[Type text] Power distribution reforms in Gujarat

Transcription

1 [Type text] October 2009

2 Introduction The Gujarat Electricity Board (GEB) was established along with the formation of Gujarat State in the year 1960 under Section 5 of the Electricity (Supply) Act It commenced its operations with generation capacity of 315 MW and a consumer base of 1.40 million consumers. During 1970s and 80s, the major thrust was on the supply of electricity in the rural areas. It was largely due to GEB s unwavering focus on rural electrification that Gujarat became the first state to achieve the landmark of 100% Electrification of Villages. As per the 1991 Census, 17,940 out of 18,028 villages were electrified which was notified as close to 100% 1. The impetus for reforms Over time, the emphasis of GEB on electrification particularly in the rural areas, new connections and maintenance activities resulted in divergence from concentrating on profitability. Recovery of revenue was then considered as a secondary function. As a result, GEB faced minimum growth of revenue, rising arrears and heavy financial losses. It was also a drain on public resources due to the state s policy of supplying electricity to agricultural consumers at extremely subsidized levels. The tariff for about 0.5 million agricultural consumers, prior to October 2000, was Rs. 350 per horsepower of load connected per year, which led to a revenue realization of only Rs per unit during Each incremental unit of agricultural consumption required a subsidy of at least Rs per unit. The provision of heavily subsidized electricity to agriculture consumers boosted its share of consumption from 16.7 percent of all electricity sold in the state in to 43 percent in The loss incurred by GEB on this account was estimated at Rs. 14 billion during Though GEB started certain initiatives in 2000 but the conditions did not improve much by the year (as shown in diagram below) 3. As a result, GEB faced recurring financial deficits and Chart 1

3 was unable to raise resources for investments. The inefficiencies in the sector manifested themselves in the form of chronic shortages and unreliable service. During FY , load shedding ranging between 50 MW and 1,450 MW was experienced on 362 days of the year 4. The Government of Gujarat (GoG) initiated an ambitious policy of inviting private sector participation (PSP) in the power sector. But the desired PSP did not materialize because the revenues generated by the sector were insufficient to service the large inflow of capital that was required 5. Due to the drain on its resources caused by supporting an inefficient power sector, the GoG was not able to increase spending on other important areas of infrastructure as well as for social services. In view of the above, GoG decided to reform the power sector in the state with a two-fold objective: I. Addressing the concerns of the investors II. Creating a business environment conducive to improving the sector s operational efficiency, financial viability, and service to consumers GoG proposed to achieve its above mentioned objectives through a number of reforms. Some of the important measures which GoG decided to take in order to achieve the targets were: I. Greater competition at all levels of the sector wherever practicable II. Corporatization and commercialization of existing sector entities III. Private sector participation in the generation and distribution segments IV. Tariffs enabling cost recovery as well as reasonable profits V. An independent regulator VI. Transparent, reasonable, direct, and quantified subsidies to vulnerable sections of consumers. Implementation of Reforms The promulgation of the Gujarat Electricity Industry (Reorganization and Regulation) Act in 2003 for reorganization of the electricity industry in Gujarat and for establishing an Electricity Regulatory Commission in the state for regulation of the electricity sector paved the way for the organizational restructuring of GEB. The vertically integrated GEB was unbundled into seven companies one each for generation and transmission, four distribution companies (Discoms) and a holding company known as Gujarat Urja Vikas Nigam Limited (GUVNL). The generation, transmission and distribution companies have been structured as subsidiaries of GUVNL. GUVNL acted as the planning and coordinating agency in the sector when reforms were undertaken. It is now the single bulk buyer in the state as well as the bulk supplier to distribution companies. It also carries out the function of power trading in the state. All companies became fully operational from April 2005 and began conducting their activities independently. Distribution in the cities of Ahmedabad and Surat has historically been with a private sector entity viz. Torrent Power through its fully owned subsidiaries Ahmedabad Electricity Company and Surat Electricity Company.

4 A noteworthy feature of reforms in Gujarat was inclusion of representatives of the unions and associations of the staff in the restructuring process from the initial stage, i.e., from the time decision was taken on reforming the sector. It convinced the staff that the GoG and GEB were not pursuing any hidden agenda. It thus cultivated a high level of trust and confidence amongst the staff about aims and objectives of reforms and the process proposed to be followed to achieve them. This ensured full cooperation of the staff of GEB in the reform process. No case of strikes/protests from employees of the erstwhile GEB was observed in Gujarat. Transition support by the state government As is typically the case with structural reforms of power utilities, GoG prepared a Financial Restructuring Plan (FRP) to enable the newly formed distribution companies to Figure 1 start with a clean balance sheet. Under this FRP, the losses of the erstwhile GEB were inherited by GUVNL. GoG took over the debt payment liability of GEB. It settled outstanding dues of Rs Crores payable to Central Public Sector Units (CPSUs) up to September 2001 and in lieu issued bonds to these CPSUs. This payment to CPSUs, since then has been regularly made through Letter of Credit without having any further problems resulting in zero outstanding dues payable to any of CPSUs. Further, GoG converted its loan to GEB aggregating to Rs. 623 Crore into Equity shares in GUVNL. It also allowed a moratorium period of six years (from FY to FY ) on interest payment liabilities on the remaining outstanding loan of Rs. 842 Crore 1. The objective of this moratorium period was to enable early recovery of financial health of GUVNL.

5 Besides this, GoG sanctioned a capital grant of Rs. 250 Crore per annum from FY to FY with the objective of strengthening the power sector. Such grants can be utilized for capital expenditure purposes, rural electrification projects, maintenance of quality human resources and expansion of generation capacity 1. Early reform initiatives in Gujarat Several states had undertaken the process of structural reforms to varying degrees before Gujarat embarked on this path. These states include Orissa, Haryana, Andhra Pradesh, Delhi, Karnataka and Uttar Pradesh. On the other hand states like Madhya Pradesh and Maharashtra were undergoing this process around the same time as Gujarat. However, unlike other states that waited to complete structural reforms before taking up comprehensive measures to address the problems facing them, Gujarat had started the process of reforms in early 2000 during the GEB days. GEB undertook several initiatives to improve revenue as well as efficiency and control expenditure. A brief overview of the measures undertaken by GEB is provided below. Revenue improvement measures GEB made significant efforts to improve its revenue through greater monitoring of the revenue situation and fixing of accountability for the same on its employees. It started monthly meetings at the zonal levels which were attended by the Chief Engineer and the Members of the Board. The objective of the meeting was to familiarize all concerned officers with the extent of the problem, fix performance parameters for the succeeding month and monitor past performance. GEB adopted the feeder manager approach to make the field level officer accountable and through monitoring of their performance, achieve results in form of reduction in transmission and distribution (T&D) losses. Similarly, it held Deputy Engineers and Junior Engineers responsible for sub-division wise revenue performance parameters such as reduction in arrears. Efficiency improvement One of the biggest achievements of GEB was its drive against power theft. GEB took stringent measures to curb theft of power and dealt sternly with cases of theft and non-payment of bills either by individuals or by companies. It appointed 500 retired army personnel to check power offenders and set up a vigilance department headed by an IPS officer in the rank of Additional Director General of Police on deputation from the Government of Gujarat. Further, introduced a scheme of cash reward (based on the recovered amount due to submission of information) as an incentive to encourage people to come forward and submit information on theft. For eligibility for getting cash, the power theft informer had to submit detailed information on a prescribed format. The name, address and amount paid to the informer were kept confidential. Besides this, GEB formed 74 inspection squads under this vigilance department. 11 squads were dedicated to checking HT installations and the remaining were required to check LT industrial, commercial, residential installations. These squads conducted raids during odd hours.

6 While many theft cases were disconnected immediately upon detection and reconnected only after the violators paid their arrears, many violators were convicted by the court. For this purpose, GEB appointed managers who were accountable to settle the case. GEB received support from GoG in the form of five dedicated police stations at Surat, Baroda, Sabarmati, Rajkot and Bhavnagar which were set up only to deal with cases of power and power property theft. Officers of the rank of DSP, PI, PSI, and ASI from the state police department are working on deputation to facilitate the functioning of these police stations. Some retired officers from the state police department are also posted here as Officers on Special Duty. In a span of four years almost all connections, both High Tension (HT) and Low Tension (LT), were checked and verified. Consequently, sealing of connections was carried out and by 2005 GUVNL had sealed almost lakh connections in the state. In , GUVNL recovered Rs 16 crore by settling 36,982 civil suits of power theft and malpractices 1. Distribution Reforms in Gujarat and their Impact The focus areas of distribution reforms in Gujarat have been as follows: Reduction of distribution losses Commercial loss reduction Improvement in revenues Improvement in customer services REDUCTION OF DISTRIBUTION LOSSES The distribution companies in Gujarat have focused on reducing distribution losses by a combination of measures such as implementation of technology, strict measures to tackle theft, strengthening of the network, and changing processes and procedures. Jyoti Gram Yojana Though the villages in the state were largely electrified as per prescribed parameters, there was a significant gap in the quality of power supplied to these villages. This was attributable to the unauthorized use of power in these villages through illegal means resulting in frequent transformer failures, poor voltage stability and poor reliability of supply. Further there was a rapid increase in demand for power in the rural areas. In this backdrop, the GoG launched the Jyoti Gram Yojana (JGY) as a pilot initiative in eight districts in September 2003 with the objective of supplying reliable and quality power. This scheme was part of the bigger objective of facilitating growth of the rural economy in the state. The pilot was successfully completed in October 2004 and in November 2004 the scheme was extended to the entire state. The JGY had the following characteristics: Bifurcation of rural feeders into: o Agricultural feeders catering solely to demand for agricultural purposes o Rural feeders catering to load other than agriculture Erection of 11/22 kv HT lines in rural areas to separate the agriculture load from the village transformer centre o Metering of Transformers on JGY Feeders o Providing round the clock 3-phase power supply to consumers other than agricultural consumers while ensuring

7 improved quality of minimum 8 hours continuous power supply at predetermined schedule to agriculture At the end of FY , villages were covered under the JGY. It involved laying a parallel rural transmission network across the state involving the erection of 15,500 transformers and 75,000 km of lines at an investment of Rs 1,200 crore. The investment was almost entirely funded through grants from GoG (Rs crore) with the remaining funds being contributed by the concerned DISCOMs, the Asian Development Bank and schemes such as the APDRP, the MLA fund, etc 6. Jyotigram Yojana has been successful in providing multiple benefits to both the residents of villages as well as the Discoms. Some of the prominent effects seen as a result of implementation of this scheme are: Improved standard of living: The Jyotigram Yojana has led to a substantial improvement in the standard of living of the people in the rural areas, as they are now able to access and use a wider variety of goods and instruments. Development of small scale industries: It has led to development of Industries in Rural sector due to better and improved availability of power supply. Local employment: The industrial and economic development in rural areas has lead to availability of more employment opportunities in villages. Reduced emigration from rural areas: Shemes like Jyotigram Yojana help in reducing migration from Rural to Urban areas due to all of the above mentioned benefits. The non-farm activities, both trade and industry have benefited significantly due to the scheme. This provides avenues to the rural population to increase their earning power and improve their standard of living. Besides there is an improvement in the availability of essential social services like hospitals, water supply and sanitation services. This reduces the incentive of emigration of people from their native places. Reduced emigration also helps urban areas by reducing the load on their infrastructure. Initiatives for technical loss reduction In order to minimize distribution losses various distribution companies in Gujarat started upgrading their infrastructure. A number of steps were taken to adjust existing infrastructure so as to optimize costs and minimize losses. Feeder Bifurcation: Feeder bifurcation done under JGY has an impact on technical losses as well. It led to lesser overloading of transformers and conductors. Also it reduced ampere loading of feeder by which I 2 R losses can be reduced. Reduction of HT / LT ratio: Distribution companies in Gujarat took steps in order to improve their HT/LT ratio in order to reduce technical losses. Some of the steps taken are: o Use of HVDS: Discoms introduced use of high voltage distribution system (HVDS) in Gujarat. HVDS is a practice whereby the HV line is extended up to the load. Required supply is then tapped off from 3-phase HV mains in proximity of a load point through a distribution transformer of lower capacity. This kind

8 of arrangement reduces the length of LT line to just that of the service cable. Implementation of HVDS also leads to better reliability in the system as the unauthorized connections, if any, are now connected to HV line. HV line has the capacity to handle the extra load during peak hours and hence tripping of electricity caused due to overloading are reduced. o Replacement of low capacity lines with HV lines and usage of adequate size of conductors Optimum loading of transformer: The loading and positioning of distribution transformers was done so as to reduce copper losses / iron losses. Usage of amorphous transformers was also introduced. COMMERCIAL LOSS REDUCTION Commercial losses suffered by distribution utilities have a single dominant reason: power theft. Gujarat was no exception to this fact and hence strict measures were taken to control power theft. The initiatives started by GEB have been continued by GUVNL as well as the DISCOMs. The Vigilance Department is now part of GUVNL and keeps a watch on pilferage of electricity in the state. It continues to have provisions for submission of information regarding power theft. Engineers from the DISCOMs have been deputed to GUVNL to co-ordinate centralized mass checking drives in so called strong areas. Based on the consumption patterns of the feeders, theft prone areas were identified and massive anti-theft drives were organized with the help of police squads. The move was unpopular and there was stiff resistance from the people. So much so, that in one instance an official was kidnapped by some locals. Other steps that were taken to avoid future occurrences of theft are: o Installation of new meters: Approximately 11.8 lakh 1 metal meter boxes were installed for better energy audit and prevention of power theft. Meters were shifted outside the premises with separate services, particularly in towns. For heavy consumers or seasonal consumers meter reading was done on a weekly basis. Metering of feeders and transformers was also done. Energy audit to ensure zero theft was done regularly. Also billing data was analyzed for irregularities. o Improved cash collection services: GUVNL did set up almost 1,000 centers, outsourced to private agencies to carry out cash collections, to expand collection reach. To further improve cash collection 9,000 rural post offices were also used. The collective result of these efforts was seen as cash Chart 2

9 collection increased from Rs 10,204 Crores in to Rs 14,767 Crores in o Insulated/Aerial bunch conductor: Insulated conductors were used to reduce the instances of power theft by unauthorized connections. In aerial bunched conductors three conductors are twisted into a thicker insulated cable which makes tampering with power-line difficult. REVENUE IMPROVEMENT MEASURES To improve its financial health Gujarat state s Discoms took a number of steps starting from reducing its costs to increasing the number of connections. Some of these revenue improvement measures that were taken along with reduction in distribution and commercial losses to bring power distribution utilities to profitability are: Reduction in power purchase cost: In , renegotiating of power purchase agreements (PPAs) began with the four independent power producers (IPPs) Essar Power, Gujarat Paguthane, GIPCL and GSEG. This led to savings of Rs 4.95 crore in that financial year. Considering the fact that dues to the IPPs were at a staggering Rs 1,300 crore in , IPPs were asked to work out a compromise. Otherwise, it would have resulted in a yet another sick state corporation and would have led to suspended operations. In another round of negotiations in , they managed to get a further reduction of Rs 64 crore 1. Centralized purchase cell: A centralized purchase cell was created to take the responsibility of timely and cost effective procurements of materials and inventory planning. A development which came more in the form of a boon was the notification from the Ministry of Environment and Forests to use washed coal with ash content of less than 34%, which is less polluting, for power plants. This step led to savings of almost Rs crore over the period of Releasing new connections: Camps were arranged in poor areas and slums for on spot release of connection. A number of schemes, like TASP (Tribal Area Sub Plan), Kutir Jyoti, Zupadpatti, were started to provide connections to poor people Settlement of Old dues: Voluntary disclosure schemes and one time settlement scheme were also started to clear old dues. One time settlement scheme was availed by consumers 6 CUSTOMER SERVICE IMPROVEMENT Providing better consumer services is one of the major challenges faced by distribution companies in the country. Consumers face a number of problems like delay in release of new connection, delay in attention being paid to complaints, queries regarding bills not being addressed etc. to name a few. To overcome all these problems Discoms in Gujarat took following measures: Customer care centers: Customer care centers were set up at all sub-divisions, divisions and circle offices of distribution companies. These centers took care of all the customer queries related to new connection, billing, change of name procedures, technical parameter related queries etc. Trouble call management center: Trouble call management center was setup to

10 register and resolve power supply related complaints through telephone. Consumers can register their complaints which are dispatched to concerned subdivision. Once the problem is resolved status is updated by site/sub-station. Consumers can check status of their complaints and other details through their customer no. Bill collection arrangements: Distribution companies in Gujarat have taken a number of measures to ensure ease in bill payment to consumers. All time payment centers have been set up to allow bill payment facility to be available 24 hours a day. Bill collection arrangements have been made with post offices, banks and other private agencies to provide increased number of collection centers. To reduce the time people spend standing in queue while paying their bills retired employees were hired. With increased number of booths, manned by these retired employees, bill collection was done more swiftly. Introduction of Geographical Information System (GIS): GIS is a technology which integrates various information within a single system by putting maps and other kinds of spatial information in digital forms, makes connection between activities based on geographic proximity and helps in decision making for system planning and maintenance. GIS is helpful in locating consumer complaints immediately as it can index consumers directly to poles based on the geographical and spatial data available. GIS also allows identification of voltage and regulation problems relating to HT & LT network. Outcome of reforms and initiatives Post reforms Gujarat has turned out to be one of the few states in India which can boast of power availability round-the-clock in most of its towns, cities and villages. However, reforms in Gujarat led to formation of in four power distribution companies. Performance across these companies has not been identical and varies according to the demography of their distribution areas. Various parameters indicating the performance of power distribution companies in the state are discussed below: AT&C losses: The distribution companies in Gujarat inherited a distribution network with high AT&C losses. In the year GEB reported AT&C losses at 35.2% 3. Post reforms a number of initiatives were taken to reduce both technical and commercial losses. AT&C losses for the state were reported at 22.6% in the year by GUVNL 7. Chart 3 AT&C losses reported by individual distribution companies have also reduced overtime as shown in Table 1. While other distribution companies have AT&C losses less than 20%, PGVCL still has very high

11 losses. PGVCL reported AT&C losses at 33% for the year Table 3 Table 1 Distribution losses: Distribution losses for the Discoms have decreased from what they inherited. Gujarat Electricity Regulatory Commission (GERC) sets target distribution losses for each Discom separately. All Discoms, except DGVCL, reported an increase in their distribution losses for the year Subsidy: Subsidy received by GSEB was Rs 1527 Crores in The subsidy reduced post unbundling to 1178 in However there has not been any significant reduction in subsidy received since then. The total subsidy received by four distribution companies for the year was Rs 1182 Crores 8. Table 2 Collection Efficiency: The Collection efficiency of GSEB in Gujarat has been high at about 97% in and Post reforms collection efficiency has improved and was reported around 98.6 * % for the year Collection efficiency for different distribution companies is as shown below: Chart 4 Subsidy received by individual distribution companies have not reduced significantly since reforms. Only MGVCL has seen a decrease in subsidy received from Rs 101 Crores in to Rs 58 Crores in * Data for Gujarat has been calculated on the basis through weighed average using Units sold

12 in , UGVCL had the gap of 44 paise/kwh. Table 4 Financial viability of the distribution companies: o Gap in cost and revenue realized: Gap in ACS and ARR has reduced from Rs 0.51/KWh in to Rs 0.24/KWh in * for state of Gujarat (as shown in Chart 5). This decrease is attributable to a number of initiatives taken to reduce commercial as well as technical losses. Table 5 o Profitability: The distribution companies in Gujarat have been making losses without subsidy. These losses have increased for DGVCL and PGVCL. MGVCL has seen a decrease in losses from Rs 84 Crores in to Rs 55 Crores in For UGVCL losses have increased marginally from Rs 575 Crores in to Rs 577 Crores in Table 6 However with subsidy all the Discoms have been profitable. Chart 5 Gap in ARR and ACS for distribution companies varies by a great margin. While DGVCL had a gap of 5 paise/kwh Table 7

13 Conclusion Gujarat is one of the few states where several reforms were initiated before the actual unbundling of SEB. A number of new initiatives were taken post restructuring by the Discoms to tackle the many problems facing the distribution system. Some of these have now been adopted by other states in one form or other. The impact of distribution reforms can be felt in decreased losses and improved collection efficiencies. Also the deficit condition of the state has also improved over the years. Peak deficit for the state reduced from 30% in to 24% in Energy deficit for the year reduced from 13% in to 10% in PGVCL has lagged behind that of MGVCL and UGVCL respectively, in terms of reduction in AT&C losses and containment of subsidy requirement. Similar difference in their performance is apparent when comparison is done on Quality of Service (QoS) parameters. In the absence of data on the QoS parameters prior to restructuring and quality data on QoS parameters currently on an annual basis, it is difficult to comment on the extent of improvement made in the QoS. Table 9 Table 8 Individual performance of distribution companies in Gujarat has not been same. Multiple factors have caused variation in their performance despite following the same reform measures, one of them being different customer mix they inherited (refer to Annexure I). Agricultural sector s contribution to revenue has been less than their percentage share in sales mix and industrial sector contributed to more than half the revenues for all the companies. This reflects cross subsidization being done and hence a benefit for companies having higher percentage of industrial sector. DGVCL and MGVCL require lesser subsidy than PGVCL and UGVCL which can be attributed to lower percentage of agricultural sector in their sales mix. However despite inheriting similar consumer mix, performance of DGVCL and Finally, the profitability of Discoms without accounting for subsidy remains under doubt. Lowered dependence on the state government as far as subsidies are concerned is a must in order to achieve the ultimate goal of financially sustainable power distribution system.

14 ANNEXURE - I Sales mix: Distribution sector in Gujarat was divided into four companies and all these companies inherited different mix of consumers depending on the area served. While DGVCL and MGVCL got a consumer mix containing predominantly industrial consumers, PGVCL and UGVCL inherited a consumer mix having a large percentage of agricultural consumers. Over the years all the companies have seen a marginal decline in sales to agricultural consumers as percentage of sales. Share of industrial consumers has increased significantly for PGVCL from 32.4% in to 41.6 in Table 1 Table 2 Revenue mix: The revenue mix of companies varies according to their sales mix. However approximately half of the contribution to revenue is made by industrial sector for all the companies. Contribution by agricultural sector is quite low despite having a large share of sales in PGVCL and UGVCL. Table 2

15 Cost components: The cost components as percentage of total costs have not varied much for the distribution companies. However most of the companies have seen rise in employee costs as percentage of total costs. Table 3

16 REFERENCES Presentation by Madhya Gujarat Vij Company Ltd. available in the Report on Loss reduction strategies, September 2008, Forum of Regulators Co-management of Electricity and Groundwater: Gujarat s Jyotirgram Yojana, Strategic Analyses of India s NRLP, Tushaar Shah, Regional Workshop at Hyderabad, August 2007 Presentation by Gujarat Urja Vikas Nigam Limited on Gujarat Power Sector Initiatives at the Regional Conference on Excellence In Public Service Delivery, YASHADA, PUNE, October Study on Impact of Restructuring of SEBs by Indian Institute of Public Administration (IIPA), September 2006 Gujarat electricity board s turnaround: complete rural electrification in Gujarat, London Business School, October 2008 Reforms and Loss Reduction Strategies- Gujarat Experience by Mr. P R Chaudhary, Officer on Special Duty Uttar Gujarat Vij Co. Ltd. Co-Management of Electricity and Groundwater: An Assessment of Gujarat s Jyotirgram Scheme, Economic & Political Weekly, February 2008 Asian Development Banks: Reports available under Technical Assistance: Gujarat Power Restructuring Report on Gujarat Electricity Board A Benchmark in the progress of SEB reforms by Indian Institute of Planning and Management (IIPM) Ahmedabad, Asian Development Bank, RRP:IND 29694, Report and recommendation of the President to the Board of Directors on proposed loans and technical assistance grants to India for the Gujarat Power Sector Development Program, November Report on the Performance of The State Power Utilities for the Years to , Power Finance Corporation Limited 4 Asian Development Bank, RRP:IND 29694, Report and recommendation of the President to the Board of Directors on proposed loans and technical assistance grants to India for the Gujarat Power Sector Development Program, November Asian Development Bank, RRP:IND 29694, Report and recommendation of the President to the Board of Directors on proposed loans and technical assistance grants to India for the Gujarat Power Sector Development Program, November Reforms and Loss Reduction Strategies- Gujarat Experience by Mr. P R Chaudhary, Officer on Special Duty Uttar Gujarat Vij Co. Ltd. 7 GUVNL Annual Report Annual reports for the financial year of UGVCL, DGVCL, PGVCL and DGVCL 9