According to reports, state-owned electricity distribution organisations are broke. They buy electricity at high rates but are forced to sell cheap to sub-serve the political exigency of the government they report to. This has been the state of affairs for decades.
Things have soured so badly for some of the state distributing agencies that they are refusing to buy electricity at high cost, even if it means starving their consumers of power.
Result of it all: the country has to suffer a peak power shortage of as much as 10 per cent.
But distributors are not solely to blame for this. They need electricity to distribute, and that electricity comes through transmission lines from distant power plants.
If the power plants don’t generate enough power because they don’t have enough fuel, transmission firms will have so much less to transmit, and distributors so much less to distribute.
This is precisely what is happening in large tracts of Andhra Pradesh, Tamil Nadu, West Bengal and Bihar and some other states where transmission lines are idling or carrying below capacity because power plants are not generating enough or because distribution agencies are refusing to buy the costly power so wheeled.
This needn’t have been so, for India has built and is still building huge capacities in transmission and distribution (T&D). Some statistics: by 2017, i.e., the end of the 12th plan, the transmission network will have added 107,000 circuit km at a cost of Rs 1,80,000 crore and be a 379,000 circuit km behemoth. (Power Grid Corporation of India is already the world’s largest transmission utility by capacity.)
Distribution will see 1.3 million circuit km of new lines – with accompanying necessities like transformers, feeders and sub-stations — to be created at a cost of Rs 3,06,000 crore.
It’s an enormous network to be set up at an enormous cost for electricity to reach the end consumer. The centre and states, of course, will bear the major part of the cost, but the private sector too will have to chip in. Are they all up to the task? There is no gainsaying that the weakest link here is the distribution organisations, which in most cases, are state agencies and are already on life support from their owners because the same owners won’t allow them to charge more from consumers.
State distribution agencies are up to their neck in debt. The Planning Commission says state distributors collectively owe banks Rs 2,40,000 crore as of March, 2012.
Efforts to reform the state power sector have yielded only mixed results. The measures include breaking up state electricity boards (SEBs) into generation, transmission and distribution companies, creating power exchanges, auctioning power to be procured by distributors, and multi-year tariff. As can be expected, progress on all fronts has been slow.
Eight state distribution companies (discoms) are in serious financial trouble. These are in Uttar Pradesh, Rajasthan, Tamil Nadu, Bihar, Punjab, Haryana, Odisha and Kerala. The discoms in the other states are only comparatively better off, but not completely out of the woods. Most state discoms have borrowed so much that they now have to borrow to pay interest.
Industry officials say the answer lies in increasing private sector participation. Historically, power distribution has been the monopoly of the state sector, but this has changed in some areas through either the public private partnership (PPP) or franchisee model.
In the PPP model, the concessionaire is selected through competitive bidding and is responsible for maintenance, operation and upgradation of a distribution network and supply of electricity to the consumer. Among other tasks, they are also responsible for reducing distribution losses, improving the quality of power supplied, strengthening of the distribution network and improving customer satisfaction.
Anil Sardana, MD of Tata Power, says PPP is the best model for bringing about distribution reforms. “A successful execution of PPP can be seen in the functioning of Tata Power Delhi Distribution, a joint venture between the Tata Power and the Delhi government. It has bought tremendous value by bringing down transmission losses in a record time to 13 per cent from 52 per cent earlier,” exults Sardana.
UP adopted the franchisee model in a pilot project in Agra two years ago. Torrent Power which took over the maintenance and collection of billing reduced the transmission losses from 61 per cent to 50 per cent. Encouraged, UP now plans to repeat the franchisee model in Ghaziabad, Meerut, Kanpur and Varanasi districts, for which proposals will be invited next month, says to Sanjeev Mittal, chairman of UP Power Corporation.
According to his finance director S K Agrawal, UP faces a shortage of 1,000 mw and suffers regular three-hour power cuts. The corporation suffered a loss of Rs 10,000 crore in 2012-13 when revenue was Rs 18,000 plus Rs 5,000 crore which came as subsidy.
As is the bane of all state power agencies, the UP corporation too suffers from heavy transmission losses. The losses are still a high 35 per cent after having been brought down from 41 per cent two years ago when the power tariff was hiked by 19 per cent.
Left with no other option, UP Power Corporation has agreed to a financial restructuring to refinance its Rs 30,000 crore debt.
As part of the financial restructuring package, the UP corporation will issue 8.9 per cent bonds to lenders who, on their part, will lower interest to 10.5- 11 per cent from 13-14 per cent now. “This will give the corporation the operational freedom it needs,” says Mittal.
Rajasthan also plans to go in for the franchisee model in the three districts of Udaipur, Jaipur and Ajmer by December. One of the objectives is to cut distribution losses, now a high 24 per cent in the three districts when the state average is much lower at 17.62 per cent.
Anand Joshi, finance director of Jaipur Vidyut Vitran Nigam, claims the discom has reduced distribution losses to 17.62 per cent from 39.12 per cent three years ago. It also increased tariff by 23 per cent in 2011-12 and again by 18 per cent in 2012-13. “We plan another 15 per cent increase in tariff this year,” he says.
Rajasthan has also agreed to a restructuring package in which the state will take over the liabilities of bonds and banks the short-term liabilities. The interest liability of Rs 3,000 crore will also be borne by the state government, according to Joshi.
Similarly, Tamil Nadu too has acceded to the restructuring package to refinance around Rs 24,000 crore in debt. At the same time, it is weighing the option of handing power distribution to a franchisee.
Tamil Nadu Generation and Distribution Corporation is expected to suffer a loss of Rs 8,183 crore in 2012-13. Financial restructuring will see banks providing a fresh loan equal to 70 per cent of the loss; the balance 20 per cent will come from the state government as subsidy.
The company plans to invest Rs 12,000 crore over the next three years in transmission and distribution infrastructure.
These measures are expected to reduce its distribution losses to 21.6 per cent in 2013-14, 20.4 per cent in 2014-15 and 19.81 per cent in 2015-16.
Privatisation of transmission and distribution in Tamil Nadu is, however, ruled out for now but may be considered in the future, according to an official not authorised to speak to media. He reasons that at this point the discom may not be an attractive business proposition for the private sector.
However, if we look at Gujarat, Maharashtra and Delhi, the private and/or franchisee distribution model is doing well on all financial and operational parameters. Tata Power and Reliance Infrastructure have already brought the distribution losses in Delhi to under 15 per cent from 60 per cent in the state discom days.
In Kolkata, CESC has historically been the private distributor and doing so well that it has now bagged distribution rights in Ranchi in Jharkhand.
The franchisee model has succeeded even in some rural areas of Uttarakhand and West Bengal where self-help groups have been deployed as rural franchisees for management of rural distribution. Other states are now trying to follow suit.
Thefts of power constitute a big chunk of transmission and distribution losses. Experts suggest that thefts can be minimised if discoms use high-voltage (11 kv) lines, which suffer little line losses and are less prone to theft by direct tapping. Maharashtra State Electricity Distribution Company is following this advice both in theft-prone urban and rural areas.
The company was born of the unbundling of the SEB in 2005. Since then it has spent Rs 10,000 crore in infrastructure and plans to make a capital expenditure of Rs 6,500 crore more in the second phase. The entire focus is on latest technology to reduce theft and make billing 100 per cent, an official of the company says.
Maharashtra has 5,000 non-industrial or commercial feeders; of these 4,000 are 100 per cent load-shedding free. “All industrial feeders are 100 per cent load-shedding free. In all, 82 per cent of Maharashtra is load-shedding free,” said the official. The other 18 per cent faces problems due to non-payment of bills and theft. The company, he says, uses innovative technologies to catch and book them – like infrared and radio frequency meters, besides wide patrolling.
Despite these measures, the company loses Rs 400 crore a year, largely because of the low price of electricity for some consumers. For example, the average cost of power is Rs 5.56 a unit, but farmers pay only 50 paise. Homes consuming less than 100 units a month pay Rs 3.50 a unit.
Help to states comes from the Union government in the various shapes. One is the restructured accelerated power development and reforms programme which, in the 12th plan, is slated to get a grant of Rs 57,000 crore. Second, the financial restructuring packages offered by Rural Electrification Corporation (REC) and Power Finance Corporation (PFC) by which Rs 70,000 crore in loans are to be given to state discoms.
There are also programmes like Rajiv Gandhi Gramin Vidyutikaran Yojana which aims to bring electricity to every home in the country, besides creating a transmission fund.
Going hand in hand with distribution is transmission of power – an area where both public and private sector transmission companies face an array of problems, invariably delaying the laying of transmission lines.
I S Jha, projects director of Power Grid Corporation of India, thinks the biggest problem is in getting the right of way. He says separate corridors are needed for high-tension transmission lines. Otherwise, they have to go over farms and other land for which their owners have to be compensated.
“We pay them as per the Telegraph Act, but the pricing of land is a big problem. We cannot buy the whole farmlands, as it will turn projects unviable. Also, independent power producers are not signing long-term power purchase contracts. At least 75 per cent of the power should be contracted before a transmission line can be set up,” Jha said.
Central sector transmission projects have no problems in getting funds, but state sector projects do, specially so in the case of renewable energy like wind and solar and small hydel projects.
The Planning Commission in the 12th plan report on power proposes viability gap funding for building intra-state transmission systems for renewable and hydel electricity because the cost of transmission per kwh is very high. For this grants are needed, says an industry official. A separate load dispatch centre for renewable sector will also help, he suggests.
While all agree that reforms in the distribution segment and narrowing the transmission gaps are absolutely essential, they see the pace of reforms as rather slow. Sardana of Tata Power says global investors have a choice of a host of competing destinations. “Failure on our part to provide supportive infrastructure will drive them elsewhere,” he warns.
AK Prabhakar, senior vice-president and retail research head of Anand Rathi, says that electrical vendors have heavily invested in capacity for making transformers, rectifiers and other equipment, expecting high growth in transmission and distribution. But they have been let down by the slowing in power generation, transmission and distribution alike, a slowdown, everyone agrees, that’s caused by the shortage of fuel (mainly coal) power tariffs that have been static for a decade.
The manufacturers include ABB, Emco, Transformers and Rectifiers and many more. Whatever little orders come in are taken away by Chinese companies.