seb national report

CONTENTS

EXECUTIVE SUMMARY...............................................................................................1

CHAPTER - 1

BACKGROUND................................................................................................................91.2 Objectives of the Study........................................................................................131.3 Terms of Reference..............................................................................................131.4 Methodology Adopted.........................................................................................14

CHAPTER - 2

POWER SECTOR REFORMS AND RESTRUCTURING........................................172.2 Component of Reforms........................................................................................182.3 Chronology of Indian Power Sector Reforms and Restructuring...................192.4 Status of Reforms and Restructuring.................................................................21

CHAPTER - 3

OVERVIEW OF THE POWER SECTOR IN INDIA.................................................233.1 Five Year Plan Targets and Allocations.............................................................233.2 Performance of Generation Sector (All 2005-06 figures are provisional).......273.2.1 Installed Generating Capacity.............................................................................273.2.2 Electricity Generation..........................................................................................283.2.3 Plant Load Factor.................................................................................................293.2.4 Energy and Peak Shortages.................................................................................293.2.5 Metering, Billing and Collection Efficiency.......................................................303.2.6 Aggregate Technical and Commercial Losses....................................................303.3 Rural Electrification............................................................................................313.4 Rural Electrification at a Glance........................................................................323.5 Investments made in Power Sector.....................................................................353.6 Financial Requirements for Eleventh Plan........................................................363.7 Accelerated Power Development and Reforms Programme............................383.8 International Experience.....................................................................................41

CHAPTER - 4

RESTRUCTURING MODEL AND PROGRESS........................................................454.2 First Phase of Restructuring...............................................................................454.3 Second Phase of Restructuring...........................................................................474.4 The Process of Restructuring..............................................................................474.5 Important Factors for Successful Restructuring of SEBs................................474.5.1 Political Commitment and Support....................................................................474.5.2 Champions for the Reform..................................................................................484.5.3 Competent Consultancy Support........................................................................484.5.4 Securing Cooperation of Employees...................................................................494.5.5 Financial Restructuring Plan..............................................................................49

4.6 Restructuring Models..........................................................................................504.6.4 Models of Restructuring......................................................................................514.6.5 Retaining SEB as a Holding Company...............................................................524.6.6 Distribution Mix...................................................................................................544.7 State-level Planning and Coordination..............................................................544.8 Outcome of Restructuring of SEBs....................................................................554.8.1 Group-1 States......................................................................................................554.8.2 Group-2 States......................................................................................................634.9 Regulatory Mechanism and its Impact on Restructuring of SEBs..................654.10 Impact of Restructuring on Rural Electrification.............................................664.11 Impact of Restructuring on Investments...........................................................684.12 Conclusions: Restructuring Model.....................................................................69

CHAPTER - 5

IMPACT OF RESTRUCTURING....................................................................................715.2 Impact of Restructuring on Technical and Financial Performance................715.3 Reduction in Estimated Losses...........................................................................725.4 Technical Parameters..........................................................................................745.5 Financial and Commercial Parameters.............................................................825.5.1 Revenue Improvements........................................................................................825.5.2 Profit/Loss without Subsidy.................................................................................835.5.3 Profit/Loss with Subsidy......................................................................................845.5.4 Commercial Losses as a Percentage of Revenue (without Subsidy).................845.5.5 Incidence of Subsidy.............................................................................................845.6 Energy and Peak Shortages................................................................................885.7 Per Capita Consumption.....................................................................................895.8 Rural Electrification............................................................................................905.9 State Power Sector Outlays.................................................................................945.10 Metering, Billing and Collection efficiencies.....................................................975.11 Overall Performance.........................................................................................100

CHAPTER - 6

FINDINGS AND RECOMMENDATIONS....................................................................1036.1 Political Commitment and Support..................................................................1036.2 Detailed Policy Statements................................................................................1066.3 Communication Strategy...................................................................................1066.4 Consultancy Support.........................................................................................1106.5 Human Resources Development Issues............................................................1116.5.7 Right-sizing of the Staff and Strengthening the Managerial Cadres.............1136.6 Financial Restructuring Plans (FRPs).............................................................1146.7 Managing the Reforms Process........................................................................1146.8 Role of the Electricity Regulatory Commissions.............................................1156.9 Establishing a Power Sector Reform Fund......................................................1236.10 Access to Central Institutional Funds by Privatised Utilities.........................1236.11 Reconstitution of the Board of Directors.........................................................1246.12 Memoranda of Agreements...............................................................................1256.13 Better Management Practices...........................................................................125

ii

6.14 Capacity Building and Developing Management Cadres...............................1276.15 Centre for Manpower Planning and Development.........................................1296.16 Accountability and Corporate Governance.....................................................1296.17 Participation of Civil Society Organisations....................................................1306.18 Citizens’ Charter................................................................................................1326.19 Universal Metering of Service Connections.....................................................1336.20 State Government Initiative and Support to Prevent Theft of Electricity....1346.21 Energy Accounting and Auditing.....................................................................1366.22 Reducing Cross-Subsidies.................................................................................1376.23 Fostering Competition Through “Open Access”.............................................1406.24 Data Management Systems...............................................................................1416.25 Adoption of Information Technology in Power Sector...................................1426.25.1 Computerised Online Information System......................................................1426.25.2 Other IT-related Applications...........................................................................1426.26 Outsourcing of Works/Services........................................................................1436.27 Encouragement to Non-Conventional Energy Sources..................................1436.28 Rural Electrification..........................................................................................1446.29 State-level Planning and Coordination............................................................146

CHAPTER - 7

WAY FORWARD...............................................................................................................1477.1 Steps to be taken by the Ministry of Power.....................................................1477.2 Steps to be taken by the State Governments....................................................1497.3 Steps Suggested for Implementation by the Utilities......................................152

iii

List of Annexures

Annexure-I : TERMS OF REFERENCE - Ministry of Power, GOI 154Annexure-II : List of Experts Detailed for the Study 156Annexure-III : Issues raised in the Interim Report of Study on the

Experience of Power Sector Reforms by the “National Coordination Committee of Electricity Employees and Engineers (NCCEEE)” and comments thereon of the ‘Group of Experts’

157

Data TablesTechnical, Financial, Commercial and other Parameters of States Before and After Restructuring

Annexures-IV to X : BlankAnnexure-XI : Performance of Generating Companies A-1Annexure-XII : Performance of Transmission Companies A-4Annexure-XII(A) : Year-wise Targets vs. Achievements Ninth and Tenth

Plans for Transmission LinesA-5

Annexure-XII(B) : Year-wise Targets vs. Achievements Ninth and Tenth Plans for Sub-Stations

A-6

Annexure-XII(C) : Transmission Sub-Stations Capacity Additions (State Sector) -1997-98 to 2011-12

A-7

Annexure-XIII : Performance of Distribution Companies A-8Annexure-XIV : T&D Losses A-12Annexure-XV(A) : Commercial Profit/Loss (without Subsidy) A-14Annexure-XV(B) : Commercial Profit/Loss (with Subsidy) A-15Annexure-XV(C) : Losses of SEBs/Utilities (without Subsidy) A-16Annexure-XV(D) : Business as Usual Continues vs. Effect of Restructuring

(Total Losses Without Subsidy) (Chart )A-17

Annexure-XV(E) : Cash Profit/Loss (With Subsidy) (Chart ) A-18Annexure-XV(F) : Percentage of Losses of Group-1 States Compared to all

the States (Chart )A-19

Annexure-XV(G) : Commercial Losses as a Percentage of Turnover A-20Annexure-XV(H) : Commercial Losses as a Percentage of Turnover (Chart) A-21Annexure-XV(I) : Subsidy Booked & Received and Percentage of Subsidy

Booked & Received to Total RevenueA-22

Annexure-XV(J) : Percentage of Subsidy Booked to Total Revenue A-23Annexure-XV(K) : Percentage of Subsidy Received to Total Revenue A-24Annexure-XVI(A) : Percentage of Energy Shortage - Group-1 States (Chart) A-25Annexure-XVI(B) : Percentage of Peak Shortage - Group-1 States (Chart) A-26Annexure-XVII : Per Capita consumption of Electricity (kWh per year) A-27Annexure-XVIII : Consumer Category-wise Average Tariff (Paise/kWh) A-28

Abbreviations………………………………………….…………………………….… A-30

iv

EXECUTIVE SUMMARY

A. BACKGROUND

A1 The pre-eminent role of ‘electricity’ in the growth of a nation’s economy

is well-established. To sustain the envisaged GDP growth rate of more than

eight per cent, electricity generation has also to grow at about the same rate.

The Tenth Five Year Plan aims at a generating capacity addition of 41,110

MW. However, the achievement is likely to be about 75 per cent of the target.

The total installed generating capacity in the country at the end of 2005-06 was

1,24,287 MW. Though India ranks fifth in the world in terms of the electricity

generated, the annual per capita consumption is a miniscule, 631.5 kWh (2005-

06 provisional figure), one of the lowest in the world. The world average of

annual per capita consumption in 2003 was 2,429 kWh.

A2 The current Five Year Plan emphasises the need for power sector

reforms through ‘restructuring’ of the State Electricity Boards (SEBs), by

establishing regulatory mechanisms, and by effecting overall improvement of

the physical and financial attributes of the SEBs. The enactment of the

Electricity Act, 2003 (EA, 2003) was a milestone in the development of the

power sector, and aims at, inter-alia, supply of electricity to all citizens at

reasonable tariff, provision of transparent subsidies, establishment of

Electricity Regulatory Commissions and Appellate Tribunal, and promotion of

policies conducive to the growth of the electricity sector. The EA, 2003 has, in

particular, made ‘restructuring’ of SEBs, on functional basis, mandatory.

A3 SEBs have been in existence for over 40 to 50 years, and have had

several achievements to their credit. However, on the whole, SEBs had become

unviable and unprofitable, with heavy accumulated losses and liabilities. They

were blamed for poor service delivery, mainly due to inefficient planning and

sluggish execution of capital works, inadequate maintenance, low generation

[low Plant Load Factor (PLF)], high Transmission and Distribution (T&D)

Losses, erratic supply to consumers, and perennial financial losses. Such inept

and consistently sub-optimal performance on all fronts by the SEBs in general

convinced the planners and policy-makers about the need to reorganise the

SEBs into smaller, viable, uni-functional Utilities, with clearly defined

jurisdictions and tasks, as part of the power sector reforms. This hypothesis

followed the realisation that the earlier attempts at reforming the generation

segment of the electricity value chain had not achieved the desired results; and

National Report (Vol.-I)Study on ‘Impact of Restructuring of SEBs’

reforming the distribution segment was considered essential for improving the

technical and financial performance, increased consumer care, corporatisation

of distribution segment and attracting significant private participation in the

power sector.

A4 Starting with Orissa, which restructured its SEB in the mid-1990s, 12

more States (including NCT of Delhi) have ‘reorganised’ their SEBs till now.

Some of them had restructured their SEBs prior to the enactment of the EA,

2003 whereas some others have done so after the enactment of the Act. The

remaining SEBs are legally obliged to do so in the near future. It is in this

context that the Ministry of Power (MoP) entrusted the Indian Institute of

Public Administration (IIPA) with the task of evaluation of the impact of the

restructuring of SEBs with reference to the time-frame, pattern, process and the

methodology adopted, as well as the overall performance of the restructured

Utilities. This Report, presented in four volumes, contains the findings and

recommendations of IIPA, which had enlisted the services of a Group of

Experts to carry out the Study.

A5 The Group of Experts had the benefit of discussions on several issues

relating to the power sector in the following important meetings:

Sl.

No.Date Participants Issues Discussed

1. 21.07.2006

Shri. E. Balanandan, Chairman, ‘National Coordination Committee of Energy Employees and Engineers and other representatives of the Committee.

Issues and concerns relating to employees of the electricity sector. Points raised by them and responses of ‘Group of Experts’ are at Annexure-III.

2. 24.08.2006

Shri R.V. Shahi, Secretary (Power), Govt. of India, Senior officers of MoP and officials of MNES, REC and CEA.

It was decided that meetings be held with Principal Secretaries (Power) of States, Chairpersons/ CMDs of State Power Utilities and with Electricity Regulators to fine tune the Recommendations.

3. 13.09.2006Principal Secretaries (Power) of States, Chairpersons and MDs of State power Utilities.

3600 feedback was obtained on the preliminary Report.

4. 14.09.2006Shri A.K. Basu, Chairperson, CERC and Chairpersons of six SERCs.

Issues pertaining to the institution of Electricity Regulators. For details, please refer to Para 6.8, Chapter-6.

2


A6 The valuable inputs and suggestions offered by the above-mentioned

persons are gratefully acknowledged.

B. Overview of the Sector

B1 Capacity additions as a percentage of targets during the Eighth, Ninth and

Tenth Five Year Plans are 54, 47 and 75 per cent respectively. However, the

shortfall in the Tenth Plan has been partly offset by improved plant

performance and reduction of T&D losses. Growth in electricity generation

during the Ninth Plan period was three per cent per annum. During the last

three years, growth in electricity generation has been consistently above five

per cent. During the period April to October 2006, the growth rate recorded

was 7.1 per cent.

B2 Energy and peak shortages in 2005-06 were still as high as 8 per cent and 12

per cent respectively. In order to reduce these shortages, and to meet the

increasing demand in the coming years, during the Eleventh Plan, another

62,475 MW of generating capacity will have to be added. As per the estimation

of the CEA, this will have to include 13,500 MW from the private sector.

Capacity addition of such a magnitude will call for an additional investment of

approximately Rs 5,00,000 crore, to be sourced from both the public and

private sectors. The World Bank estimates also are more or less similar.

B3 The above projection of massive investment requirements in the sector

underscores the need for intensive sector reforms, since on the one hand, the

Utilities in the public sector will have to work more efficiently and improve

their performance to create more investment resources, while on the other, the

sector will have to attract adequate private investments to supplement the

efforts of the public sector. Inevitably, this will call for a change management

involving reorganisation and restructuring, and fostering competition, to

improve productivity, efficiency and transparency in the sector.

C. Restructuring Models and Progress

C1 The restructuring of SEBs (which have been performing one of the most

essential and basic public service, but had become monopolist, monolithic,

unviable and large organisations) would tend to be a huge exercise, calling for

careful and meticulous planning and execution. The review of the seven States

where the restructuring was completed has led to a finding that “the process is

highly sensitive to several factors; and calls for unstinted political

3


commitment and support, public sensitisation on the issues involved, highly

placed champions for the reform, excellent consultancy support, cooperation

of the employees and an efficient FRP which would free the newly-formed

Utilities from the burden of past liabilities”.

C2 An important finding is that the untimely withdrawal of political support

before the restructured Utilities stabilise in their working would jeopardise the

reform process. Similarly, consultants should not only assist to frame the

models and chalk out the process of restructuring, but must also provide

handholding support to the new Companies during the initial years. Further, it

would be of prime importance to enlist the support and cooperation of the

employees at various levels, and instill identity and loyalty with the new

restructured entities through change management efforts to bring forth an

attitudinal change amongst them. It should also be ensured that the service

interests and career advancement of the employees under the new set-up are

fully protected so that their loyalty and commitment to the new companies

remain intact.

C3 The States, which restructured their SEBs, have in general adopted a

more or less similar model for the process, with a few modifications to suit

their individual requirements. Orissa completed the entire restructuring

exercise in one go, and subsequently allowed private sector participation in the

distribution segment. In other cases, initially, one or two Generating

Companies (GENCOs) and a combined Transmission and Distribution

Company were formed as successors to the SEB; and the former was, in the

second stage, restructured into one Transmission and two or more Distribution

Companies. In yet a third model, the SEB itself was not dissolved, but was

retained as a Holding Company to look after the residual and coordination

functions, while forming one Transmission and different Distribution

Companies. The analysis leads to the conclusion that the second model,

adopted by States like Andhra Pradesh, Haryana, Karnataka and Uttar Pradesh

is more appropriate and practical, and is, therefore, recommended for adoption

by the remaining States, which are mandated under the law to restructure their

SEBs.

C4 A related issue is the ideal mix of zones for determining the jurisdiction

of the new DISCOMs. In the cases reviewed, States have adopted an urban-

rural mix as the basis, which appears logical. However, States will have to

review this model at later stages so as to introduce more competition. Similarly,

4


there is also a need to make the Transmission Company in each State

responsible for statewide planning and coordination, for which these Utilities

would need to be strengthened by inducting experts in energy planning.

D. Outcome of Restructuring of the Power Sector

D1 The extensive Statewide survey and analysis carried out for this study

discloses that on the whole, in majority of the States, there are considerable

improvements in the performance of the Utilities after the restructuring. The

broad conclusion is that, despite some shortcomings, the overall impact of

restructuring has been positive and in the right direction. Overall

improvements were noticed in Andhra Pradesh, Haryana, Karnataka and Orissa

in the following areas:

(i) Trend towards reducing AT&C losses;

(ii) Increased and more focused investments;

(iii) Capacity additions and strengthening of the power systems;

(iv) Localisation and reduction of inefficiencies;

(v) Improved customer care;

(vi) Progress in metering, billing and collection, etc.;

(vii) Increased accountability of the Utilities;

(viii)Establishment of Regulatory Mechanism;

(ix) Empowerment of consumers; and

(x) Reporting and reviewing of performance of the Utilities on a regular basis.

D2 However, inadequate measures to control thefts, pilferages, unregulated/

unmetered supplies to the agriculture sector, and unreliability of service emerge

as areas of concern and reflect on management inadequacies and future

challenges for the power sector.

D3 The position in Rajasthan and Uttar Pradesh, however, leaves much to

be desired, while the progress in Madhya Pradesh is partial. One factor that was

noticed in most States mentioned above was the need to make the restructured

companies more autonomous and independent, and to inculcate

professionalism amongst the staff. A number of recommendations to effect

these changes are included in this report at appropriate places.

5


D4 The States of Assam, Gujarat and Maharashtra have restructured their

SEBs after the enactment of the EA, 2003 and require special mention. The

process followed in Assam and Gujarat appears to be quite comprehensive and

could be termed as good. However, the model followed by Maharashtra, with

only one Distribution Company in position, does not offer the best option from

the angle of efficiency and customer interest. Besides, the political support and

commitment displayed in the initial stages of the restructuring was not

sustained. There is a need to review and reinforce the process in Maharashtra.

E. Regulatory Commissions

E1 The State Electricity Regulatory Commissions (SERCs) have played a

positive role in the power sector reform process. Their functions, especially

those related to tariff matters, have brought about a refreshing change in the

working of the sector.

E2 However, there is need to assign a more effective role in the changing

environment after the enactment of the EA, 2003 to introduce greater

transparency and public participation in the proceedings before the

Commissions so as to make their functioning free of political influence.

E3 SERCs have to become more proactive, and ensure uniformity in their

approach to issues that would promote competition through non-discriminatory

Open Access and determine efficiency-based surcharge, review of plans for

new capacity additions and in implementation and enforcement of the codes

and standards of performance, etc., to enhance efficiency of the Utilities as part

of their accountability against the stated objectives.

E4 It would also be desirable for the SERCs to work with stakeholders in

evolving new rules and regulations. This Report includes recommendations

regarding capacity building and strengthening of the SERCs and making them

more independent and autonomous.

F. Rural Electrification

F1 Although fund flow to restructured companies from REC sources has

improved, since the restructured Utilities are now commercial concerns, they

are not likely to display adequate attention to rural electrification and supply of

sufficient power to rural areas, unless effectively monitored for their

performance in this area. Hence, it is necessary to keep a close watch on this

programme so as to avoid possible shortfalls in the achievement of national

6


targets. Rural Electrification Programme should not be seen as adding yet

another burden of losses on the Utilities through conventional technical system

extension.

G. Other Findings

G1 One of the major gains of the process of restructuring is the improved

commercial performance of the Utilities. The losses which were on the increase

until 2001-02, started diminishing after that, and came down from Rs 29,252

crore in 2001-02 to Rs 21,998 crore in 2004-05. (The losses may have been of

the order of Rs 38,000 crore if allowed to continue in a ‘business as usual’

mode.) Similarly, the States (excluding Uttar Pradesh) that have restructured

their SEBs have registered profits (with subsidy), after 2003-04. Further,

excluding Rajasthan and Uttar Pradesh, these States together have substantially

reduced their ratio of commercial losses (without subsidy), to revenue. The

percentage of subsidy as a ratio of respective revenues has also come down in

some restructured States, which is a positive indication.

G2 In the performance ratings secured by the Utilities for 2005, several

restructured States occupy fairly high rankings. It is pertinent that three such

States have been assigned top positions. However, the lower than expected

performance of some others highlights the need for improving the working of

the restructured Utilities by securing strong political commitment, improved

management practices and better financial and management controls, etc.

H. Findings and Recommendations

H1 Based on the extensive Statewide reviews and analyses, a large number

of important recommendations have been included in this Report for necessary

follow up by the Ministry of Power, Government of India, and the concerned

State Governments. These have been categorised separately for the use of the

intended stakeholders as ‘Way Forward’ in a subsequent chapter. The major

recommendations are as follows:

(i) Need for sustained political commitment and support for the reform;

(ii) Need to issue Detailed Policy Statements (DPS) to spell out the future

policy and programmes;

(iii) Need for an effective and forceful communication strategy;

(iv) Need to make available excellent, competent consultancy support to the

State Governments;

7


(v) Need to develop a forward-looking and transparent HRD policy after taking

the staff representatives into confidence;

(vi) Suggestions for managing the reform process;

(vii) Suggestions to make the regulatory mechanism more effective;

(viii)Need for the Central Government to support Power Sector Reform Funds;

(ix) Strengthening the boards of directors and management cadres of the

restructured Utilities;

(x) Increasing the accountability and autonomy of the Utilities by

private/employee participation in the equity base, appointment of

independent directors, etc.;

(xi) Reducing cross-subsidies through political commitment; and

(xii) Introducing various measures, which would improve efficiency and

productivity of Utilities.

I. This Report is divided into four volumes. The details are as follows:

Volume No. DetailsVolume-I 7 Chapters focusing on common issues on the ‘Impact of the

Restructuring of SEBs’, which will be relevant and of interest to the MoP, State Governments and the restructured Utilities in general

Volume-II Executive Summary, Findings and Recommendations and the Way Forward of Volume-I.

Volume-III Detailed State-wise chapters covering each of the 12 States studied

Volume-IV Summarised versions of individual State Reports on the impact of restructuring of SEBs, relating to 12 States covered in this study.

8

CHAPTER - 1

BACKGROUND

1.1 The thrust area for the power sector in the Tenth Five Year Plan (TFYP), 2002-

07, was sector reforms, which included the restructuring of vertically integrated

State Electricity Boards (SEBs); establishing independent regulatory regimes,

both at the Central and State levels; improving the financial stability and

viability of SEBs and improvement in the quality and reliability of power

supply through specific, target-oriented and coordinated development and

augmentation of power infrastructure facilities through initiatives like

Accelerated Power Development and Reforms Programme (APDRP). The

TFYP also aimed at encouraging competition in the power sector through

increased private sector participation and introducing Open Access in

transmission and distribution systems. On the generation side, the TFYP

envisaged a capacity addition of 41,110 MW.

1.1.1 According to the Ministry of Power, the Government has taken up reforms in

the power sector in order to turnaround the financial health of the power sector

and ensure gradual reduction of losses.

1.1.2 Energy has a critical role to play in the sustainable development of the

economy. Elasticity ratio between the growth rates of GDP and electricity

generation for the country is taken as 1:1. Growth of the Indian economy is

projected to be over eight per cent per annum during the Eleventh Plan. For

achieving a robust growth rate of such a magnitude, the generation of

electricity must also grow commensurately.

1.1.3 In order to take forward the Power Sector reforms, the EA, 2003 lists the

following in its preamble1:

(a) Consolidation of laws relating to generation, transmission, distribution,

trading and use of electricity;

(b) Taking measures conducive to develop the electricity industry;

(c) Supply of electricity to all consumers;

(d) Protecting consumer interest;

(e) Rationalisation of electricity tariff;

(f) Transparency in policies regarding subsidies;

1 Ministry of Power website

(g) Promotion of efficient and environmental-friendly policies; and

(h) Constitution of Electricity Regulatory Commissions (ERCs) and the

establishment of an Appellate Tribunal at the national level and defining a

clear role for the Central Electricity Authority (CEA).

1.1.4 Another way of looking at the objectives of power sector reforms2 could be as

follows:

(a) To reduce reliance on Government support and expand the power

sector by attracting private investment;

(b) To foster a climate of fair-play and transparency in all spheres

relating to the sector so as to reassure private investors of a fair return; and

(c) To improve the efficiency of the system through competition and to

provide assured and quality power to all categories of consumers.

1.1.5 The EA, 2003 has made restructuring of the SEBs mandatory. It was widely

recognised that SEBs were monolithic, multi-disciplinary and unviable

organisations, which, though providing a crucial and vital service to the public

at large, had failed to perform optimally on all fronts - physical, financial and

functional and also in consumer care. It was also generally accepted that SEBs

were subject to political manoeuvring, interference, and bureaucratic controls,

and, over a period of time, paid scant attention to commercial sustainability and

customer care. The commonly perceived reasons for the poor performance of

SEBs are:

(a) Inefficient planning and implementation of capital works, entailing

delays, cost overruns, inadequate capacity additions and lack of

accountability;

(b) Poor maintenance of assets, leading to frequent break-downs, low

plant load factor (PLF), high T&D losses, energy and peak shortages,

frequent interruptions, regular power trippings and poor quality of supply;

and

(c) Perennial financial losses due to low cash coverage and predominant

dependency on subsidies caused by unrealistic tariffs; poor metering,

billing and collection efficiency, poor inventory management, etc.

1.1.6 It was in this context that the concept of restructuring of SEBs into smaller,

functionally-oriented, viable organisational units (which would have clear

visions and be mission-aligned to serve the cause of economic and social

development) came to be accepted. However, questions were also raised about

2 Indian Power Sector Reforms: Prayas

the wisdom and real-time benefits of restructuring of the Utilities, especially in

the context of the resistance from large sections of employees of the SEBs.

There was also an apprehension among some sections of stakeholders that the

restructuring of the SEBs was taken up at the instance of multinational and

bilateral agencies (who were prompted more by international practices and

trends), not reflecting the true and fair appreciation of the local conditions.

1.1.7 The first State in India to undertake a restructuring programme for its

Electricity Board was Orissa (in April 1996), where the reforms strategy

included the privatisation of the restructured DISCOMs. The Orissa experiment

was followed by similar restructuring exercises in several States including

Haryana, Andhra Pradesh, Karnataka, Uttar Pradesh, Rajasthan and Madhya

Pradesh, the difference being that their DISCOMs were Government owned

and managed companies. Subsequently, as mentioned above, with the

enactment of the EA, 2003, restructuring of the SEBs has become mandatory

under the law.

1.1.8 The first wave of reforms in the power sector focused on generation.

Subsequently, in the mid-1990s, the need and inevitability of reforming the

distribution segment of the supply chain came to be accepted at the policy-

making level, which gave shape to the second wave of reforms and includes

restructuring of the SEBs. The restructuring of the SEBs has so far been

completed in 13 States (out of which 10 States were selected for the instant

study. Of these, seven States figure in Group-1 and three States in Group-2 in

this Report3); these exercises were carried out during the last decade. The other

States are yet to initiate (or are in) the process of restructuring. Out of these,

two States, namely Tamil Nadu and West Bengal, have been covered under the

category of Group-3 States.

1.1.9 The restructuring of the SEBs into a number of smaller corporate entities with

separate missions, functions, board of directors, and managements is an

intricate and complex task. The new functionally-oriented independent

corporate bodies, carved out of the Electricity Boards, have been in operation

in the Group-1 States for quite some time; but not long enough to ensure their

complete stabilisation. The Electricity Boards have been in existence for more

than four decades and their restructuring into corporate entities by different

States is a significant event in the development of the power sector in India. A

comparative analysis of the process which the States adopted, together with an

independent evaluation of the gains and shortfalls arising out of such an

exercise would indeed be of considerable practical value to the States which 3 Refer to Table 1.1 for details of States.

undertook the exercise, as also to the Group-3 States which are about to start

the process. It will also be useful to other stakeholders of the sector, including

the policy makers at different levels.

1.1.10 The Ministry of Power entrusted the study on the “Impact of Restructuring of

SEBs” to the Indian Institute of Public Administration (IIPA) in November

2005. This Report is the result of an in-depth review of the developments

which led to the restructuring of SEBs (Groups 1 and 2) in 10 selected States in

India, the methodology adopted, merits and demerits, the overall outcome, and

the current status in 2 States (which are yet to undertake the exercise), by a

group of experts detailed by IIPA4. This Report attempts to capture the various

developments relating to and subsequent to the restructuring of SEBs in the 10

States and analyses the impact of restructuring of SEBs in these States

objectively with a view to assess the progress made in achieving the targeted

benefits of the exercise or reasons for under-achievement, wherever applicable.

The Report also compares the position prior to the restructuring with that after

the exercise, by taking stock of the gains and accomplishments against set

targets, and aims to assess the extent of success or otherwise of the reform

efforts in the States concerned. It also provides an overview of the lessons

learnt and the way forward. This Report should be read in conjunction with the

individual Reports on the selected States included as Volume-III of this Report,

which deals in detail with issues and developments relating to the concerned

States.

1.1.11 The criteria of categorising the States into various groups and Region-wise

distribution of these States are given in Tables 1.1 and 1.2 respectively.

Table 1.1: States Covered in the Study

Group-1 (7 States)The States in which SEBs were reorganised on the basis of the respective State Reforms Acts prior to the enactment of the EA, 2003.

Group-2 (3 States)The States in which SEBs were reorganised after enactment of the EA, 2003.

Group-3 (2 States) The States in which SEBs are in the process of restructuring.

Table 1.2 : Region-wise Distribution of the States

RegionNo. of States

SelectedState

No. ofDISCOMs

Classificationof Category

Southern 3Andhra Pradesh 4 Group-1Tamil Nadu * Group-3Karnataka 5 Group-1

4 Refer to Annexure II for a list of experts and the States covered by them.

Western 3Maharashtra 1 Group-2Madhya Pradesh 3 Group-1Gujarat 4 Group-2

Northern 3Uttar Pradesh 5 Group-1Haryana 2 Group-1Rajasthan 3 Group-1

Eastern 2West Bengal * Group-3Orissa 4 Group-1

North Eastern 1 Assam 3 Group-2*Not yet restructured

1.2 Objectives of the Study

1.2.1 The objectives of the study were to:

(a) Critically analyse the impact of reorganisation of SEBs and bring out the details of difficulties, shortcomings and suggestions;

(b) Bring out overall trends in the performance of the power sector, starting five years before reorganisation and thereafter, wherever relevant;

(c) Make suggestions for effective implementation of restructuring of the SEBs;

(d) Document the restructuring process in SEBs flagging successes and failures;

(e) Provide explanation for the above performance through a series of outcome indicators and a contextual analysis;

(f) Identify the policies and other factors that contribute to the outcome; and

(g) Identify the best practices that could be replicated elsewhere.

1.3 Terms of Reference

1.3.1 The Terms of Reference (TOR) of the study agreed to with the Ministry of

Power were as follows:

The study should bring out the trends in respect of the following parameters

starting five years before the reorganisation exercise and thereafter:

(a) Exercise of Restructuring: Time-frame, status, organisation patterns, etc.

(b) Generation Company’s Performance Analysis: Physical and financial

performance in terms of capacity addition programmes, management

practices, etc.

(c) Transmission Company: Improvement in physical and financial

performance, including the reduction of losses.

(d) Distribution Company: Overall performance improvements in all areas of

activity, especially in matters of commercial operations, customer care,

enhancement of revenue and reduction of losses, restructuring, financial

health, etc.

(e) Recommendations: Provide suggestions and recommendations for

effective implementation of the restructuring of SEBs by all the States, to

derive maximum benefits. (Please refer to Annexure-I for detailed Terms

of Reference).

1.4 Methodology Adopted

1.4.1 In order to carry out the State-wise review in depth and with objectivity, IIPA

selected a team of experts with significant experience and domain expertise in

the working of the power sector. The team was headed by Shri P. Abraham,

formerly Secretary (Power), Government of India and Ex-Chairman

Maharashtra State Electricity Board (MSEB). The list of the experts who

carried out the review and the States reviewed by them is given at Annexure-

II.5

1.4.2 The methodology adopted for the review included:

(a) Eliciting information and data from the State Governments, SEBs and

Power Utilities through detailed questionnaires (Schedules).

(b) Interviews/interactions with officials and other stakeholders at different

levels.

(c) Discussions among the Group of Experts and their interaction with policy

makers and other senior functionaries.

1.4.3 The Central Electricity Authority (CEA) and Power Finance Corporation

Limited (PFC) provided considerable relevant material and data required for

the review. However, the flow of information and responses from the State

Governments and the Utilities were slow except for a few, which has hampered

the progress of the review.

1.4.4 IIPA specially wishes to thank Shri R.V. Shahi, Secretary, Ministry of Power,

who kindly pursued the matter by addressing the State Governments and

Utilities several times. But for his interventions, this review would not have

been possible. IIPA is also grateful to the other senior officials of the Ministry

of Power for extending all cooperation.

1.4.5 IIPA received a request from S/Shri A.B. Bardhan, Hon’ble Member of

Parliament and General Secretary, CPI and E. Balanandan, Chairman, the

National Coordination Committee of Electricity Employees and Engineers

(NCCEEE), through Ministry of Power, seeking a meeting with the ‘Group of

Experts’ to express their views. Ministry of Power also forwarded to Director,

5 Refer to Annexure II for a list of experts and the States covered by them.

IIPA a copy of the Interim Report of the High Level Committee on

Government Policy on Reforming/Restructuring of SEBs for the information

and use of the Group of Experts. Director, IIPA and the Group of Experts met

Shri Balanandan and other leaders of the Power Sector Employees’ Unions and

Groups6 on 21 July 2006 in IIPA and discussed the relevant issues with them.

IIPA and the Group of Experts are grateful for the views and suggestions made

by them during the meeting. A brief account of the major concerns expressed

by Shri Balanandan and representatives of NCCEEE and the views of the

Group of Experts thereon are at Annexure-III.

1.4.6 The Group of Experts had the benefit of the considered view and useful

suggestions on the developments of the Sector reforms expressed by Shri R.V.

Shahi, Secretary, Ministry of Power, his officials, representatives of the

Ministry of Non Conventional Energy Sources, CEA and the REC in an

interactive session held on 24 August 2006. Further, the members of the

‘Group of Experts’ met and discussed with a number of States’ Principal

Secretaries (Power) and Chairpersons/Managing Directors of State Power

Utilities on 13 September 2006 on the ongoing reform process and

developments in their States. The Group also met the Chairman of the Central

Electricity Regulatory Commission, Shri A.K. Basu and the Chairpersons of

six State Electricity Regulatory Commissions on 14 September 2006 at IIPA

and held interactive sessions with them on the status of the reform in the

respective States, compliance of the directives of the Commissions by the

Utilities, role played by the Commissions to achieve the objectives of the EA,

2003, National Electricity Policy (NEP) and National Tariff Policy, etc. IIPA

and the Group of Experts place on record their appreciation and gratitude for

the cooperation extended by the Secretary (Power), Chairperson, CERC,

Chairpersons of SERCs, Principal Secretaries and CMDs of the concerned

States and other participants.

1.4.7 The Group of Experts met in IIPA, New Delhi, and discussed on a number of

occasions the objectives, methodology and findings of the study. The Group

also jointly analysed the findings and recommendations arising from each State

reviewed and compiled findings and recommendations, which have a bearing

on the sector as a whole after detailed analyses. These have been incorporated

into this Report in Chapter-6. This Report gives a macro-view of the progress

of restructuring of SEBs by 10 States, soundness of the procedure adopted,

outcomes, shortcomings and difficulties encountered and an overview of the

current status. It also brings out the lessons learnt from the exercise and the

6 List of the leaders and important issues raised by them are at Annexure-III

way forward. Finally, it includes a roadmap for future reforms to make the

restructuring a success (Chapter-7).

1.4.8 This Report is presented in four Volumes. Volume-I contains the Expert

Groups’ findings and recommendations, relating to national issues, analysis of

the performance of the restructured Utilities, together with findings and

recommendations and the roadmap to take forward the reforms. Further, for

facility of reference and wider dissemination a separate volume (Volume-II)

contains the Executive Summary, Findings and Recommendations and Way

Forward of Volume-I is also presented.

1.4.9 Volume-III is State-specific. It contains 12 comprehensive chapters, each

consisting of detailed reviews of similar issues of Volume-I, pertaining to the

individual States selected for the study. These reviews have been prepared by

the concerned Member(s) of the ‘Group of Experts,’ who was/were allotted that

State. IIPA is grateful to the policy-makers, Power Secretaries, CMDs of the

power Utilities and other officials of all the 12 States for extending all

cooperation and providing the inputs as per the comprehensive schedules

specially designed for the study. Volume-IV includes summarised versions of

individual State Reports on the impact of restructuring of SEBs, relating to 12

States covered by this study.

1.4.10 IIPA hopes that Ministry of Power and other stakeholders will find this Report

extremely useful in their efforts to revitalise the power sector.

CHAPTER - 2

POWER SECTOR REFORMS AND RESTRUCTURING

2.1 Under the Constitution of India, electricity figures as a “Concurrent” Subject at

Entry 38 in List III of the Seventh Schedule. According to this, the States,

rather than the Central Government, are primarily responsible for providing

electricity to consumers and fixing electricity tariff. The Central Government

power companies own and operate about one-third of the power generating

capacity and inter-State exchanges of power. At the State level, SEBs own and

operate most of the remaining two-thirds of the power generation capacity with

almost the entire distribution network under their control. According to an

International Energy Agency (IEA) Report7, “India ranked fifth in the world in

total electricity generated in 2003, between Russia and Germany with about

633 TWh (3.8 per cent of World total)”. However, because of India’s large

population, gross annual consumption of electricity per capita was only 631.5

kWh during 2005-06, (provisional figure, Source CEA) among the lowest in the

world. The world per capita annual average consumption is 2,429 kWh. The

annual per capita consumption in India has increased from 592 kWh during

2003-04 to 612.5 kWh in the year 2004-05. Thus annual growth of per capita

consumption in the last three years was 4.46 per cent, 3.46 per cent and 3.10

per cent respectively. The National Electricity Policy (NEP) envisages annual

per capita availability of electricity to be increased to about 1,000 Units by

2012.

2.1.1 One of the important problems being faced by the Indian power sector is the

pricing of electricity. Current retail prices of electricity do not cover the actual

average costs. There is a large amount of cross-subsidisation among consumer

categories. The agricultural and household sectors are cross-subsidised by the

above-cost tariffs levied for commercial and industrial customers and the

Railways. In addition, it has been estimated that only 55 per cent of the total

electricity generated is billed and about 41 per cent is regularly paid for. Theft

of electricity is another area of concern. The poor cost-recovery, very low

tariffs for small and agricultural consumers and very high tariffs for bulk

consumers and the widespread non-payment of electricity charges to the

Utilities discourage investment, both public and private, aggravating the

situation further. Most SEBs were unable to pay the electricity dues to the

Central public-sector power companies as well as to the independent power

producers (IPPs). SEBs, either supported through the budgetary process (which

7 IEA (2005) – Key World Energy Statistics

imposes a serious burden on the fiscal health of the State), or by unsustainably

high tariff on select categories of consumers, pose a serious threat to economic

development. The below-cost sale of electricity by the SEBs and the

widespread theft of electricity had become clearly unworkable by the mid-

1990s and had assumed alarming dimensions in many States. These

investment-inhibiting practices had, in fact, caused a serious infrastructure

problem, constricting the growth of the Indian economy. Indian industrial

consumers had to pay much higher tariff as compared to their competitors in

other countries. This had put the Indian industry at a cost disadvantage and, in a

globalised economy; this has affected our manufacturing sector significantly.

2.1.2 The continuing energy and peak shortages had to be overcome by creating

additional capacity as well as by adopting demand side management (DSM)

measures.

2.1.3 Without adequate cost recovery and investible surpluses, there is no sustainable

way by which the growing demand for additional electricity can be met.

Reform and restructuring of the SEBs had thus become inevitable.

2.2 Component of Reforms

2.2.1 Power sector reforms generally involve operation of the utilities on commercial

lines; setting up of independent Electricity Regulatory Commissions (ERCs)

and restructuring of the SEBs; ensuring that power sector reforms are designed

to benefit the poor and marginal sections of the society as well is vital both for

social equity and sustainability of the reform process itself. Three main types of

reform processes are in vogue in the developing nations. The first option is for

Governments to maintain the ownership of their Utilities under

commercialisation, but operating them on a cost-recovery basis. The second

option is privatisation, which can include purchase of power from private

power producers, selling of existing facilities to private firms, and private

financing of new facilities. Finally, there is the option of restructuring the

electricity sector through the restructuring of generation, transmission and

distribution into separate entities, to foster competition, efficiency and

innovation.

2.3 Chronology of Indian Power Sector Reforms and Restructuring

Table 2.1: Chronology of Events

1991 The Electricity Laws (Amendment) Act, 1991

Private Sector participation (including 100 per cent FDI) allowed in Generation.

1995-96 First Reform Model: Orissa Electricity Reform Act, 1995 (Orissa Act No.2 of 1996)

Establishment of OERC, OSEB restructured into OPGC, OHPC and GRIDCO.

1996 Chief Ministers Conference: Common Minimum National Action Plan for Power: Recommended policy to create CERC and SERCs

Licensing and other related functions to be delegated to SERCs,

SERC to determine retail tariffs, including wheeling charges, etc.,

States to allow maximum possible autonomy to the SEBs, which are to be restructured and corporatised and run on commercial basis.

1998 The Electricity Laws (Amendment) Act, 1998 and the Electricity Regulatory Commissions Act, 1998

Establishment of CERC and SERCs,Rationalisation of electricity tariffs,Transparent policies regarding subsidies,Promotion of efficient and environmentally benign

policies.

Haryana Electricity Reforms Act, 1997 (Haryana Act No.10 of 1998)

Andhra Pradesh Electricity Reforms Act, 1998 (AP Act No. 30 of 1998)

SERCs constituted in Haryana, Madhya Pradesh, Uttar Pradesh and Gujarat

1999 Karnataka Electricity Reforms Act 1999 (Karnataka Act No. 25 of 1999).

Rajasthan Electricity Reform Act, 1999 (Rajasthan Act No. 23 of 1999).

Uttar Pradesh Electricity Reform Act, 1999 (UP Act No. 24 of 1999).

Private sector participation in distribution segment in Orissa (four DISCOMs established).

SERCs constituted in Andhra Pradesh, Karnataka, Rajasthan, Delhi, Maharashtra, Tamil Nadu, West Bengal and Punjab.

HSEB restructured into HVPNL and HPGCL, subsequently UHBVNL and DHBVNL established.

APSEB restructured into APGENCO and APTRANSCO (for transmission and distribution).

KEB transformed into new companies: KPTCL and VVNL.

2000 Power Ministers' Conference and Electricity Bill, 2000 (draft): Reorganisation and restructuring of the State Electricity Boards in accordance with the model, phasing and sequencing to be determined by the respective State Governments. States to determine the extent, nature and pace of privatisation. (Public sector entities may continue if the States find them sustainable);

Restructuring of SEBs in the States of Uttar Pradesh and Rajasthan.

UtPCL and UtHPCL formed in Uttaranchal

2001 Delhi Electricity Reform Act, 2000 (Delhi Act No. 2 of 2001).

Madhya Pradesh Vidyut Sudhar Adhiniyam, 2000 (MP Act No. 4 of 2001).

SERCs constituted in Himachal Pradesh, Chhattisgarh and Assam.

2002 SERCs constituted in Uttaranchal, Goa and Kerala. Restructuring of SEBs in the States of Delhi and Madhya

Pradesh. Private sector participation in distribution segment in Delhi

(three DISCOMs established).

2003 Enactment of the EA, 2003. This landmark Act repeals all previous Acts [The Indian Electricity, 1910, The Electricity (Supply) Act, 1948 and The Electricity Regulatory Commissions Act, 1998].

The Act consolidated the laws relating to:

Generation, transmission, distribution, trading and use of electricity,Recognising the electricity sector as an industry and taking measures conducive to its development,Promoting competition therein,Rationalisation of electricity tariff,Ensuring transparent policies regarding subsidies,Establishment of Appellate Tribunal.

SERC constituted in Jharkhand. Gujarat Electricity Industry (Reorganisation and Regulation)

Act, 2003 (Gujarat Act No 24 of 2003).

2004 SERC constituted in Tripura and Jammu and Kashmir Restructuring of Assam SEB

2005 Notification of National Electricity Policy. SERCs constituted in Bihar and Sikkim. Restructuring of SEBs in Maharashtra and Gujarat. Tripura State Electricity Corporation Limited carved out from

Tripura State Electricity Department.

2006 Notification of National Tariff Policy. Notification of Rural Electricity Policy. SERC constituted in Meghalaya.

2.4 Status of Reforms and Restructuring

2.4.1 As on 30 June 2006, 13 States (about two-third of all major States) have

restructured their State Electricity Boards. Only in 8 major States, the SEBs

have not yet been restructured. These States have since committed to the

Ministry of Power that they would reorganise their SEBs latest by December

2006.

2.4.2 Twenty States have already issued Tariff Orders (T/Os) with Andhra Pradesh

issuing the maximum, i.e., seven T/Os, followed by Orissa (six) and Uttar

Pradesh, Madhya Pradesh and Karnataka five each.

2.5 In the Indian context, it is probably too early to evaluate the final outcome of

the reform efforts in the power sector. The movement from a command-and-

control public provisioning to a more market-determined approach is clearly

discernible. A lot remains to be done. This study makes a sincere effort to

document the reform process.

2.5.1 It is hoped that this study will expedite the process of introducing appropriate

policy interventions that will impact policy-making through better interaction,

participation and involvement by the SEBs, Restructured Utilities, as well as all

other Stakeholders.

CHAPTER - 3

OVERVIEW OF THE POWER SECTOR IN INDIA

3.1 Five Year Plan Targets and Allocations

3.1.1 The Tenth Five Year Plan (TFYP) underscores the fact that due and diligent

performance of the power sector is a sine-qua-non for achieving the 8 per cent

GDP growth rate projected in the Plan. The TFYP, therefore, called for an

integrated energy policy, based on acceleration of the reforms process and

substantial increase in the installed capacity and production in the power sector

(Medium Term Review). Ministry of Power is fully alert to this need and has

been taking path-breaking initiatives to push forth its power sector reforms

agenda.

3.1.2 Energy is the prime determinant of economic growth and social development

of a country. Indeed, the extent of economic development of the country could

be gauged by the intensity and efficiency of its energy use; as also by the scale

of operation, state of technology, extent of competition and regulatory control

in the energy sector. In view of this, The Tenth Five Year Plan had allotted as

much as 17.72 per cent of the total outlay, amounting to Rs 2,70,276 crore to

the power sector. Table 3.1 gives the Outlays and expenditure on power during

the various Plan periods:

Table 3.1: Plan wise Outlays and Expenditure for Power Sector

Plan PeriodOutlays

(Rs crore)

Outlay onPower as a %

of Total Outlay

Expenditure on Power(Rs crore)

Expenditure onPower as a % of

Total Expenditure

VI Plan (1980-85) 19,265.44 20.13 18,298.68 16.74VII Plan (1985-90) 34,273.46 19.04 37,895.30 17.33VIII Plan (1992-97) 79,589.32 18.33 76,677.38 15.79IX Plan (1997-02) 1,24,526.00 14.49 1,10,113.93 12.81X Plan (2002-07) 2,70,276.35 17.72 *1,60,918.06

*Likely Expenditure (Source: Planning Commission)

3.1.3 Percentage of Power Sector Outlays to Total Plan Outlays has gradually come

down from 20.13 per cent (Sixth Plan) to 14.49 per cent (Ninth Plan).

Moreover, actual expenditure on power during Ninth Plan was only Rs

1,10,113.93 crore, as against the outlay of Rs 1,24,526.00 crore. Although,

approved Outlay for the Power Sector in the Tenth Plan was 217 per cent more

than that of the Ninth Plan, the likely expenditure for the Tenth Plan is

anticipated to be less than 60 per cent of the Outlay. Likely expenditure on

power by the central sector is anticipated to be only 53.34 per cent (refer Table

3.2).

Table 3.2: Financing of Investment of MoP during Tenth Plan (All figures at 2001-02 Prices)

(Rs crore)

YearIEBR*

GBS#Outlay at 2001-02

Price LevelsIR** EBR

X Plan approved Outlay 14,138 10,4261 25,000 1,43,3992002-03 (actual) 1,690 5,129 1,830 8,6492003-04 (actual) 2,287 6,607 1,847 10,7412004-05 (actual) 4,274 6,386 2,288 12,9482005-06 (actual) 4,221 9,623 2,692 16,536First four years (actual) 12,472 27,745 8,657 48,8742006-07 (B.E.) 5,424 16,700 5,500 27,624Likely investment during X Plan 17,896 44,445 14,157 76,498Investment as per cent of X Plan approved Outlay

126.58 42.63 56.63 53.34

*IEBR : Internal and Extra Budgetary Resources (Source: Planning Commission)**IR : Internal Resources #GBs : Gross Budgetary Support

Table 3.3: Expenditure-Outlays of State Sector (Power) (Rs crore)

State2000-01(Actual)

2001-02(Actual)

2002-03(Actual)

2003-04(Actual)

2004-05(RE)

2005-06(Approved)

All States/UT 15,334.26 13,555.19 14,876.36 15,725.73 16,465.67 18,676.15(Source: Planning Commission)

High AT&C Losses – Bane of India’s Power Industry

High AT&C Losses – Bane of India’s Power Industry

3.1.4 For a generating company, the major operating cost is on account of fuel.

Fuel

8per

6per

7per

35per

6per

8per

5per

25per

100per cent

Fuel O&M Return& Dep.

O&M AT&C Interest TotalReturn& Dep.

Interest

8%cent

6%

7%%ce

35%

6%cent

8%cent

5%cent

25%r

100%

-------------- Generation ---------------------- ---Transmission & Distribution ---

(Source : NTPC)

cost is around 25 per cent of the cost break up of the total power system operation. An abnormally high level of AT&C losses (i.e., 35 per cent of the total cost of power system operation) is a cause for alarm since it is far more than the input required (25 per cent) to generate electricity itself (which is a major component of generation expenditure). The cost of generation is about 43 per cent of the total expenditure in operating the power system in India. This has been possible due to continued improvement in technical performance, viz., PLF, secondary oil consumption, auxiliary consumption, plant availability, etc. The introduction of incentives in the field of thermal generating stations and focus of Government on the generation sector has contributed to the success of this sector. Such a focussed attention was not available in the distribution segment to the desired extent. Consequently, the high level of AT&C losses has made this segment unviable and unattractive for fresh investments. There has been a huge backlog of much needed investment in the distribution segment, which has hampered the growth of the power sector itself.

3.1.5 One of the main reasons for increase in losses in the power sector is low investment in distribution compared to the investment made in generation. The figures of Expenditure on generation and transmission & distribution along with Rural Electrification are shown in Table 3.4.

Table 3.4: Ratio of Expenditure between Generation and T&D plus RE(Rs crore)

Plan PeriodExpenditure incurred on Ratio between

Generation and (T&D plus RE)

Generation(T&D) +

(RE)I Plan (1951-56) 105 140 1 : 1.33II Plan (1956-61) 250 190 1 : 0.76III Plan (1961-66) 777 454 1 : 0.58Three Annuals (1966-69) 676 528 1 : 0.78IV Plan (1969-74) 1505 1386 1 : 0.92V Plan (1974-79) 4467 2963 1 : 0.66Annual Plan (1979-80) 1429 1098 1 : 0.77VI Plan (1980-85) 12116 6320 1 : 0.52VII Plan (1985-90) 24528 12392 1 : 0.51Annual Plan (1990-91) 7003 2930 1 : 0.42Annual Plan (1991-92) 10373 3250 1 : 0.31VIII Plan (1992-97) 49424 26281 1 : 0.53IX Plan (1997-2002) 59537 47011 1 : 0.79X Plan (2002-07) * 172254 78258 1 : 0.45

*Outlays

3.1.6 The total addition to the installed generating capacity during the Tenth Five

Year Plan period, which more or less corresponds to the period of accelerated

reforms efforts, is given below (Tables 3.5 and 3.6):

Table 3.5: Capacity Addition During the Tenth Plan(Capacity in MW)

Sector Hydro Thermal Nuclear TotalOriginal Plan Targets

Central 8,742 12,790 1,300 22,832State 4,481 6,676 0 11,157Private 1,170 5,951 0 7,121Total 14,393 25,417 1,300 41,110

MID–Term ReviewCentral 6,177 11,070 2,570 19,817State 4,248 7,991 - 12,239Private 700 4,199 - 4,899Total 11,125 23,260 2,570 36,955

(Source: CEA)

Table 3.6: Anticipated Capacity Additions at the End of the X Plan(Capacity in MW)

Mid-Term Appraisal

Target

UnitsCommissioned

UnderExecution

Overall Capacity Addition now Anticipated

SectorCentral 19,817 10,865 6,360 17,225State 12,239 4,948 6,953 11,901Private 4,899 1,931 2,968 4,898

Total 36,955 17,743 16,281 34,024TypeThermal 23,260 9,709 11,521 21,230Hydro 11,125 6,854 3,320 10,174Nuclear 2,570 1,180 1,440 2,620

Total 36,955 17,743 16,281 34,024 (Source: CEA)

Table 3.6(A): Capacity Addition during VIII and IX Plans (Capacity in MW)

SectorVIII Plan IX Plan

Target ActualPercentage

achievementTarget Actual

Percentageachievement

Central 12,858 8,157 63 11,909 4,504 38State 14,870 6,835.2 46 10,747.7 9,450 88Private 2,810 1,430.4 51 17,588.5 5,061 29

Total 30,538 16,422.6 54 40,245.2 19,015 47(Source: CEA)

3.1.7 As can be seen from Tables 3.5, 3.6 and 3.6 (A), the position regarding

capacity additions during the Eighth, Ninth and Tenth Plans is as under:

Table 3.6(B): Capacity Addition Achieved (as % of Targets)

Five Year PlanAchievement as

percentage of targetEighth 54

Ninth 47Tenth* 75

* Anticipated

The shortfall during the Tenth Plan has, however, been partly offset by

improved plant performance and reduction of T&D losses. (Source: Agenda

Papers, Conference of Power Ministers)

Table 3.7 : Availability of Additional Capacity During the Tenth Plan (MW)

Particulars Utility RES* Utility+ RES Captive# TotalAlready commissioned

14,342.24 4,650 18,992.24 2,350 21,342.24

Likely in 2006-07

19,682.02 1,367 21,049.02 2,000 23,049.02

Grand Total 34,024.26 6,017 40,041.26 4,350 44,391.26*RES=Renewable Energy Sources (Source: CEA)#1 MW and above size

3.1.8 Likely addition to installed generating capacity during the Tenth Plan on

account of Renewable Energy Sources and captive plants will be of the order of

10,367 MW.

3.2 Performance of Generation Sector (All 2005-06 figures are provisional)

3.2.1 Installed Generating Capacity

Table 3.8 : Installed Capacity (as on 31.8.2006) in MW

Sector Thermal Hydro Nuclear RES* Grand Total State 42,379.33 25,502.62 - 2,567.53 70,449.48 Central 30,891.49 6,422.00 3,900.00 - 41,213.49 Private 10,501.52 1,206.15 - 3,623.33 15,331.00All India (Utilities) 83,772.34 33,130.77 3,900.00 6,190.86 1,26,993.97*RES=Renewable Energy SourcesCaptive Generating Capacity (MW) connected to the GRID 14,636.00

Installed capacity has increased by 4.46 per cent, 5.10 per cent and 4.95 per

cent in 2003-04, 2004-05 and 2005-06 respectively compared to figures of the

immediate preceding years. Concerted efforts have to be made to achieve the

Plan targets.

3.2.2 Electricity Generation

Table 3.9: Generation during 2005-06 (MU)

Sector Thermal Hydro Nuclear RES* Grand Total

UtilitiesState 2,40,799.92 63,857.45 184.28 3,04,841.65Central 2,082,82.04 33,967.75 17,312.85 2,59,562.64Private 50,762.27 2,057.04 5,996.56 1,09,578.14All India 4,99,844.23 99,882.24 17,312.85 6,180.84 6,23,220.16

Captive Power Plants (1 MW and above size) 74,130.54Total All India Generation 6,97,350.70

*RES=Renewable Energy Sources

Growth in electricity generation during the Ninth Plan was three per cent per

annum. As shown in the following chart, during the last three years, increase in

electricity generation has been consistently above five per cent. During the

period April to October 2005, 5.2 per cent growth was recorded. As against

this, in the corresponding period, during 2006-07, the growth has been 7.1 per

cent.

Growth in Electricity Generation (%)

3.2.3 Plant Load Factor

(a) Plant load factor (PLF) of the thermal power generating stations has

progressively increased over the years. It was 57.1 per cent in 1990-91, 69

per cent in 2000-01 and 74.80 per cent in 2004-05 at national level.

(b) Annexure-XI indicates the way SEBs/Utilities have managed their

PLF in the recent years. For facility of comparison, the PLF is given

separately for periods before and after restructuring.

3.2.4 Energy and Peak Shortages

(a) The power supply position in the country is characterised by

shortages both in terms of demand met during peak time and overall

energy supply. The peaking shortage is experienced in every region of the

country and it is about 12 per cent on all-India basis. The energy shortages

on regional basis vary in magnitude, with the overall shortage on all-India

basis being about 7-8 per cent.

Table 3.10: Percentage of Energy and Peak Shortages

Particulars 1990-91 2000-01 2004-05 2005-06

Energy Shortages (%) 7.9 7.8 7.3 8.3

Peak Shortages (%) 16.7 12.3 11.7 12.3

(b) The last five years data of growth of GDP, desired growth rate of

electricity generation (taking elasticity ratio of 1:1) and actual annual

growth rate of electricity generation has been indicated in Table 3.11.

Table 3.11: Desired vs. Actual Annual Growth Rate of Electricity Generation (%)

YearGDP

Growth(%)

Annual Electricity Generation Growth rateCommensurate

with GDP*Actual over the

Preceding Year (%)2001-02 5.8 5.8 3.12002-03 3.8 3.8 3.22003-04 8.5 8.5 5.12004-05 7.5 7.5 5.22005-06 8.4 8.4 5.2

*Elasticity Ratio for Indian conditions taken as 1:1

(c) Parity between growth rate of GDP and that of electricity generation

has not been achieved in the country over the years, which resulted in

deficiency of the power available in terms of both quantity and quality.

The situation can only be improved by taking concerted efforts such as by

giving more emphasis on capacity additions as per Plan targets, and

bringing efficiency in the Power Sector.

(d) According to Government of India infrastructure gap is costing India

between 1.5 and 2 per cent of GDP growth every year. RBI’s Annual

Policy Statement for the year 2006-07 points out that sustaining the

growth of manufacturing sector which is the key driver of industrial

recovery, would depend critically on bridging the large gaps in physical

infrastructure.

3.2.5 Metering, Billing and Collection Efficiency

(a) The billing efficiency at national level has improved from 68.37 per

cent during 2002-03 to 69.87 per cent during 2004-05. The average

collection efficiency at the national level has also improved from 92.68 to

94.72 per cent during the same period. With this improvement in billing

and collection efficiency, the national average AT&C loss of the

DISCOMs has reduced from 36.63 to 33.82 per cent. The details are

shown in Table 3.12.

Table 3.12: Metering, Billing and Collection Efficiency

Year

11 kVFeeder

Metering (%)

No. ofConnections

(in lakhs)

MeteringEfficiency

(%)

BillingEfficiency

(%)

CollectionEfficiency

(%)

AT&CLosses

(%)

2000-01 68 1,013.13 752001-02 81 1,070.70 78 68.12 90.75 38.182002-03 967.04 88 68.37 92.68 36.632003-04 - - 68.80 94.80 37.782004-05 98 1,315.11 87 69.87 94.72 33.82

(Source: Draft Report of The Task Force on Restructuring of APDRP, MoP, GoI)

(b) In 2005-06, the number of connections increased to 1,983.22 lakhs

and metering efficiency increased to 93 per cent. The number of 11 kV

feeders increased to 79,869 in 2005-06 and 96 per cent of feeder metering

has been completed in the country. The number of distribution

transformers (DTs) increased to 24,49,343 and metering has been

completed in respect of 13 per cent of DTs till now.

3.2.6 Aggregate Technical and Commercial Losses

One of the serious challenges in the post-restructuring period for the

Distribution Utilities is the high level of AT&C losses. Before restructuring,

estimates of T&D losses were largely unrealistic. However, after restructuring,

more accurate loss level figures have emerged. Efforts in the post reform

period have been focussed on AT&C loss reduction, yet the picture is uneven

in all States covered under the study. However, AT&C losses for Utilities

selling directly to the consumers which stood at 38.18 per cent at the national

level in 2001-02, declined by 4.36 percentage points which brought down the

losses to 33.82 per cent in 2004-05. While it may appear that the reduction of

losses by 1.5 per cent point per year is too little considering the national level

goal of 15 per cent AT&C losses to be achieved by 2011-12, yet a number of

initiatives have been taken by the States, which have restructured their SEBs, to

reduce the losses more aggressively. (Please refer to Para No 5.2, Chapter-5).

3.3 Rural Electrification

3.3.1 Rural Electrification is the responsibility of State Governments/State Power

Utilities, which own and operate the distribution system in the respective

States. The funds for Rural Electrification programme are provided by the

Planning Commission under various schemes and supplemented by financial

institutions like REC, etc.

3.3.2 As per the Rural Electrification Policy notified on 23 August 2006 by the

Ministry of Power, REC is to be the nodal agency at Central Government level

to implement the rural electrification programme. Its role includes coordination

with the State Governments, State Utilities and other concerned agencies for

effective implementation of the schemes. Also, the Ministry of Power would

put in place a coordination mechanism between the agencies/ministries

implementing the various schemes to ensure that the villages are selected for

coverage in different schemes in a manner to ensure attainment of the

objectives of the Rural Electrification Policy. The Ministry of Panchayati Raj

will also be associated with this coordination mechanism.

3.3.3 According to the new definition of Rural Electrification, which has come into

effect from the year 2004-05, a village would be declared as electrified if:

(a) Distribution transformer and distribution lines are provided in the

inhabited locality as well as a minimum of one Dalit Basti/hamlet

where it exists;

(b) Electricity is provided to public places like Schools, Panchayat Office,

Health Centres, Dispensaries, Community centres, etc., and

(c) The number of households electrified is at least 10 per cent of the total

number of households in the village.

3.4 Rural Electrification at a Glance

3.4.1 Achievements of village electrification, recorded in the past, have been revised

as per 2001 census and as a sequel to the change in definition of an ‘electrified

village’. As a result, the figures have undergone changes as under:

(a) Total number of inhabited villages in the country has increased to

5,93,732 from the earlier 5,87,258 as per 1991 Census, i.e., an increase of

6,474 in the number of inhabited villages.

(b) Out of a total of 5,93,732 inhabited villages, 4,39,502 villages have

been electrified. As such, 1,54,230 villages are still to be electrified (as on

30 June 2006).

(c) Number of villages to be electrified may further increase after

revised figures regarding the achievement of village electrification, as per

new definition, are received from the States of Bihar and Uttar Pradesh

(d) National average of village electrification as on March 2006 has

come down to 73.9 from 85 per cent.

(e) Only five States namely Goa, Haryana, Kerala, Punjab and Delhi

have achieved 100 per cent village electrification as per the new

definition. Earlier, as per the then extant definition, Andhra Pradesh,

Gujarat, Maharashtra, Nagaland, Sikkim and Tamil Nadu were also

shown as having achieved 100 per cent rural electrification.

(f) Only 29,156 villages, i.e., 5 per cent of total villages, have been

electrified during the last ten years. To electrify 25 per cent of the

remaining un-electrified villages (which are mostly in difficult

geographical terrain) in the next five years would be a Herculean task.

Unless adequate funds are provided and all out efforts are made in the

right direction, providing electricity to all rural households will be a

difficult task.

3.4.2 As against the target for electrification of 30,000 villages, only 13,409 villages

were electrified during the Ninth Plan. During the Tenth Plan, till June 2006,

12,923 villages have been electrified against a Plan target of 40,000 villages.

The progress achieved in household electrification from 1991 to 2001 is given

in the Table 3.13.

Table 3.13: Percentages of Households Electrified

Particulars 1991 2001Households access to electricity (%) 42 56Rural households coverage (%) 31 43.52

(Source: MoP)

3.4.3 To accelerate the pace of rural electrification and also to evolve commercially

sustainable models in rural areas, the following provisions for Rural

Electrification have been made in the EA, 2003, Part II (sections 4, 5 and 6),

National Electricity Policy and Plan: “Notification/formulation of a national

policy permitting stand-alone systems and rural electrification and for bulk

purchase of power and management of local distribution in rural areas

through Panchayati Raj Institutions, users' associations, co-operative

societies, non-governmental organisations or franchisees. The Appropriate

Government shall endeavour to supply electricity to all areas including

villages and hamlets.”

3.4.4 Central Government has launched a new scheme, “Rajiv Gandhi Grameen

Vidyutikaran Yojna” (RGGVY) of Rural Electricity Infrastructure and

Household Electrification on 4 April 2005 for the attainment of the National

Common Minimum Programme (NCMP) goal of providing access to electricity

to 1,25,000 un-electrified villages and the remaining 78 million rural

households in the country in five years. Details of the scheme are as follows:

(a) Implementation through REC, with the assistance of Central Public

Sector Undertakings (CPSUs).

(b) 90 per cent capital subsidy would be provided towards overall cost of

the project for provision of:

(i) Rural Electricity Distribution Backbone (REDB) with at least one

33/11 kV (or 66/11 kV) sub-station in each block;

(ii) Village Electrification Infrastructure (VEI) with at least one

distribution transformer in each village/habitation; and

(iii) Decentralised Distributed Generation (DDG) systems where grid

supply is not feasible or cost-effective.

(c) Stress is being laid on sustainable rural power supply through deployment

of franchisees and provision for ensuring quality of supply and revenue

sustainability.

(d) The scheme also aims at providing adequate electricity for enterprises in

the rural areas.

(e) Electricity connection to Below Poverty Line (BPL) households, free of

charge.

(f) In the management of rural distribution, franchisees would be associated.

(g) Rs 5,000 crore for capital subsidy in Phase-I during the Tenth Plan period.

(h) Total estimated cost of the scheme (including Eleventh Plan) is Rs 16,000

crore approximately.

3.4.5 Target for the year 2006-07 under RGGVY: Electrification of 40,000 villages

and providing electricity access to 80 lakh rural households (including 40 lakh

BPL households), seems to be difficult to achieve and is also subject to

availability of funds to the tune of Rs 3,900 crore. It is also important to note

that the number of villages electrified during the last four years was 2,626

(2002-03), 2,781 (2003-04), 3,884 (2004-05) and 2,614 (2005-06).

Table 3.14: Cost Estimates of RGGVY Scheme

S.No. DETAILS Rs crore1 Electrification of 1,25,000 un-electrified villages 8,125

2Rural Households Electrification (RHE) of population under BPL, i.e., 30 per cent of 7.8 crore un-electrified Households

3,510

3Augmentation of backbone network in already electrified villages having un-electrified inhabitations

4,620

Total (1+2+3) 16,255(Source: MOP)

3.4.6 It is important to provide electricity to rural areas from the angle of

conservation of petroleum products to address the key issues of oil and energy

security of the country and environmental aspects to an extent. It appears that

the Utilities may be competing with each other for establishing distribution

network in rural areas including the remotest villages since 90 per cent grant

component is available under RGGVY.

3.4.7 However, the key issue is sustainability of electricity supply to remote areas,

which would depend on the following:

(a) Ensuring the main stated objective of RGGVY to provide access to

electricity to cater to the requirement of agricultural, small and medium

enterprises, cold storage chains, khadi and village industries, health care,

education and ICTs to facilitate rural development, employment

generation and poverty alleviation.

(b) Sustaining the operational aspect of power supply after reckoning with

factors like very high T&D losses.

(c) Ensuring availability of low cost additional power.

(d) Guaranteeing reliability of supply to the intended beneficiaries.

(e) Productive use of power supplied to rural enterprises and other consumers

(which can facilitate charging of remunerative tariffs).

(f) The hours of supply can be fixed and notified well in advance through

proper communication so that the rural enterprises can make necessary

operating arrangements accordingly.

(g) Local expertise needs to be developed and consumer awareness increased

so as to take care of the small repairs of electrical facilities.

3.4.8 The electrification programme in remote locations, where it is not feasible to

extend the conventional electricity grid, may focus on non-conventional

sources of energy by planning and developing a loop of local areas.

3.4.9 For State-wise analysis of Rural Electrification, please refer to Para No 5.6 in

Chapter-5.

3.5 Investments Made in Power Sector

3.5.1 There has been a quantum increase in the investments made in the power

sector. At present, 88 generation power projects totaling 43,713 MW with a

total estimated cost of Rs 2,03,143.64 crore are under implementation, as

against projects worth Rs 92,000 crore under implementation at the beginning

of Tenth Plan. The sector-wise details are given in Table 3.15:

Table 3.15: Projects Under Implementation (Generation)

ParticularsAt the Beginning of X Plan At Present* Capacity

(MW)Estimated

cost (Rs crore)Capacity

(MW)Estimated cost

(Rs crore)Central 14,055 59,616.79 23,376 1,15,112.84State 6,810.64 19,415.54 14,020 59,051Private 3,012 12,925.40 6,317 28,979.8Grand Total 23,877.6 91,957.73 43,713 2,03,143.64

*As on 1 November 2006 (Source: MoP)

3.5.2 Investments in transmission sector are as follows:

Table 3.16: Funds Requirements for Transmission Schemes (Rs crore)

Particulars2002-03 2003-04 2004-05 2005-06 2006-07 X PlanActual Actual Anticipated Proposed Proposed Total

Total (State sector) 3804.33 4399.25 4674.60 6532.39 9102.80 28513.36

Total (All India) 6598.77 6884.15 7956.06 10634.05 14346.58 47342.60

3.6 Financial Requirements for Eleventh Plan

3.6.1 According to Agenda Papers for Conference of Power Ministers held on 16

November 2006, the targeted capacity addition for the Eleventh Plan, would be

of the order of 66,463 MW. Preparation for capacity addition programme has

been well planned as can be seen from Table 3.1.7. Projects totaling 30,834

MW are already under construction.

Table 3.17: Target Capacity Addition for Eleventh Plan (MW)

Sector Hydro Thermal Nuclear TotalCentral 11,289 25,860 3,160 40,309State 2,637 16,152 0 18,789Private 3,263 4,102 0 7,365All India 17,189 46,114 3,160 66,463

Projects Under ConstructionCentral 7,722 7,200 3,160 18,082State 2,107 5,852 0 7,959

Private 2,191 2,602 0 4,793All India 12020 15,654 3,160 30,834

Projects where LOA is being PursuedCentral 3,567 18,660 0 22,227State 530 10,300 0 10,830Private 1072 1,500 0 2,572All India 5169 30,460 0 35,629

3.6.2 Capacity addition of 6,000 MW is anticipated from non-conventional energy

sources in the Eleventh Plan.

3.6.3 Likely capacity addition of captive plants in Tenth and Eleventh Plans are

4,350 MW and 12,000 MW respectively. As on 31 March 2005, installed

capacity of captive plants (1 MW and above) was 19,103 MW, which

generated a total of 71,582 MU with 42.8 per cent PLF. To facilitate harnessing

of surplus power from these plants, issues relating to cross-subsidy surcharge,

banking of power, transmission and wheeling charges, cess and duties on

captive generation, etc., need to be addressed. Further, according to Ministry of

Power, in order to achieve the objective of “Power on Demand” (POD) by the

year 2012, it would be necessary to add an additional generation capacity of

1,00,000 MW, major part of which would have to come up in the Eleventh

Plan.

3.6.4 There will of course be need to meet the corresponding additional capacity

enhancement in the value chain, namely, transmission and distribution. The

Expert Committee under Shri Uddesh Kohli, constituted by Ministry of Power,

to work out the funds requirement for the power sector for the Eleventh Plan has

projected a requirement of about Rs 5,00,000 crore. The estimates are given in

Table 3.18.

Table 3.18: Eleventh Plan Investment Requirements for Power Sector(Rs crore)

ResourceRequirement

CentralSector

StateSector

PrivateSector

Total

Generation 1,66,360 64,000 75,000 3,05,360Transmission 28,252 30,000 11,200 69,452Distribution NA 50,000 - 50,000Rural Electrification NA 60,000 - 60,000R&M - 15,000 - 15,000

TOTAL 1,94,612 2,19,000 86,200 4,99,812Note: To the extent distribution/generation system, etc., are privatised, the fund requirement shown under State sector will shift to the private sector column.

3.6.5 Given the present financial position of the SEBs, it is obvious that, without

restructuring, it will not be possible for the SEBs to raise around Rs 2,00,000

crore on their own to meet the requirements of the Eleventh Plan.

3.6.6 The World Bank has estimated an investment of about US$ 100 billion for the

power sector needs of the country for the period 2007-12. The sector-wise

break-up is as follows:

Table 3.19: World Bank Estimation of Fund Requirement for thePower Sector for the Period 2007-12

Segment Estimate of Funds RequirementGeneration US$ 60 billion (Rs 2,70,000 crore)Transmission & Distribution US$ 40 billion (Rs 1,80,000 crore)

3.6.7 In addition to the above, about 20,000 MW of existing thermal power

generating capacity is required to be taken up for Renovation and

Modernisation.

3.6.8 It is worth mentioning that CEA has projected a total private sector

contribution of 13,500 MW out of the envisaged capacity addition of 66,463

MW during the Eleventh Plan (21.61 per cent). In the case of funding

requirements for the Eleventh Plan, the Expert Committee (under Shri Uddesh

Kohli) estimates that the private sector requirement would amount to Rs 86,200

crore out of Rs 5,00,000 crore, i.e., approximately 17.24 per cent.

3.6.9 The projections lead to the following conclusions:

(a) It will not be possible for the State Government owned Power

Utilities/Central Power Undertakings to bear the burden of meeting the

“Power on Demand” by 2012 on their own. Hence, active involvement

and support of the private sector is inescapable. To attract private sector

investment, drastic reform efforts and providing a competitive

environment would be essential. The restructuring of SEBs has to be seen

in this context as an inevitable objective, apart from the fact that it has

become legally mandatory.

(b) The Power Utilities will have to gear up, through earnest and dedicated

efforts, to improve upon their performance in all respects to meet the

objectives of the power sector reform initiative.

(c) State Governments will have to devise means and methods to bring in

competition and demonstrate their commitment to the reform objectives,

as outlined in the EA, 2003.

3.7 Accelerated Power Development and Reforms Programme

3.7.1 The Accelerated Power Development and Reforms Programmes (APDRP) was

launched in 2002-03 as additional Central assistance to the States for

strengthening and upgradation of sub-transmission and distribution systems and

to reduce AT&C losses through technical, administrative and commercial

interventions. The programme is well structured and commits the States to

implement the reforms in an earnest manner.

3.7.2 The main benefits envisaged under APDRP in a five-year time-span were:

(a) Reduction of AT&C losses to around 15 per cent.

(b) Bring about commercial viability.

(c) Reduce outages and interruptions.

(d) Increase consumer satisfaction.

(e) Quality of supply and reliable, interruption-free power will encourage usage

of energy efficient equipments/appliances, which will further lead to

improvement in availability of energy.

3.7.3 Distribution reform as envisaged above will help States to avoid heavy

subsidies, which are given to SEBs/State Utilities by the State Governments.

3.7.4 The programme has two components namely:

(a) Investment component (90 per cent grant for special category States and

25 per cent for others): This is intended to provide assistance for

strengthening and upgradation of sub-transmission and distribution

systems.

(b) Incentive component: This component is to incentivise the

SEBs/Utilities to reduce their financial losses. Funds are released to the

Utilities for actual cash loss reduction. For every Rs 2 cash loss reduction,

Re 1 is given as grant.

3.7.5 The programme has made considerable impact in some Utilities in terms of

reduction of losses, ensuring quality power supply and increasing customer

satisfaction. A lot more has to be achieved by the Utilities to reach the targeted

levels of improvements in the distribution system and operations. It is

understood that the Task Force constituted by the Ministry is reviewing the

programme. It is felt that the funds under APDRP may be continued as the

programme is new and increased investments are needed in the distribution

sector.

Table 3.20: Funds Allotted Under APDRP since 2002-03

(Rs crore)

Year BE REActual Expenditure

Investment Incentive Total2002-03 3,500 1,089 1,755.52 379.28 2,134.802003-04 3,500 3,300 2,356.51 503.30 2,859.812004-05 3,500 1,700 1,428.73 73.00 1,501.732005-06 1,172 1,172 590.94 581.06 1,1722006-07 650 175.17 175.17

Table 3.21: APDRP-Financial Status

Description Rs croreProject outlay 19180.46 No. of Projects 583.00

APDRP Component - Grant 6990.43 - Loan 2274.23 - Total 9264.65

Release - Grant 3857.47 - Loan 2274.23 - Total 6131.70

Counter Part Fund - Sanctioned 7100.19 - Drawn 4560.12Utilisation (including Counter Part Funding) - Up to March 06 9507.20 - During 2006-07 438.84 - Total Utilisation 9946.04Percentage of Utilisation 51.86%

3.7.6 It is, however, felt that in order to ensure effective utilisation of funds under

APDRP, Ministry of Power should insist that the Distribution Utilities

function as fully autonomous and corporate bodies and introduce financial

accountability.

3.8 International Experience

3.8.1 T&D Losses

(a) At the outset, it may be stated that power systems of any two countries

can never be identical since factors like geographical spread, socio-

economic status of the citizens, the political system obtaining there and

various complex technical issues associated with the power systems (like

pattern and nature of demand, load density, capability and configuration

of the system and equipment used) differ from country to country.

However, to gain some idea of the extent of theft and consequent

additional amount of technical losses due to overloading of the system

(separate estimate of losses exclusively on account of power theft in India

is not available) T&D losses, as obtained from the World Bank

publications World Development Indicators (1997 to 2006), have been

considered for the analysis. The World Bank has defined Electric power

transmission and distribution losses as “losses in transmission between

sources of supply and points of distribution and in distribution to

consumers, including pilferage”.

(b) The year-wise T&D losses as a percentage of output in the top 50

electricity-generating countries of the world are shown in Table 3.21.

(c) It may be reasonably assumed that India has a more or less similar

power infrastructure and consumption pattern (in terms of quality of T&D

network) as that of low and middle-income group countries. However, the

figures of T&D losses are 27 per cent in respect of India and 10 per cent

for low and middle-income group of countries. It is also pertinent to state

here that as per the CEA publication, Energy Accounting and Audit in

Power Systems, the admissible technical losses should be in the range of

8.25 to 15.5 per cent. It can be inferred that the T&D losses in the country

are at least to the tune of 15 per cent on account of theft and consequent

additional amount of technical losses due to overloading of the system.

(d) As per Table 3.21, the percentage T&D losses in India have risen from

18 per cent in 1998 to 27 per cent in 2003. However, in reality the T&D

losses may be considered to have come down during that period. Earlier it

was not possible to realistically assess the extent of losses, since the SEBs

had a tendency to hide T&D losses under the garb of subsidised sales to

the agricultural sector. However, due to greater transparency introduced

after restructuring of SEBs in some States and emphasis on energy audit

and accounting by the SERC, a more-or-less realistic picture of T&D

losses is now emerging. (For a detailed explanation of the phenomenon,

please refer to Para 5.2 in Chapter-5.)

Table 3.22: Year-wise T&D Losses as Percentage of Output in the Top Electricity Generating Countries of the World

Country 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Change*

Argentina 18 18 18 17 15 15 13 14 17 15 -3

Australia 6 7 7 6 6 8 8 7 7 7 1

Bangladesh 32 32 30 15 16 16 16 18 21 12 -20

Belgium 5 5 5 5 5 5 4 5 5 4 -1

Brazil 16 17 17 17 17 17 18 17 17 17 1

Canada 6 5 7 4 7 7 8 8 8 6 0

China 6 7 7 8 7 7 7 7 7 6 0Czech Republic 8 8 8 8 8 8 7 7 6 6 -2

Egypt 0 12 12 12 12 12 13 12 12

Finland 5 2 4 4 4 4 4 4 4 4 -1

France 6 6 6 6 6 6 6 6 6 6 0

Germany 4 5 5 4 4 4 4 4 5 5 1

India 17 18 18 18 18 21 27 27 26 27 10

Indonesia 12 12 12 12 12 12 11 13 16 16 4

Iran 14 20 20 22 15 15 16 16 16 17 3

Israel 3 4 4 9 6 3 3 3 3 3 0

Italy 7 7 7 7 7 7 7 7 7 7 0

Japan 4 4 4 4 3 3 3 4 5 5 1

Kazakhstan 14 15 15 15 17 17 17 17 16 16 2

Korea rep. 5 5 5 4 7 4 5 6 6 3 -2

Malaysia 10 10 11 9 7 8 8 6 6 5 -5

Mexico 14 14 15 14 15 14 14 14 15 15 1

Nepal 25 26 28 28 23 23 21 21 20 19 -6

Netherlands 4 4 4 4 4 5 5 4 4 4 0

New Zealand 13 9 11 11 13 12 10 11 10 13 0

Norway 8 7 8 8 8 8 8 7 7 9 1

Pakistan 19 23 23 24 25 30 24 26 26 25 6

Poland 13 13 13 12 11 10 10 10 10 10 -3

Romania 9 11 12 12 12 13 13 13 13 9 0

Russia 9 10 9 10 11 11 12 12 12 12 3

Country 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Change*

Saudi Arabia 13 9 8 8 8 8 8 8 8 5 -8

South Africa 7 6 8 8 8 8 8 8 8 10 3

SPAIN 9 10 9 9 10 10 9 9 8 9 0

Sri Lanka 18 18 17 17 19 21 20 18 18 18 0

Sweden 6 6 7 7 7 7 8 7 8 8 2

Switzerland 5 6 7 6 6 6 6 5 6 6 1

Thailand 10 8 9 9 9 8 8 9 7 7 -3

Turkey 15 16 17 18 19 19 19 19 18 17 2

Ukraine 10 10 10 16 17 18 18 20 19 18 8

UK 8 7 9 7 8 8 8 8 8 8 0

USA 7 7 7 6 7 8 6 6 6 7 0

Venezuela 15 21 20 21 23 23 24 25 25 26 11Low & middle income group 13 15 10 12 10 10 10 11 11 10 -3

World** 8 8 8 8 9 9 9 9 9 9 1 (Source: World Bank Publication, World Development Indicators)

*Increase/decrease in T&D losses from 1994 to 2003**Weighted Average

(e) To attract investment, it is a must and quite critical to clear any doubt in

the minds of the investors regarding system conditions, baseline data,

policy and other issues in any sector. Accuracy of system data and

consumption pattern are essential for precise physical and financial

projections and market scenario in the power sector. To cite an example,

some critics have felt that one of the main reasons for the initial setback of

Orissa power sector restructuring model was improper assessment of

T&D losses. Although Power figures in the Concurrent List of the

Constitution of India, it is desirable that demand projections, extent of

technical and commercial losses and all other relevant data of all the states

and as well as the entire country are readily available with a designated

central agency (single source of truth) for effective and proper utilisation.

3.8.2 India’s Competitiveness and Energy

(a) India’s performance indices vis-à-vis other countries as given in the

IMD World Competitiveness Yearbook, 2005 are compiled in Table 3.22.

(b) To be competitive in the international market, Indian industry must be

assured of adequate and quality power at affordable rates. However, it can

be seen that India ranked 42nd in the World in electricity cost for industrial

clients (which was higher than that of most of the competing countries)

and 54th in energy infrastructure (poor quality of power compared to other

competing countries).

Table 3.23: Some Key Performance Indices of India vis-à-vis other Countries

Indices UnitIndia’s Highest Rank Lowest Rank

Value Rank Value Country Value Rank CountryEnergy Intensity - Commercial energy consumed for each dollar of GDP (2001)

Kilo-joules

30478 54 2905Hong-Kong

82402 60 Russia

Electricity cost for Industrial Clients (2004)

US$per kWh

0.08 42 0.021 Argentina 0.147 55 Lombardy

Energy infrastructure (2005) 3.6 54 9.07 Iceland 2.59 60 ArgentinaTotal Indigenous energy production (2002)

Millions MTOE*

440.97 4 1666.6 USA 0.05 Hong Kong

(Source: IMD World Competitiveness Yearbook 2005)*Metric Tonnes of Oil Equivalent

CHAPTER - 4

RESTRUCTURING MODEL AND PROGRESS

4.1 It is difficult to arrive at a uniform picture of the reform process undertaken by

the States covered under this study, as the restructuring has been undertaken in

different time-lines and on different models. It was noted that there were

differences across the various restructured Utilities in terms of mode of their

functioning and the level of performance. In the post-restructuring period,

systemic problems such as lack of commercial and financial management

practices, lack of autonomy, governmental interference and low level of

commitment of the employees, etc., have impacted their functioning. The other

problems encountered include inadequate availability of power, insufficient

upgradation and strengthening in the distribution network, and the lack of

awareness among the customers about the reform efforts. These systemic issues

and concerns, which have not been adequately addressed, are dealt with in the

report.

4.1.1 In the above background, the analyses of the reform process undertaken by the

States figuring in Group-1 and 2, their design and the progress in

implementation, are discussed among other things, in the succeeding paras.

4.2 First Phase of Restructuring

4.2.1 The review of the seven Group-1 States indicates that the progress of the

restructuring of SEBs differs from State to State. Basically, however, the

models for restructuring adopted by all these States (other than Orissa) were

similar with only marginal variations. The first endeavour in regard to

restructuring of SEBs, as is well known, came from Orissa, which pioneered

the reforms in 1996. Orissa went for not only restructuring of the SEB - with

separate Generation, Transmission and Distribution Companies but also for

privatisation of the restructured DISCOMs. Orissa adopted an urban-rural mix

of zoning structure for its DISCOMs. All six States, which followed the

restructuring process, have adopted similar functional structures, forming

separate Generation and Transmission Companies and a number of DISCOMs

ranging from two (in Haryana) to five (in Karnataka and Uttar Pradesh). One of

the main objectives of restructuring is to create a competitive environment,

which would promote efficiency and increased accountability in all segments

of the electricity supply chain. In fact, restructuring and the introduction of

Box 4.1: Restructuring Helps in Competition

A Case Study of Transport Undertakings in Tamil Nadu

The departmental organisation, responsible for bus services in Tamil Nadu till 1972, had the usual bureaucratic problems regarding getting approvals for funds, purchases, staff, etc., that rendered its functioning inefficient. Fortunately, a number of private operators were also operating, and therefore, the public had choices. After nationalisation of the bus services in 1972, however, the Government could not afford to continue to allow the transport sector perform poorly. The transport department was therefore reorganised into four transport corporations with independent boards under the Companies Act. This gave the new entities a lot of operational freedom, and the quality of services improved. The new corporations were able to maintain a high level of efficiency.

The creation of four units made it possible for the Government to compare their operational performance and parameters such as bus utilisation, tyre utilisation, consumable per km, collections, profits, etc. This put pressure on the poorly performing corporations, leading to overall improvement. The quality of public service improved. The improved performance led to demands for more corporations, and the Government went to the extent of creating one corporation for each district. By 1990, the number of corporations rose to 18, each competing with the other for routes and passengers. The Government further set up a monitoring cell to closely monitor the performance of these corporations. Poorly performing corporations were under constant pressure to improve. Although profitability varied from area to area, based on local factors, operational parameters were comparable, and such comparisons led to improved operational performance. The performance of the Tamil Nadu Transport Sector soon won recognition at the national level, and was even quoted in the World Development Report by the World Bank.

The 18 corporations were subsequently consolidated into a more manageable 7 undertakings in 2002. This measure helped further to improve the overall performance by evening out certain local factors affecting profitability. All along, private operators have been operating in the State – the share of the private sector now hovers around 40 per cent.

The Government had retained the power to fix tariff; and although political considerations had led to low level tariff, the transport corporations are able to survive and serve the public well, thanks to their superior operational performance, based on inter se competition and better management practices.

The success story of Tamil Nadu Transport Undertakings provides a clear illustration of ‘restructuring’ leading to inter se competition and a high level of productivity and efficiency, because it gives the management an opportunity to look at operational parameters of competing entities, and take corrective steps. A win-win situation for the customers and the management.

competition in generation, transmission and distribution were the main features

of successful reform programmes in the power sector of many countries.

Although restructuring has been completed in the seven States covered in the

review, competition amongst the DISCOMs is yet to be introduced.

4.2.2 In this study, the analysis deals with the developments associated with the

restructuring of SEBs, the overall performance since restructuring and its

impact on the electricity supply business in the concerned States.

4.3 Second Phase of Restructuring

In the second phase of restructuring, i.e., after the enactment of the EA, 2003,

the States of Gujarat, Maharashtra and Assam undertook the reorganisation

exercise. The method adopted by them, being of recent vintage, would be

especially valuable to the remaining States. In this context, we observe that the

process followed by Assam and Gujarat was particularly meticulous and

worthy of emulation by the States, which are yet to take up the exercise.

4.4 The Process of Restructuring

The review of the restructuring process followed by the seven States included

in Group-1 and three States in Group-2 brings out more or less identical, and

conclusive findings. The matter has been discussed in more detail in the

individual reports relating to the States included in Volume-III. Brief snapshots

of the review are also included in this Chapter as well as in Chapter-6 (Findings

and Recommendations).

4.5 Important Factors for Successful Restructuring of SEBs

We observe that the success of the restructuring process is highly sensitive to

the following important features:

(a) Political commitment and support/Policy Statement.

(b) One or two highly placed champions for the reform.

(c) Competent and professional consultancy support.

(d) `Buy-in’ of the employees and staff.

(e) Financial Restructuring Plan (FRP).

4.5.1 Political Commitment and Support

(a) It is well known that the restructuring of OSEB was successfully pushed

through by the then Chief Minister of the State with a high level of

conviction and commitment. Likewise, it has been observed that the

political leadership in Andhra Pradesh, Haryana and Karnataka, fully

backed the restructuring exercise. Thus a positive and proactive role by

the political leadership is imperative for the success of the restructuring

process.

(b) It has been observed that the abrupt withdrawal of Government support

in Orissa after the privatisation and the change of Governments in a few

other States had slowed down the process of reform substantially or

affected their success. It is felt that the most important lesson to be learnt

by the States, which are yet to effectively carry out the restructuring

process, would be that there should be total and unreserved political

commitment for the restructuring exercise, which must be sustained

regardless of the changes in the Governments. Further, such commitment

and support should continue till the entire restructuring process is

completed, without being intercepted or withdrawn at an interim stage.

4.5.2 Champions for the Reform

This is an issue closely related to the one discussed above. During the course of

review of the different States, it was found that those, which had one or two

powerful champions for the reform at the highest echelons of the

administration, had achieved substantial progress in a shorter timeframe. It is

felt that this is something, which cannot be achieved through prescriptions, but

is critical to the success of the reform process any way. It is very convenient to

let things remains as they are, the “business as usual scenario”; but it needs one

or two committed and dedicated champions at the top political and

administrative levels to take forward the reform on the desired path, braving

the consequences. It is also necessary that the guidance and the encouragement

of such champions for reform are available to the process during its entire

progress, till completion.

4.5.3 Competent Consultancy Support

Another feature noticed was the need to engage competent professional

consultants to assist the reform process. This topic has been dealt at length in

Chapter-6 ‘Findings and Recommendations’. In brief, however, the availability

of highly professional and competent consultancy support, during and after the

restructuring process, through a hand-holding process, had helped significantly

in achieving success in some of the Group-1 States.

4.5.4 Securing Cooperation of Employees

(a) We have extensively dealt with the Human Resource Development

Issues in Chapter-6 of this Report. The review in different States indicates

that in order to make the restructuring process successful, it would be

essential to get the cooperation of the generality of officers and employees

belonging to different disciplines, cadres and ranks. They would, on

restructuring of the SEBs, have to move to new undertakings with totally

different work culture, objectives and service conditions. It is natural for

them to have valid apprehensions about their future career prospects, as

well as about their past and future terminal benefits.

(b) The study brings out that even where tripartite agreements were signed

with the staff representatives, and transfers of staff were affected to the

new Utilities, the work culture has not changed significantly. Inadequate

attention was paid by the State Governments and the new companies to

assure the employees, through adequate communication channels, of their

career advancement plans and safeguarding of service conditions. These

are issues on which all SEBs, which are either undergoing the process of

restructuring or are yet to initiate the process, should focus with the help

of specialists in the field.

4.5.5 Financial Restructuring Plan

(a) Most SEBs are burdened with considerable past liabilities including

heavy amounts of recoverables (from Government Departments and other

agencies), debt and interest obligations, huge pension liabilities of retired

and current staff, etc. In order to enable the restructured companies to

work on commercial lines on a sustainable basis, it is necessary to allow

them to ‘start on a clean slate’. This would necessitate the development

and implementation of competent, practical and concise FRPs. In this

connection, a reference is invited to Chapter-6, ‘Findings and

Recommendations’, where this issue has been dealt with in detail.

(b) What needs to be emphasised here is the importance and the need for the

FRP, not only at the time of restructuring the SEBs, but over a pre-

determined stabilisation period, during which the State Governments will

have to provide unstinted support to the restructured companies through a

handholding exercise. The financial impact arising from the variations in

the basic assumptions used for the restructuring must also be factored into

the FRP. Thus, the past, current and future liabilities in the books of the

SEBs concerned must be assessed realistically with the help of financial,

accounting, and actuarial experts and these (including the pension and

terminal liabilities) should be taken over by the State Governments at the

time of restructuring itself. The FRP must also commit itself to provide all

payables and dues to the restructured companies (including subsidies

payable on account of Governments’ policies) on time and on a structured

basis. It should also include financial goals and targets to be achieved by

the new companies for the entire duration of the pre-determined

stabilisation period.

4.6 Restructuring Models

4.6.1 The EA, 2003 has obligated restructuring of SEBs and does not offer any

options to the States so as to achieve the objectives of the Act. Since the

vertically integrated SEBs, which had been in existence for 40 to 50 years, had

failed to deliver quality power to all at reasonable cost, and had become

commercially unsustainable, the restructuring of those organisations is only

logical.

4.6.2 It is envisaged that the restructuring of vertically integrated SEBs on functional

basis would enable the owners (State Governments) and stakeholders to devote

the required attention to more focussed policy formulation and implementation,

as also to bestow closer and purposeful oversight on their performance.

Similarly, the managements of the restructured Utilities would be able to focus

on improving the performance of functionally- oriented and clearly demarcated

business enterprises against established goals and targets, which would make

them more accountable and customer-oriented.

4.6.3 Generation Companies: Except in Gujarat and Karnataka, where separate

generating companies existed even prior to the restructuring, all States have

vested the generation units of the former SEBs to separate Generation

Companies8.

4.6.4 Models of Restructuring

(a) Based on the assessment and advice of their consultants, State

Governments have adopted three distinct models to accomplish the

restructuring of SEBs, as detailed below:

(i) Model–I: (Orissa)

8While Orissa sold 49 per cent share capital of Orissa Power Generation Company (OPGC) with 420 MW thermal generation capacity having a face value of Rs 240.21 crore to a private power generator (AES Trans Power) along with management control as a cost of Rs 603.20 crore, another unit (TTPS with 460 MW) was sold to NTPC (in 1995) which resulted in substantial gains to the State exchequer and more power supply to the customers at a reasonable cost. The first exercise in restructuring itself was thus a gainful venture.

Exhibit No. 4.1: Orissa

Reorganise the SEB into separate Generation, Transmission and four

DISCOMs, through a simultaneous exercise. Initially, GRIDCO was the

holding company of the DISCOMs. Thereafter, 51 per cent shares of these

DISCOMs were transferred to private companies.

(ii) Model-II: (Andhra Pradesh, Haryana, Karnataka and Uttar Pradesh)

Exhibit No. 4.2: Andhra Pradesh, Karnataka, Haryana and Uttar Pradesh

Initially, on reorganisation of the SEB, create one or more separate generating

companies and a combined Transmission and Distribution Company, which, in

the second transfer scheme, is divided into one Transmission and different

Distribution Companies. Karnataka (5 DISCOMs), AP (4 DISCOMs), Haryana

(2 DISCOMs), UP (5 DISCOMs) followed the above model with minor

variations; Karnataka had a generation company even before restructuring.

(iii) Model-III. (Assam, Madhya Pradesh and Maharashtra)

Exhibit No.4.3 : Retaining SEB as a Holding (Shell) Company

Retain SEB as a shell (holding) company to manage the residual and

coordinating functions, but create separate Generation, Transmission and

several Distribution Companies. Gujarat has formed a separate company

(GUVNL) to act as an asset-holding company.

(After enactment of the EA, 2003, the power trading function has been

separated, and vested in a new company in Madhya Pradesh. Similarly,

SLDCs’ functions, which were part of Transmission Companies, have also

been separated in some States.)

4.6.5 Retaining SEB as a Holding Company

(a) It may be mentioned that in the third model given above, the SEB

has been retained as a Holding Company to manage the residual functions

and to ensure coordination between the newly formed restructured

companies. These include tasks such as the management of debt services

of the former SEB, uninterrupted payments of pension/family pension of

the retired employees of the SEB, providing a link between the

managements of the new companies and funding agencies, State

Government departments and agencies, etc. The holding company, with a

senior civil servant at the helm of its affairs, is also expected to provide

the required guidance to the newly-formed entities in their management

during the stabilisation period.

(b) In the second model, which the Group of Experts feels to be the most

suitable, the residual functions and coordination during the initial period

of restructuring is entrusted to the Transmission Company. In Para 4.7, it

has been recommended that the statewide planning and coordination task

should be entrusted to the Transmission Company. In line with, and

considering the disadvantages of retaining the SEBs as a relic of the past,

it is recommended that the residual and coordination functions during the

stabilisation period (of the restructured Utilities) may be entrusted to the

Transmission Company. This may be done, subject to the following:

(i) A separate Coordination Cell may be constituted in the Transmission

Company to look after the residual and coordinating tasks.

(ii) The Coordination Cell may be operational for a given maximum

period of up to three years only.

(iii) The tasks and functions of the Cell may be kept distinctly separate

from the normal functions of the Transmission Company and not

allowed to be merged.

(iv) The Cell may be staffed, among others, by retired senior officials of

the SEB/power sector professionals on contract basis.

(c) The restructuring of SEBs was not undertaken as a one-shot

operation in most States (except Orissa). Considering the large capital

base, employee population, customer base and multifarious functions of

SEBs, the stage-wise approach adopted by Andhra Pradesh, Haryana and

Karnataka appears to be more judicious. What is relevant would be to

have a carefully designed plan with a specific roadmap in position so that

impromptu decisions and procrastination are avoided. Care should also be

taken to implement the plan on the basis of the pre-designed model,

without undue variations and avoidable delays. Since the details such as

the ideal number of DISCOMs etc., are State-specific, these aspects have

been separately examined in the State Reports (Volume-III), where

appropriate.

(d) It is felt that the model recommended above and adopted by Andhra

Pradesh, Haryana, Karnataka, and Uttar Pradesh is appropriate and would

offer scope for introducing competition in the sector. However, it is

necessary for the State Governments to draw up plans on how they

propose to take forward the restructuring process since half-hearted or ad-

hoc measures would only produce sub-optimal results. Such plans must

include FRP, not only at the time of restructuring, but also during an

entire pre-determined stabilisation period. This is all the more important

since the assumptions made prior to the restructuring might be at variance

with ground realities, requiring sustained financial support during the

transition period.

4.6.6 Distribution Mix

The distribution zones with urban-rural mix were adopted as the basis for

formation of the DISCOMs in the States, which was logical. However, this will

require further review when the State Governments concerned wish to take the

reform process to the subsequent stages of creating competition in the industry.

Meanwhile, efforts should be dedicated to perfect the adopted model by

strengthening the organisational pattern by making the restructured units

sufficiently autonomous and independent with added focus on

commercialisation and customer-care, for which we have included several

recommendations in this Report.

4.7 State-level Planning and Coordination

4.7.1 In the model for restructuring adopted by the seven States of Group-1, there are

three separate functionally-oriented entities, each responsible for a separate

mandate. Prior to the restructuring, the SEBs used to undertake the overall

State-wise electricity planning for which the required coordination was

possible internally within the organisation. The EA, 2003 requires the CEA to

prepare short-term and perspective plans once every five years. Under Section

73(a) ibid, CEA is responsible for coordinating the activities of various

planning agencies for the optimal utilisation of resources to sub-serve the

interests of the national economy. The National Electricity Policy advocates

that the plan prepared by CEA and approved by the Central Government could

be used by ‘prospective’ Generation, Transmission Utilities and transmission/

distribution licensees as a reference document.

4.7.2 One concern, which might arise from the restructuring model, is about the body

or authority within the States, which would undertake the responsibility for

medium-term and long-term planning for the power sector in the State as a

whole. Currently, in many States, the Transmission Companies, formed after

the restructuring, are carrying out the planning and coordination function,

especially with regard to transmission and distribution systems (Model-2).

However, as and when the DISCOMs become more autonomous and

independent, the role being played by the Transmission Companies will get

eroded in course of time. Further, it has been noticed that the Transmission

Companies are not fully involved in the generation planning exercise, to the

extent required. Thus at least during the initial period of restructuring of SEBs,

there is a need to have a mechanism in the Transmission Company for

performing the functions in regard to State level planning and coordination.

4.7.3 Sub-Section (2) of Section 39 of the EA, 2003 defines the functions of State

Transmission Utilities (STU). According to Clause (b) ibid, the STU shall be

responsible for all functions of planning and coordination relating to intra-state

transmission system with various players including State Governments,

generating companies, licensees, Regional Power Committees, etc. Although

the Act refers only to planning and coordination of transmission system, and in

the absence of references to planning and coordination by any other agencies at

the State level, it is implied that the STU would be the appropriate agency for

undertaking Statewide long-term and perspective planning for the power sector.

Moreover, as the single carriage of power in the State from the generating units

to the distribution levels, connecting both ends, the STU will undoubtedly be

the most appropriate and eligible agency to undertake all functions related to

Statewide planning and coordination.

4.7.4 In order to enable the Transmission Companies to perform Statewide planning

and coordination functions efficiently and with wider perspective, it is essential

to induct experienced and competent planners and support staff into these

companies. State Governments, through their Departments of Power/Energy,

should also provide adequate support and guidance to the STUs to enable them

to perform this task competently.

4.8 Outcome of Restructuring of SEBs

4.8.1 Group-1 States

(a) The review establishes that on the whole there is general

improvement in the performance of the Utilities after the restructuring,

though much more needs to be done in some States. In the succeeding

chapter(s) of this Report, a comparative analysis of the performance of the

restructured companies belonging to Group-1 States against several

technical and financial parameters has been provided. The analysis

attempts to compare the above performance during the post-restructured

period vis-à-vis the performance for three years prior to the restructuring.

The analysis shows that there have been steady and appreciable

improvements in the performance of the power sector in majority of the

Group-1 States with marginal improvements in the case of others.

(b) It is, however, mentioned that the above findings are in some way

tentative. SEBs had, over the past 50 years, accumulated heavy financial

losses (in spite of the mandatory legal provisions that they should earn 3

per cent return on their net fixed assets) and were also performing poorly

in respect of technical parameters. Converting them into efficient and

professional companies to achieve the objectives of the EA, 2003 would

be a long-drawn process. This would call for not only a change in the

organisational structure, but a complete transformation through ‘business

process re-engineering’ and requisite investments for modernisation and

strengthening of their systems and operations. Performance of the

restructured Utilities has to be judged not in isolation, but in the

background of systemic problems as mentioned above. A brief account of

restructuring exercise in Group-1 States is given below:

(i) Andhra Pradesh: Throughout the reform process, the State

Government, backed with competent restructuring policy and professional

consultants, extended unflinching support to the new companies formed

after dissolving the APSEB. This has helped these companies to more or

less stabilise in a relatively short period. A key factor for the success of

the reform process was the cooperation of the employees and public

support for the reform won through an effective communication strategy.

Prior to restructuring, APSEB was one of the largest power Utilities in the

country and had become unwieldy to manage effectively. With the

creation of separate corporate Utilities to replace the APSEB, six

independent entities (one each for generation and transmission and four

for distribution) have come into existence, which offer scope for

decentralisation, quality upgrading, and inter-se competition for

excellence in performance. The inefficiencies are localised and largely

identified within the DISCOMs, thereby offering scope for closer and

better remedial action. As the analysis in Chapter-5 will show, there have

been significant efforts for the reduction of the distribution system losses

after the restructuring exercise. Further, unlike in the past when the focus

of investment was targeted to capacity addition in generation, now, equal

attention is being paid to expand and improve the transmission and

distribution network. And the transition from a situation when APSEB

was functioning more or less as a Government department with little

commercial orientation to a customer-focussed commercial entity has

begun. The decentralisation has also helped in liberalising and speeding

up the process of project sanctions and approvals.

The major gains of reforms in Andhra Pradesh are:

Establishment of the Electricity Regulatory Commission to regulate

the functioning of the Utilities and to rationalise the tariffs;

Efficiency improvements have been brought in the operations of the

Utilities and better service is being provided to the customers;

Regular annual tariff adjustments are being made from 2000-01

onwards;

The State Government started providing cash subsidies on a regular

basis, based on tariff orders of the Commission;

The transmission losses have been brought down from 8.98 to 4.91

percent by strengthening the transmission network;

Distribution losses have been brought down from 27.92 to 16.89 per

cent in the last five years, i.e., a reduction of 11 percentage points;

The Utilities have made substantial investments to augment the

capacities and to modernise and upgrade the infrastructure;

Billing and collection efficiencies have improved; and

Revenues have improved substantially and the DISCOMs achieved

turnaround. Three DISCOMs started making profits from 2003-04

and the fourth, from 2004-05.

In view of the above, the reform and restructuring could be regarded as very

successful in Andhra Pradesh.

(ii) Haryana: The State Government adopted a reform model for

reorganisation of the HSEB on functional basis and it restructured the vertically

integrated electricity sector in to separate Utilities. Accordingly, one

Generation, one Transmission and two DISCOMs were incorporated in July

1999.

At the time of restructuring, in 1998, the installed capacity under the Haryana

Power Generation Corporation Limited (HPGCL) was only 863 MW, mostly

thermal, which accounted for 95 per cent of the total installed capacity in the

State sector. Prior to restructuring, the State had been observing energy deficit

of 25 to 33 per cent, which has now come down to 9.30 per cent. PLF of the

stations has substantially improved. The average plant availability has

improved from a low of 31.96 per cent in 1998-99 to 78.11 per cent in 2004-05.

HPGCL has reduced the coal consumption and the secondary oil consumption

by about 8 per cent and 6.7 per cent respectively.

The achievement of Haryana Vidyut Prasaran Nigam Limited (HVPNL) of 98

to 99 per cent availability of most of its transmission network in the State is

commendable. There has been a reduction in the overall losses in the

transmission system in the State. The inter-State losses are around 1.45 per

cent, even the intra-State losses have come down to 3 to 4 per cent.

However, the losses in the distribution system have shown an increasing trend

in the post-restructuring period. On account of poor collection efficiency of the

DISCOMs, AT&C loss levels are as high as 38.26 per cent and 42.59 per cent

for DHBVNL and UHBVNL respectively. The amount of receivables has been

increasing substantially for both the DISCOMs. While it was pegged at around

Rs 1,119 crore for the two DISCOMs as on 31 March 2000, it has shot up to Rs

2,852 crore by 31 March 2005. This is despite an increasing level of subsidy

provided by the State Government, i.e., from Rs 532 crore in 1999-2000,

it has grown more than three fold and has reached a level of Rs 1,686 crore for

2006-07.

The investment in the distribution sector during the entire post-restructuring

period has been stepped up from 10 per cent in 1999-2000 to 44 per cent in

2001-02 of the total investments made in the State power sector. However,

subsequently it has remained at around 21 per cent. Out of a total investment of

Rs 5,016.44 crore in the power sector during the period 1998-99 to 2005-06,

the investment in the distribution sector was Rs 1,055.70 crore.

The State Government maintains that it is fully committed to implement the

reforms. It has also taken steps to implement provisions of the EA, 2003.

However, the measures regarding anti-theft legislation appear inadequate for

want of sustained support from the State administrative machinery. There has

been delay in setting up of the special courts to deal with anti-theft cases as

required under the EA, 2003.

Even after the reforms in the State for the last seven years, organisational

autonomy in terms of administrative, technical and commercial decision-

making has not been fully transferred to the restructured Utilities by the State

Government But on the whole, the sector reforms have remained on course

with appreciable results in the Generation and Transmission Utilities.

(iii) Karnataka: Another State, where the restructuring has proved to be

generally successful is Karnataka where the initiatives for sector reforms

started in 1997. There was a high level of political commitment and

Government support for the reforms, which had the then Chief Minister and the

Chief Secretary as champions for the reform. Karnataka had a separate

generating company established in 1971 and hence the restructuring of the

Karnataka Electricity Board (KEB) was mainly into one Transmission and four

Distributions Companies. The State Government provided substantial financial

support to enable the new companies to start on clean slates. There was

excellent consultancy support and the procedure followed, like in the two

States mentioned above, was very methodical and systematic.

The newly formed Transmission Company has reduced its transmission loss

from 6.83 to 4.2 per cent and is investing substantial amounts (Rs 1,700 crore)

for augmentation and expansion of the transmission system. Two of the four

(presently five) DISCOMs have been showing improved results in terms of

technical and financial performance.

There is an appreciable reduction in AT&C losses, to the level of 31.17 per

cent, and except for the agricultural segment, there are considerable

improvements in metering, billing and collection of revenue. The restructured

companies offer scope for far more improved managerial control and

supervision and professionalism. The overall quality of service has also

improved and the managements of the restructured companies are paying more

attention to customer care and customer satisfaction. However, the non-

integration of the staff with the respective DISCOMs continues to be a matter

of concern. The DISCOMs also need to be strengthened with better delegation

of powers and more autonomy as also by induction of professionals to the top

positions in these companies.

(iv) Orissa: As mentioned earlier, Orissa was the first State in the country to

undertake the restructuring of its Electricity Board, and one of the two States,

which allowed private sector participation in a major way in the distribution

segment. The review brings out that although the State Government extended

its full support for the reform at the beginning, this was lacking in the

subsequent stages. Further, though there was extensive consultancy support

available to carry out the process, there were also certain inherent problems

such as over-valuation of the assets and the lack of adequate evaluation before

deciding to form four separate DISCOMs. Nevertheless, and in spite of the fact

that one licensee has withdrawn from the scene, there are several gains to be

noted, such that the generation performance has significantly improved. On the

distribution side, T&D losses have come down steeply in respect of all the

companies, and the collection efficiency has improved significantly. In

particular, the State Government has saved an overall subsidy element of above

Rs 3,000 crore which would have been otherwise payable, after 1996. More

importantly, the quality of service and customer care has improved

considerably in certain areas. This has happened despite the fact that there has

been no upward revision in retail tariff during the last five years.

The turnaround achieved in Orissa after the restructuring of SEB establishes

that, in spite of the several shortcomings and transitory problems, the reform

was substantially successful.

While the above four States represent successful accomplishments of

restructuring, the following States have not registered improvements to the

desired level. They are analysed below:

(v) Rajasthan: The reform initiatives were started in Rajasthan way back in

1993, but the restructuring had to wait till July 2000 when the transfer scheme

was notified. The SEB was accordingly restructured into five Companies with

three Utilities for distribution. The generation and transmission wings were

performing well even before the restructuring and continued to do so after the

restructuring as well. However, due to a number of factors, DISCOMs have

been unable to put up commensurate performance.

(vi) Madhya Pradesh: Madhya Pradesh had the distinction of being one of the

few States, which had an efficient SEB. However, the working of the SEB

started deteriorating on account of inefficiencies from its monolithic structure,

distortions in tariffs, defaults in payment to Central Power Sector Undertakings

(CPSUs) and other suppliers, increasing gap between demand and supply and

high level of receivables. The State Government was forced to heavily

subsidise the SEB, which strained its fiscal resources. The State Government

had little option but to go in for the comprehensive reforms in the power sector.

The State Government adopted a reform model for reorganisation of the

MPSEB on functional basis and it restructured the vertically integrated

electricity sector into separate Utilities. Accordingly, one Generation, one

Transmission and three Distribution Companies were incorporated in July

2002. Government of Madhya Pradesh has notified a separate company called

MP Power Trading Company (TRADECO), which will handle power purchase

agreement on behalf of DISCOMs. The new Utilities initially started

functioning under operation and management (O&M) agreement with MPSEB

from 1 July 2002 and were made independent companies with effect from 1

June 2005.

In this model, the MPSEB exercised control over the revenues from the

business of the five companies, which was to be utilised as per the special

mechanism (Cash Flow Mechanism) laid down in the transfer scheme. It had

been indicated that this arrangement was intended to last during the transition

period.

In the generation sector, technical performance by MPPGCL has improved

with higher PLF of its generating stations (from 46-66 per cent during 1997-98

to a level of 70-73 per cent). Similarly, availability of generating stations

increased from the level of 75 per cent in 1995-96 to 87 per cent during 2004-

05. There is also a reduction in specific oil consumption in thermal power

stations from 4.57 ml/kWh in 2001-02 to 2.44 ml/kWh in 2004-05. The

auxiliary consumption has also reduced from 10.8 per cent in 1998-99 to

around 9.9 per cent in 2004-05. After the reorganisation of the State, however,

the installed Generating Capacity left in the State was about 2940 MW. The

State faced a peak deficit of 28 per cent and energy shortages of 23 per cent

during 2005-06. There was only a marginal increase of about 50 MW Hydro

capacity and 770 MW of thermal capacity under construction after the

restructuring. In the transmission network, however, improvements have been

achieved in reduction of transmission losses from 6.12 to 5.62 per cent, and an

improved system availability with not a single failure of Power Transformers

for two consecutive years, 2003-04 and 2004-05.

Investments in the post reforms period in the distribution sector have picked up

since 2001-02. The investments had been more than doubled from Rs 124 crore

in 2001-02 to Rs 302 crore in 2004-05. The three DISCOMs functioned under

O&M agreement with MPSEB till 31 May 2005 and started their independent

operations from 1 June 2005. In terms of performance in key areas during the

period DISCOMs functioned as management agents of the MPSEB, the

achievements were not as anticipated. The failure rate of distribution

transformers increased by 4.75 percentage points (18.13 per cent in 2001-02 to

22.88 per cent in 2004-05). Further, the collection efficiency in respect of

agriculture and domestic consumer categories has suffered after restructuring.

Reduction in AT&C Losses, after the restructuring, have come to only less than

3 percentage points in four years. The positive development is the close

monitoring of the performance of the Utilities by the SERC.

The State support for the reform process has been positive. But in the interest

of the reform process moving forward, there are some structural issues,

including the role of the MPSEB for cash management of Utilities that would

need to be addressed. It is necessary that the DISCOMs are allowed full

functional autonomy in financial and revenue management.

(vii) Uttar Pradesh: Uttar Pradesh State Electricity Board (UPSEB) was

restructured into three corporations (with one separate subsidiary for

distribution of electricity in Kanpur City) in 2000. Assets relating to

Uttaranchal were transferred to that State in the same year. Subsequent to the

EA, 2003, four separate DISCOMs were formed on regional basis. Since these

are recent developments, it might be premature to judge their performance.

However, the energy and peak shortages have increased as compared to the

earlier period and no capacity addition has taken place on the generation front.

However, plant load factor has gone up significantly by 10 percentage points

by 2004-05, as compared to 1999-2000, with improvement in plant availability

and reduction in secondary oil consumption.

There are no improvements, however, in respect of transmission network; the

corporation has failed even to maintain the existing capacitor banks.

Investments in transmission segment are getting neglected. Further, there is no

improvement in metering and the distribution losses remain an area for

concern. AT&C losses are over 50 per cent.

Like in other States discussed above, excessive governmental interference in

organisational and operational matters has undermined the autonomy of the

restructured companies. On the whole, the experience of restructuring of SEB

in Uttar Pradesh projects a picture of neglect and despair, calling for urgent

attention.

4.8.2 Group-2 States

(a) The States of Assam, Gujarat and Maharashtra have been grouped

together for the purpose of this study since they have undertaken the

restructuring of their SEBs, subsequent to the enactment of the EA, 2003.

(i) Assam: This was the first State in which the Electricity Board was

restructured after the enactment of the EA, 2003. After detailed analysis,

and with the help of multilateral institutions, a clear roadmap was

established through the reform policy. Financial assistance of 250 million

US$ from the ADB was a key factor in enabling the new companies to

start on clean slates, and for the development of transmission and

distribution network. Competent professional consultants were appointed

to render advise at every stage of restructuring, as also to provide hand-

holding assistance to the new entities. The entire past liabilities for

pension of the staff was taken over by the Government, which helped to

address the concerns of the employees. The study brings out that the

procedure followed for restructuring in Assam is a good model, which

could be adopted by other States.

(ii) Gujarat: The noteworthy feature of the restructuring process of

Gujarat Electricity Board (GEB) was the total commitment at the political

and administrative level for the restructuring operation. The Government

passed the Gujarat Electricity Reform Act in May 2003, which paved the

way for the transfer of generation, transmission and distribution assets to

separate companies. For the distribution sector, four DISCOMs, each

based on a composite zone, were formed. It should be mentioned that

Gujarat had already established a separate generating company in 1990

and a Transmission Company some time towards the end of 1999.

Competent consultants were appointed to prepare the financial

restructuring plan, human resources development plan, etc., and a

Tripartite Agreement was signed with the employees in October 2003,

which paved the way for a smooth transition to the restructuring of the

Board. The striking feature was that there was no political interference in

the management of the restructuring process and the entire issue was

handled in a professional manner. The Government not only allowed the

new companies to start on clean slates, but also put in place a Financial

Restructuring Plan in 2005, providing for targeted and goal-bound

objectives and for the turnaround of the Utilities by the year 2011. The

new structure of the Sector was operationalised from April 2005, within

two years of the enactment of the EA, 2003. The entire process was

supported by an excellent communication strategy, which also assisted in

securing the full support of the staff.

The study has brought out that the Government has consistently been

giving full support for anti-theft measures of SEB/DISCOMs, which has

resulted in realisation of an average revenue of Rs 190 crore per year

through these measures during the past six years.

It was also noticed that the Generation and Transmission Companies have

professionals inducted into the board of directors. On the whole, the

approach of the State Government, and the methodology adopted for

restructuring in Gujarat were well designed and totally goal oriented.

(iii) Maharashtra: Even though the reform process was initiated in

Maharashtra prior to the enactment of the EA, 2003, the actual

restructuring took place in June 2005. The study has brought out that the

restructuring process was on course till about 2002 when a White Paper

was presented in the State Legislature, detailing the reform policy.

Nevertheless, the Government did not display adequate political will to

take forward the restructuring process and was also unable to win the

cooperation of the staff. The Electricity Board has since been restructured

into three separate companies, one each for generation, transmission and

distribution, with a fourth company created to function as a holding

company. At the time of restructuring, the Government extended

considerable financial support to take over the past liabilities. However,

no long-term financial restructuring plan was put in place. The transition

period for stabilisation of the restructured companies is critical and

restructured companies would need financial support of the Government

in this period. Though Maharashtra is a large State with about 1.4 crore

electricity consumers, including heavy industrial and agricultural

consumers, only one DISCOM has been formed. There is a need to

review whether two or more DISCOMs would be a better option than the

existing set-up to promote competition and ensure more focussed

attention, etc. On the whole, the process has not been smooth, in the

absence of political commitment and support, coupled with lack of

cooperation of the staff.

4.9 Regulatory Mechanism and its Impact on Restructuring of SEBs

4.9.1 The EA, 2003 provides an enabling framework for accelerated and more

efficient development of the power sector. The Act seeks to encourage

competition with appropriate regulatory intervention. Competition is expected

to yield efficiency gains and, in turn, result in availability of quality supply of

electricity to consumers at competitive rates (Para 1.6 of National Electricity

Policy). The EA, 2003 and the NEP entrust the Regulatory Commissions with

several tasks and responsibilities. The objectives of restructuring of SEBs

include the promotion of fair-play and transparency in all spheres relating to

the sector and improvement of efficiency of the system through competition

(among and between the licensees) and provision of assured and quality power

with access to all consumers. Regulators have to play a key role in the reform

process to achieve the aforesaid goals.

4.9.2 Efforts to establish a regulatory mechanism at national level in the power

industry started in the early nineties with the MoP taking the initiative, but

materialised mainly with the passing of the Electricity Regulatory

Commissions Act, 1998. However, several States like Orissa (1996), Haryana

(1998), Andhra Pradesh (1998), Uttar Pradesh (1999), Karnataka (1999),

Rajasthan (1999), Delhi (2000) and Madhya Pradesh (2000) had included

provisions for establishing Regulatory Commissions as part of their respective

Electricity Reform Acts. It was evident that efforts to restructure and reform

the power sector would need the oversight of a strong regulatory mechanism.

4.9.3 The transparency in tariff fixation and related issues by introducing public

hearings, issue of standards and codes to improve the quality of delivery, etc.,

implemented by the Regulatory Commissions have brought a refreshing change

in the working of the power sector all over the country. The functions

earmarked for the Central and State Electricity Regulatory Commissions under

the EA, 2003 are manifold and include both regulatory and advisory roles.

However, it is noteworthy that the Act places considerable responsibilities,

apart from tariff related functions, on the State Commissions (as compared to

the Central Commission), these include, for instance, licensing, Open Access,

co-generation and generation of electricity from non-conventional sources of

energy, and to specify supply codes and standards with respect to quality,

continuity and reliability of power supply. The advisory role of the State

Commissions is also extensive and includes promotion of competition,

efficiency, economy and investments, as also ‘reorganisation and restructuring

of power sector in the State’.

4.9.4 The impact of the working of the Electricity Regulatory Commissions in

various States has been, on the whole, very positive and encouraging. In

Chapter-6 of this Report, we have mentioned certain areas requiring attention

from the Commissions themselves and from the Governments concerned to

enhance the role of the Commissions in the restructuring and reforms process.

4.9.5 The review, while appreciating the role played by the Commissions in

safeguarding the interests of the restructured companies and the consumers at

large, brings out that there is a need for (i) bringing about greater transparency

and public participation in the proceedings of the Commissions, (ii) uniform

pattern in the approach to issues that would promote competition such as Open

Access, surcharge, etc., and (iii) effective implementation of codes and

standards of performance more vigorously to enhance efficiency in the working

of the newly formed Utilities. It is felt that Forum of Indian Regulators needs to

play a more proactive role in taking forward the reforms objectives. It is

strongly felt that the effectiveness of the Commissions will be enhanced by

improving capacity building and ensuring greater financial autonomy to them.

4.10 Impact of Restructuring on Rural Electrification

4.10.1 An understandable apprehension about the possible adverse impact of

restructuring of SEBs relates to rural electrification. According to one source,

“what is left unanswered is, if the SEBs disappear as envisaged under the EA

2003, what would happen to rural electrification after the restructuring? If all

the DISCOMs run commercially, and make profit as their primary objective,

obviously they would not supply power to non-viable rural areas”.9 In this

context, the experience of South Africa is often quoted: ‘Facing a looming

power shortage, driven by concerns about rural electrification for the

historically disadvantaged black population, South Africa reportedly scaled

back its reform efforts’. 10

9 Report of High Level Committee on Government Policy and Reforming/Restructuring/Unbundling of SEBs (2005).

10 Alternating currents: Introduction to an International Review of Electricity Restructuring, Navroz K. Dubashi and Daljit Singh.

4.10.2 The NEP acknowledges that about 56 per cent of rural households have not yet

been electrified even through many of these households are willing to pay for

electricity. The NEP therefore affirms that determined efforts should be made

to ensure that the task of rural electrification for securing electricity access to

all households and also ensuring that electricity reaches the poor and

marginalised sections of the society at reasonable rates is completed within

the next five years. The established target is to complete rural electrification by

2009 and to ensure 100 per cent household electrification by the year 2012.

4.10.3 During the review of restructuring in Orissa, it was observed that rural

electrification had suffered in the recent years for lack of initiatives and

finance. Appropriate recommendations have been included in this Report to

reactivate the efforts. It is seen that the business plans of the restructured

Utilities include targets for rural electrification, and these are being monitored.

After the restructuring of SEBs, the flow of funding from REC to the

DISCOMs has improved since they have started on clean slates, without

carrying forward the past liabilities.

410.4 The performance table in Para 5.7, Chapter-5 gives an overview of the

progress in rural electrification in the recent years in different States.

Nevertheless, it is necessary for the State Governments to keep a close watch

on the progress of rural electrification by the DISCOMs, to achieve the national

targets. It is also necessary to ensure that the DISCOMs do not get into the

syndrome of perpetual losses due to extension of the network and non-payment

of dues by the consumers. The Governments concerned should pay subsidies

due to the DISCOMs on account of rural electrification, in advance, to

accelerate the programme.

4.11 Impact of Restructuring on Investments

4.11.1 In the post reform period, investments in the sector have significantly

improved although these are still far below the level required for system

improvement and upgradation. In the distribution sector, which is the most

critical area of the power sector reforms, investment has steadily shown

improvement after the restructuring. The following investments have been

made in the sector during 2004-05:

(a) Andhra Pradesh Rs 1,243 crore;

(b) Haryana Rs 921 crore;

(c) Rajasthan Rs 804.48 crore;

(d) Karnataka Rs 640.14 crore (generation and transmission sectors);

(e) Uttar Pradesh Rs 739 crore; and

(f) Madhya Pradesh Rs 721 crore.

4.11.2 However, the level of investment required in the distribution sector needs to be

considerably stepped up. In this connection, the initiative of the Ministry of

Power for promoting investments in selective areas under the APDRP is

noteworthy.

4.11.3 AT&C Loss Reduction Efforts

Closely linked to the loss reduction efforts by the Distribution Utilities, the

collection efficiency by these Utilities for all the States (which have undertaken

the power sector reform) taken together showed significant improvement. This

is one of the positive outcomes of the distribution reforms. Across the

restructured Utilities in the post reform period, metering, billing and collection

efficiency has shown perceptible improvement. As a result, commercial losses

of all Distribution Utilities, taken together at the national level, have come

down to Rs 22,126 crore (without subsidy but including tax) in 2004-05 from

Rs 29,331 crore (without subsidy but including tax) in 2001-02. (Source: PFC).

This is also reflected in the overall reduction of AT&C loss from 38.18 per cent

in 2000-01 to 33.82 per cent in 2004-05.

4.11.4 Subsidy Burden

One disconcerting area is the level of subsidy burden borne by the States,

which have undertaken reforms of their power sector. One of the objectives of

the power sector reforms is that the burden of subsidy on the States would be

reduced to enable them to release much-needed funds to the social sector. With

the EA, 2003, State Governments have been mandated to provide and release

subsidy to DISCOMs upfront unlike in the case of erstwhile SEBs. For an

appreciation of the impact of subsidies on the sustenance of the power sector, it

may be noted that the total subsidy booked in 2001-02 was around Rs 14,595

crore, which came down to Rs 11,016 crore in 2004-05. However, subsidy

received by the power Utilities on All India basis, was Rs 9,617 crore in 2001-

02 and Rs 11,753 crore in 2004-05. For State-wise details, please refer Para

5.5.5, Chapter-5.

4.12 Conclusions: Restructuring Model

4.12.1 The recent examples of Assam and Gujarat re-establish how important it is to

have the total political commitment and support at the highest level, coupled

with excellent consultancy assistance, and an efficient communication strategy

to implement the restructuring model. The need for cooperation of the

employees and a forward-looking FRP are also to be underscored.

4.12.2 As brought out in Chapter-6 on “Findings and Recommendations”, there are

still some shortcomings in the functioning of the restructured Utilities which

only highlight the need to address the shortcomings and managerial

deficiencies expeditiously. These include the inadequate autonomy granted to

the DISCOMs, inadequate delegation of powers to different levels of managers

and the consequent deficiency in accountability on the part of the management,

omission to devote time and attention to capacity-building in the human

resources area, and continuing Governmental and bureaucratic interventions in

the affairs of the companies.

4.12.3 The broad conclusion coming out of the review of restructuring models of

the States is that, despite some shortcomings, the overall impact has been

positive and in the right direction.

4.12.4 Further, among the three distinct models adopted by the States, which have

completed the restructuring process, the model followed by Andhra Pradesh,

Haryana, Karnataka and Uttar Pradesh emerges as the most suitable one. The

States, which are yet to undertake the process, are advised to adopt the

above model subject, of course, to their own analysis, based on local

conditions and consultants’ advice.

CHAPTER - 5

IMPACT OF RESTRUCTURING

5.1 As mentioned in Chapter-1, this study relates to 12 States coming under the

following three Groups:

Table 5.1: Categorisation of States

Group Description States included

Group-1States in which SEBs were restructured prior to the enactment of EA, 2003.

Andhra Pradesh Haryana Karnataka Madhya Pradesh Orissa Rajasthan Uttar Pradesh

Group-2States in which SEBs were restructured after the enactment of EA, 2003.

Assam Gujarat Maharashtra

Group-3States, which are in the process of restructuring the SEBs.

Tamil Nadu West Bengal

5.2 Impact of Restructuring on Technical and Financial Performance

5.2.1 Reform and restructuring exercises have a significant impact on the technical

and financial performance of the Utilities in the following areas:

(a) Reduction in estimated technical and commercial losses;

(b) Reduction in energy and peak demand/shortages;

(c) Improvement in technical parameters relating to:

(i) Generation;

(ii) Transmission;

(iii) Distribution;

(d) Improvement in financial and commercial parameters:

(i) Enhancement of revenue collection (without subsidy);

(ii) Profit/loss with and without subsidy;

(iii) Percentage of commercial losses to revenue (without subsidy);

(iv) Subsidy booked/received and percentage of subsidy

booked/received to total revenue;

(e) Investments in transmission and distribution; and

(f) Rural Electrification.

5.2.2 The performance of the SEBs and the restructured entities in Group-1 States

are analysed, based on data collected in respect of the above parameters.

5.2.3 The restructuring of SEBs in Assam, Gujarat and Maharashtra was taken up

only recently and hence the impact could not be assessed at this stage.

However, there are indications of improved performance of the restructured

Power Utilities in these States.

5.3 Reduction in Estimated Losses

5.3.1 The percentage T&D losses of the SEB at the time of restructuring and of the

restructured Utilities after restructuring in the Group-1 States are given in

Table 5.2.

Table 5.2: T&D Losses

State Year ofRestructuring

T&D losses (%) during the yearsYear of

Restructuring2000-01

2001-02

2002-03

2003-04

2004-05

AP 1999-2000 37.65 36.63 26.81 30.11 27.73 23.96Haryana 1999-2000 38.28 39.82 39.22 37.65 32.07 32.11Karnataka 1999-2000 37.31 34.93 33.83 24.57 23.29 26.08MP 2002-2003 43.31 46.07 44.55 43.31 41.44 41.30Orissa 1996-1997 50.38 44.91 47.34 45.36 57.09 44.02Rajasthan 2000-2001 29.76 29.76 43.06 42.61 43.74 44.68UP 1999-2000 40.37 36.94 37.62 34.16 35.17 34.39All India 32.86 33.98 32.54 32.53 31.25

(Source: CEA)

5.3.2 It may be mentioned here that, prior to the restructuring, the practice in many

SEBs was to inflate the figures of agricultural supplies (which were not

metered) so that the actual extent of commercial losses could not be assessed

realistically. Partly due to the controls put in place by the subsequently

installed Electricity Regulators in various States and partly so as to reflect the

actual position in the tariffs proposals for their own advantage, SEBs and

Utilities have started reflecting a more realistic picture of T&D losses in the

recent years. According to Shri S.L. Rao, the first Chairman of the Central

Electricity Regulatory Commission (CERC):

“In cases where the numbers appear to be rising, it is more of a reflection of

better information, since the T&D losses (mainly theft) that were hidden by

SEBs under subsidised sales to agriculturists has now been properly restored

to T&D losses.”11

5.3.3 The losses indicated before the restructuring are mostly based on abstract

estimates of consumption by the un-metered services, mainly under agricultural

and domestic categories. On the insistence of the Regulatory Commissions to

validate the assessed consumption of un-metered services, the loss estimates

were modified to an extent by the Utilities themselves bringing them closer to

realistic figures. The percentage AT&C losses in respect of Group-1 States is

given in the Table 5.3:

Table 5.3: AT&C Losses

StateYear of

Restructuring

AT&C losses (%) during the years2001-

022002-

032003-

042004-

05Andhra Pradesh 1999-2000 32.09 36.14 22.62 27.19Haryana 1999-2000 50.60 47.62 42.85 44.55Karnataka 1999-2000 40.50 45.68 35.82 34.72Madhya Pradesh 2002-2003 48.60 49.42 41.52 52.79Orissa 1996-1997 52.64 40.88 47.40 54.07Rajasthan 2000-2001 60.38 47.13 50.84 46.73Uttar Pradesh 1999-2000 46.92 32.21 58.38 51.05

(Source: PFC)

5.3.4 The present method adopted to assess the aggregate technical and commercial

losses (AT&C losses) is by using the formula indicated below:

AT&C losses (%) = (Units input – Units realised) x 100 Units input

Units realised = Units billed x Collection Efficiency (%) 100

Collection Efficiency (%) = Revenue realised x 100 Revenue billed

5.3.5 The performance of the restructured Utilities in the AT&C losses reduction for

four years ending 2004-05 is captured in Table 5.3. It could be seen that there

is reduction in losses in Haryana, Andhra Pradesh, Karnataka and Rajasthan. In

the case of Orissa, the losses had come down in 2002-03 but again increased in

the subsequent years. In the case of Madhya Pradesh and Uttar Pradesh also,

the losses initially had come down but again increased. The Distribution

Utilities in these States need to pay more attention to bring down the loss

levels.

11 S.L.Rao: Governing Power, TERI; page 230.

5.4 Technical Parameters

The restructuring of SEBs has resulted in the functional separation of State

power industry into three segments, i.e., generation, transmission and

distribution. The improvements brought out by the restructured entities in

respect of some of the key technical parameters are reviewed hereunder.

5.4.1 Generation

(a) The performance of the generating companies in the seven States

(Group-1) is reviewed considering the key parameters of:

(i) Installed generation capacity (MW);

(ii) Energy generated/delivered (MU);

(iii) PLF of thermal power stations;

(iv) Availability of thermal power stations;

(v) Auxiliary consumption;

(vi) Secondary oil consumption; and

(vii) Heat Rate.

(b) The data collected is shown at Annexure-XI.

(c) It may be seen that in Andhra Pradesh, 954 MW of installed capacity

has been added by APGENCO after restructuring, of which 900 MW

comes from the Srisailam Left Bank Power Station. There is no

substantial increase in the energy generated due to poor inflows into the

hydel reservoirs, in spite of the thermal stations delivering increased

energy every year. During this period, the State had to depend on

additional procurements from the central power sector Utilities,

Independent Power Producers (IPPs) and other States. The PLF and the

availability of the thermal power stations have increased from 83.2 to 89.7

per cent and from 89.7 to 92.5 per cent respectively in the four years after

restructuring. The secondary oil consumption has come down from 3.45

ml/kWh in 1995-96 to 0.49 ml/kWh in 2004-05. Auxiliary consumption

continues to be at around 9 per cent and there is scope to reduce the same

substantially.

(d) Karnataka has added 518 MW of generation capacity in five years.

The PLF and the plant availability of the thermal stations has been

consistently more than 80 per cent. Secondary oil consumption has been

brought down from 2.41 ml/kWh in 1999-2000 to 0.73 ml/kWh in 2005-

06.

(e) Rajasthan has achieved a maximum capacity addition of 1059 MW

in the four years after restructuring, whereas Madhya Pradesh has not

added new capacity in the two years since the separate generation

company came into existence.

(f) The PLF of the stations has increased to 80 per cent and above in

Orissa and Rajasthan. There is increase in the PLF of the stations in the

States of Haryana, Madhya Pradesh and Uttar Pradesh as well after the

reforms. However, there is still scope for further improvement. There is

reduction in the secondary oil consumption in all re-structured entities,

over the years. However, the oil consumption level in Haryana was 3.73

ml/kWh in 2005-06 and there is still scope for further reduction. Efforts

are also needed to reduce the auxiliary consumption levels in all GENCOs

of Group-1 States.

(g) The overall performance of the GENCOs in the States under Group-1 has improved on account of the following factors:

(i) Willingness of financial institutions to extend financial support to the restructured Utilities;

(ii) More focussed attention on the part of the management for achieving results; and

(iii) Increased accountability for managers at different levels.

5.4.2 Transmission

(a) The restructured Transmission Utilities are in-charge of the

transmission network development, in addition to the regular operation

and maintenance of the existing transmission systems. Presently, the State

Load Despatch Centres are also under the control of the Transmission

Companies. The bulk supply trading activity, which was managed earlier

by the Transmission Companies, is now transferred to separate trading

licensees or the DISCOMs to directly purchase power from the

Generating Companies. The performance of the Transmission Companies

after the restructuring is analysed with reference to the following technical

parameters:

(i) Total length of transmission lines (ckt km);

(ii) No. of EHV sub-stations; and

(iii) Transmission losses (per cent).

(b) The data collected on the above parameters is shown at

Annexure-XII(A) to XII(C).

(c) It is observed that there is considerable transmission network

expansion in the States after the restructuring. Efforts are also made to

improve the existing systems in operation as evidenced from the reduction

in the transmission losses recorded in these States. The transmission

network augmentation after restructuring in the Group-1 States is shown

in Table 5.3(A).

Table 5.3 (A): Augmentation of Transmission Network

StateYear of

Restructuring

Transmission lines (ckt. km.)

added after restructuring in the last 5 years

No. ofYears

Average Addition (ckt. km.) per year

AP 1999-2000 6,706 5 1,341Haryana 1999-2000 2,273 5 455Karnataka 1999-2000 4,387 5 878MP 2002-2003 1,705 2 853Orissa 1996-1997 2,721 5 544Rajasthan 2000-2001 2,542 4 636UP 1999-2000 2,539 5 508

(d) The network expansion is appreciable in all the States except

Uttar Pradesh, where it is comparatively low considering the size of the

State. UPPCL should take steps to accelerate the network expansion

activity.

(e) The network expansion should normally bring down the

transmission losses. The losses data in the last 4/5 years is shown in Table

5.3(B)

Table 5.3(B): Transmission Losses

StateTransmission losses (%)

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

AP 8.98 8.94 8.18 7.55 6.11 4.91Haryana - 6.78 7.17 6.78 7.18 5.67Karnataka - - 6.76 4.88 4.23MP 8.25 8.17 8.20 7.93 6.12 5.62Orissa 5.00 5.17 5.11 4.15 3.92Rajasthan - 4.10 4.17 3.68 4.72 4.59UP 5.50 5.50 5.50 5.92 5.67 4.97

(f) In all the States, there is a gradual reduction in losses in the

transmission system. The trend of losses indicates that there is a scope for

further reduction in the years ahead with additional investments made for

strengthening the transmission network.

(g) Funds mobilisation for the new projects is not a constraint

now, as was the case before implementation of reforms.

5.4.3 Distribution

(a) Distribution is one of the most important segments of the power

industry. It is also the problematic segment, since the Utilities have to deal

with millions of end-users of electricity. The health of the power industry

is dependent on the health of the distribution Utilities. Under the

integrated SEBs set-up, the distribution function did not get adequate

attention of the top managements, as priority was usually given to the

generation function. In the restructured Distribution Companies, with

limited areas of operation, the company managements are able to improve

operational performance and devote more focussed attention to resolve the

problems of customers at large.

(b) In order to examine how the restructured Distribution Companies in

the Group-1 States have brought about technical improvements in respect

of distribution network, the following parameters were considered:

(i) Length of 33 kV lines;

(ii) Length of 11 kV lines;

(iii) Length of LT lines;

(iv) LT/HT Ratio;

(v) Number of distribution transformers; and

(vi) Number of cases of DTs failures.

(c) The progress achieved by the restructured entities of the Group-1 States

on the above parameters is shown in Annexure-XIII. The data reveal

that:

(i) There is a steady growth in the network expansion in these States;

(ii) There is a reduction in DTs failures year-by-year in Andhra Pradesh,

Haryana, and Orissa but increase is noticed in the DTs failure rate in

Madhya Pradesh and Rajasthan;

(iii) The LT/HT ratio of distribution lines has come down in the

restructured Utilities in the last five years in almost all States (except

Madhya Pradesh), which is an indication of the healthy growth in the

network. In the case of Madhya Pradesh the ratio increased from

1.88 to 2.12 and the DISCOMs need to take steps to correct this

negative trend; and

(iv) There has been appreciable reduction in distribution losses in Andhra

Pradesh (from 28.05 to 11.19 per cent) and Haryana (from 33.04 to

26.93 per cent) during the period 2000-01 to 2004-05. In Uttar

Pradesh there is a reduction in the distribution system losses from 40

per cent in 1999-2000 to 31 per cent in 2004-05. For other States, the

distribution losses are either increasing or varying (increasing in one

year and decreasing in another year). Steps need to be taken by the

Distribution Utilities to get the losses reduced to a reasonably

acceptable level.

(d) A case in point is Andhra Pradesh, where distribution transformer

metering was provided in respect of 36,313 transformers by the end of

March 2005. All the 11 kV feeders (8528 Nos.) and all categories of

services (147 lakh) other than agricultural are provided with meters. Out

of the 23.74 lakh agricultural services existing as on March 2005, 1.59

lakh services are metered.

5.4.4 Separation of Composite Rural Feeders

(a) The rural loads comprising of agricultural pumps and other loads in

villages are served through composite HT feeders. Supply to agricultural

pumps is

Box 5.1: Gujarat Shatters a MythThe village electrification schemes in the country have adopted a common pattern of supplying electricity for irrigation pumpsets as well as for residential and small industrial/commercial consumers in the nearby villages, through a common 11 kV feeder. The component of load of the pumpsets on such composite feeders is much larger as compared to the load of consumers in the villages. The supply to pumpsets is not available for 24 hours and is generally provided in off-peak hours for smaller duration. Further, whenever there is a need to restrict the peak demand, these composite feeders are disconnected, resulting in loss of power supply to villages. Thus the rural population is deprived of continuous supply of electricity and this adversely affects the quality of life in villages.To provide three-phase power supply to villages for 24 hours a day, Gujarat initiated a scheme of delinking village supply from agricultural pumping loads by providing separate 11 kV feeders for villages, under ‘Jyoti Gram Yojna’ (JGY). The scheme was launched in September 2003. In less than 3 years, 1324 Nos. of new 11 kV feeders involving more than 46,000 km of 11 kV line, 7,000 km of LT lines and 11,200 distribution transformers were provided in the scheme and three-phase power supply to 17,773 villages which are served with conventional energy (out of a total of 18,065 villages in the State), is now made through these new JGY feeders for 24 hours a day. This has resulted in a sea change in the quality of life in villages.The success of the scheme has dispelled the myth that investments in improving services in rural sector are not cost effective and do not pay back financially. Through investments of Rs 1,097 crore in JGY scheme, the Utility has been benefited by Rs 499 crore by saving 1750 MU of energy, and reducing 600 MW demand. In less than 3 years, more than 45 per cent investment of the scheme is paid back. In addition to better cost benefit ratio of the scheme, and improvement in the quality of life in villages, the revenue of the Utility will grow on account of continuous power supply to the villages. Industrial growth prospects have increased in the rural area with the availability of 24 hours electricity supply.Apart from the financial gains, the Utility can now aggressively pursue energy accounting procedures with correct assessment of agricultural consumption. Agricultural tariff structure could be modified so that it is lower where the consumption in kWh per HP of connected load is lower and goes on increasing as the energy consumption per HP increases, leading not only to reduced tariff for agriculture and conservation of energy used for pumping but also to conservation of water which in the near future is likely to be an important issue on the National Agenda.This deep concern for needs of villages in improving the most important infrastructure of availability of 3-phase power supply for 24 hours a day and action to provide the desired solution through the JGY scheme, is solely attributable to the political initiative and foresight.

regulated and is generally available for a few hours in a day. To serve

other rural loads on the feeder in the remaining hours of the day single

phase supply is made available by altering circuit arrangements.

Separation of such composite feeders into separate feeders for agricultural

loads and other village loads should be considered to facilitate providing

three phase power supply to villages as is successfully done in Gujarat.

(See Box 5.1).

(b) Annexure-XIII gives details of the growth of distribution system in

various States and an all-India picture of the same in terms of ckt km of

33 kV, 11 kV and LT lines. To get a general idea of the extent of coverage

of electricity on spatial consideration, some data of ckt km of HT and LT

lines per 1,000 sq km of the geographical area is also indicated. It is,

however, to be noted that these figures only represent the extent of

penetration of distribution lines and do not lead to any qualitative

assessment. The parameter of LT/HT ratio given in Annexure-XIII could

be indicative of the related cause of technical distribution loss of the

network. The loss (technical) would be lower where the LT/HT ratio is

lower and vice versa. All restructured Utilities are taking steps to reduce

this ratio to as low as is financially and commercially feasible. The

measures such as locating distribution transformers as near the load centre

as possible, increasing the 33/11 kV sub-stations, increasing 11 kV

lines/feeders, etc., are adopted by the Utilities in upgrading the

distribution system.

(c) High Voltage Distribution System (HVDS) aimed at the replacement of

the low voltage network by high voltage three phase network with

installation of large number of smaller capacity (16 kVA and 25 kVA) 11

kV/400 V transformers, is under implementation in various States. In case

of Andhra Pradesh by the end of the year 2004-5, supply to 1.41 lakh

irrigation pumpsets was extended through the HVDS. Schemes covering 3

lakh pumpsets are under implementation. A project proposal covering

18.74 lakh pumpsets under the high voltage distribution system has been

sent to Japan Bank for International Cooperation (JBIC) for funding. The

system is best suited to meet the scattered low-density agricultural loads,

observed in the rural areas. It reduces the scope of electricity thefts by

way of direct tapping from LT lines by the unauthorised consumers and

also helps in reduction of LT line losses.

Box 5.2: High Voltage Distribution System

One of the challenges in the Distribution System Management is the reduction of

system losses – both technical and commercial. Realising the fact that the low

voltage network of the distribution system contributes maximum to the system

losses, Andhra Pradesh has started implementing High Voltage Distribution

System (HVDS). The aim is to gradually replace the low voltage network with

high voltage network by erecting small capacity distribution transformers to cater

to the needs of a limited number of customers under each unit. Initially single

phase H.V. Distribution is introduced with 10 kVA and 16 kVA distribution

transformers. It has limited success in implementation on agricultural feeders for

security reasons and on account of the general reluctance of the consumers for

conversion/replacement of their motors.

At present, the DISCOMs have started implementing three-phase HVDS by

erecting 16 kVA and 25 kVA three phase distribution transformers on agricultural

feeders. By the end of 2004-05, over 1.4 lakh pumpsets were covered under the

HVDS. Projects at a cost of Rs.797 crore covering 3,05,183 pumpsets under

HVDS are under implementation. Another scheme covering about 19 lakh

pumpsets under HVDS, at a cost of Rs. 5,651 crore, has been sent to JBIC for

funding.

The benefits of HVDS are:

Reduction of system losses,

Prevention of unauthorised connections,

Reliable supply to farming sector,

Pumpset efficiency improvement,

Reduction in transformer failures.

The model can be beneficially implemented by other States.

(d) Billing and collection activities are outsourced in Andhra Pradesh,

Karnataka, and Orissa to bring in the improvements in revenue.

(e) Multi-year tariff has been introduced in the States of Andhra Pradesh,

Madhya Pradesh and Rajasthan, where reform and restructuring has taken

place. In Karnataka, the ERC has initiated action for introducing multi-

year tariff.

(f) Another feature is that better consumer service is rendered through

creation of grievance redressal forums and consumer care centres in all

the Group-1 States.

(g) Overall, there is evidence of improvement in the functioning of the

DISCOMs of Group-1 States. However, the results may vary on account

of factors like extent of firm political support, appropriate and effective

managements established to guide the companies, regulatory control

mechanism, implementation measures taken, motivation of the

employees, etc.

(h) The restructured DISCOMs are have received the benefit of support of the

Government of India under APDRP for system improvements. There is

also scope for accelerating the process of system expansion and rural

household coverage under RGGVY.

5.5 Financial and Commercial Parameters

5.5.1 Revenue Improvements

(a) Improvement in revenues could be achieved by increased quality

metering and with improved efficiency in both billing and collection.

Increases in revenues also occur due to addition of new services and

consequent additional consumption of energy, as well as periodical tariff

increases. The trend of revenues by sale of energy (without taking subsidy

into account) of the power Utilities in the seven States under study for the

last four years, ending 2004-05, is shown in Table 5.4.

Table 5.4: Trend of Revenues (Group-1 States)(Rs crore)

StateAnnualRevenue2001-02

AnnualRevenue2002-03

% increase over the previous

Year


% increase over the previous

Year


% increase over

previousYear

AP 5912 7393 25.1 7679 3.9 8571 11.6Haryana 2712 2911 7.3 3240 11.3 3378 4.3Karnataka 4451 4489 0.9 5910 31.7 6532 10.5MP 3618 4296 18.7 4857 13.1 5130 5.6Orissa 1667 1882 12.9 1982 5.3 2144 8.2Rajasthan 3850 4017 4.3 4140 3.1 4539 9.6UP 6286 5990 -4.7 3937 -34.2 6492 64.9

(Source: Power Finance Corporation)

(b) There is gradual improvement in the revenues in the last four years in

almost all the States. In the case of Uttar Pradesh, however, there was

sharp decline in revenues during the years 2002-03 and 2003-04; but a

sudden upward jump of about 65 per cent in 2004-05. In Andhra Pradesh,

the increase in 2003-04 was not substantial since it was the first year of

operation of the new distribution companies (prior to 2003-04, DISCOMs

were subsidiaries of the Transmission Company). Karnataka recorded the

maximum revenue improvement of 31.7 per cent during 2003-04.

(c) Although a steadily increasing trend is yet to emerge, and part of the

variations may be due to the availability factor, it is logical to conclude

that after the restructuring process, there is network expansion and

additional efforts have been made to provide fresh connections, which are

reflected in the revenue enhancement. Obviously, there are more

investments in the sub-sector, and better billing and collection. The

DISCOMs are generally focussing more on enhancing revenue

collections, partly because of closer management controls put in place and

probably also due to inter-company competitions.

5.5.2 Profit/Loss without Subsidy

The best indicator of the commercial performance of the sector is the

profitability of the undertakings. Annexure-XV(A) and Annexure-XV(C) will

show that the overall commercial performance of the power sector has been

improving in the recent years, though much more needs to be done. As will be

seen from Annexure-XV(D), the losses were on the increase until the year

2001-02 when they stood at Rs 29,252 crore. In the normal course (‘business as

usual’ scenario), the losses would have further increased to around Rs 38,000

crore by the year 2004-05, estimated by employing multiple regression

technique. However, the year 2004-05 actually registered a loss of only Rs

21,998 crore. For the Group-1 States (excluding Uttar Pradesh)12, the losses

could have been of the range of Rs 17,000 crore in the normal course; but they

actually registered a loss of only Rs 7,239 crore. Major chunk of the loss

reduction was achieved by the restructured States, which is a noteworthy

achievement.

5.5.3 Profit/Loss with Subsidy

Another parameter for analysis would be cash profit or loss with subsidy,

which is depicted in Annexures XV(B) and XV(E). It will be noticed that,

after 2003-04, Group-1 States (excluding Uttar Pradesh), taken together, have

started registering profits with subsidy. In the year 1999-2000, when the

restructuring process was initiated, the losses were of the magnitude of Rs

4,953 crore, which has since turned into an overall profit of Rs 1,482 crore in

2003-04. In the corresponding timeframe, the overall performance of the other

States (excluding Uttar Pradesh), had registered a reduction of loss from Rs

7,539 crore to Rs 2,746 crore. This is in spite of the fact that most of the States

where restructuring had not taken place had released substantial amounts of

subsidies to their SEBs (like Tamil Nadu - Rs 2,212 crore during 2002-03,

12 Due to bifurcation of the State and also inconsistency in a few Revenue figures, e.g., for almost same level of energy sold for the FYs 2002-03 and 2003-04 revenue realised has a variation of 50 per cent (Source: PFC)

Kerala - Rs 1,016 crore in 2002-03, and Gujarat - Rs 1,527 crore in 2002-03

and Rs 2,017 crore in 2003-04).

5.5.4 Commercial Losses as a Percentage of Revenue (without Subsidy)

A review of the commercial losses of the Utilities as a ratio of their Revenue

would be relevant, since comparison of the losses of the States with varying

Revenues may not give the correct picture. The percentage of losses to

Revenue (sale of Power) gives a more realistic picture of the extent of losses

and the sustainability of operations of the Utilities. The review reveals that in

this aspect, the restructured Utilities, but for Rajasthan and Uttar Pradesh, have

done reasonably well [refer Annexure-XV(G) and (H)]. For instance, Andhra

Pradesh has reduced the ratio from 69 to 14 per cent during the period 1999-

2000 to 2004-05, whereas Haryana has brought this down from 65.3 to 42.9 per

cent during the same period. It is relevant that the ratio of losses to Revenue for

the restructured Utilities put together has come down from 50.5 to 20.2 per cent

(excluding Uttar Pradesh) against the All India average of 42.9 to 22.6 per cent

during the given period.

5.5.5 Incidence of Subsidy

(a) Percentage of Subsidy Booked to the Total Revenue: The

extent of subsidy booked by Utilities to the total Revenue [refer

Annexure-XV(I) and (J)] reveals their dependence on Government

support for their sustenance, and is an indicator of their general

commercial health. All India ratio of subsidy booked by Utilities to the

total Revenue for the year 2001-02 was 20.75 per cent which has come

down to around 11 per cent in 2004-05, which clearly indicates the fact

that the Utilities are becoming less dependent on State Governments for

financial support. The percentage of subsidy booked to the revenue has

come down drastically, in case of Andhra Pradesh (61.4 per cent in 2000-

01 to 15.2 per cent in 2004-05) and Karnataka (50.27 per cent in 2000-01

to 24.02 per cent in 2004-05) although these States are predominantly

agricultural States. It is also seen that the ratio is gradually coming down

in the case of Uttar Pradesh. On the other hand, the ratio has increased in

the case of Haryana and Rajasthan, and continues at a high level.

Although there may be several contributory factors for variations in the

subsidy booked, such as higher composition of agricultural consumers

etc., the important issue is whether the Utilities are able to bring down the

ratio by prudent management practices. In this respect, it is pertinent to

note that the privatised Utilities of Orissa have saved the State

Government a subsidy burden of Rs 300 crore per year for the last ten

years.

(b) Percentage of Subsidy Received to Total Revenue: The amount of

subsidy received as compared to subsidy booked on all-India level is

almost the same during the years 2002-03 to 2004-05 [refer Annexure-

XV(I) and (K)]. The ratio of subsidy received to total revenue has

gradually come down during the above period, which may be partly

attributed to the rationalisation of tariff and improvement in performance

of the Utilities. In case of Rajasthan, the amount of subsidy received is

very low as compared to subsidy booked during the above period. But

during the years 2000-01 and 2001-02, at all-India level, the amount of

subsidy received was very low as compared to subsidy booked.

5.5.6 Gap between ACS and ARR

(a) Figures of GAP between Average Cost of Supply (ACS) and Average

Revenue Realised (ARR) without subsidy in respect of Group-1 States are

shown in Table 5.5. Increasing GAP is a cause of concern and indicates

that either adequate measures have not been taken towards tariff

realisation or the operational efficiency has been quite poor.

(b) The figures reveal that on all-India level there is an improvement in the

GAP. Appreciable improvements have been made by Andhra Pradesh,

Orissa and Madhya Pradesh. Except Haryana, Rajasthan and Uttar

Pradesh, other Group-1 States are moving towards tariff rationalisation.

However, they have to make more efforts to reduce the GAP by

improving their collection efficiency and other operational measures. For

details regarding average tariff applicable to various categories of

consumers, please refer to Annexure-XVIII. In case of Haryana, Uttar

Pradesh and Rajasthan, the trend is not steady and as brought out under

the Income vs. Expenditure figures, these States have to bring in more

improvements.

Table 5.5: Gap (ACS-ARR) (Paise per kWh)

State 2000-01 2001-02 2002-03 2003-04 2004-05Andhra Pradesh 77 67 37 38 27Haryana 101 58 45 49 72Orissa 43 44 31 21Karnataka 98 73 52 50 46Madhya Pradesh 52 31 23 25Uttar Pradesh 98 54 59 35 84Rajasthan 57 66 68 68

All India 64 43 37 42(Source: PFC)

5.5.7 Ratio of Income to Expenditure: Utilities of Group-1 States.

(a) The ratio of income to expenditure is a key performance indicator to

assess the efficiency of commercial operation of any sector. Once this

ratio crosses ‘1’, it can be inferred that the Utility has achieved some

degree of commercial viability. The analysis shows that the Generation

and Transmission Companies are functioning satisfactorily after the

restructuring, as they are now more autonomous. The ratio of income to

expenditure in case of both Generation and Transmission Utilities has

already crossed ‘1’ or is nearing ‘1’.

(b) It can be seen from Table 5.6 that among the Group-1 States, positive

results have been noticed during the last five years. It is also worth

mentioning that except for the DISCOMs of Uttar Pradesh, Haryana and

Rajasthan the said ratio is showing an improving trend for all Power

Utilities in all the seven States.

(c) Based on the data, it now becomes quite clear that huge losses of the

distribution system is the root cause of the various ills of the power sector.

The analysis of respective States brings out the salient details, which have

a direct or indirect impact on the operational as well as financial

performance of the Utility. It is evident that the long-standing issue of

dismal performance of power sector in general and distribution system in

particular will need some more time to be resolved.

(d) Financial Institutions (FIs) were earlier reluctant to finance the projects of

SEBs due to their poor financial health. However, since restructured

GENCOs and TRANSCOs are now commercially viable, this could

facilitate enhanced investments in the power sector and also open new

vistas for the cash rich FIs to park their funds. Table 5.6 provides the

indices in respect of Group-1 States.

Table 5.6: Ratio of Income to Expenditure

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

Andhra PradeshDistribution - 0.70 0.85 0.84 0.88Generation 0.96 0.98 1.01 1.00 1.02Transmission 0.62 0.97 1.03 1.01 1.00

KarnatakaDistribution - - 0.78 0.81 0.82Generation 0.95 1.14 1.14 1.11 1.11Transmission 0.68 0.68 0.91 0.99 1.02

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

HaryanaDistribution 0.72 0.76 0.80 0.79 0.72Generation 1.00 1.00 1.00 1.00 1.00Transmission 1.00 1.00 1.00 1.05 1.00

OrissaDistribution - 0.79 0.80 0.85 0.90Generation 1.12 1.25 1.31 1.30 1.43Transmission 0.96 1.05 0.74 1.17 1.14

Madhya Pradesh- 0.77 0.85 0.89 0.89

RajasthanDistribution - 0.78 0.75 0.74 0.73Generation - 1.00 0.98 1.00 1.00Transmission - 0.99 0.99 0.99 0.99

Uttar PradeshDistribution - - - 0.77 0.69Generation 0.88 0.92 0.93 0.93 0.93Transmission 0.73 0.75 0.75 0.92 0.97All India * - 0.74 0.82 0.84 0.83All India(GENCOs and TRANSCOs)

- 1.00 0.97 0.98 1.00

* Utilities directly selling to consumers

5.6 Energy and Peak Shortages

5.6.1 The energy and peak demand shortages in Group-1 States are shown in Tables

5.7 and 5.8, respectively [please also refer to Annexures XVI(A) and XVI(B)].

It could be seen that the peak shortages have come down in most of the States,

except Haryana, Rajasthan and Uttar Pradesh. Efforts are needed in these States

to install additional generating capacity.

5.6.2 Although the actual growth of annual electricity generation at all-India level has

not been matching the corresponding GDP growth rate over the years, (which

results in energy shortages) considerable improvement in meeting the energy

requirement has been noticed in the majority of Group-1 States. However,

concerted efforts need to be made to reduce the energy shortages in Haryana,

Madhya Pradesh and Uttar Pradesh where the shortfall is 8.9 per cent, 14.2 per

cent and 20.1 per cent respectively. The shortfall can be reduced by

implementing measures like efficiency improvements, capacity additions and

efficient energy exchange with other Utilities.

Table 5.7: Energy Shortages (per cent)

States1998-1999

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

Requirement(MU) 2005-06

AP 8.70 6.60 7.80 8.50 6.80 2.90 0.70 1.10 52721

Haryana 2.10 2.10 2.80 1.60 3.00 4.60 5.70 8.90 23749Karnataka 13.20 8.30 9.10 12.50 9.80 13.90 4.20 0.70 34578MP 5.80 7.10 12.40 15.40 16.40 13.20 13.50 14.20 36851Orissa -3.30 -2.80 -3.10 0.10 2.30 1.70 0.80 1.30 15208Rajasthan 2.50 4.50 3.60 1.00 2.10 0.50 0.80 3.50 30883UP 14.60 9.90 16.67 13.20 20.10 20.9 55614All-India 5.76 5.34 8.06 7.76 9.00 7.27 7.48 8.30 631024

Table 5.8: Peak Shortages (per cent)

States1998-1999

1999-2000

2000-2001

2001-2002

2002-2003

2003-2004

2004-2005

2005-2006

Demand (MW)2005-06

AP 9.30 11.70 14.60 19.90 19.20 10.50 2.30 2.00 8716Haryana 8.30 0.00 3.30 3.30 2.50 5.40 10.30 9.30 4333Karnataka 15.50 15.50 13.20 17.00 21.50 12.40 5.30 9.80 6160MP 25.20 29.70 25.30 12.50 14.20 22.10 18.50 21.70 6558Orissa 2.00 5.20 -2.20 7.30 6.40 6.50 0.00 1.70 2437Rajasthan 4.20 0.00 2.50 1.20 1.50 0.00 7.80 13.70 5588UP 15.00 9.20 14.20 16.50 20.40 19.4 8175All-India 12.85 13.64 12.27 12.60 12.69 12.39 11.70 12.30 93214

Table 5.9: Anticipated Power Supply Position at the end of X and XI Plans

State

At the end of X Plan (March 2007) At the end of XI Plan (March 2012)Power Supply (MU) Peak (MW) Power Supply (MU) Peak (MW)Require-

mentSurplus/Deficit

DemandSurplus/Deficit

Require-ment

Surplus/Deficit

DemandSurplus/Deficit

AP 68,797-7,424

(-10.8%)1,1219

-1,523(-13.6%)

93,289-12,426(-13.3%)

15,213-3,078

(-20.2%)

Haryana 25,7505,252

(20.4%)4,899

1892(38.6%)

37,80010,785(28.5%)

7,192320

(44.5%)

Karnataka 44,748-9,722

(-21.7%)7,740

-1,886(-24.4%)

60,478+4,686(+7.7%)

10,460-876

(-8.4%)

MP 42,354-8,387

(-19.8%)7,052

-1,384(-19.6%)

55,914+91

(0.2%)9,310

-226(-2.4%)

Orissa 17,997-2,127

(-11.8%)2,977

+22(0.7%)

23,377+,5201

+22.2%)3,869

+1,004(+25.9%)

Rajasthan 40,341-10,029

(-24.9 %)6,772

-2302(-34 %)

56,132-8,286

(-14.8%)9,423

-2,596(-27.5%)

UP 66,917-15,514

(-23.2% )10,645

-3,340(-31.4%)

94,565-28,367(-30%)

15,055-4,948

(-32.9%) (Source: CEA)

5.6.3 As already noted, the capacity addition during the current Five Year Plan has

fallen short of the targets during the first four years of the Plan. Keeping in

view the ongoing peak and energy shortages, it is imperative that the capacity

addition programme be boosted and measures taken to evenly distribute the

targeted achievements over the five years of the Plan period, as far as possible.

Another factor to be kept in view is the adequacy of monsoon, which impacts

hydel power generation. Notwithstanding the above, the conditions regarding

energy and peak shortages at present (2005-06) in respect of restructured States

indicate that energy shortages are as low as 0.7 per cent in Karnataka and peak

shortages of 1.70 per cent in Orissa, compared to all India figures of 8.3 and

12.30 per cent respectively.

5.7 Per Capita Consumption

5.7.1 The per capita consumption is calculated on gross generation basis from 2001-02

onwards. It would be appropriate to compare the per capita consumption

improvements between the years 2001-02 and 2004-05. Andhra Pradesh,

Haryana and Karnataka had per capita consumptions above the national level

of 559.18 kWh/year in the year 2001-02. By 2004-05, Orissa had also joined

the States having per capita consumption above the national level. Rajasthan

has recorded gradual increase in the per capita consumption and has reached

583.32 kWh/year by 2004-05, which is very close to the national figure of

612.50 kWh/year. In the case of Madhya Pradesh and Uttar Pradesh, there are

ups and downs in the per capita consumption year after year and the

consumption levels are lower than the national figures. Per capita consumption

is one indicator of the progress achieved by the power Utilities of the States.

The per capita consumption of Uttar Pradesh is far below the national average

and it may take a long time for the State to reach the national level.


5.8.1 Rural electrification is an essential ingredient for economic development of the

country. Drawing long transmission and distribution lines to remote villages,

not having adequate load, is often un-remunerative for the Utilities. Hence the

Ministry of Power, Government of India has taken special initiatives to give a

boost to rural electrification through the RGGVY, which has a large element of

grant.

5.8.2 The number of villages electrified in the twelve States including those where the

restructuring was done (Group-1) is shown in Table 5.10. The percentage of

villages electrified year-wise from 1996-97, shown in Table 5.11, gives an

indication of the efforts made for rural electrification in these States by the

restructured companies.

5.8.3 In view of the limited number of villages to be covered in Karnataka and

Madhya Pradesh, it would be possible for them to achieve 100 per cent

electrification within the targeted period established in the National Electricity

Policy, 2006. However, considering the very high percentage of villages yet to

be electrified in the States of Uttar Pradesh, Orissa and Rajasthan and also

having regard to their past performance in this regard during the last decade (as

shown in Table 5.11), it will be very difficult for these States to achieve the

target of electrification laid down in the National Electricity Policy, 2006. It is

obvious that most of the villages yet to be electrified would be located in

difficult geographical terrain (far from the conventional grid) which would

make the task of electrifying these villages even more difficult.

Table 5.10: State-wise Village Electrification as on 31-03-2006

States/UTTotal inhabited villages as per 2001 census

Villages electrified as on 31.03.06

Numbers Percentage

AP 26,586(*) 26,565 100.0(*)

Assam 25,124 15,657 62.3

Gujarat 18,066 17,836 98.7

Haryana 6,764 6,764 100.0

Karnataka 27,481 27,018 98.3

MP 52,117 50,213 96.3

Maharashtra 41,095 35,541 86.5

Orissa 47,529 26,235 55.2

Rajasthan 39,753 25,385 63.9

Tamil Nadu 15,400 14,621 94.9

UP 97,942 56,977 58.2

West Bengal 37,945 32,861 86.6(*) Ten. villages are submerged, nine villages are un-inhabited and two villages are occupied by NTPC

Table 5.11: Percentage of Villages Electrified (Year-wise)

State(**)

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

2003-04

2004-05

Total No. of Villages

(*)

Villages yet to be electrified

No. (%)Karnataka 0 0 0.05 0.05 0.22 0.05 0.01 0.02 0 27481 463 1.68Orissa 1.55 1.68 1.72 1.57 0.09 3.8 0.57 0.08 0 47529 21294 44.80MP 0.77 0.89 0.58 0.17 0.03 0.04 0.18 0.14 0.12 52117 1904 3.65Rajasthan 1.65 1.76 1.72 1.28 1.17 1.24 1.21 0.93 0.51 39753 14368 36.14UP 1.45 0.87 0.73 0.49 0.27 0.37 0.28 0.24 1.55 97942 40965 41.83All-India 0.65 0.54 0.47 0.35 0.21 0.69 0.44 0.46 0.65 593732 154230 25.98

(*) Census 2001 (Source: CEA) (**) Haryana and Andhra Pradesh have achieved 100 per cent village electrification.

Table 5.12: State-wise Rural Households Electrification

State/UTTotal No. of House-holds (*)

Rural Households

TotalNo.*

per cent of Electrified as per 2001

Census

Electrified (CEA data)

Total No.

As onper cent

AP 1,68,49,857 1,26,76,218 59.65 97,38,392 31.03.06 76.82

Assam 49,35,358 42,20,173 16.54 10,94,715 31.03.05 25.94

Gujarat 96,43,989 58,85,961 72.12 39,12,361 31.03.06 66.47

Haryana 35,29,642 24,54,463 78.50 19,93,655 31.12.05 81.23

Karnataka 1,02,32,133 66,75,173 72.16 54,58,021 30.11.05 81.77

MP 1,09,19,653 81,24,795 62.32 24,01,559 31.03.06 29.56

Maharashtra 1,90,63,149 1,09,93,623 65.17 58,16,346 31.03.05 52.91

Orissa 78,70,127 67,82,879 19.35 16,96,200 01.04.04 25.01

Rajasthan 93,42,294 71,56,703 44.02 22,60,895 01.04.04 31.59

Tamil Nadu 1,41,73,626 82,74,790 71.18 59,29,379 31.05.05 71.66

UP 2,57,60,601 2,05,90,074 19.84 40,84,288 (*)

W. Bengal 1,57,15,915 1,11,61,870 20.27 30,68,071 31.10.05 27.49

All-India 19,19,63,935 13,82,71,559 43.52 4,88,51,632 41.64* Census 2001

5.8.4 An analysis of Tables 5.11 and 5.12 shows the following:

(a) Several States, which claim to have achieved significant Rural

Electrification, have the percentage of electrified rural households at a

very low figure.

(b) There is a disparity in the number of households shown as

electrified as per Census, 2001 and those shown by the CEA.

5.8.5 The NEP has made it mandatory to provide access to electricity to all rural

households by 2012. As electrification of remote villages is commercially

unviable, it is suggested that the RGGVY may be extended to private

Distribution Utilities as well. In the absence of attractive incentives, the private

Distribution Utilities are unlikely to expand their network to rural areas.

5.8.6 For instance, the percentage of villages electrified in Orissa (where private

sector participation in distribution segment was in existence since 1998), comes

to only 55.2 per cent against the national average of 73.85 percent. Hence,

extending RGGVY to Orissa is a must in order to ensure a level playing field.

5.8.7 Uttar Pradesh is also far behind the national average, with only 58.2 per cent

villages electrified (the number of villages yet to be electrified will increase

further substantially after the updated data of achievement of village

electrification, according to the new definition is received).

5.8.8 The Power Utilities will have to embark on accelerated programmes and take

special measures to achieve complete rural household electrification by 2012,

as contemplated by the Government of India. Concerted efforts and substantial

inputs will be needed to electrify all villages and to achieve 100 per cent

electrification of all households in accordance with the proposed time schedule

of 2012. The recently announced initiative to encourage franchisee models

would have to be pursued. The restructured Utilities must be required to devote

special attention to the rural electrification programmes in their territories,

since this is a vulnerable area.

5.8.9 As far as the quality of supply to rural areas is concerned, Gujarat and Andhra

Pradesh have taken certain measures to extend 24 hours supply for domestic

and other non-agricultural connections. In Gujarat, separate 11 kV feeders have

been laid at an investment of about Rs 1,000 crore for other than agricultural

connections to facilitate 24 hours supply. Agricultural pumpset feeders are

provided with fixed hours of supply as per the pre-determined schedules. It has

provided a big boost to the growth of rural industry in the State.

5.8.10 In Andhra Pradesh, the rural domestic and other non-power loads are fed

through single phase transformers, which will have single-phase supply

extended for 24 hours. This work has been completed for more than 90 per cent

of the villages so far. All Mandal headquarters are covered by separate three-

phase lines, and are extended 24 hours three-phase supply so as to facilitate the

utilisation of supply for the power loads also, in addition to the domestic and

other non-agricultural categories. REC has provided financial assistance for

these schemes in Andhra Pradesh.

5.8.11 In West Bengal, the ‘Franchisee Model in Distribution Management’,

engaging Self-Help Groups, mostly BPL, devised on the pattern suggested by

REC is reportedly performing well. The objective is to promote decentralised

management of distribution system in remote and rural areas with the

involvement of the local people for arresting pilferage of power and providing

service on call.

5.8.12 The above models of Gujarat, Andhra Pradesh and West Bengal could be

replicated by other States, with advantage.

5.9 State Power Sector Outlays

5.9.1 The State Power Sector Outlays are given in Table 5.13.

Table 5.13: Plan Expenditure in the States

(Rs crore)

State2000-01(Actual)

2001-02(Actual)

2002-03(Actual)

2003-04(Actual)

2004-05(RE)

2005-06(Approved)

AP 3,034.79 2,639.08 2,167.96 2966.31 2,125.86 515.51Assam 82.98 116.23 82.77 40.96 290.48 586.29Gujarat 745.66 942.31 571.39 1108.18 635.45 830.49Haryana 356.46 35.85 202.97 221.6 380 445Karnataka 924.94 766 860.06 1273.75 1623.44 1849.73MP 508.28 284.21 566.11 1145.03 889.42 1322.97Maharashtra 1,170.06 460.47 1,260.49 300.37 382.43 711.63Orissa 360.69 347.34 322.16 429.26 344.25 795.71Rajasthan 1,016.57 1,151.19 1,220.07 2,102.88 1,872.18 1,905.76Tamil Nadu 1,221.92 1,286.48 1,197.78 1,002.61 1,255.53 1,362.36UP 848.13 862.67 1046.31 1037.97 625 710.09West Bengal 1,791.92 917.42 754.92 652.02 1,288.25 2,078.55Total of 12 States

12,062.4 9,809.25 10,252.99 12,280.94 11,712.29 13,114.09

All States/ UTs

15,334.26 13,555.199 14,876.36 15,725.73 16,465.67 18,676.15

(Source: Planning Commission)

5.9.2. Table 5.13 would indicate that the trend of plan expenditure in State power

sector was inadequate during the last six years as compared to the approved

plan outlay. While the total expenditure has marginally increased from Rs

15,334.26 crore to Rs 18,676.15 crore over the five years, it actually decreased

in the second and third years. In order to realise the Plan target and to derive

the benefits of ongoing power sector reforms, it is necessary to increase the

allocation substantially to the State power sector in the Eleventh Plan and

ensure its full utilisation. The allocations in individual States should follow the

pattern of the FRPs established for each restructured Utility.

Table 5.14: Sector-wise Ninth and Tenth Plan Outlays and Year-wise

Expenditure (Rs crore)

State IX Plan 1997-98 1998-99 1999-00 2000-01 2001-02 X Plan 2002-03 2003-04 2004-05

GenerationAP 1985.22 529.66 387.69 274.73 141.10 214.06 1116.01 294.31 66.91 66.91Haryana 780.00 59.12 68.82 96.47 60.24 56.99 687.22 142.00 165.54 165.54Karnataka 1931.75 422.00 521.50 628.00 409.00 515.00 790.77 395.00 614.00 614.00MP 1286.11 315.99 328.08 397.13 58.34 134.71 2203.78 220.66Orissa 1472.88 290.00 217.46 220.65 162.70 48.30 271.61 80.32 25.58 144.50Rajasthan 932.76 350.08 350.90 394.00 461.37 506.77 1420.00 244.25 169.00 169.00UP 1151.70 465.82 622.50 493.25 291.50 172.82 2211.29 54.82 109.84 84.57States &UTs 27310 6077 6206 6293 4747 3994 26403 4086

Transmission and DistributionAP 3496.78 354.75 467.69 399.28 703.00 430.00 2699.16 1018.17 586.57 586.57Haryana 1208.53 148.33 386.60 365.79 381.88 334.72 874.11 107.67 110.03 110.03Karnataka 1044.00 87.00 238.61 246.50 223.19 224.62 796.79 334.75 414.26 414.26MP 1598.50 209.80 198.33 352.80 159.66 178.40 2560.00 545.00Orissa 2038.45 149.08 332.96 659.90 280.00 328.60 1100.22 746.97 506.55 275.68Rajasthan 2556.89 239.83 321.33 321.19 395.60 651.23 4488.72 743.75 911.00 911.00UP 3968.16 715.81 1060.20 967.89 830.82 565.05 4721.38 655.87 587.37 550.43States &UTs 31433 4465 6135 6385 6427 5976 45946 8845

(Source: Planning Commission)

5.9.3 As compared to an allocation of Rs 27,310 crore for generation in the Ninth

Plan, the Plan allocation for transmission & distribution segments was only Rs

31,433 crore. This anomaly was rectified to some extent in the Tenth Plan

when the allocation for transmission & distribution was raised to Rs 45,946

crore against Rs 26,403 crore allocated for generation. It is hoped that State

Utilities would substantially increase their investments in the transmission and

distribution sub-sectors of the value chain in the coming years so that there is

better quality of power supply and aggregate losses are reduced.

5.9.4 One feature to be noted regarding the Ninth Plan performance is the lower level

of actual expenditures, as compared to the allocation, in the case of several

States. In respect of generation, Andhra Pradesh, Haryana, Madhya Pradesh

and Orissa had all achieved lesser expenditure than allocated. On the other

hand, Karnataka, Rajasthan and Uttar Pradesh had turned out substantially

higher expenditure than allocated under the Ninth Plan for generation activities.

5.9.5 The Plan performance of the States in respect of transmission and distribution

during the Ninth Plan is indicative of the inadequate attention paid to these

areas under the pre-restructured regime. For instance, only two States, namely

Haryana and Uttar Pradesh had significantly exceeded the allocations whereas

Karnataka utilised almost the entire allocations in the Plan for transmission and

distribution. On the other hand, there were significant under-utilisation in the

case of most States including Andhra Pradesh, Madhya Pradesh, Orissa and

Rajasthan. It is relevant that during the Tenth Plan, the total State sector

requirement for transmission segment alone is of the order of Rs 28,513 crore

with the total all-India figure projected at Rs 47,342 crore. Out of the total State

Sector outlay of Rs 28,513 crore, restructured Transmission Utilities of Group-

1 State sector have been allotted Rs 15,693 crore. After the restructuring of the

SEBs, Utilities in the States concerned are seen to bestow more attention to

investments in the transmission and distribution sub-sectors, which is a healthy

trend. Details are shown in Tables 5.15 and 5.16.

5.9.6 Investment in Transmission Sector is as follows:

Table 5.15: Funds Requirements for Transmission Schemes for X Plan Period(Rs crore)

Utility2002-03 2003-04 2004-05 2005-06 2006-07 X Plan

Actual Actual Anticipated Proposed Proposed Total

APTRANSCO 452.33 265.97 333.15 315.42 474.38 1841.25

HVPN 199.74 259.96 266.47 301.00 111.55 1138.72

KPTCL 308.33 515.24 474.63 592.66 450.00 2340.86

MPPTCL 137.26 394.84 189.39 442.50 698.46 1862.45

OPTCL 841.73 911.07 971.34 1026.43 1178.03 4928.60

RVPN 276.23 337.64 266.27 353.78 443.07 1676.99

UPPCL 168.32 217.40 297.00 625.00 596.76 1904.48

Total (State Sector) 3804.33 4399.25 4674.60 6532.39 9102.80 28513.36

Total all India 6598.77 6884.15 7956.06 10634.05 14346.58 47342.60

Table 5.16: Investment Required in XI Plan in Transmission System State Sector (Rs crore)

State 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12AP 935.18 716.84 963.87 741.19 504.39 436.12Karnataka 1,342.74 561.85 382.4 505.75 196.38 349.7Haryana 85.42 282.26 663.23 709.03 713.63 1,086.7Rajasthan 390.99 435.47 633.75 847.5UP 99.5 106.16 81.18 189.26 69.96 269.21

5.10 Metering, Billing and Collection efficiencies

5.10.1 The status of the feeder metering and the distribution transformer metering in the restructured Utilities is indicated in Table 5.17.

Table 5.17: 11 kV Feeder and Distribution Transformer Metering

State 11 kV Feeder Distribution Transformer2000-01 2001-02 2004-05 2005-06 2004-05 2005-06

No. % No. % No. % No. % No. % No. %AP 4,907 92 4,907 100 7,401 100 9,239 94 2,62,000 21 3,51,751 11Haryana 2,834 2,557 100 3,888 100 3,888 100 1,33,364 1,33,364 Karnataka 3,022 62 3,518 100 4,570 100 4,570 100 1,44,000 24 1,44,000 24MP 10,779 18 5,498 54 5,660 100 5,660 100 1,60,000 2 1,60,000 2Orissa 1,359 10 1,858 27 1,792 95 1,792 95 22,000 93 22,000 93Rajasthan 5,822 71 7,321 45 8,411 100 8,411 100 1,88,170 1,88,170 UP 8,929 90 8,124 100 8,507 100 8,507 100 3,30,000 2 3,30,000 2All India 63,451 68 67,058 81 77,885 98 79,868 96 24,56,422 13 24,35,798 10

(Source: MoP)

5.10.2 The very fact that the Utilities have achieved almost 100 per cent in the feeder

metering is indicative of their awareness to carry out the energy audit in a

qualitative manner. Distribution transformer metering started by the utilities

helps in not only better evaluation of the losses in the unmetered agricultural

sector, but also helps in identifying the areas of high-line losses for taking

corrective measures.

5.10.3 Consumer metering: 6.5 lakh consumer meters have been installed in Orissa

after the restructuring. Consumer metering is an area in which improvements

have been brought about in almost all the restructured Utilities. For instance, in

Madhya Pradesh, agricultural services metering has been increased from 1 per

cent in 2001-02 to 30 per cent in 2003-04.

5.10.4 In Andhra Pradesh and Karnataka also, there is a substantial increase in

metering. The Distribution Utilities in Andhra Pradesh have installed electronic

meters for industrial and all high value services of other categories. All the new

services released are also provided with electronic meters.

5.10.5 There is an overall improvement in the consumer metering in the recent years,

as indicated in Table 5.18.

Table 5.18: Percentage of Consumer Connections Metered *

(in lakh)

State2000-01 2001-02 2004-05 2005-06No. % No. % No. % No. %

AP 108.57 70 113.20 80 198.60 91 157.46 96Haryana 36.14 73 35.11 93 39.17 92 39.17 92Karnataka 82.93 90 85.00 57 128.89 82 128.89 82MP 87.56 53 63.29 56 64.92 72 64.92 72Orissa 13.57 - 14.50 79 21.49 81 21.49 81Rajasthan 50.74 71 53.05 82 58.45 94 58.45 94UP 71.27 52 78.10 59 88.06 91 88.06 91All-India 1,013.13 75 1,070.70 78 1,315.11 87 1,969.29 92* Other than agriculture

5.10.6 Billing efficiencies of the restructured Utilities of Group-1 States in the last

four years are shown in Table 5.19. State DISCOM 2001-02 2002-03 2003-04 2004-05

Andhra Pradesh

APCPDCL 72.96 77.12 79.12 80.21APEPDCL 85.06 84.98 86.33 86.12APNPDCL 76.71 78.76 79.75 80.80APSPDCL 78.11 78.77 80.66 81.88

HaryanaDHBVNL 66.14 64.97 66.67 67.33UHBVNL 64.34 64.98 67.64 69.47

Karnataka

BESCOM

65.11

75.47 73.56 77.92GESCOM 64.46 61.29 62.96HESCOM 68.39 70.86 72.50MESCOM 76.88 79.13 78.50

Madhya Pradesh 58.06 56.89 56.69 56.52

Orissa

CESCO 51.19 56.99 60.23 58.51NESCO 48.98 58.61 56.35 60.58SOUTHCO 59.53 60.86 57.56 59.52WESCO 53.58 61.70 60.99 63.61

RajasthanAVVNL 65.93 60.10 54.49 52.95JDVVNL 60.39 59.05 57.44 54.35JVVNL 61.49 60.76 60.15 58.46

Uttar Pradesh

DVVN

63.01 67.79

59.18 67.41MVVN 73.07 73.24PaVVN 65.38 73.12PoVVN 71.55 71.80

All-India 68.12 68.37 68.80 69.87(Source: Draft Report of The Task Force on Restructuring of APDRP)

Box 5.3: Grama Vidyuth Pratinidhi

Electricity supply companies in Karnataka have successfully implemented a

scheme of appointing local unemployed youths as Grama Vidyuth Pratinidhies

(GVP) to carry out important commercial functions related to supply of

electricity in Gram Panchayat (GP) areas. GVPs are selected on the basis of

established qualification criteria and are trained by the Utilities. They are given

a fixed monthly honorarium and additional incentive payments linked to

performance. The scheme was developed with the help of Xavier Institute of

Management, Bhubaneswar. GVP’s role and responsibilities include:

Meter reading, bill distribution, collection of revenue and depositing with companies.

Facilitating grievance redressal of LT consumers.

Providing feedback to the management on ground realities on regular basis.

According to BESCOM, collection increased by 20 to 25 per cent in areas

where the scheme was implemented. GVPs scheme not only result in better

revenue recovery, but also promotes better rapport between the Utility and its

consumers. GVPs could also be trained to educate the public about the need

and merits of the sector reform, as also on the need for energy conservation

measures and other relevant issues.

BESCOM started the scheme in August 2003 in two Talukas with 22 GVPs. At

the end of Mach, 2004, it had 778 GVPs in position and planned to extend the

scheme to all GPs in its territory.

5.10.7 While the majority of the DISCOMs have improved their billing efficiencies,

there is a negative trend in the following Companies

GESCOM of Karnataka.

DISCOMs of Madhya Pradesh.

SOUTHCO of Orissa.

DISCOMs of Rajasthan.

5.10.8 Another observation in the billing efficiency is that 14 out of the 24

restructured Distribution Utilities are below the national average at the end of

2004-05. Even in the Utilities, where the billing efficiencies have improved,

some are still below the all-India level. Overall, there is an urgent need for the

Companies to focus their attention to improve the billing. They should aim to

achieve more than 90 per cent efficiency in billing by fixing time-bound

targets.

5.10.9 The collection efficiencies in the seven States of Group-1 are indicated in

Table 5.20.State 2001-02 2002-03 2003-04 2004-05

Andhra Pradesh 97.50 92.39 102.92 96.47Haryana 86.77 89.33 91.88 88.61Karnataka 91.38 83.76 95.44 92.98Madhya Pradesh 88.52 88.92 103.16 83.52Orissa 100.00 108.40 95.79 82.00Rajasthan 73.63 98.29 96.85 96.22Uttar Pradesh 84.24 100.63 84.33 75.46All-India 90.75 92.68 94.80 94.72

(Source: Ministry of Power/PFC Reports)

5.10.10 There is a fluctuating trend in the collection efficiencies of most of the

Utilities. Only Andhra Pradesh and Rajasthan have achieved collection

efficiencies above the national average of 94.72 per cent in 2004-05, whereas

five out of the seven States recorded above the national average in 2003-04.

Uttar Pradesh achieved 100.63 per cent in 2002-03 and then fell back to 84.33

per cent and 75.46 per cent in the subsequent years. The Companies need to

strive hard to achieve the increase in the receivables.

5.11 Overall Performance

5.11.1 The Ministry of Power, Government of India, has got the performance rating

of the power Utilities in various States carried out for the last four years. The

rankings of the Utilities in the twelve States under study now are as shown in

Table 5.21.

Table 5.21: Overall Performance Ratings of Power Utilities under Study

StateOverall Performance Ratings

Aug. 2002 Aug. 2003 Dec. 2004 Dec. 2005AP 1 2 1 1Assam 21 16 17 11Gujarat 7 5 2 2Haryana 3 6 14 19Karnataka 2 4 4 4MP 17 17 19 20Maharashtra 5 13 12 8Orissa 14 19 23 21Rajasthan 4 10 11 12Tamil Nadu 9 12 5 10UP 11 9 9 18West Bengal 13 11 8 5

Note: The data is as per the study conducted by M/s CRISIL and ICRA for the MoP, GoI.

5.11.2 It can be seen from the above, that three of the States (covered in this study),

which have gone for restructuring have been in the first four of the latest

rankings. The other State is Delhi (3rd rank), which has also gone for the

restructuring of the Delhi Vidyut Board. The following conclusions can be

drawn from the overall performance ratings:

(a) While the first four ranks are occupied by the States, which have

restructured their power Utilities, some other Utilities, after restructuring,

are still to improve their performance.

(b) Tamil Nadu and West Bengal (Group-3), which have not yet

restructured their SEBs, are in the first ten in the latest rankings. Of the

two, West Bengal improved its ranking from 13 in 2002 to 5 in 2005,

whereas Tamil Nadu, after improving to 5th rank in 2004, has again

slipped to the 10th position in 2005.

(c) Assam (in Group-2), which has recently gone through the

restructuring process, has shown progress in its performance by moving

from 21st rank to 11th in the last 4 years.

(d) Maharashtra (in Group-2), originally in 5th rank, has slipped in

the next two years (ranks 13th and 12th) but shown improvement and

moved to 8th rank. This State also has gone through the reform process

recently.

(e) Among the restructured entities (of Group-1States), Haryana has

slipped from 3rd position to 19th position, Rajasthan from 4th to 12th

position and Orissa from 16th to 21st position.

5.11.3 The above analysis will show overall improvement in the performance of the

restructured entities. However, the ranking of Haryana, Orissa and Rajasthan,

where there is a need for continued political support, would reveal that it is not

enough to undertake the restructuring of SEBs alone to produce results. This

will have to be supplemented with firm political commitment and dedicated

efforts by the Utilities to improve commercial and managerial practices.

CHAPTER - 6

FINDINGS AND RECOMMENDATIONS

6.1 Political Commitment and Support

6.1.1 The most important lesson emerging from the review is that the progress of the

reforms is dependent on the strong commitment of the Governments at the

political level and their unreserved support. In a democratic set-up, reforms are

not merely bureaucratic exercises. The reforms could be sustained only with

political commitment starting from the top level to right down the line. Unless

the political leadership is duly sensitised, reforms cannot take deep roots and

may become unsustainable in the subsequent phases.

6.1.2 The review of the restructuring process indicates that the political support for

reforms in our country was not spontaneous. For decades, Governments thrived

on populist policies, and, faced with the choice between populist policies and

reforms, the reforms tended to take a back seat. In a democratic set-up,

decision-making obviously lies with the public representatives. Unless they are

genuinely brought on the reform wavelength, very little could be achieved. In

Orissa the political support, though very substantial and was the driving force

during the initial restructuring process. However, such a support was virtually

non-existent once the major shareholding of the Distribution utilities was

disinvested to private companies. The hasty withdrawal of the Government

from the scene adversely affected the progress of the reform process. In

Karnataka, the proactive and the enthusiastic support extended by the

Government in developing the Detailed Policy Statement (DPS) for reform, in

devising an efficient methodology for the reform, and in taking the reform

forward seems to have declined after the restructuring was completed in 2002-

03. The strong commitment and support extended by the then Government of

Karnataka was evident from the taking over of past loan liabilities of the

Electricity Board and the writing-off of the doubtful receivables as also in

taking over the past pension liabilities so that the new companies could start on

a clean slate. However, the political commitment waned after the change of

Government. Similarly, the drivers for the ongoing reform and restructuring

process in Assam have been the strong and genuine political commitment for

introducing efficiency and financial viability of the Utilities. The power policy,

announced in January 2003 by the Government of Assam for the reform and

restructuring of the power sector, established the road map for various

initiatives for restructuring of the ASEB. The Government has taken positive

steps by cleaning up the financial liabilities of the Electricity Board and

ensuring that the Utilities start on a clean slate, and receive financial support

during the transition period.

6.1.3 The experience in Andhra Pradesh, which stands out as an example of firm

commitment of political leadership both during and after the restructuring of

SEBs, was equally refreshing. The Government, under the initiative of

successive Chief Ministers, extended full support for the reform efforts, and

brought out a policy statement, which spelt out the steps that would be taken.

The statement reflected the strong political support for sector reforms, even in

the face of prevailing opposition from employees’ unions. The State

Government had extended full support to the Regulatory Commission and the

Utilities during the restructuring as well as the transition period. However, in

Haryana, the extent of political commitment for the reforms, shown in the

earlier stages was not continued afterwards.

6.1.4 In Gujarat, which has recently undergone the restructuring process, the political

commitment and support extended to the sector reforms by the political set up

was a major contributory factor for the progress of reform. In a comparatively

short span, the Government has signed a Tripartite Agreement with the

employees’ union after enlisting its cooperation and has formed four

DISCOMs. The Government has also approved the FRP, which extends up to

2011 and identifies the extent of Governmental support to be provided as also

the savings to be achieved by the restructured companies during the control

period.

6.1.5 From the above it is clear that reform efforts in the politically sensitive power

sector would succeed only with the strong backing and support of the

political hierarchy. It is also necessary to get the ‘buy-in’ of all political parties

and other vocal groups for the reform efforts through a political consensus and

an appropriate communication strategy. Since it is convenient to let the reform

take a back seat in the face of populist programmes and policies, it would

appear that the necessary magnitude of political commitment and support

for power sector reforms could be won only at the national level. In order to

speed up the objectives of the sector reform, including the restructuring of

SEBs, and in line with the purpose and intent of the EA, 2003, it is necessary

for the Central and State Governments to demonstrate their political

commitment and support for the reform efforts. No doubt, Memoranda of

Agreements (MOAs) are being signed by the State Governments with the

Ministry of Power for implementation of the EA, 2003 and establishment of

roadmaps for power sector reforms. However, all these efforts should be

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consolidated through a national level political commitment. Ministry of

Power should take initiative in securing such a commitment and for this

purpose the following twin-track approach may be adopted.

(a) Convene a conference of Chief Ministers and State Power

Ministers early to review the impact of the reform and to take

forward the reform process in the light of this Report, among other

things.

(b) A special meeting of States which have not yet

restructured their SEBs to persuade them to restructure their SEBs

in compliance with the provisions of the EA, 2003.

6.1.6 Further, in the MOAs to be signed with the State Governments, the

following may be incorporated:

(a) As soon as the restructuring is completed, the State Governments

should appoint suitable and technically competent officers to hold the

post of the CMD in each of the new companies and give them a fixed

tenure of at least three years.

(b) The States should grant full autonomy for the functioning of the new

companies and should enforce the principle of corporate

accountability.

(c) A FRP to be formulated for the controlled transition period, not

exceeding five to six years, to enable the new companies achieve

financial turnaround.

6.1.7 It is also recommended that Ministry of Power may consider not granting

any further extensions of time to States for completing the restructuring

process (since continuing such extensions would go against the spirit of the

EA, 2003).

6.1.8 Accelerated Power Development and Reforms Programme: Further, funds

under APDRP may be made available subject to the conditionality of

restructuring the SEBs and allowing the DISCOMs to function as fully

autonomous corporate bodies.

6.2 Detailed Policy Statements

6.2.1 As part of the political commitment and support, State Governments, which

are yet to undertake the restructuring of SEBs should bring out a DPS

which should clearly spell out the objectives and the level and the nature of

financial and administrative support during the reform process to the

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Utilities after the restructuring. The policy should, inter alia, provide for

the financial turnaround of the Utilities within a defined period.

6.2.2 The experience of Andhra Pradesh, Assam and Karnataka is worth recalling in

this context. The Government of Andhra Pradesh came out with a policy

statement on reforms and restructuring of the power sector, which paved the

way for future activities. Similarly, in Assam, a power sector policy was

announced in January 2003 for undertaking the reforms and restructuring of the

Electricity Board. The policy established the objectives of the reform in clear

terms and also outlined the strategy for the reforms. In Karnataka also, the

State Government brought out a DPS in the year 2001, which was a

comprehensive and definitive document, covering major issues relating to the

reform process, and attempted a SWOT analysis (strength weakness

opportunity and threats) of the sector with proposed steps to bring about a

turnaround including the disinvestment of the shares in the State power

companies.

6.2.3 It is recommended that the State Governments should be encouraged to

bring out DPS detailing the objectives, goals, methodology and process,

covering all important issues related to taking forward the reform,

especially the policies and programmes for human resources development

and communication strategy, based on the political commitment arrived at

to implement the reform measures. The DPS should also include all

important events and milestones to be achieved, together with definite time

frames.

6.3 Communication Strategy

6.3.1 It transpires from the review that a major omission in the methodology for

reform adopted by many States was the absence of a well-conceived and

effective communication strategy. The external consultants appointed by the

Government of Karnataka had advocated an effective communication strategy,

which was not put into effect adequately. In Haryana, there is some lack of

synergy with the public at large with regard to the objectives, traditional

problems of the sector and the interplay of all stakeholders in the reform

process. Here also, communication strategy was part of the power sector

reforms, but it was confined to the commencement of the reforms, and the

communication requirements of the different phases of the reforms did not

materialise. This has resulted in lack of understanding and poor response from

the public to the crucial issues of theft, and inefficiencies in the public hearings

held by the Regulatory Commission.

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6.3.2 Andhra Pradesh Government carried out a successful publicity campaign by

bringing home to the public at large the raison d ệtre of the sector reform and

the problems faced by the SEB on various fronts such as unsustainable T&D

losses, financial crisis, etc. The Government also gave presentations on the

reform agenda to all major stakeholders, including legislators, media

representatives, employees’ associations/unions, and consumer groups

including industry associations. A short feature film and ‘jingles’ were telecast

on the television (TV) channels to sensitise the people on the need and merits

of the proposed reform. A similar pattern was followed in Orissa as well.

6.3.3 In Rajasthan also, more than a year prior to the restructuring, the Chairman,

SEB had started extensive dialogue with the officers and workers to prepare

them for restructuring. Elaborate interactive sessions were organised in every

district. As a result, the restructuring process, when implemented, did not

generate any labour unrest.

6.3.4 A major reason for the less than envisaged success of the reform efforts in

several States, whether it be the lack of morale and involvement of the staff in

the affairs of the restructured company, or the lack of political commitment and

support or the refusal of the agricultural lobby to allow installation of meters on

the irrigation pumpsets, could be attributed to the apparent failure of the

communication strategy.

6.3.5 Power sector reforms and the planned restructuring of SEBs stand a good

chance of success if the Governments secure the requisite “buy-in” of the

stakeholders such as employees, consumers, NGOs, press and media,

politicians, etc. Communication strategy should establish the relevance and the

benefits of the reforms from the point of view of the consumers and the

inevitability of reforms for the development of the State as a whole.

6.3.6 A phased communication strategy based on the needs and aspirations of

stakeholders can help in creating the optimum level of public awareness and

the benefits that would accrue to them through the sector reforms. An effective

communication strategy would also help in persuading the stakeholders to

extend their cooperation for the reforms process. Most of the consumers

basically require reliable and affordable quality power and would opt for it

even if it costs a little more.

6.3.7 Consumers constitute the key audience of an organisation. As an integral part

of the marketing strategy relations, consumer relations reinforce the message

aimed at target audience and involve innovative presentation of consistent

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message in editorial and broadcast form. Consumer relations also entail

comparatively low cost marketing practices like direct mailing, advertising or

sales promotion.

6.3.8 The contact programme with consumers and community-based organisations

including residents welfare associations, women’s groups, and students

should be worked out. Agricultural extension workers could carry messages

about energy conservation to farmers in furthering the cause of power

reforms.

6.3.9 Since employees are an important internal audience, successful interaction

between organisations and the employees is an essential element of corporate

communications. Company employees reflect the company’s image outside the

organisation and, at the same time, serve as representatives of the corporate

culture.

6.3.10 An internal communication strategy involving face-to-face meetings of the

employees with the CEOs, publication of newsletters, designing of a

corporate identity programme, employees’ suggestions schemes, etc., must be

drawn up as part of the strategy.

6.3.11 In general, the communication strategy should have the following

components, among others:

(a) The need, advantages and essentiality of the power sector reform and its

rationale;

(b) Likely benefits such as quality power supply, consumer care and

grievance redressal that would be available to the consumers at large;

(c) Positive impact on public finance due to reduction of subsidy burden on

the Government, and the resultant availability of additional resources

for social development programmes;

(d) Impact on industrial and economic development of the State;

(e) Measures proposed to safeguard the service interests of employees,

including past and future terminal benefits; and

(f) Involvement of the civil society to launch a campaign against theft and

misuse of electricity. Mobilising eminent citizens to endorse through

media the need to put a restraint on prevalent wrong practices in the

power sector and promote voluntarism in helping the law enforcement

agencies.

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6.3.12 In order to take forward the reform to success, therefore, it is imperative

to put in place a competent, practical and target-oriented communication

strategy, to be developed with the help of media experts. Encouraging

consumer advocacy groups and sharing of information would create better

participative space and lead to better understanding of the reform,

including the regulatory process, by the civil society at large.

6.3.13 Role of the Media

(a) The media, particularly the electronic media, needs to be

effectively involved in the sector reform by highlighting success stories.

Similarly, the objectives, the process, merits and gains, and measures

taken to safeguard the interests of stakeholders should be highlighted for

sensitising the public and all other stakeholders. The ills of electricity

theft and its impact on the society and on the health of Utilities are other

areas where the publicity campaigns should focus on. Electronic media

will be a powerful source to be tapped for an effective communication

strategy. Gram Panchayats and other local bodies too need to be involved

in the communication strategies.

(b) Systematic and regular interactions with both the print and

electronic media through press releases, media visits, press conferences

and one-to-one meetings with the CEOs will go a long way in spreading

the message of the reform. Establishing a long-standing partnership with

the media, both print and electronic, through regular media partnership

workshops will help disseminate relevant information to the stakeholders

and facilitate a favourable public opinion. These workshops help in

presenting the right perspective to the media and shall persuade them to

cover positive stories also, instead of highlighting only the negative

aspects. It has also been observed that the detractors of the power sector

reforms are generally more successful than the advocates of reforms in

getting media attention. Hence, a suitable strategy needs to be devised to

address this problem in the interest of the sector. Since the media is a

powerful tool for sensitising the public, besides being an opinion builder,

it is imperative that its total cooperation is enlisted for obtaining public

acceptance of the reform initiatives.

(c) Ministry of Power would do well to coordinate the

campaign to be carried out jointly with the State Governments and

Distribution Companies and target all stakeholders, both in the urban

and in the rural areas.

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6.4 Consultancy Support

6.4.1 It has been noticed during the review of the restructuring of the Electricity

Boards in Andhra Pradesh and Assam that the State Governments and the SEBs

received excellent support from competent national and international

consultants to carry out restructuring. The restructuring was preceded by

comprehensive analysis and modeling by the consultants, whose terms of

reference included organisational, technical and personnel issues. The

consultants were also enlisted to assist in the process of the transfers and re-

distribution of the staff to the new companies. The consultancy support was

generally funded by multilateral agencies.

6.4.2 The experience of restructuring in Andhra Pradesh and Assam highlights the

vital role played by well-known management and financial consultants in

designing the structure, and in helping in the formulation of financial

development/restructuring plans (FDP/FRP) for starting the work by

restructured Utilities on commercial lines. The support in the implementation

of the reform process gives confidence to the managers and to the staff who

have to work in a totally different milieu.

6.4.3 In Andhra Pradesh, a comprehensive analysis of all issues emerging from the

DPS was carried out by the specially created Reform Cell with the active

support of the Government. Consultancy support from experienced national

and international consultants was enlisted to chalk out the planning and

implementation of the various steps in the reform process. The ‘technical

assistance’ support provided by multilateral and bilateral agencies was also of

great help.

6.4.4 More or less similar procedures were followed in Gujarat, Haryana and

Karnataka as well, and the results were encouraging. In Karnataka, the

Government had the support of excellent international and national consulting

firms to advice on financial issues, institutional strengthening, power market

development, environmental assessment and social impact assessment,

including the communication strategy to be followed.

6.4.5 Good consultancy support in the initial and transition phases of the

restructuring process is an essential requirement for its success. The States now

engaged in the restructuring exercise should take recourse to such

consultancy support.

6.4.6 The major findings and recommendations of consultants of Group-1 States,

would be useful as guidance material for the senior officials of the State

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Governments and Utilities of both Group-2 and Group-3 States. Accordingly,

these may be made available through a designated agency for use of such

officials, subject to the confidentiality clauses and agreements stipulated by

the authors of such Reports.

6.4.7 Since States may find it difficult to mobilise the required finance for

availing such assistance, it is only appropriate that the Ministry of Power

must help to find resources for the same.

6.5 Human Resources Development Issues

6.5.1 Another key to the success of reform is the formulation and implementation of

a forward looking and pragmatic HRD Policy. The restructuring of the

Electricity Boards into different entities, based on functional jurisdiction,

would indeed have its impact on the thousands of employees who were mostly

working as a composite group in each Electricity Board. No organisation can

function successfully unless it is able to ensure the highest level of morale and

motivation of its entire staff working at different levels. Neither the State

Governments nor the restructured companies appear to have paid adequate

attention to this vital area.

6.5.2 The dimension of the problem would, of course, be State specific. In

Maharashtra, for instance, the technical staff was borne on separate generation,

transmission and distribution cadres even before restructuring of MSEB. In

Andhra Pradesh, the transfer of the staff initially to APTRANSCO and

subsequently to the DISCOMs was accomplished in line with the agreements

(tripartite) with the staff representatives, which was systematic and cordial. In

Karnataka also, the transfer scheme evolved by the State Government provided

for the integration of the staff with the restructured Utilities based on their

preferences and options. Among other reasons, this could not be implemented

due to staff resistance and judicial intervention even though the Government,

the Utilities and the staff unions had entered into a Tripartite Agreement under

which the staff had accepted the transfer scheme. As a result, the entire staff

continues to be borne on the roll of the Transmission Company, which was the

successor to the Electricity Board. Because of this development, the

managements of the restructured companies either do not have control or have

limited control over the staff working with them. This is an unsatisfactory

situation. Given the circumstances, the personnel working in the restructured

companies are unlikely to develop the required attitudinal changes, company

loyalty and professionalism.

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6.5.3 The situation in Rajasthan seems to be different. The industrial relations in the

pre-restructured regime was reportedly exemplary with the management taking

the initiative for evolving a collective decision-making process. Political

interventions in the personnel administration of the Board were limited.

However, the situation seems to have deteriorated to some extent after

restructuring of the Board. Flexibility is not available to the management to re-

deploy the surplus staff from one company to the other, depending on actual

needs. It appears that the administrative control of the top management over the

subordinate staff has also been adversely affected, with the consequential

impact on the performance of the respective Utilities. An innovative and result-

oriented HRD policy is, therefore, imperative.

6.5.4 The State Governments/SEBs in both Assam and Gujarat have taken special

care to ensure that an appropriate environment is created for the smooth

transfer of the staff from the Electricity Board to the restructured companies. A

Tripartite Agreement among the State Government, Electricity Board and the

staff associations and unions was concluded which reassured the staff that there

would be no retrenchment as a sequel to the restructuring and that their service

interests would be fully protected. The Governments in both the States had

engaged well-known, competent consultants to advise on HR issues. On the

whole, the efforts of these State Governments/SEBs in this regard seem to be

progressing well.

6.5.5 The important conclusion arising from the above discussion is that the

restructuring process and methodology should devote adequate attention to the

various sensitive issues likely to arise in the course of reorganisation of the

cadres and should provide for elaborate manpower planning. There is a need to

take the staff representatives into confidence and educate them on the

imperatives and merits of restructuring the Electricity Board and the

opportunities, which would be thrown open for their career advancement.

Apart from entering into well-structured tripartite agreements with the

staff representatives, the restructuring scheme should also provide

adequate incentives to encourage the staff to get integrated with the

restructured companies. Competent consultancy support from HRD

specialists should be provided to the managements of the restructured

companies to put in place appropriate personnel policies, which would

enhance productivity.

6.5.6 In developing the HRD Policy, representatives of staff associations/unions

should be taken into confidence. The objective of the policy should be to

enhance the morale and motivation of the employees at all levels by

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inculcating professionalism and by securing the loyalty of the staff through

training and confidence building measures. The policy should safeguard

the past and future terminal benefits and also the career progression of the

staff of the restructured companies.

6.5.7 Right-sizing of the Staff and Strengthening the Managerial Cadres

In most of the restructured companies, there is a shortage of professionals at

middle and top management levels in the areas of technical, financial,

commercial and human resources. At the same time, there is surplus staff in

certain categories, mainly attributable to the liberal norms that prevailed in the

erstwhile SEBs. The poorly managed Utilities should adopt the norms as

followed in better-managed companies in the power sector. Simultaneously,

middle and top management levels should be strengthened by induction of

professionals. This right-sizing exercise should be undertaken without

hardship to any employee.

6.6 Financial Restructuring Plans (FRPs)

6.6.1 The study brings out that some restructured entities are still financially

unviable and continue to survive on subsidies provided by the Government. It

is, therefore, essential that during the transition period, the State Governments

extend the requisite financial and administrative support to address areas like

universal metering, delays in setting up special courts to try electricity theft

cases, etc. The restructured companies should supplement these efforts by

adopting optimal management policies and developing appropriate

management cadres, work culture and supervisory controls.

6.6.2 The problems and shortcomings arising from the above developments need to

be tackled at the macro level. The State Governments should establish

medium term plans (if they are not already in place) to target a gradual

reduction and eventual elimination of the subsidy (except for life-line

support for clearly defined categories like BPL families etc.) over a defined

period, and spell out clearly in their respective Medium Term Expenditure

Frameworks (MTEFs) the maximum subsidies that would be made

available to each restructured company, on a reducing scale, during the

defined period. The objective should be to target subsidy only to the deserving

categories as per the definition of ‘poverty line’ as laid down by the

Government of India and also to reduce the subsidy to the barest minimum

required for agricultural sector by overt measures. The FRPs may be finalised

as far as possible, in consultation with the respective Regulatory Commissions.

FRPs should clearly identify the components of financial assistance to be

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provided by the Government at the time of restructuring as also during

the transition period for stabilising the restructured companies. Further,

FRPs should be given wide publicity and should be subjected to regular

monitoring and review at the highest level every year.

6.6.3 The State Governments should be requested to include the FRPs in their

performance budgets and also highlight the progress in the Annual Plan

documents. Also, the Planning Commission should review the

implementation status of FRPs during the Annual Plan discussion of the

respective States.

6.7 Managing the Reforms Process

6.7.1 Managing change, or change management, is an intricate process involving

several functions and disciplines. Change management calls for expertise,

sympathetic treatment, and adept handling of all human resources related

problems. The success of the reform no doubt depends on the support and

guidance from the highest echelons of the administration and the political

leadership.

6.7.2 In Andhra Pradesh, Assam, Haryana and Karnataka the State Governments

had adopted a well-conceived and meticulous process of oversight for

restructuring of SEBs. For example Andhra Pradesh took the following

initiatives, which helped the process substantially:

(a) Creation of a separate cell headed by a Chief Engineer of APSEB for

directing the reforms process;

(b) Formation of working groups in the Reforms Cell by pooling resources

from serving and retired officers of the Board;

(c) Oversight by a Steering Committee under the Chief Secretary.

In Karnataka, the Government established a ministerial group to oversee

the reforms process and constituted a Steering Committee under the Chief

Secretary to monitor the reforms and to take prompt decisions. Similarly

in Assam, the formation of a Steering Committee under the Chief

Secretary to oversee the sector reform is showing results.

6.7.3 The model adopted by the Government of Andhra Pradesh for managing

the reform may be followed after customisation, by other States. (Model

No. II, as mentioned at Para 4.6.4, Chapter-4).

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6.7.4 It is recommended that each State should establish/reactivate a high-level

Empowered Committee under the Chief Secretary of the State to guide

and direct the reform process. The Committee should not only meet

regularly and monitor the progress but also should bring out periodical

‘comprehensive progress reports’ on the achievements and shortfalls and

take remedial actions in line with the agreed path. These reports should

also be available in the public domain.

6.8 Role of the Electricity Regulatory Commissions

6.8.1 One of the most significant innovations introduced, as part of the power sector

reform, has been the establishment of the regulatory mechanism in the power

sector. Notwithstanding the teething troubles and occasional inroads into their

authority, setting up of the Electricity Regulatory Commissions has made tariff

determination more rational and brought issues of efficiencies into the public

domain in a transparent manner. Due to the strict energy audit measures put in

place by the Regulators, a greater degree of transparency, accountability and

discipline is now prevailing in the electricity sector. Earlier, there was a

tendency to hide T&D losses under the garb of supplies to the agricultural

sector etc. Today, a more focussed and realistic picture is being presented.

Establishment of the regulatory mechanism has also insulated the power sector

from the populist tilts of the changing Governments to some extent.

6.8.2 A great deal, however, depends on the regulatory policy and approach to

promote reforms in the sector. Regulatory process in the power sector has

helped in safeguarding consumer interests and is engaged in achieving the

desired objectives of competition and enhanced viability of the distribution

Utilities. Regulatory process has led to promoting consultations with the

stakeholders and formulation of important regulations relating to consumer

satisfaction and Utilities’ performance. The development of the regulatory

institutions and the regulatory practices has brought up a few important issues

that will impact the sector growth and provide competition and choice to

consumers of electricity. These issues would require review of regulatory

policy and regulatory approach to reflect the needs of the regulated utilities and

their customers and the changes taking place in business and technological

environment. This Report has tried to flag them and make suggestions as far as

possible, for appropriate action, namely:

(a) The process of tariff determination is fairly well established but the filing

of ARR and tariff revision not only become time consuming and tends to

get delayed for reasons attributable to Utilities and sometimes consumer

groups. This impacts the efficiency of the regulatory process. It was

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observed in the case of some States that the ARRs and tariff applications

were either withheld or delayed indefinitely by the Utilities concerned,

which defeated the objectives of annual filings before the Regulatory

Commissions. In some other States, tariff applications have not been filed

before the Commissions, which impacts the financial viability of the

restructured companies, and also goes against the spirit of the Act. Such

actions limit the jurisdiction of the Commissions to rationalise the tariff.

To overcome these problems, fixing multi-year tariffs and efficiency goals

for the Utilities might be effective. MYT frameworks have been

developed and are under implementation in some States. This is a good

development and it is felt that MYT approach consistent with the EA,

2003 and NTP, should be adopted by all the ERCs within the next two

years, wherever this has not been adopted so far.

(b) The measures taken so far are not adequate for achieving the desired

objectives. This is further compounded by Utilities not complying with

the regulatory directives issued to them. This has in a few cases assumed

serious dimensions even affecting the credibility of the regulatory process.

Regulatory determinations and orders/directions are issued after due

deliberations and benefit all stakeholders equitably. They should,

therefore, be given the due sanctity. A convention should be developed by

the States, who are the owners of majority of the Utilities in the country,

that orders and directions issued by the Electricity Regulatory

Commissions are invariably honoured, like those of the High Courts.

Wherever there is a difference of views or difficulties in implementation,

consultations with the Regulator should be held to iron them out the

differences. Further, Utilities should be discouraged from adopting

dilatory tactics to delay or avoid implementing the orders and directives

issued by the Regulators. More importantly, there is a need to make

the provisions for penalty for non-compliance (or delayed

compliance) more stringent.

(c) In the course of the study, it was observed that in some important areas,

such as phasing out of subsides/cross-subsides, elimination of electricity

thefts, etc., the Regulators have displayed different perceptions and have

adopted varying approaches. Similarly, in respect of the stated objective

of introducing Open Access under the EA, 2003, the Regulators have not

been able to find a common ground for achieving this goal. The benefits

of non-competitive external environment accrue to the Utility, which has a

vested interest to prevent competition or give customers a choice of a

supplier. In order to overcome this, it would be appropriate for the

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Government of India to issue fresh guidelines in this regard. It is

recommended that new guidelines should be issued by the

Government giving broad principles for fixation of surcharge

applicable to ‘Open Access’. Because of the range of differences and

the depth of the problems in each State, a uniform rate for all the

states is not practicable. It is therefore sufficient if basic principles

alone are prescribed by the Government of India.

(d) In some States, in the absence of availability of alternative model, the

Regulators have taken recourse to the ‘cost to serve’ model as the basis

for tariffs for agricultural pumpset consumers. But uncertainty about the

regulatory issues relating to reasonable tariffs for this category of

consumers persists. If any subsidies are to be given to low income or poor

category consumers, it should be so ensured that the benefits go directly

to only such consumers. Therefore, creating political consensus on the

principles for determining prices and subsidies for the agricultural

consumer category is necessary which should be in line with the objective

of ensuring fairness in regulatory determination.

(e) However, in addition to acting as quasi judicial bodies, the Commissions

will have to play a more proactive role in implementing the provisions

relating to Open Access, Multi-Year Tariffs and standards of

performance (SOP), as envisaged in the EA, 2003, the National

Electricity Policy and the National Tariff Policy.

(f) In Orissa, there was no retail tariff revision during the last five years. Only

recently, Bulk Supply Tariff (BST) has been revised upwards by 15 per

cent; but no increase has been allowed by the Commission in respect of

the retail tariff on the ground that the DISCOMs should collect old arrears

to the tune of Rs 2,000 crore and also reduce losses. In Karnataka, the

Government reportedly instructed the Transmission Company to hold up

the implementation of the tariff directives of the Commission without

informing the Commission. This is in violation of the law. Further, the

Transmission Company even objected to the need for its officials to

appear before the Commission as often as they had done, and accused the

Commission of micro-managing its affairs.

(g) Regulations should have regard not only for the stakeholders but also to

the wider social objectives. It is felt that the Regulators should not only

formally consult among themselves more often in relation to the

regulatory decisions and their impact and implications on the Utilities

but also to bring in a more harmonious approach to common issues

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such as competition, Open Access, etc., in the larger interest of the

sector growth. For this purpose, the Forum of Regulators (FOR) and

the informal institution of Forum of Indian Regulators (FOIR) should

become effective consultative platforms for bringing better

understanding through sharing of information and experience. It is

also recommended that these two bodies should find new ways of

interacting with the user groups and representatives of the Utilities.

6.8.3 It is well recognised that the regulatory mechanism is making significant

improvements in the working of the power sector. To further strengthen this

mechanism and to ensure autonomy and independence of the Commissions,

the following issues need to be addressed urgently:

(a) Providing Publicity for the Decisions of the Commissions and

Tribunals:

(i) The Regulatory Commissions are issuing several directives, intended

to: Achieve the objectives of the EA, 2003, National Electricity Policy

and National Tariff Policy; and Promote the interests of the consumers at large.

However, these are not getting adequate publicity. Wider

dissemination of the orders and directives of the Commissions would

bring additional pressure on the State Governments and Utilities to

implement these and also help in increasing consumer awareness. The

Regulators need to interact, as frequently as possible, with civil society

groups and the media on important issues relating to power Utilities

and consumers’ interest in order to create adequate public awareness

and support.

It is felt that timely interaction on vital issues with the media and civil

society organisations could mobilise public support, and sensitise the

public on the crucial issues, which would facilitate the acceptance and

implementation of regulatory judgements.

(ii) MoP/CERC/SERCs/Appellate Tribunal may devise a suitable

mechanism to ensure the publication of important orders and

directives of the Central and various SERCs on the pattern of the

publications of the higher judiciary, and to give adequate publicity to

them through DAVP or other agencies, as required.

(b) Staffing Requirements of the Commissions: At present, in many States,

the staff of the Commissions is mostly drawn on deputation from the

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power Utilities and other organisations. Capacity building within the

Regulatory Commissions is essential for creating a better-informed and

effective regulatory process for the Sector. Accordingly, Regulatory

Bodies should be vested with the authority to appoint the required

specialised staff or experts on regular basis. This would obviate the

problems arising from the repatriation of deputationists to their parent

departments. Therefore, the Commissions should have full autonomy

in matters relating to staffing pattern, organisational structure and

adequate powers to recruit staff, as required. An overall ceiling on

expenditure could, however, be fixed.

(c) Funds for the Commissions: Section 103 of the EA, 2003 envisages the

constitution of ‘State Electricity Regulatory Commission Fund’. In order

to ensure independence and autonomy of the Commissions, they should

be allowed to have their own funds for meeting their expenditure. For this

purpose, the above Fund needs to be operationalised, if not already done.

In view of the inordinate delay in making the Fund operational, it

may be desirable to fix appropriate time limit for the same.

(d) Powers of Civil Courts for the Commissions: While the Regulatory

Commissions have been given the same powers as those vested in the

civil courts in proceedings before them, and also in respect of matters

specified under section 94 of the EA, 2003, their orders do not have the

same force as those of the Appellate Tribunal. Under Section 120(3) of

the EA, 2003, an order of the Appellate Tribunal shall be executable as a

decree of a Civil Court; but analogous powers have not been conferred

upon the Commissions. Measures should be taken to confer analogous

powers to the Commissions, as have been provided to the Appellate

Tribunal, under Sections 120(3) and (4) of the Act to enable the

Commissions to enforce their Orders regarding imposition of fines, award

of compensation, etc., without having to approach a Civil Court.

(e) Capital/Revenue Subsidy: In case the State Government requires any

reduction in tariff for supply of electricity to any consumer category, as

determined by the State Regulatory Commission under Section 62, the

State Government has to provide subsidy under Section 65. However, in

respect of any such reduction effected in the charges specified under

Sections 46, 47 or 50 through policy directives under Section 108, the

State Government does not appear to be under any obligation to

compensate the Utility/Utilities through subsidy. This does not appear to

be the intention of the Act nor is it justifiable, since both have similar

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financial implications for the licensee/Utility. Appropriate steps may,

therefore, be initiated to rectify this anomaly.

(f) Policy Directions (Section 108(2)): If a question arises as to whether any

direction of the Government relates to a matter of policy involving public

interest, the decision of the CERC, to whom a reference could be made

either by the SERC or by the State Government or an aggrieved party,

should be final.

(g) Strengthening the Selection Committee for State Commissions

(i) Independence and autonomy of the Regulatory Commissions are

very crucial for the credibility of the regulatory process and the

balanced growth of the power sector. Some States do not seem to have

accorded the due importance to the Regulatory Commissions. In some

instances, even the tariff petitions have not been filed by the Utilities

before the Commissions for two to three years at a stretch.

(ii) Under Section 85(1) (c) of the EA, 2003, the Chairperson of either the

CEA or the CERC is one of the members of the Selection Committee

for appointing Regulators to SERC. It is felt that both of them should

be members of the Selection Committee so as to strengthen the

Selection Committee and to ensure greater independence to the

selection process. It is desirable that the role of the state bureaucracy

may be limited to assist the Selection Committee in processing of

applications.

(h) Term of Appointment for Chairperson/Members of the Appellate

Tribunal: Section 89(1) specifies a five-year term for

Chairperson/Members of the Regulatory Commissions with no provision

for a second term. The condition regarding in-eligibility for second term

was obviously laid down to ensure the total independence of the

Regulators. On the other hand, Section 114 stipulates a term of three years

for the Chairperson and the Members of the Appellate Tribunal, with a

provision for a second term of three years. The logic that provision for the

second term may dilute the independence of the Regulators, applies with

equal force in respect of such appointments to the Appellate Tribunal also.

It is, therefore, recommended that the Chairperson and the Members of

the Tribunal should also be appointed for terms of five years each, with no

provision for a second term.

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(i) Recourse to the Ombudsman

(i) There should be only one channel to be crossed before the

consumer can approach the Ombudsman. In order to check

deliberate delays at the level of DISCOMs, it should be clearly laid

down that if an impugned matter is not resolved within 30 days from

the date of submission of the grievance, the Ombudsman could

directly take cognizance of such matters. In emergent cases,

particularly where the disputed amount is substantially high (may be

Rs one lakh and above), the consumer should have the right to seek

interim stay orders from the Ombudsman directly.

(ii) Section 42(5) of the EA, 2003 provides for the establishment of

consumer grievance redressal forum to redress public grievances in

respect of distribution of electricity. Under Section 42(6), the Office of

Ombudsman has been created as per regulations of the SERC; and its

appointment and functions are governed as per the regulations issued

by the SERCs.

At present, the following procedure is in place for redressal of consumers’

grievances:

Step-I: The aggrieved can approach the Consumer Grievance Redressal Forum.

Step-II: If the consumers are not satisfied with the action taken by the

Grievance Redressal Forum, they could approach the Ombudsman.

Step-III: In cases of consumers still remaining unsatisfied with the decision of

the Ombudsman, the following scenarios have emerged:

(a) In some States, the Regulatory Commissions have issued

Regulations permitting the filing of appeals before them against the

orders of the Ombudsman13.

(b) In some other States, the Regulatory Commissions have reserved

such appeals to the High Courts.

The anomaly in this regard needs to be rectified by providing for a uniform

procedure for filing appeals against the orders of Ombudsman before the State

Electricity Regulatory Commissions.

6.9 Establishing a Power Sector Reform Fund

6.9.1 The Expert Committee on State-Specific Reforms (2002) had recommended

the establishment of a Power Sector Reform Fund (PSRF) with an appropriate

13 Wherever the Commissions had reserved the powers to themselves, such regulations have been quashed by the Appellate Tribunal.

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corpus. The objectives of the Fund were to “support the reforms process, to

consolidate past liabilities and to finance them through agreements for write-

downs and future sector surpluses”. The Committee proposed “in order to

enhance the creditability and mitigate the risk of policy reversals, it is

necessary to ring-fence both the liabilities and the inflows earmarked for the

sector restructuring. In order to do this, the State Government should establish

a Power Sector Reform Fund (PSRF)”. Recently, the Orissa Electricity

Regulatory Commission (OERC) has recommended the setting up of such a

fund. The above recommendations are endorsed and it is urged that all

States should establish adequate PSRF.

6.9.2 The PSRF should also be used to meet specified expenses such as providing

consultancy support to the new companies for institutional strengthening,

capacity building and exceptional assistance to meet situations arising out of

natural calamities etc.

6.9.3 The corpus of the Fund should be built up by appropriating substantial part of

the collections of the Electricity Duty (where applicable) and other allocations.

Moreover, a part of the corpus, say up to 50 per cent, on an equal

contribution basis should be given from the Central Government resources.

6.9.4 The regulations and guidelines to administer the PSRF should be

formulated in consultation with the respective SERCs.

6.10 Access to Central Institutional Funds by Privatised Utilities

6.10.1 Orissa and Delhi are two States where the restructured Distribution Utilities

have disinvested their major equity to private companies. The super cyclone of

1999 caused severe damage to the distribution infrastructure in the coastal

areas of Orissa; but no relief was granted from the Calamities Relief Fund

(CRF) to reconstruct the systems. In the recent past, DISCOMs in Orissa have

neglected the task of rural electrification, causing a great deal of dissatisfaction

among the affected population. Unless funds are made available from the

Central sources to overcome the current shortcomings, there is no possibility of

improvement.

6.10.2 The philosophy of restructuring of the power sector was to provide a level-

playing field to all, whether the Utilities are in the State sector or in the private

sector. In order to accelerate the reforms process, Central Financial

Institutions like PFC and REC should be requested to extend their

assistance also to the Distribution utilities, whose major equity has been

disinvested to private companies, by relaxing the funding norms. For

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instance, such assistance should be provided without insisting on State

Government’s guarantee; but on requirement of mortgaging the assets to

be created with such financial assistance.

6.10.3 Moreover, similar assistance from Central funds earmarked under

APDRP, RGGVY, etc., should also be made available to the Utilities,

whose major shareholding is held by private sector companies. This is

being recommended because such an assistance would directly benefit the

consumers and would be in the nature of a subvention to the Utilities and

do not attract any returns; eventually this subvention goes to the

consumers by way of lower tariff.

6.11 Reconstitution of the Board of Directors

6.11.1 Currently, most of the restructured companies have the board of directors

drawn exclusively or predominantly from serving Government officials, along

with a few functional/executive directors drawn from the companies

themselves to represent technical and financial disciplines. Majority of

directors on the boards are Government nominees from different departments.

6.11.2 In order to professionalise the board of directors, it is recommended that at

least 50 per cent of the directors should be independent directors, drawn

from a panel of experts with experience in the disciplines of management,

human resources development, power technology, finance, commerce, etc.

It should also be ensured that adequate number of functional directors

representing major disciplines of technical, finance and human resources

management are inducted into the boards of all Utilities. Further, no

political personnel or political decision makers including the Ministers of

the State should hold any position on the boards of the restructured

companies.

6.12 Memoranda of Agreements

6.12.1 The practice of signing MoUs/MoAs between public sector undertakings and

nodal ministries have helped to foster accountability and autonomy of the

former at the national level. It is also recommended that the instrument of

MOA with firm, specified annual performance targets for achievements,

as existing in the case of Central Public Sector Undertakings (CPSUs),

should be institutionalised between the restructured companies and the

Departments of Power/Energy of the respective State Governments. The

MOA should also include the commitments and obligations of the State

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Governments vis-à-vis the Utilities to facilitate the fulfilment of the targeted

level of performance.

6.12.2 The MOAs will also help to improve the autonomy of the companies since

they preclude the micro-management of the companies by the Government

Departments, and envisage only periodical reviews of performance under the

agreements, at pre-determined intervals.

6.13 Better Management Practices

6.13.1 It was expected that the creation of separate Distribution Companies would

result in better management of the ‘distribution end’ of the value chain of the

power sector. The State Government’s role was to provide broad policy

framework and to allow Regulatory Commissions to bring about efficiencies

through annual approvals of the revenue requirements and expenditures of the

Utilities. However, in actual practice, the involvement of the State

Governments in the day-to-day activities of the Utilities is continuing, which is

affecting the authority of the Commissions to effectively monitor the

performance of the Utilities.

6.13.2 The State Governments’ role should primarily be facilitating and handholding,

which should not result in limiting the autonomy and functioning of the

Utilities as corporate entities. In order to ensure that the Utilities become

adequately prepared to function in a competitive and regulated environment in

the sector, all possible steps should be taken by the Government to grant

maximum managerial and financial autonomy to them and to make them fully

accountable to achieve targets and goals relating to benchmarked efficiencies in

performance.

6.13.3 Frequent changes of CMDs/MDs of the restructured companies have created

uncertainty and confusion, which has led to the decline in the performance of

these companies. Since the power sector is a highly specialised area, officers

posted to senior positions in the Utilities should have reasonably long tenures

so that they could closely grasp the myriad problems and intricacies of the

power sector. But with frequent changes, the top managers remain and function

as generalists since acquisition of specialisation is possible only through

training, work experience and long tenures.

6.13.4 In Karnataka, the managing director of the Transmission Company (KPTCL)

acts as the chairman of all DISCOMs. The Chief Minister has traditionally held

the post of the chairman of the Generation Company (KPCL). The

Transmission Company has since discontinued power trading activities as

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required under the law, a common power purchase committee takes decisions

in that regard on behalf of all DISCOMs. The managements of DISCOMs are

unable to implement the universal metering programme due to political

interventions. More or less similar situations exist in several other States like

Haryana, Rajasthan, Assam, etc. The Chairman of the Karnataka Electricity

Regulatory Commission (KERC) has openly stated that the restructuring was a

failure because the DISCOMs do not have the required financial and

functional autonomy to take decisions. It is to be mentioned here that the

practice is contrary in letter and spirit to the DPS in which the Government had

assured that the restructured companies would have freedom and autonomy to

function on commercial lines; but it is yet to be implemented.

6.13.5 Similarly, in Haryana, all purchases of a value of above Rs 50 lakhs are to be

referred to a Purchase Committee consisting of a group of ministers, which also

deals with procurements for other Government departments and agencies. The

Utilities have no autonomy in commercial management, which militates against

their autonomy.

6.13.6 The newly-formed companies after the restructuring of the Electricity Boards

should be empowered to work on commercial lines. A major objective of the

restructuring of the SEBs was to distance the State Governments from the day-

to-day decision-making process and to enable the Utilities to function entirely

on commercial lines. It is essential to achieve this goal expeditiously by

empowering the restructured companies to be fully autonomous.

6.13.7 In order to empower the restructured companies with autonomy, the

State Governments should allow the Utilities to function without any

restrictions and management controls, as would apply to corporate bodies

under the Companies Act. Further, the management cadres of the new

companies must be strengthened by inducting competent and experienced

middle and top-level functionaries who will be able to work more

independently and professionally. The CMDs/managing directors and

functional directors of the companies should be appointed for a minimum

tenure of three years and made accountable for achieving set targets and

may be given incentives for higher achievements.

6.13.8 The selection process for the posts of CMDs, managing directors and

functional directors of the restructured companies should be strictly based

on professional excellence. Putting in place a selection process through a

search committee of experts would be an effective method to identify competent

professionals for these positions. The criteria for selection should be based on

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established job descriptions/specifications, requisite qualifications, professional

background and experience of the candidates. Further, the policy of not

allowing a person to hold more than one post should be strictly followed

and the practice of appointing the CMD/MD of one company (or the

Principal Secretary/Secretary of the Government department) as the

Chairperson of any other company should be discontinued.

6.14 Capacity Building and Developing Management Cadres

6.14.1 Power Sector all over the country has many common features, common

problems and common interests. During the era of Electricity Boards, States

used to produce a large number of technically proficient and highly capable

engineers to man senior technical positions. However, other senior managerial

positions in the Boards were held by senior administrative and accounts

services personnel with experience, brought from outside.

6.14.2 The restructuring of the Boards into several smaller functionally carved out

companies has exposed the weakness in the human resources area of the sector.

While there are generally no shortages in the cadres of senior technical

personnel, there are acute shortages at the middle and lower levels. The

shortages are more acute in the areas of finance, human resources, Information

Technology, commerce and management, costing and cost audit, for which

skills are not generally available internally. The situation is somewhat similar

to what existed in the CPSUs before the Central Government started

developing specialised management cadres for CPSUs in the seventies and

eighties. It is important to develop general management skills in the middle and

senior level technical personnel of the restructured companies to equip them to

manage the top-level positions in the future.

6.14.3 In view of the large-scale restructuring operations taking place in the power

sector all over the country, priority should be given to capacity building of

human resources in the restructured Utilities. Developing competent cadres of

managers with multi-disciplinary skills is a formidable task, but it is necessary

to draw up a national plan for capacity building in the power sector by

involving professional and academic institutions of national repute.

6.14.4 The NEP offers appropriate guidance for training and human resources

development. According to this policy, concerted action would be taken for

augmenting training infrastructure so that adequate well-trained human

resources are available as per the needs of the industry. Special attention would

need to be paid by the Governments and the Power Utilities for establishing

training infrastructure in the field of electricity distribution, regulation, trading

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and power markets. Indian Institutes of Management (IIMs) should, for

instance, be encouraged to devise customised management development

programmes and Executive MBA programmes with specialisation in

power sector management, and the Utilities should be encouraged to

nominate their middle level managers for such intensive programmes

based on selection criteria to be evolved jointly with IIMs, who may also be

associated with such selections. Training and Academic Institutes like

Administrative Staff College of India (ASCI) and Indian Institute of Public

Administration (IIPA) could also play a major role in the management

development initiatives for the power sector by evolving appropriate

training modules.

6.14.5 Pending the development of a nation-wide competent cadre of power sector

managers to man the restructured companies, State Governments should

explore the availability of competent executives from the industry/CPSUs to

take over the senior positions of the restructured companies on contract

basis/deputation for fixed terms (as is being done in Utilities of Gujarat

where professionals from the open market are inducted at Executive

Directors level, on fixed tenure basis, with compensation packages linked to

targeted performance achievements). It is necessary to provide attractive

compensation packages to such appointees without being constrained by the

State Civil Services pay structures. Further, CPSUs should be encouraged to

make available their competent personnel who volunteer for such assignments

in the restructured Utilities.

6.15 Centre for Manpower Planning and Development

6.15.1 Considering the huge task of training the required number of power sector

management personnel within the medium-term period, and in line with the

objectives laid down in the NEP, it would be desirable to establish a ‘Centre

for Manpower Planning and Development’ (CMPAD) as part of an

existing Institutes of excellence like IIPA, National Power Training

Institute (NPTI), ASCI, etc. The CMPAD should be tasked not only with

manpower planning and development, but should also act as an agency to

collect and collate data and information about various issues related to

HRD. The CMPAD could also act as a knowledge bank to provide

information to Utilities by circulating through its websites and other

Internet options on important developments and successful projects in

different States (like Akshay Prakash Yojana in Maharashtra) for use by

others.

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6.15.2 Ministry of Power should provide funding support to the CMPAD in the

initial years. However, over a period of time, the CMPAD should become

self-sustaining by pricing its services to the Utilities.

6.16 Accountability and Corporate Governance

6.16.1 There is a perception among the various stakeholders that even after the

restructuring of the Electricity Boards, nothing has really changed, except that

the new Utilities operate under new names but with hardly any perceptible

improvements in performance. This is partly because the newly created

companies are fully owned by the State Governments and their management

culture remains the same. The need to implement an effective communication

strategy to create awareness of the objectives and merits of the reforms has

already been discussed. To improve Corporate Governance, it would be

desirable to supplement and strengthen reform efforts with a parallel strategy

to involve the public in the affairs of the companies through participation in

their equity base.

6.16.2 There may be conflicting views on the wisdom or otherwise of a privatisation

strategy for the power sector, and the power sector reform need not necessarily

start with or end with privatisation. However, there is no denying that the

public participation is different. It is certainly not Privitisation. Public

participation in the equity base of the new companies would accentuate the

autonomy and the accountability of these public corporate bodies to the

public, which is certainly desirable. It will also make the managements of

these undertakings more responsive to corporate objectives, needs and

public perceptions. Viewed from this angle, there is a strong case for

offering part of the shareholdings of the restructured companies to the

public and financial institutions, with a portion earmarked for allotment

to the employees of each company at attractive rates. To start with, such

public offerings could be restricted to 26 per cent of the shareholdings,

which would ensure that these companies retain their status as

Government companies. This will also enable the companies to mobilise

funds for their expansion. Any such measure will, however, have to be

preceded by a suitable FRP, which would make the companies sufficiently

attractive for the market to respond to equity participation and also enable

them to absorb market borrowings.

6.16.3 Meanwhile, the initiative should commence with offering part of the

shares of the separate generation companies (as in the case of CPSUs),

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which are making profits. Shares of these companies will be attractive

enough for the market to respond positively to any public issue.

6.17 Participation of Civil Society Organisations

6.17.1 Through active participation of consumers in rural areas, Maharashtra State

Electricity Distribution Company Ltd. (MSEDCL) has successfully

implemented a scheme named ‘Akshay Prakash Yojana’ (see Box 6.1) whereby

a village opts to voluntarily participate in the scheme and ensures that no

motive power would be used during the period between 5 p.m. to 5 a.m. and

the load on the feeder will be restricted to 20 per cent of the full load. The

villagers also take action to remove all unauthorised high consumption

equipment such as heaters and hot plates and agree that meters be fixed in

all households. The villagers form a ‘Village Dakshata Committee’ and ensure

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Box 6.1: Students Show the Way

Akshay Prakash Yojana (APY) initiated in Maharashtra is a voluntary scheme, which

supports the Demand Side Management. If adopted on a large scale, APY can provide

better quality of supply to villages. The principle of APY is to regulate the rural feeder

loads through citizen participation by eliminating theft, removing power-inefficient

appliances and by better load management.

APY was triggered by children of a remote village in Maharashtra who were finding it

difficult to prepare for their examinations due to frequent load sheddings. These

children confronted an employee of the Maharashtra State Electricity Distribution

Company Limited (MSEDL) and demanded restoration of power. He, in turn,

explained to them that the load shedding was caused due to their parents overdrawing

the power supply through pilferage, by using inefficient appliances, etc. This

prompted the students to approach the local Gram Panchayat along with the employee

concerned and the following interaction gave rise to the voluntary implementation of

APY in that village. Gradually, other neighbouring villages followed suit.

Under APY, villagers voluntarily do not use any 3-phase load during 5 p.m. to 5 a.m.;

and load is restricted by the villagers to 20 per cent of the full load. Villagers also

remove all illegal and inefficient heavy consumption appliances like water heaters,

cooking heaters, etc., adopt energy saving lightings, pumps and devices, as also

capacitors. The villagers also form surveillance committees for monitoring electricity

use and to remove unauthorised connections. Gram Sabhas pass resolutions to carry

out the above activities.

APY has brought about a significant change in the power scenario of villages in

Maharashtra - enhanced quality of supply, avoidance of unplanned load shedding,

reduction of transformer breakdowns and improved voltages. Villagers are happy,

their children no longer fret about poor preparations for examinations and the cottage

industries are also improving.

The lesson from APY is that social awareness and citizen’s participation could make a

world of change to the electricity scene in rural areas. So far, 4,611 villages in

Maharashtra have reportedly adopted APY. Electricity officials claim that there is an

overall load relief of about 770 MW. A win-win situation for the Utilities as well as

for the villagers!

that there is no theft of electricity from the transformers serving their area. On

its part, MSEDCL ensures that there is no load shedding in these villages and

ensures supply for about 23 hours a day.

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6.17.2 Presently over 3,400 villages have voluntarily participated in this scheme and

MSEDCL has achieved a load relief of over 770 MW. More important than the

load relief, however, is the participative spirit of people from rural areas to

ensure that this important service of electricity supply caters to their needs and

is controlled by them. The dialogue between villagers and the concerned staff

of MSEDCL at the grassroots level leading to understanding of each other’s

concerns and the will to address these jointly, are indeed, the major gains. This

participative spirit of rural consumers is laudable and no effort should be

spared in the future in nurturing the same against all odds.

6.17.3 The engagement of ‘Grama Vidyuth Pratinidhis’ in Karnataka (see Box

5.3) to augment the billing and collection has resulted in improved

collections. The active involvement of the customers and customers’

advocacy groups in the reforms efforts will indeed produce beneficial

effects, as evidenced from the Maharashtra and Karnataka experience.

State Governments and the restructured companies should evolve policies

and procedures for increasing public participation in chosen areas of

interface with DISCOMs, which would surely go to increase the customer

satisfaction levels, apart from resulting in improved performance of the

Utilities. Such initiatives should be encouraged and appropriate incentives

provided to sustain these efforts.

6.18 Citizens’ Charter

6.18.1 Department of Administrative Reforms and Public Grievances, Government of

India has issued comprehensive instructions and detailed guidelines to all State

Governments to frame and implement Citizens’ Charters by all public service

providers. However, many power Utilities are yet to establish and implement

them effectively. Citizens’ Charters establish service standards and

commitments of the service providers to the consumers at large and describe,

among other things, the prescribed procedures to apply for the services. They

further include the citizens’ duties and rights including compensations

receivable for shortfalls in the delivery of services. Citizens’ Charters are

effective tools to increase the accountability of the DISCOMs and to create

awareness of the rights and duties of the customers.

6.18.2 It is recommended that all restructured companies, especially the

DISCOMs, should establish Citizens’ Charters in consultation with

consumer advocacy groups and civil society organisations expeditiously

and display the major components of the charters in all their offices and

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outlets prominently. Nodal officers should be appointed to implement the

charters and to monitor the customer satisfaction level.

6.19 Universal Metering of Service Connections

6.19.1 Absence of metering of all connections is a critical area affecting the

performance of Utilities. The EA, 2003 mandates all connections to be metered

within two years. However, the Report brings out that the percentage of

metered supply is generally low even after the restructuring. For instance, in

Karnataka, despite all efforts, the level of metered connections comes to only

82 per cent whereas in Madhya Pradesh and Orissa it comes to only 72 per cent

and 81 per cent, respectively. The Universal Metering Programme, initiated as

part of the APDRP, has not succeeded mainly because of the resistance from

the agricultural consumers, as happened in Karnataka. It has been observed that

in some States, even though meters were installed and exist as per records, they

are not available or do not work in actual practice, due to poor quality,

improper installation, or inactivation by interested consumers. It is obvious that

the objective of universal metering cannot be achieved unless there is a

political commitment at the national level as advocated under Para 6.1

(Political Commitment and Support).

6.19.2 The performance of Rajasthan in regard to metering of service connections is

worth mentioning. Except for agricultural supply, the State had achieved 100

per cent metering in respect of all categories of supplies even before the

restructuring of its SEB. In the case of agricultural supply also, there is a steady

progress in metering, especially after the restructuring and has increased from

36 to 61 per cent during the last four years. Incidentally, Rajasthan was one of

the first States to introduce electronic meters for domestic supplies, which

helped to control theft of electricity significantly. The emphasis on tamper-

proof and reliable meters continues during the post-restructuring period as well.

6.19.3 It is recommended that the Ministry of Power and State Governments

should give full support to implement the Universal Metering Programme,

to be completed within a definite time-period, in line with the provisions of

Section 55 of the EA, 2003 which stipulate that metering should be done in

respect of all consumer connections (including agricultural). It should also

be ensured that after the meters have been installed, they are checked

regularly and defective meters are replaced. Further, minimum charges

may be levied in case meters are not found working, so as to compel the

consumers to get them replaced promptly. (The minimum charges may be

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higher than the average consumption by the consumer, so that the consumers

are discouraged from attempting to damage and tamper with the meters).

6.20 State Government Initiatives and Support to Prevent Theft of Electricity

6.20.1 In most of the States, the AT&C losses remain at unacceptably high levels

despite marginal improvements effected through implementation of the projects

under APDRP and Utility’s own efforts. There are as many as eleven States

whose AT&C losses are above 40 per cent. Only two States, namely Goa and

Tamil Nadu, have reported AT&C losses of less than 20 percent14 whereas

eight States figure in the category of 20-30 per cent and seven States have their

losses in the range of 30-40 per cent. This is in spite of the considerable

progress achieved in the area of distribution reform with the completion of inter

face metering, consumer metering and initiation of energy audit15.

6.20.2 Several States have by now enacted anti-theft laws, which enable the

establishment of special courts to try cases of electricity theft expeditiously.

The restructured companies have also established special task forces and

divisions to carry out inspections and to follow up electricity theft cases.

However, the progress in establishing special courts is rather slow. Haryana

and Orissa Governments have not set up special courts so far for speedy trial of

electricity theft cases. The overall support from the State Governments to

prevent thefts of electricity and to bring culprits to book is lackadaisical. It is

recommended that:

(a) Suitable incentives may be devised for detecting and

checking the cases of theft of electricity as has been practiced in West

Bengal, Tamil Nadu and Gujarat; and

(b) Strict vigilance measures and special police stations may

be established to detect and prosecute the theft of electricity cases.

6.20.3 In some States like Andhra Pradesh, the vigilance activity of DISCOMs is

controlled by the Transmission Company. The vigilance activity needs to be

decentralised and internalised with DISCOMs, who should be given the

independent control of eliminating thefts of electricity and pilferage. If the

responsibility is directly entrusted to DISCOMs, an efficient and competitive

environment would be created. This would lead to more effective:

(a) Prevention of electricity theft;

14 In the case of these two States also, these figures are based on assumptions since agriculture supply is unmetered.

15 ICRA Report on Power Sector, 2006.

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(b) Avoidance of electricity theft; and

(c) Misuse of electricity.

6.20.4 A notable example, which stands out in this regard, is the State of Gujarat

where the Government has been extending full support to the vigilance

activities of the Utilities. Reportedly, there is no political interference against

detection and prosecution of electricity theft cases in the State, as a result of

which the average additional collection from such sources was as high as an

average of Rs 190 crore per year during the last six years. In this regard, the

initiative to recruit a contingent of 600 ex-servicemen to help the DISCOMs in

prevention and detection of electricity theft is reportedly proving to be highly

effective; and could be replicated by other States.

6.20.5 Attitudinal change in the approach of the State Governments to distribution

reforms is essential. During the given defined control periods (as may be

determined in consultation with respective SERCs), Distribution Utilities

should have to improve their efficiency in respect of operations, revenue

collections and delivery of service to consumers, etc. At the same time, State

Governments should take a proactive role in preventing and eliminating

theft of electricity by giving full support to the DISCOMs. Such support

should include establishing the required number of special courts, making

available adequate number of police personnel and prosecutors, etc., to

make the drive against theft of electricity effective. Additionally, State

Budgets should provide adequate funds to establish the special courts and

vigilance mechanism, in consultation with the DISCOMs.

6.20.6 Further, Regulatory Commissions may be urged to allow the cost of

establishing special courts and related expenditures such as the cost of

police personnel etc., as a pass through in the tariff.

6.20.7 District Magistrates (DMs) and Superintendents of Police (SPs) should be

required to play a greater role in handling power theft matters, since

without their active support, DISCOMs may not be successful in dealing

with such cases effectively. Grant of cash awards and incentives to the

personnel of the Utilities and to the district officials concerned who handle

the electricity theft cases would provide further motivation and

encouragement.

6.21 Energy Accounting and Auditing

6.21.1 This is one of the most important tools, which, if used effectively, can help the

Utilities to quickly regain sound financial health with minimum investments as

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are required for provision of energy meters of required accuracy and in certain

cases of a type which can be interfaced with a Data Acquisition System (DAS).

For effective energy audit, it is necessary to conduct proper energy

accounting. The principles of energy accounting are well known. In

practice, however, certain common difficulties/gaps are noticed. These and

the solutions to overcome them with a view to getting as near as possible to

the optimum solution are noted below.

(a) In many installations, energy input from the generator on the

extra high voltage (EHV) busbar is not directly recorded by an energy

meter but is computed from the difference between the energy recorded

by the meter on the low voltage (LV) side of the generator transformer

and the meter on the unit auxiliary transformer. With this arrangement, the

losses in the EHV step up transformer (less than 1 per cent normative) of

the generating station go into the account of the Transmission Company.

To overcome this, a precision energy meter of at least 0.2S class of

accuracy should be provided, along with provision of similar class of

EHV current transformer in the generator transformer bay. CEA’s

‘Regulations on Installation and Operation of Meters’ need to be

followed for this purpose.

(b) In the EHV sub-stations, all transformers feeding energy into

the distribution system at 11/22/33 kV should be provided with energy

meters on the primary and secondary sides. All EHV express feeders and

all 11/22/33 kV feeders (including feeder for station auxiliaries/colony

supply) should be provided with meters. As far as possible, all these

energy meter readings should be collected from the DAS of the sub-

station itself. Simple checks such as to ensure that the loss in the

EHV transformer is less than 1 per cent and the sum total of

incoming and outgoing energy on the 11/22/33 kV busbar is zero or

near zero should be done every hour by the DAS or by the staff on

duty where DAS is not provided. The reading of the billing meters of

HT consumers served through dedicated feeders at the consumers’ end

should be taken on more than one occasion, but every time at a round

hour so that it can be tallied with the corresponding reading at the same

hour recorded at the sub-station.

(c) All distribution transformers in industrial area/urban

area/high consumption area should be provided with meters on the

LV side. These meters should be read at a defined round hour and the

meters of all consumers supplied through the transformer, should be taken

in a period as near as and on either side of this round hour as possible.

135

The energy loss should be directly computed by the billing computer

without any manual input of billing data.

(d) In respect of sub-stations feeding an industrial area, the

meter readings of all high tension (HT) consumers, high voltage (HV)

feeders, distribution transformers and low tension (LT) consumers

should be taken at a round hour and in a short period on either side

of this round hour for obtaining realistic figures of loss of energy.

(e) The energy loss should be computed in kWh lost (and

money lost on applicable tariff). Each site in-charge should be

responsible to reduce the kWh loss and this should be one of the

important parameters for appraisal of his/her performance.

6.22 Reducing Cross-Subsidies

6.22.1 It is well recognised that a major cause for the continuing unsatisfactory

financial performance of the power sector is the omission to bring the entire

supply of electricity to the agricultural sector to the rigours of metering and

billing. The magnitude of the problem could be gauged from the fact that in the

State of Tamil Nadu, for instance, the estimated loss to the Electricity Board

due to supply of free power to the agricultural sector comes to about Rs 3,000

crore per year16. However, the compensation given by the State Government to

the Electricity Board for the above-subsidised power comes to only a small

fraction of the actual loss, forcing the Electricity Board to resort to heavy

borrowings. The need to ensure accountability through universal metering of

all irrigation pumpsets and agricultural connections and to make the farmers

pay for the electricity consumed at a reasonable tariff cannot be overlooked.

6.22.2 During the pre-restructuring period, the number of applications pending for

connection from the agricultural sector in Rajasthan used to be about 1.25 lakh.

In spite of the large-scale release of agricultural connections during the last

three years, the number of pending applications has gone up to 2.2 lakh.

Rajasthan had, long ago, taken the lead in the rationalisation of the agricultural

tariff and introduced an “out-of-turn allotment scheme” called “Nursery

Scheme” for agricultural connections. The scheme provided that interested and

willing farmers could avail instant connections as against the average waiting

period of up to 13 years, at initial charges which were higher by about 10

times, coupled with tariff rates of 100 per cent more. In spite of the high rates,

the scheme was a great success with thousands of applicants opting for the

scheme. The Nursery Scheme, pertinently, exploded the myth that the 16 The supply to the agricultural sector is not metered and the loss is estimated on the basis of 5 per cent of all

connections subjected to metering, on a test basis.

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agricultural tariff cannot be increased, since the Electricity Board had

succeeded in raising the tariff substantially under the guise of the optional

scheme. The scheme came in for appreciation from the Planning Commission

and the World Bank. Unfortunately, it had to be diluted over time due to

political pressures, especially after the formation of the DISCOMs.

6.22.3 The financial statement of two DISCOMs in Karnataka would indicate that

they are highly vulnerable to subsidy due to the large number of agricultural

consumer mix in their jurisdiction and the inability to enforce metering and

billing of this group of consumers. The flat rate for recovery for the metered

group among them comes to only 40 paise per unit as against the minimum of

50 paise determined in 1993 by the Ministry of Power and agreed to by Chief

Ministers under the ‘Common Minimum National Action Plan’, in 1996. The

DISCOMs have reported that their three-year universal metering programme,

which formed part of their business plan, did not succeed because of stiff

resistance from farmers and the farmers’ lobby.

6.22.4 This study brings out that, as a result of the large-scale irrigation pumpset

population and flat rate tariff system, the financial subsidy on account of such

consumers in all States has gone up alarmingly. The total subsidy received by

the sector from the State Governments, on realised basis, has increased from Rs

9,617 crore in 2000-01 to Rs 11,693 crore in 2004-05, which represents a 21.5

per cent increase. In Haryana alone, the subsidy support has gone up from Rs

532 crore17 in 1999-2000 by more than three-folds and has reached a level of

Rs 1,686 crore in 2005-06. Annexure-XV(I) will indicate the situation in

different States.

6.22.5 The bottom line is that the obligations of the States to provide subsidy to the

agricultural sector remains unabated, and keeps increasing. On the other

hand, the fiscal inability of the State Governments to provide the subsidy will

seriously jeopardise the entire reform process, which aims to rationalise the

tariff structure and achieve commercial viability in the sector.

6.22.6 There is no denying that the success of the power sector reforms is highly

dependent on arriving at an acceptable solution to tackle the issue of free and

highly subsidised electricity supply to the agricultural sector. There is also a

need to control the growing subsidy in several States like Haryana,

Maharashtra, Punjab, Rajasthan and Tamil Nadu. The relatively high

dependence on subsidy (close to 25 per cent of the total revenue) by Utilities in

some of the States continues to be a cause for concern. To address the fiscal

17 As depicted in the tariff orders of the Regulatory Commission.

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imbalance created on account of the high-level of subsidy support provided to

the agricultural consumers, it is recommended that:

(a) The State Governments, along with the concerned

Electricity Regulatory Commissions, should review the existing policy

of flat rate tariff for agricultural consumers, since these consumers

have the freedom to consume unlimited quantity of power as

compared to the consumers whose pumpsets are subjected to

metering.

(b) A connected issue is the serious problem of lack of proper

water conservation and inefficient use of pumpsets used for irrigation

by farmers for crops, which are highly water intensive. As a result, the

water-table is gradually going down. It is, therefore, necessary to

adopt a multi-disciplinary approach to sensitise the farmers about the

measures for water conservation and efficient use of irrigation

pumpsets and machinery.

(c) The National Electricity Policy affirms that over the last

few decades, cross-subsidies have increased to unsustainable levels.

Cross-subsidies hide inefficiencies and losses in operations. There is a

need to correct this imbalance without giving tariff shock to

consumers. The existing cross-subsidies would need to be reduced

progressively and gradually. This directive has to be implemented in

a time-bound manner. The example of the West Bengal State

Electricity Board (WBSEB) which charges tariff at the rate of Rs 1.50

per unit from the agricultural sector is a model to emulate.

(d) The issue of reasonable recovery from the agricultural

sector is closely linked to the political commitment and support

extended by the political leadership for reforms efforts. The mindset

that free power or highly subsidised power is a fundamental right

should be removed from the consumers of this group.

(e) There is a clear need to define the “creamy layer” among

the farmers, those who are the “haves”, and to distinguish them as a

class apart from the poor and marginal farmers. It is a fact that the

former group is in a better position to pay a reasonable price for the

electricity consumed by them. The decision should be taken at the

national level to address this issue and ensure that the subsidies are

only targeted towards small and marginal farmers. Also, State

Governments should formulate policies to encourage differential

cropping patterns aligned to the water-tables.

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(f) A detailed financial plan should also be put in place to

bring down the subsidy on a diminishing pattern, with targets and set

goals for each year and for each DISCOM.

(g) Ministry of Power should circulate a consultation paper

(converging all related issues) on ‘Reducing Cross-subsidies’ and

continue its efforts to arrive at a political commitment on this vital

issue.

6.23 Fostering Competition Through Open Access

6.23.1 The National Electricity Policy lays down that additional surcharge may be

levied on consumers who are permitted ‘Open Access’. These charges should

not be so high as to eliminate competition. Since an Open Access consumer

will have to pay charges to each service provider in the value chain, as also

cross-subsidy surcharge, he would avail the facility only if it is beneficial to

him. The objective of Open Access is to promote competition in the larger

interest of the consumers. The EA, 2003 proposes the introduction of Open

Access in a time-bound manner.

6.23.2 National Tariff Policy establishes the formula for the levy of the surcharge and

computes it as the difference between the tariff applicable to the relevant

category of consumers and the cost of the distribution licensees (DISCOMs) to

supply electricity to the consumers of the appropriate class. Till now, 18

SERCs have notified the Open Access surcharge; but hardly anyone has come

up to avail the facility. This shows the fundamental flaw in the methodology to

fix the surcharge and the failure of the system to achieve the basic objective of

fostering competition.

6.23.3 Captive generation, as brought out in the Tariff Policy, is an important

means to making competitive power available, provided an enabling

environment is created to encourage the connecting of captive plants to the

grid. Open Access would encourage non-captive users to draw power from

captive plants at negotiated rates, provided Regulatory Commissions fix a

reasonable surcharge for Open Access. In its absence, captive plants would

remain under-utilised. As brought out in Chapter-3, the average PLF of

captive plants with a total installed capacity of 19,103 MW (1 MW and above

size) was at the low level of only 42.8 per cent (2004-05), which could be

raised significantly in the interest of the economy by encouraging Open

Access.

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6.23.4 The Forum of Regulators (FOR) discussed the need for a uniform approach in

the matter; but considered that it was not feasible. They could not forge a

consensus on the methodology to be adopted. When arrived at, it would be an

important instrument to encourage Open Access, which may encourage the use

of surplus power generated by Captive Power Plants and give choice to bulk

consumers to source competitively priced power from any source enhancing

their competitiveness in the globalised environment. In its absence, uncertainty

continues to the detriment of consumers. Since ushering in competition is one

of the primary objectives of the power sector reform, and in line with the EA,

2003, there is an urgent need to remove the bottlenecks to Open Access.

Ministry of Power should take the lead in the matter and strive to arrive at

a practical solution, in consultation with FOR, by prescribing broad

principles for determining “surcharges”, which would create an

appropriate climate for the extensive use of Open Access and the resultant

competition.

6.24 Data Management Systems

Accuracy of system data and consumption pattern are essential for a host of

management functions including precise physical and financial projections,

planning, attracting investments, and market scenario in the power sector. One

of the main reasons attributed for the initial setback of the Orissa power sector

restructuring model was the improper assessment of T&D losses. Although

Power figures in the Concurrent List of the Constitution of India, it is essential

that demand projections, extent of technical and commercial losses and all

other relevant updated data of all the States as well as the entire country

are readily available with a designated central agency for effective and

proper utilisation. It is recommended that Ministry of Power may entrust

this task to an appropriate agency.

6.25 Adoption of Information Technology in Power Sector

6.25.1 Computerised Online Information System

(a) With a view to streamlining the various processes and to help

customers and other stakeholders of the new companies to derive greater

economic value, setting up of an end-to-end Enterprise Resource Planning

(ERP) based Information Technology (IT) solution would be beneficial.

The system should incorporate solutions in respect of all operations of

the restructured companies including finance, purchase, inventory

management, maintenance management, project management, process

management, energy billing and receivables, energy audit, management

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of customer relations, power system network studies, human resources

development and associated area of payroll applications, etc.

(b) Installation of a comprehensive computerised solution as above

would result in substantial reduction in paper work through online

documentation and approval process, besides achieving economy in

operations and improving the work culture in the organisation. Presently

such a system is being installed in Gujarat. It is expected to be operational

by the end of this year. Gujarat should be requested to organise a

National Workshop to share its experience with other Utilities in the

country.

(c) Consumer grievance redressal system should be made online

and it should be made possible to monitor the same in hierarchical

order.

6.25.2 Other IT-related Applications

6.25.3 Besides the above-mentioned IT solution, the following IT-related applications

are already in service in many Utilities and have proved their usefulness.

Accelerated efforts should be made by all Utilities to install such (or more

advanced) applications in their respective areas of operation.

(a) Use of Automated Meter Reading (AMR) and/or recording of

data of energy meters and transmission of the same to designated data

collection centres for further processing.

(b) Adoption of Geographical Information System (GIS) for building

up of the consumer database and associated system data for improving

services to consumers.

(c) Data Acquisition Systems (DAS) in sub-stations for automatic

recording of data and display of designated parameters in sub-stations.

(d) Use of computers in energy billing operations and posting of

payments received.

(e) Use of hand-held devices for meter reading/spot billing

applications.

6.26 Outsourcing of Works/Services

6.26.1 The restructured companies will have to increasingly resort to outsourcing of

several services presently handled by them in-house, keeping in mind the

advantages of reduction in operational cost, speedy and more efficient project

implementation, access to outside expertise, etc. These include billing and

collection, training of staff at all levels (especially in deficient areas such as

141

financial and commercial functions), HRD and routine and low-level skill

functions, etc. The outsourcing strategy, including the areas of works and

services to be outsourced should be devised carefully after due consideration of

all factors. However, adequate checks and balances may be built into the

management systems to ensure that the outsourcing practice achieves its

objectives, and the required level of standards.

6.26.2 All restructured companies should carefully develop their outsourcing

policy and strategies after identifying their strengths and weaknesses and

keeping in mind consumers’ interest, and ensure that there are checks and

balances built into the system. The policy should also be transparent and

be established after taking the staff into confidence.

6.27 Encouragement to Non-Conventional Energy Sources

6.27.1 Renewable Energy is environmentally benign and is a growing source in our

energy mix. The EA, 2003, provides that SERCs shall take measures to

promote the generation and distribution of energy through Renewable Energy

Sources (RES) such as co-generation etc. SERCs may specify sourcing of a

percentage of the total consumption of electricity in the area of distribution

licensee from RES. The SERCs are also required to keep this aspect in

determining the tariff. However, very few SERCs have brought out tariff orders

for power produced from RES. In actual practice, the progress achieved leaves

much to be desired. At present, the installed capacity and total generation

from RES come to only 6190.86 MW and 6180.84 GWh respectively. These

represent only 5 per cent and 1 per cent respectively of the corresponding all

India grand totals from all the sources of electrical energy. In spite of several

tax benefits and incentives, private entrepreneurs are reluctant to invest

significantly in Non-Conventional Energy generation area because of certain

barriers like lack of grid connectivity, uncertain market and indifferent attitude

of Utilities and SERCs. Some State Government Policies for promoting

renewal energy sources have resulted in putting undue demands in terms of

royalty, share of free power, cost of providing evacuation, etc. There is

considerable potential for RES like wind, small hydro, biomass and

cogeneration from bagasse. It also provides employment and livelihood to the

poor. Promotional steps by way of laying down a certain share from RES at

preferential tariff rates need to be pursued by the States and SERCs.

6.27.2 In this context, use of conventional energy for heating purpose etc., in

industrial and commercial complex and large residential blocks could be

142

discouraged by making solar heating systems mandatory by providing

appropriate tax incentives and other benefits.

6.27.3 In line with the EA, 2003 and NEP, State Governments and restructured

companies should endeavour to give its rightful place to RES generation

and ensure that the objectives of the EA, 2003 and the NEP are fulfilled by

specifying targets and providing the required encouragement, in

consultation with the FOR. Policies of State Governments, which are

coming in the way of harnessing full potential of renewal energy, should be

reviewed with the intervention of Ministry of Power and MNES.


6.28.1 As brought out in Para 3.3, Chapter-3, there are 1,54,230 villages in the

country yet to the electrified. Only five States including Goa and Delhi have

achieved hundred per cent village electrification on the basis of new definition

of village electrification. Only 29,516 villages, comprising 5 per cent of the

total, were electrified during the entire last decade. The achievement against

target (13,409 against 3,00,000) was abysmally low during the Ninth Plan.

6.28.2 The RGGVY aims to provide access to electricity to the remaining

unelectrified villages in five years and grants 90 per cent capital subsidy for

implementation of the scheme. It has a target of electrifying 40,000 villages in

2006-07. However, the key issue is the sustainability of reliable supply of

power to remote areas. Besides, drawing long electric lines to remote villages,

not having adequate load would not be remunerative for the Utilities. It is

estimated that the task of electrifying the large number of left over villages in

States like Orissa, Rajasthan, and Uttar Pradesh would be daunting and

unattainable in the near term. Even in several other States, the number of

households to be electrified would be enormous.

6.28.3 In order to accelerate the Rural Electrification Programme, the following

recommendations are made:

(a) Where it is not feasible to extend the conventional grid due to

remoteness of villages, focus may be on non-conventional sources of

energy by planning and developing a loop of local areas (cluster).

(b) The recent initiative of franchisee models should be pursued

vigorously. The example of West Bengal to promote decentralised

management of distribution systems with the involvement of the local

population could be replicated by other states.

143

(c) Restructured Utilities should accord high priority for rural

electrification in their Business Plans and in the proposed

MOAs/Annual Performance Targets, which should be closely

monitored by their respective States.

(d) 11 kV feeders should be erected separately for rural domestic

and agricultural supplies, which will facilitate better load

management and improved recovery as was accomplished in Gujarat.

The practice of Andhra Pradesh in providing single-phase

transformers for domestic and other non-power loads with 24 hours

power supply is also worth following.

6.29 State-level Planning and Coordination

6.29.1 Prior to restructuring, the SEBs used to undertake the overall State-wise

electricity planning for which the required coordination was possible internally

within the organisation. After restructuring, three separate functionally-oriented

entities, each with a distinct mandate, were established.

6.29.2 Sub-Section (2) of Section 39 of the EA, 2003 defines the functions of State

Transmission Utilities (STU). According to Clause (b) ibid, the STU shall be

responsible for all functions of planning and coordination relating to intra-State

transmission system with various players including State Governments,

generating companies, licensees, Regional Power Committees, etc. Although

the Act refers only to planning and coordination of transmission system, and in

the absence of references to planning and coordination by any other agencies at

the State level, it is implied that the STU would be the appropriate agency for

undertaking Statewide long-term and perspective planning for the power sector.

Moreover, as the single carriage of power in the State from the generating

units to the distribution levels, connecting both ends, the Transmission

Companies will undoubtedly be the most appropriate and suitable agency

to undertake all functions related to State-wide planning and coordination.

6.29.3 In order to enable the State owned Transmission Companies to perform

these functions efficiently and with a larger perspective, it is essential to

induct experienced and competent planners and support staff into these

companies.

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CHAPTER - 7

WAY FORWARD

7.1 Steps to be Taken by the Ministry of Power

7.1.1 Convene a special conference of Chief Ministers of States, which have not yet

reorganised their SEBs (or are still in the process of restructuring), to persuade

them to restructure SEBs in their respective States as per a systematic plan and

with dispatch, as proposed in this Report. [Para 6.1.5 (a)]

7.1.2 As a sequel to the above, convene a conference of all the Chief Ministers and

State Power Ministers to take stock of the progress and impact of power sector

reforms so far in their respective States, and to arrive at a political commitment

to speed up the process, through concerted actions, as recommended in this

report. [Para

6.1.5]

7.1.3 Review and modify MOAs to be signed with State Governments in future to

include, among other things, conditions relating to grant of full autonomy to the

restructured companies. [Para

6.1.6]

7.1.4 Plan and coordinate a national communication strategy involving media and

civil society, jointly with the State Governments on the objectives, necessity

and merits of reforms in the power sector. [Para

6.3]

7.1.5 Announce a policy decision not to grant further extensions for

postponing/delaying the restructuring exercise of SEBs in the States, which

have not yet reorganised their SEBs. [Para

6.1.7]

7.1.6 Assist State Governments to obtain resources from multilateral/bilateral

institutions and other sources to finance their consultancy costs for the

restructuring process. [Para

6.4.7]

7.1.7 Coordinate through a designated agency and make available the best practices,

findings and recommendations of consultants and expert bodies on

restructuring and transitional issues in respect of successful model(s) to all

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State Governments. [Para

6.4.6]

7.1.8 Take steps to strengthen the Regulatory mechanism at the Centre and State

levels by undertaking the following steps, among others:

(a) Persuade all States to honour the orders and directives of

the Regulatory Commissions and to resolve disagreements through a

consultative process.

(b) Encourage the Regulatory Commissions to take a more

proactive role in implementing provisions of ‘Open Access’, Multi Year

Tariff (MYT), Standards of Performance (SOP), etc. Further, issue

modified guidelines regarding fixation of surcharge applicable to ‘Open

Access’.

(c) Encourage the Regulatory Commissions to strengthen the

internal consultative process and sharing of information and views by

making FOR/FOIR more effective.

(d) Sensitise the public about the regulatory process by

publicising the major decisions and orders of the Regulatory Commissions

through the print and electronic media and websites. Encourage the

regular publication of major decisions through ‘Law Reporters’.

(e) Create a better working environment for the Regulatory

Commissions by vesting them with sufficient autonomy and powers in

matters relating to staffing pattern, funds, organisation and recruitment of

staff needed by them.

(f) In order to ensure the requisite authority and autonomy to

the Electricity Regulatory Commissions, appropriate steps need to be

taken to holistically address the following issues:

(i) Powers of civil courts for execution of orders [as conferred on

Appellate Tribunal under Section 120(3)]; [Para 6.8.3 (d)]

(ii) Reference to the CERC on policy directions by State Governments,

issued in public interest. The decisions of CERC in such matters

should be final; [Para 6.8.3 (f)]

(iii) Subsidy for reductions in charges specified under sections 46, 47 and

50; [Para 6.8.3 (e)]

(iv) The terms of office of the Chairperson and the Members of the

Appellate Tribunal; [Para 6.8.3 (h)]

148

(v) Direct cognizance by the Ombudsman in special cases. Uniform

procedure for filing of appeals before the Commission against the

decisions of Ombudsman; [Para 6.8.3 (i)]

(vi) Fixing time-limit for creation of ‘State Electricity Regulatory

Commission Fund’, if not already created; [Para 6.8.3 (c)]

(vii) Inducting the Chairpersons of both CERC and CEA as permanent

members of the Selection Committees for the State Commissions.

[Para 6.8.3 (k)]

7.1.9 Constitute a Power Sector Reform Fund (PSRF) in States, with a commitment

for matching contributions from the Central Budget. [Para

6.9.3]

7.1.10 Request the Central Financial Institutions to render assistance also to

Distribution utilities, whose major Share-holding is by the private companies,

by relaxing norms; and extend financial support to them under APDRP,

RGGVY, etc., on a level playing field. [Para

6.10]

7.1.11 Coordinate with IIMs, IIPA, ASCI and NPTI to impart structured management

training and development programmes to the personnel of State Power

Utilities. [Para

6.14.4]

7.1.12 Establish a Centre for Manpower Planning and Development in the Power

Sector. [Para

6.15]

7.1.13 Request the Department of Administrative Reforms and Public Grievances

(DAR&PG) to assist Utilities to establish Citizens’ Charters and in capacity

development to implement these charters. [Para

6.18]

7.1.14 Circulate a consultation paper on ‘Reducing Cross-subsidies’ on the lines

suggested in this Report and vigorously pursue efforts to build up political

commitment issue, as recommended. [Para 6.22.6 (g)]

7.1.15 Review the formula established for fixing the Open Access surcharge in

consultation with FOR and make necessary modifications. [Para

6.23.4]

149

7.1.16 Identify a national level agency to collect, update and process the power sector

data on technical, financial and commercial aspects and establish Data

Management Systems for dissemination to stakeholders. [Para

6.24]

7.2 Steps to be Taken by the State Governments

7.2.1 Review the current status of restructuring (as brought out in Chapter-6 of the

Report) and analyse the findings and recommendations for taking forward the

Reform Process.

7.2.2 Formulate Detailed Policy Statements (DPS) on the future strategy for power

sector development with targets and milestones, with the approval of the State

Cabinet. [Para

6.2]

7.2.3 Reactivate the High-level Empowered Committee under the State Chief

Secretary to guide and direct the reforms process. This committee should issue

periodic comprehensive progress reports against set targets. [Para 6.7.4]

7.2.4 Establish a comprehensive communication strategy as recommended in this

Report, with the help of professionals in the field and involve Utilities, media,

civil society, eminent citizens and local bodies in its implementation.

[Para 6.3.12]

7.2.5 Evolve a forward looking and effective HR policy, which would motivate the

staff of the Utilities for higher efficiency and would also assure them of their

terminal benefits and career prospects. Further, initiate action to review the

staff norms, and strengthen the managerial cadres, as required. [Para 6.5]

7.2.6 Review and update the FRPs with specific commitments and targets to bring

about financial turnaround of Utilities and include them in Medium Term

Expenditure Framework (MTEF), performance budgets and Annual Plan

discussions. [Para

6.6]

7.2.7 Create a healthy convention of invariably implementing the directions and

orders of ERCs and resolving disagreements, if any, through a consultative

process. Also, extend full autonomy and assistance to Regulators in matters of

organisation, staff complement, appointment of staff, funds, infrastructure

facilities, etc., subject to an overall budget ceiling. [Para 6.8.2 (b)]

7.2.8 Initiate action to establish the PSRF expeditiously, in consultation with the

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Ministry of Power and the respective Regulatory Commissions. [Para 6.9]

7.2.9 Ensure greater autonomy and efficiency to the board of directors of the Utilities

by inducting at least 50 per cent directors from a panel of experts in relevant

disciplines. Also induct adequate functional directors into the boards and desist

from inducting political appointees to the boards. [Para 6.11.2]

7.2.10 Institute the system of MOA, with annual performance targets, mutual

commitments and obligations between Utilities and the Departments of

Energy/Power. The State Governments should honour the commitments and

obligations as agreed to in the MOA. [Para

6.12.1]

7.2.11 Commit to a policy of granting full autonomy to the restructured Utilities.

Facilitate the strengthening of the management cadres by inducting

professionals, on fixed tenures of minimum three years, with specific targets

for achievements. [Para

6.13.7]

7.2.12 Desist from appointing the Secretary (Power) as chairperson of any power

Utility. Chairperson/CMD/Director (Finance)/Company Secretary, etc., of one

Utility should not hold a post in any other power Utility. [Para

6.13.8]

7.2.13 Sponsor competent middle-level officers with the necessary aptitude for

management development/training to designated professional training institutes

of repute. [Para

6.14.4]

7.2.14 Facilitate public participation by offering 26 per cent equity in Generation

Companies to the public and also with a percentage earmarked for employees

at attractive rates. Undertake suitable restructuring plans to assist financially

weak Utilities to achieve turnarounds as a prelude to public participation,

restricted to 26 per cent, in the equity base of the Distribution Companies.

[Para 6.16.2]

7.2.15 Establish a policy to increase public participation in chosen areas of interface

with the Utilities, to increase customer satisfaction and overall improved

performance. Also, ensure that all Utilities establish and implement efficient

Citizens’ Charters and appoint nodal officers to monitor their implementation.

[Para 6.18.2]

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7.2.16 Provide complete support to Utilities to achieve universal metering

programme, covering all categories of consumers. Also, a minimum charge

(higher than the charges for their average consumption) be introduced so that

consumers are compelled to get their defective meters replaced. [Para 6.19.3]

7.2.17 Extend total support to Utilities to detect and prevent theft of electricity by

establishing special courts and Police Stations, deputing adequate police

personnel and prosecutors for such tasks, and providing adequate funds in the

budget for this purpose. Institute awards and incentives to the district officials

who play an active role in prevention of electricity thefts. [Para

6.20.5]

7.2.18 Review, in consultation with the Regulatory Commissions, the current policy

of Flat Rate Tariff for the agriculture sector, to deter the consumers from

availing unlimited quantity of power; and explore means to gradually reduce

the cross-subsidy over a given period. [Para 6.22.6 (a)]

7.2.19 Encourage the development of non-conventional energy sources through

innovative measures; such as providing suitable incentives and discouraging

the use of conventional energy for heating purposes in large industrial,

commercial and residential complexes and making solar energy systems

mandatory. [Para

6.27.3]

7.2.20 Entrust the State Transmission Corporation with the task of Statewide

planning for the power sector; and induct experienced personnel for such

assignments. [Para

6.29]

7.2.21 The States, which have not yet reorganised their SEBs, may review and adopt

with suitable customisation, the model followed by Andhra Pradesh, Haryana,

Karnataka, etc., (Model II, as mentioned at Para 4.6.4, Chapter-4) for

restructuring their SEBs. [Para

6.7.3]

7.3 Steps Suggested for Implementation by the Utilities

7.3.1 The Utilities should design a focused and effective communication strategy,

jointly with the respective State Governments by engaging professionals in this

field. The ‘message’ should highlight the imperatives and benefits of the sector

reforms and all stakeholders should be targeted. The strategy should also

include: conducting face-to-face meetings with staff representatives and

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enlisting the participation of civil society organisations, etc. [Para

6.3]

7.3.2 Enlist the support of the media, especially the electronic media, to spread the

message and beneficial effects of the reform process; involve Gram Panchayats

and other local bodies in the communication strategy. [Para

6.3.13]

7.3.3 Prepare an efficient and forward looking HR policy with the help of consultants

to enhance professionalism, morale and motivation of the staff at all levels.

Also, initiate action to right-size the staff and strengthen the middle and top

management levels by inducting professionals. [Para 6.5]

7.3.4 MoAs should be signed with State Department of Energy/Power, specifying

annual targets and commitments. [Para

6.12]

7.3.5 Prepare a programme for increased civil society participation in the areas of

consumer interest, on the lines of Akshay Prakash Yojana (APY) in

Maharashtra and Grama Vidyuth Pratinidhi (GVP) in Karnataka and other

appropriate models. [Para

6.17]

7.3.6 Establish Citizens’ Charters in all offices and divisions as mandated by the

Department of Administrative Reforms and Public Grievances, Government of

India, and take action to implement them earnestly, in cooperation with

consumer advocacy groups. [Para

6.18]

7.3.7 Ensure that the Universal Metering Programme is accorded top priority. Also

ensure that meters are checked regularly and defective meters replaced

promptly. [Para

6.19]

7.3.8 Pursue with the concerned State Government to secure its full support and

cooperation to detect and prevent electricity thefts; follow up regarding

establishment of special courts, special police stations and prosecutors, etc., by

regular interaction. [Para

6.20]

7.3.9 Strengthen energy audit by providing precision meters of the prescribed

accuracy, feeder meters, and installing adequate checks, in accordance with the

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set guidelines. [Para

6.21]

7.3.10 Establish fair and transparent outsourcing strategy for each company, (after

taking the staff representatives into confidence), by identifying suitable

functions, aimed at achieving better efficiency and customer satisfaction with

proper checks and balances. [Para

6.26]

7.3.11 Foster the application of feasible IT solutions, such as consumer indexing,

AMR, GIS, DAS, etc., in the power systems. [These should be validated by the

Regulatory Commissions/independent agencies and should be made a

prerequisite for decision-making on Annual Revenue Requirements (ARR)

filed by the Utilities before the appropriate Commission]. [Para

6.25.2]

7.3.12 Accord high priority for rural electrification in the business plan, and also

include the targets in the MoAs to be signed with the Department of

Energy/Power. Undertake plans to provide separate 11 kV feeders for rural

domestic and agricultural supplies, to facilitate better load management and

improved recovery. [Para

6.28]

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seb national report

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