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Power Distribution Reforms: Road Less Travelled


September 14, 2011 Hotel Shangri-La, New Delhi

Organised by

Conference on

Knowledge Partner

Power Distribution Reforms: Road Less Travelled


September 14, 2011 Hotel Shangri-La, New Delhi

Conference Background
In a recent meeting convened to discuss the state of Indias power sector, the union minister for power announced that the country needs to take definitive steps in strengthening distribution to attain growth for the entire power sector value chain. Electricity is one of the key inputs to fuel and sustain the countrys rapid economic and industrial growth. Per capita consumption of electricity is one of the key indicators for assessing the level of progress a society has accomplished and is also a factor for determining the Human Development Index. In 2008-09 the per capita consumption of India was 733 kWh, which is very low compares to the world average of approximat ely 3000 kWH. Developed countries like US, Australia, China have high per capita consumption at 13616 [1] kWh, 11216 kWh and 1900 kWh respectively . This highlights the gap that India needs to cover in terms of developing power distribution in the country. Electricity being a concurrent subject is governed both at the Central and t he State level in the country. Power distribution is the function of selling electricity to end use consumers. This sector is a key link in the power sector value chain as it completes the last step in the revenue cycle. Distribution in India works with the main aim of providing access of low cost power to all in a reliable manner. Over the years, the state of the distribution sector in India has degraded despite a reform process in place. The growth and improvement in this segment of the value chain is not in accordance with that experienced in generation and transmission. We have seen major changes happening in power generation with the passing of the Electricity Act in 2003. The opening up of the sector has lead to increased investment flows converting into massive c apacity addition. However the same cannot be said about
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distribution, with high losses, low penet ration, failing health of public utilities being still a major part of the sector. Di stribution sector reform: a failed step Reforms are a basic and crucial step in the development of a sector in the long run. Globally many im portant markets such as US, Europe among others have experienced reforms which have further helped them advance. The reforms in a country are guided by the unique governmental structure and institutions, demographics, socio-economic and political environment and resource availability. Traditionally electricity has been treated as an important public good in the country and was affected by high political intervention. Distribution infrastructure was also in a bad shape, with high commercial and technical losses being a common sight in the country. Liberalisation and Globalisati on in the 1990s brought about a change mainly in power generation with an influx of private investment. However, the disastrous affect of the failed investments further sank the sector into losses. Delhi and Orissa proved to be a good starting point for distribution reforms. However, the true reforms journey began with the passage of the EA in 2003. However, in India, the success of the distribution reforms initiated with the Electricity Act, 2003 has been limited. Unbundling of state electricity boards, mo ve towards enabling retail competition via open access, gradual reduction in cross subsidy, creation of independent and autonomous regulatory commissions for regular determination of tariffs, etc. were the key changes that were advocated for reforming the sector. Despite all the steps being taken, the distribution sector is still plagued by many problems, foremost and most import ant one being the failing health of distribution utilities. So far, 20

Figures are for the year 2007.

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Power Distribution Reforms: Road Less Travelled


September 14, 2011 Hotel Shangri-La, New Delhi

states have been unbundled. States like Jharkhand, Bihar, Kerala and Electricity Departments in Arunachal Pradesh, Jammu and Kashmir, Goa, Manipur, Mizoram, and Nagaland, all six union territories, and NDMC in Delhi have not been unbundled. As a result of the unbundling the country has 73 distribution utilities including private entities as well. The aim of the reforms of supplying power in an efficient manner is yet to materialise. Barring a few, financial health of discoms is deteriorating at an alarming rate. The cumulative losses of discoms till 2009 were INR 74,977 crores. The projected losses of the discoms is expected to touch INR 1, 16,089 crores by 2014-15. The main reasons for the poor financial health of discoms can be summed up as: Inadequacy of tariff as approved by SERCs: o Widening of gap between the Average Cost of Supply (ACS) and the Average Revenue Realised (ARR) o Compounded annual growth rate (CAGR) of tariff is less than the CAGR of power purchase cost o No tariff revision in states on a regular basis o Non-filing of ARR for tariff revision by state utilities Non-payment or delayed disbursement of subsidy amount by state governments High level of cross subsidisation No timely audit of accounts by utilities High technical and commercial losses Non- performance of SERCs as per the mandate

This is adequately been highlighted by the lack lustre performance of the discoms which alone cannot survive on restructuring. Correctional steps need to be implemented in a fast-tracked manner for the long-term survival of these utilities. The provisions of the reform process are still not followed on a pan India basis with some key states yet to unbundle their utilities. Globally many examples exist where privatisation and market competition have enhanced the viability of the sector. Involvement of private utilities was a key step of the reform process; however, the resistance from various angles has dampened the advantages of the same. India has a wide scope in involving private players in various functional areas of a state discom apart from a licens ee such as a distribution franchisee, O&M Contracts, EPC & IT Implementation via Smart Grid, equipment supply amongst others. There is an urgent need for policy makers to bring t oget her a new management structure for improved operations. Pilot studies conducted in the past have provided ample ground for the implementation of new and advanced market models keeping in mind the uniqueness of the Indian market. Market development alone cannot sustain the reform process and a key enabler required to further drive the sector is a stable regulatory model. India at present lacks innovative tariff mechanisms with flexibility to adjust to market conditions. The rising fuel prices and shortages, delayed clearances, etc. have created a dent in the developers pocket, thereby affecting the viability of the projects. With existing high losses, discoms- the main buyers are will soon be unable to buy high cost power, in light of the low tariffs being charged. Tariff revision is a dreaded process in the country with high political involvement. There is a need to demarcate the importance of tariff revision and strictly penalise discoms delaying the same. The c ase of Delhi and Tamil Nadu further highlights the plight of the discoms.

The Way Forward Overall restructuring is a necessary but not a sufficient condition for the turnaround of the power sector. Restructuring is only the beginning and not the end of the process. It must be a continuous and complimentary process to enhance efficiency in distribution companies or discoms.

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Power Distribution Reforms: Road Less Travelled


September 14, 2011 Hotel Shangri-La, New Delhi

Another aspect to be considered is the resistance to the implementation to open access by states fearing a fall in the revenues from high paying industrial consumers. Loopholes in existing regulations are a drawback in promoting competition and efficiency in the market. Retail supply infrastructure in the country is a key area of distress. The EA has provided for competition at the retail level as well. To develop the same, there is a need to understand the impact of the evolving power markets in India along with a focus on balancing the renewable energy portfolio by various states in light of increased climate concerns. On the other hand, the technical and physical infrastructure lacks robustness in the country to enable reliable supply of low cost power. Enhancement of technical infrastructure with better grid connectivity, sub-stations, transformers, metering, etc at bot h urban and rural levels is the main concern for the sector. Smart grid holds potential to be taken as a solution for reliable supply of power.

Organised by

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Power Distribution Reforms: Road Less Travelled


September 14, 2011 Hotel Shangri-La, New Delhi

Programme Agenda
9AM 10 AM
10AM 11:15 AM

Registration and Morning Tea


Session 1: Distribution Reforms, a choice or necessity?

Keynote Address / Session Chairman: Dr Pramod Deo, Chairperson, CERC Weak financial health of SEB's / Distribution Companies ? Shri Satnam Singh, CMD, Power Finance Corporation* Flaws in regulatory model for distribution covering subsidy and tariff management ? Shri Sudhir Kumar, Joint Secretary, Ministry of Power* ? Bajaj, Former Member, Appellate Tribunal for Electricity Shri H L ? Shri Balawant Joshi, Director, ABPS Infrastructure Advisory Inefficient physical and technical infrastructure ? Shri Rakesh Mehta, Former Chief Secretary, Delhi Government & Former Chairman, Delhi Transco ? Shri Ramesh Naraynan, CEO, BSES Yamuna Power Ltd. Open Discussion

11:15AM 11:30AM 11:30AM 1PM

Networking Tea / Coffee break Session 2: Structural solutions for reforming distribution

Session Chairman: Shri Rakesh Mehta, Former Chief Secretary, Delhi Government & Former Chairman, Delhi Transco Enhancement of market structure- analysing global perspective ? Shri Anish De, CEO, AF-Mercados EMI Scope for involving private participation for better and efficient working ? Shri Vidur Sehgal, CEO - Govt. & Power, Spanco Ltd. Case study on Bhiwandi and Pune model ? Shri Girish Sant, Group Coordinator, Prayas Energy group Designing a new management structure for distribution sector- a discussion ? Shri Ashish Khanna, South Asia Energy & Infra, World Bank*

Open Discussion

1PM 2PM 2PM 3:30PM

Networking Lunch Session 3: Reforming regulatory model, the way forward

Session Chairman: Shri J P Singh, Member, Delhi Electricity Regulatory Commission Globally accepted tariff models ? K Ahuja, President Strategy & Corporate Affairs, Moser Baer Projects Dr Harish ? Srivastava, Executive Director (Operations), TERI Dr Leena Designing innovative tariff mechanism ?Sonvane, Member (Technical), MERC or Director (Tariffs), MERC Vijay L Need of the hour regulations ? Shri Sunil Wadhwa, MD & CEO, NDPL Reforms in existing system- open access ? Chatterjee Deputy Chief (Regulatory Affairs), CERC Shri S K Case study by TNERC (Tamil Nadu Electricity Regulatory Commission)

Open Discussion

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Power Distribution Reforms: Road Less Travelled


September 14, 2011 Hotel Shangri-La, New Delhi

3:30PM3:45PM 3:45PM 5:25PM

Networking Tea/Coffee break Session 4: Developing retail supply infrastructure

Session Chairman: Shri Sher Singh Khyalia, Executive Director (Finance), GUVNL Impact of Power Markets ? Smt Rupa Devi Singh, MD & CEO, PXIL* Balancing renewable portfolio ? Singh Khyalia, Executive Director (Finance),GUVVNL Shri Sher Enhancement of technical infrastructure with better grid connectivity ?Representative from REC/SBI Senior Smart Grid implementation ? Dr Gursharan Bhatia, Regional General Manager (T&D), GE

Open Discussion

5:25PM5:30PM

Vote of Thanks

*Under confirmation

Organised by

Conference on

Knowledge Partner

Power Distribution Reforms: Road Less Travelled


September 14, 2011 Hotel Shangri-La, New Delhi

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