Bravo Naveen Patnaik, the trend setter

 

Any country’s development is measured by the quality and uninterrupted supply of electricity to consumers whether retail or companies, institutions etc. India now reached the status of 3rd world largest producer of energy for which we all be proud enough. But the quality supply that too uninterrupted supply factor if we take into consideration, we will be far below the global rank index. Recently, we also achieved two landmark events i.e. all villages are connected and All households are connected except few small pockets in two States for which again we will be proud of our achievement. But if we want to join in the celebrity club these two achievements are not enough. Hassle free quality supply of power is the benchmark to boost ourselves.

 

All of us are aware that power is crucial component of infrastructure.In our day to day life,  we can not live for few hours without supply of power. It is an engine to boost growth, development, employment, ease of living and standard of living. Of course, now, we must proud of again to note that India transformed from power deficit country to power export country. Also, we are transformed into one grid, one frequency of power all over India. All these series of achievements were possible because of continuous reforms and sustainable actions taken all these years.

 

Power sector is mainly segregated operationally into three segments. Generation, transmission and distribution. All the three segments are important for reaching desired goals. India was able to fast reaching goals with regard to power generation. If we recall two decades back position, the power generation was horribly bad and mostly, it was exclusively in state sector. This segment was opened up and huge private investments came into the generation segment. Though there are several problems in the sector, broadly country is happy with this transformation. Second is strengthening transmission. It is also crucial segment for uninterrupted and quality supply of power. We can not say that the issue is fixed with total satisfaction but it is also having its own credits like transformation to single power grid with single frequency. Still, it has to travel lot of miles to strengthen the transmission lines. But we can go with fifty fifty marks in this segment.

The third and most important segment is Distribution. Unfortunately, anticipated progress is not achieved in this sector. One reason is that it is the segment out of the three directly connected with consumer. Lot of issues are there. Before going into those details, let us understand that per capita consumption of electricity is not uniform all over the country. The variation from one region to another is huge. The figures reveal that western region tops per capita consumption with 1573 kws, southern region followed closely with 1465 ( Telangana: 1727 & Andhra: 1388) , northern region with 1031. Eastern region consumes only 706 and North-East region simply 401kws.  It reflects Indian complex development problem.

The poor performance of State owned Discoms ( Distribution Companies) not only affects its financial dismal position but also damaged the Generation companies balance sheets. Its poor payment record varies from 2 months to 15 months dues. It not only affects Generation Companies but also Banks who financed heavily Generation Companies. Stressed assets to power sector in Bank lending is worrying everyone including Government. Its root cause lies in Discoms compounded with other issues like supply of coal etc. That is why, more attention is to be paid to reforms in Distribution segment.

Reforms in Power Distribution

Series of reforms were undertaken since long time in this sector. The reforms are broadly divided into three areas.
1. Structural Reforms
2. Operational Reforms                                                                                                                                                                                                                                                                                     3. Financial Reforms

In the area of Structural reforms, several legislations were enacted bringing structural changes. We must appreciate that it was the Odisha Government first brought legislation   by passing Odisha Electricity Reforms Act, 1995. Union Government taking the clue from this Act brought Electricity Regulatory Commission Act, 1998 , later replaced it by Electricity Act, 2003 and amended it in 2014. These acts brought lot of changes in the structure. Electricity Regulatory Commission is now mandatory. Tariff fixation is to be finally approved by the Commission. There are several other aspects in these legislative reforms. Along with this, private participation is allowed through these Acts. Odisha was the first State to privatise Distribution of power in the year 1999.

Similarly reforms were brought in Operational side by Open Access (OA) system thereby consumer is having choice to buy power from market. The other reforms are intensive connectivity to villages and households  initially in the name of Rajiv Gandhi Grameena Jyothi Scheme which was later modified as Deen Dayal UJJAL Grameena Jyothi ( DDUGJY) during Modi period. Now, all villages were connected with specified and focussed target. Similarly, Sowbhagya Scheme was launched in the year 2015 targeting all households to be connected in specified time. 26 million households were connected in a short time frame of 15 to 18 months which is a record of its kind. Similarly, urban infrastructure was changed with another scheme , its latest modified version is IPDS.

 

The third one is financial reform. State Discoms financial position is very bad due to multiple reasons. One is the tariff, subsidies, non-payment of dues by state Governments and many more. The reforms started in the year 2001 with Bail out package, continued with 2012 financial restructuring package and now latest with UDAY in 2015. Though the financial position is improved after launching UDAY scheme by joining almost all States except West Bengal and one more. Annual losses prior to introduction of UDAY was estimated at Rs 60000 crores and it has come down to Rs 23000 crores. Still, there are umpteen number of issues to be fixed. The losses were due to lower tariffs, more expensive cost of power, hikes in coal and rail freight charges etc.Aggregated  Technical  & Commercial losses (AT&C) were around 18.2% whereas the target as per UDAY is 15%, more than 3% higher. Discoms are facing lot of operational problems. The first and foremost is poor quality of baseline data as well as inadequate capture of  real time data followed by AT& C losses, tariff structure and cross subsidy issues. As long as the status of State owned Discoms are not changed, power sector will face crisis situation and also impact Banking sector. Union Government is trying to bring more reforms in Distribution sector in the coming days.

Privatisation of Distribution Companies

An experiment was made to address this problem through privatisation by some States. As mentioned earlier. Odisha Government took lead in this regard. In the year 1999 itself it handed over distribution of power supply to US company by name AES Corp but reversed the decision by 2005. Another State which handed over Distribution to Private Companies is Delhi in the year 2003. The experience of both the States are quite opposite. Delhi by and large is successful. Its AT&C losses were reduced from 40% in the year 2002 to 13% in 2016. It is well below UDAY target for State owned Dicoms for the year 2019. The quality of power is also much better compared to other States. Odisha which started much early in the year 1999 failed in the experiment. Both are a case study. The consumer base of Delhi is largely urban and industrial whereas the base of Odisha is mainly rural and also faced with poor data quality. Odisha faced tariff recovery issues in the highly volatile political climate.

Bravo Naveen Patnaik 

Odisha headed by Naveen Patnaik is trend setter in many aspects. Even their representatives in Parliament spoke very elaborately on the subject with deep knowledge. That is the reason, their views will be heard keenly and their contribution to the debate and suggestions on Bills is exemplary. Even now, Naveen Patnaik wanted to be trend setter once again in power sector reforms. Odisha is having four Power Distribution Companies in the State. He wanted to privatise all the power distribution companies once more though his experiment failed in the year 1999 to 2005.

 

Now, more exposure is there compared to 15 years back. He wanted to fix the problem through Privatisation. CESU, the Central area Distribution Company having substantial urban base is already went for bid. It seems that Tata Power is only the Company left in the field. In few days, the decision of Odisha Government will be out. This issue was handled by Pricewaterhousecoopers. The other three Discoms are also going for sale soon. Many people are watching how the experiment will be. If it is successful, more States are to follow.

Some arguments in the light of perennial problems faced by Discoms are developing in favour of handing over to Private players whether Indian or Global. They advocates that it will bring more money, more importantly advanced technology and domain knowledge. Our technology is not matching with either China, Japan, US or any other advanced global partner. Though we are now going for smart grid, smart metres matching foundational technologies like SCADA, GIS are lacking. We can not totally brush aside this argument. But it need not be total. Recent ratings show that certain State owned Discoms are falling under A+ and A categories. Such Discoms must be encouraged to be in State Sector. Some Discoms are falling in the C category whose performance is dismal. Such Discoms can be experimented with Privatisation. It is always good if sector is opened for competition from both Public and Private sectors. The urgent fixation of power distribution is badly needed for more investments, more growth, healthy Power sector and also strong Banking sector.

Kudos to Naveen Patnaik for daring experiment taking risk in the interest of better power sector. Bravo Naveen Babu