India has the world’s fifth-largest electrical system, with an installed electric capacity of about 206 gigawatts (GW)
In India, the share of private sector in power generation has risen substantially over the past few years, but state electricity boards continue to own nearly 95% of the distribution network. Thus, the entire value chain of the power sector in India is dominated by the state owned companies.
These State Electricity Boards or SEBs are in existence for last 5 decades. Over the period of time, they have become unviable and unprofitable due to heavy accumulated losses and liabilities.
India’s power distribution segment is plagued by two types of losses:-
- Transmission & Distribution (T&D) Losses: These losses are due to inefficiency in transmission sector and have mainly occurred due to feeder metering in the past. Please note that a substantial portion of T&D loss, including theft of electricity gets attributed to agricultural consumption.
- Aggregate technical and commercial (AT&C) losses: These losses refer to the difference between units input into the system and the units for which the payment is collected.
As the T&D loss was not able to capture all the losses (including non-realization of payments) in the net work, concept of Aggregate Technical and Commercial (AT&C) loss was introduced.
AT&C loss captures technical as well as commercial losses in the network and is a true indicator of total losses in the system. AT&C Loss is the clearest measure of overall efficiency of the distribution business as it measures technical as well as commercial losses.
Thus, the reasons of the T&D and AT&C losses are:
- Power Theft
- Incorrect billing
- Inefficiency in collection
- Leakage in transmission and distribution system
- Lack of investment
Further, one more issue with the power distribution companies is the mismatch between tariffs and cost of generating power
The very high fraction of losses have plunged the financial health of state electricity boards in a distressed state. The reason being no revision in power rates due to political pressure. The fallout of the poor financial status of the SEBs is that for the discoms, it has become increasingly difficult to service their debts. In order to pullout these Discoms from their wrecking condition government launched:
The Government launched the Accelerated Power Development & Reform Programme (APDRP) was launched in 2001, for the strengthening of Transmission and Distribution network and reduction in AT&C losses. The scheme was launched to bring the AT&C losses below 15% in five years in urban and in high-density areas.
The government restructured the ARDRP programme. The Restructured APDRP (R-APDRP) was launched in 2008 as a central sector scheme for XI plan.
The major problem of the previous APDRP was the inability to use the grants and failure to upgrade the system. This new programme comprise of two main parts-Part-A & Part-B
- Part – A: This part provided assistance to states for establishment of Base-line data and Information Technology (IT) application for energy accounting/auditing and IT based customer service centers.
- Part – B: This part includes regular distribution strengthening projects like renovation, modernization and strengthening of 11 kV level Substations, Transformers etc.
The first thing was that the project moved at snail’s pace. Power Finance Corporation was designated by MoP as the nodal agency for operationalising the scheme.The SERCs were floated, IT companies joined the bandwagon, bids, tendering and re-tendering were all around.
V.K. Shunglu Committee
In the backdrop of mounting losses in the power distribution segment, the Union Government approved a high level panel on Financial Position of Distribution Utilities to look into the financial problems of the SEBs/distribution utilities and to identify potential corrective steps, particularly in relation to their accounting practices. The panel was appointed in July 2010 and is headed by former comptroller and auditor general V.K. Shunglu. The committee submitted its report to the government in December last year.
It came up with the following recommendations & observations:
- One primary reason for the distribution utilities not submitting their tariff proposals in time or in acceptable form is the state government’s political sensitivity to any proposed increase in tariffs
- Dynamic Prising based on best available data and the rise in fuel costs should be passed on to consumers.
- Since T&D losses are not uniform across a state, consumers in an area that has a high default rate should be charged more compared with those consumers in the area of lesser default.
- Single integrated system (commercial + financial)
- Logically delineate functions to be performed by distribution company itself and outsourced company.
- Ensure Regularity of power supplied and redressal of customer grievances.
- Distribution Franchisee Model would be the way forward on an urgent basis for the utilities to bring down their distribution loss levels significantly, given the advantages over the public-private partnership model and successful implementation of the franchisee model for the Bhivandi Circle in Maharashtra.
- A Special Purpose Vehicle should be created that would buy the bank loans of discoms, subject to various conditions. The SPV’s chairperson would be appointed by the RBI. #The SPV Model was not accepted because there was no response from RBI on the matter.
BK Chaturvedi Panel
Planning Commission had also set up a sub-committee headed by B K Chaturvedi to help restore the financial health of the utilities.
- While the VK Shunglu panel had recommended the franchise model for public entities involving private companies in power distribution, the BK Chaturvedi favoured the public private partnership (PPP) mode over the franchise model.
- The reason was that private entity in the franchise model is not required to obtain a distribution licence and, hence, is outside the purview of the State Electricity Regulatory Commission.
- Chaturvedi panel also said that the franchise model is incapable of bringing in adequate capital investments and will not ensure financial stability of the sector.
- The Chaturvedi panel formulated a plan, according to which the state governments will absorb 50% of the debt of discoms and convert them into state government bonds. The other 50% will have to be restructured by commercial banks by extending the tenure for repayment and a possible moratorium on interest. RBI will have to step in and give concessions so that banks can continue to lend to the sector.
- Thus, recently the government has announced a Rs. 1.90 Lakh Crore debt restructuring package that would enable the nearly bankrupt distribution companies to begin a fresh round of tariff increase.