, 33/11 kV sub-station, 33 kV feeder in EHV S/S, EHV transformer feeding energy, etc., to which it is connected) as well as the administrative linkage (such as geographic location, controlling section/ subdivision/division/circle/zone, etc., each of these also having their unique identification numbers). Computation for any compilation of data will be done from this primary information of meter readings recorded in the system. Apart from output for the energy loss in the elements as obtained from the data so collected, further information to find out elements where actual loss exceeds normative loss (e.g., < 1 per cent in EHV transformer or near zero for sum of energy received on a 33 kV or 11 kV busbar and flowing out of it, etc.) or difference in energy sent and received in respect of an express feeder (calculated on the basis of length of the feeder, peak load, loss load factor, etc.) to enable rectifying relevant energy meter(s) or check correctness/tampering of input quantities should be prepared for the concerned staff to take time bound corrective action. Proper investigation in respect of express feeders where energy received is more than energy sent is required to be done as this does not automatically suggest that no action is necessary in case of such feeders. Such a situation could arise because of incorrect/tampering of input quantities (e.g., loss of PT supply, large difference in voltages at the PT terminals and energy meter terminals, incorrect CT ratios, etc.).

From the above information, the energy lost in individual element/location will be presented in kWh lost and not in per cent of loss. The targets for reduction of the loss will be set separately for each individual officer-in-charge of the element in terms of reduction of kWh lost and reduction in money lost by applying the relevant rate per unit of energy (e.g., industrial rate per kWh lost in MIDC area or in respect of an express feeder for industry). This final result that will be monitored by higher officers at various levels when Energy Audit is done in the manual mode as per the procedure suggested above in the intervening period. In future, when computerised Energy Audit module is commissioned, there will be no need to send any information to any office as the same would be based on the primary information maintained in Energy Audit module of the Computerised Information
10.11

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs System and is available to designated authorities directly and instantly as and when required. DISCUSSIONS ON HAVING ONE OR MORE DISTRIBUTION COMPANIES Having taken the first step in forming a separate DISCOM and observing its working for a period of one year, it is time to review whether one large DISCOM for the entire State is the only solution or more than one company would serve the interests of consumers as well as the electricity sector itself, in a better way. With this in view, the following points are put up for detailed discussions/decisions. MSEDCL with its large network and over 69,000 staff is still unwieldy from consideration of effective management and can still be termed a single large monopolistic entity. Specific problems of operations, problems faced by consumers, their expectations of services and solutions to be adopted to meet these could differ from area to area. For example, from considerations of restricting areas affected by interruptions and thus limiting loss of revenue in a paying industrial/urban/commercial area, there is a need to increase the number of HT sub-stations/HT feeders, reducing the maximum length of an HT feeder. Consumers in urban/industrial area have very high expectations of interruptionfree service and time for rectification of interruptions, of maintaining voltage variation at consumers end strictly under limits, etc. These consumers are ready to pay a higher price for prompt services. Whereas in rural areas, spreading coverage of electricity supply may have a higher priority. The above explains only the present respective priorities of consumers located differently and is not meant to say that rural areas do not need or deserve prompt services or that the intent is to create an urban/rural divide. Consumers expectations of services in each type of area differ. These need to be recognised and addressed separately. One large system/company may not be the only answer from these considerations. In view of the above, it needs to be examined whether another company for urban and MIDC areas could prove beneficial from considerations of improving financial positions, address faster improvement of services in areas, etc., with differential tariff. Since if such a new company is formed, it will still be completely owned by MSEBHC (owned by the Government of Maharashtra), better profits from this new company will not be at the cost of rural areas.

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Maharashtra

Instead, these could also partly be utilised by the Government for improvements in rural areas. The issue whether some more companies from the remaining semi-urban/rural areas or more than one company with composite areas (without carving out the urban/MIDC areas as stated above) with a combination of urban/rural loads as at present, should be formed to instill a spirit of competition for improvement in the performance parameters, also needs to be considered.

10.13

State Reports (Vol.-III)

Study on `Impact of Restructuring of SEBs

RESTRUCTURING EXERCISE
INTRODUCTION MSEB provides electricity throughout the State of Maharashtra except for Mumbai city, which is served by Tata Power Company (TPC), Reliance Energy Limited (REL) and Bombay Electric Supply and Transport Undertaking (BEST). In the year 2002, the State had a total of 14,420 MW of installed generating capacity comprising of 9,771 MW of MSEB, 1,774 MW of TPC, 500 MW of REL and the States share of 2,375 MW in central sector generating stations. Besides, captive generating plants have a capacity of about 641 MW. With such a huge generating capacity and a T&D network of about 6.7 lakh ckt km of lines, MSEB was the largest SEB in the country. Its power stations used to be awarded prizes at the national level for achieving excellence in performance. MSEBs energy sales recorded more than hundredfold increase from 346 MU in 1960-61, the year of its formation, to 37,067 MU in 2001-02. Despite such impressive performance of MSEB, the State faced shortage in meeting the peak demand. Further, T&D losses in MSEB stood at 39.4 per cent and arrears of revenue at Rs 7,114 crore. Provisions of Government of Maharashtras loans to MSEB had come down from 38 per cent (1992-93) to 13 per cent (2001-02) as a percentage of MSEBs Annual Plan Outlay. FINANCIAL POSITION OF MSEB To remedy this situation, it was necessary to set up additional generating capacity and strengthen the T&D network to meet the anticipated growth in demand in the next ten years, which required an estimated investment of over Rs 30,475 crore. MSEBs financial health had deteriorated considerably due to its average sale price per kWh being lower than its expenses and it suffered huge losses in the years 1999-2000, 2000-01 and in 2001-02 (to a lesser extent due to some improvements in performance) as will be seen from the table below:
Gap between ACS and ARR
Particulars Average cost of supply (Rs/kWh) Average realisation without subsidy (Rs/kWh) Gap (Rs/kWh) Revenue (Rs crore) Profit/Loss (Rs crore) without subsidy 1999-2000 3.01 2.50 0.51 10,626.00 (1,681.00) 2000-01 3.65 2.92 0.73 11,739.00 (2,842.00) 2001-02

12,030.00 (308.00)

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Maharashtra

Need for Reforms Considering the financial health of MSEB and necessity of huge investments in the sector, it was clear that the State would need to approach the Central Government and Financial Institutions to provide the necessary funds. Without these investments, the sector would not have been able to meet the needs of a competitive economy, resulting in an adverse impact on the State. Government of India had also taken the initiative to evolve a national consensus for reforms in the power sector. From the deliberations and decisions taken in the conference of Chief Ministers of States (organised by the Central Government), it had become clear that Central Government and Financial Institutions would be helping only those SEBs, which embarked on a reform agenda. The Electricity Act, 2003 also encouraged competition in generation and distribution segments and emphasised on reforms in the sector. It was thus clear that for sustaining growth of the power sector and its ensuring financial viability, it was necessary to reform the sector. Main objectives of reform as stated by the Government of Maharashtra were: (a) To promote development of an efficient, commercially viable and competitive power sector; (b) To provide reliable quality and uninterrupted power supply at reasonable prices to all consumer categories; and (c) To ensure that social and environmental aspects are fully taken into consideration. Steps taken by Government of Maharashtra Earlier, the Government of Maharashtra had constituted the State Electricity Regulatory Commission (SERC). In February 2001, the State Government constituted an Energy Review Committee (ERC) to review the power situation in the State and suggest broad future course of reforms for the power sector in the State. As a part of the process of building consensus for reforms of MSEB, Government of Maharashtra decided to publish a White Paper on the proposed reforms in the power sector. For preparation of the White Paper, in April 2002, Government of Maharashtra released advert