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Conference on

Power Distribution Reforms:

Road Less Travelled

Hotel Shangri-La, New Delhi

September 14, 2011

Organised by Knowledge Partner

Knowledge Redefined


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Conference on

Power Distribution Reforms: Road Less Travelled

September 14, 2011 Hotel Shangri-La, New Delhi

In a recent meeting convened to discuss the

state of Indias power sector, the union ministerfor power announced that the country needs to

take definiti ve steps in strengthening distribution

to attain growth for the entire power sector value

chain.

Electricity is one of the key inputs to fuel and

sustain the countrys rapid economic and

industrial growth. Per capita consumption of

electricity is one of the key indicators for

assessing the level of progress a society has

accomplished and is also a factor for

determining the Human Development Index.

In 2008-09 the per capita consumption of India

was 733 kWh, which is very low compares to the

world average of approximately 3000 kWH.

Developed countries like US, Australia, China

have high per capita consumption at 13616

kWh, 11216 kWh and 1900 kWh respectively[1]

.

This highlights the gap that India needs to cover

in terms of developing power distribution in the

country.

Electricity being a concurrent subject is

governed both at the Central and the State level

in the country. Power distribution is the function

of selling electricity to end use consumers. This

sector is a key link in the power sector value

chain as it completes the last step in the

revenue cycle. Distribution in India works with

the main aim of providing access of low cost

power to all in a reliable manner.

Over the years, the state of the distribution

sector in India has degraded despite a reformprocess in place. The growth and improvement

in this segment of the value chain is not in

accordance with that experienced in generation

and transmission. We have seen major changes

happening in power generation with the passing

of the Electricity Act in 2003. The opening up of

the sector has lead to increased investment

flows converting into massive capacity addition.

However the same cannot be said about

[1] Figures are for the year 2007.

distribution, with high losses, low penetration,

failing health of public utilities being still a majorpart of the sector.

Distribution sector reform: a failed step

Reforms are a basic and crucial step in the

development of a sector in the long run. Globally

many important markets such as US, Europe

among others have experienced reforms which

have further helped them advance. The reforms

in a country are guided by the unique

governmental structure and institutions,

demographics, socio-economic and politicalenvironment and resource availability.

Traditionally electricity has been treated as an

important public good in the country and was

affected by high political intervention.

Distribution infrastructure was also in a bad

shape, with high commercial and technical

losses being a common sight in the country.

Liberalisation and Globalisation in the 1990s

brought about a change mainly in power

generation with an influx of private investment.

However, the disastrous affect of the failed

investments further sank the sector into losses.

Delhi and Orissa proved to be a good starting

point for distribution reforms. However, the true

reforms journey began with the passage of the

EA in 2003. However, in India, the success of

the distribution reforms initiated with the

Electricity Act, 2003 has been limited.

Unbundling of state electricity boards, move

towards enabling retail competition via openaccess, gradual reduction in cross subsidy,

creation of independent and autonomous

regulatory commissions for regular

determination of tariffs, etc. were the key

changes that were advocated for reforming the

sector.

Despite all the steps being taken, the distribution

sector is still plagued by many problems,

foremost and most important one being the

failing health of distribution utilities. So far, 20


Conference Background


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This is adequately been highlighted by the lack-

lustre performance of the discoms which alone

cannot survive on restructuring. Correctional

steps need to be implemented in a fast-tracked

manner for the long-term survival of these

utilities. The provisions of the reform process are

still not followed on a pan India basis with some

key states yet to unbundle their utilities.

Globally many examples exist where

privatisation and market competition have

enhanced the viability of the sector. Involvement

of private utilities was a key step of the reform

process; however, the resistance from variousangles has dampened the advantages of the

same.

India has a wide scope in involving private

players in various functional areas of a state

discom apart from a licensee such as a

distribution franchisee, O&M Contracts, EPC &

IT Implementation via Smart Grid, equipment

supply amongst others. There is an urgent need

for policy makers to bring together a new

management structure for improved operations.

Pilot studies conducted in the past have

provided ample ground for the implementation of

new and advanced market models keeping in

mind the uniqueness of the Indian market.

Market development alone cannot sustain the

reform process and a key enabler required to

further drive the sector is a stable regulatory

model. India at present lacks innovative tariff

mechanisms with flexibility to adjust to market

conditions. The rising fuel prices and shortages,

delayed clearances, etc. have created a dent inthe developers pocket, thereby affecting the

viability of the projects. With existing high

losses, discoms- the main buyers are will soon

be unable to buy high cost power, in light of the

low tariffs being charged. Tariff revision is a

dreaded process in the country with high political

involvement. There is a need to demarcate the

importance of tariff revision and strictly penalise

discoms delaying the same. The case of Delhi

and Tamil Nadu further highlights the plight of

the discoms.

Conference on




states have been unbundled. States like

Jharkhand, Bihar, Kerala and Electricity

Departments in Arunachal Pradesh, Jammu and

Kashmir, Goa, Manipur, Mizoram, and

Nagaland, all six union territories, and NDMC in

Delhi have not been unbundled. As a result of

the unbundling the country has 73 distribution

utilities including private entities as well.

The aim of the reforms of supplying power in an

efficient manner is yet to materialise. Barring a

few, financial health of discoms is deteriorating

at an alarming rate. The cumulative losses of

discoms till 2009 were INR 74,977 crores. Theprojected losses of the discoms is expected to

touch INR 1,16,089 crores by 2014-15.

The main reasons for the poor financial health of

discoms can be summed up as:

Inadequacy of tariff as approved by SERCs:o Widening of gap between the

Average Cost of Supply (ACS) and

the Average Revenue Realised(ARR)

o Compounded annual growth rate(CAGR) of tariff is less than theCAGR of power purchase cost

o No tariff revision in states on aregular basis

o Non-filing of ARR for tariff revisionby state utilities

Non-payment or delayed disbursement ofsubsidy amount by state governments

High level of cross subsidisation

No timely audit of accounts by utilities

High technical and commercial losses

Non- performance of SERCs as per the

mandate

The Way Forward

Overall restructuring is a necessary but not a

sufficient condition for the turnaround of the

power sector. Restructuring is only the

beginning and not the end of the process. It

must be a continuous and complimentary

process to enhance efficiency in distribution

companies or discoms.


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Conference on




Another aspect to be considered is the

resistance to the implementation to open accessby states fearing a fall in the revenues from high

paying industrial consumers.

Loopholes in existing regulations are a

drawback in promoting competition and

efficiency in the market.

Retail supply infrastructure in the country is a

key area of distress. The EA has provided for

competition at the retail level as well. To develop

the same, there is a need to understand the

impact of the evolving power markets in Indiaalong with a focus on balancing the renewable

energy portfolio by various states in light of

increased climate concerns.

On the other hand, the technical and physical

infrastructure lacks robustness in the country to

enable reliable supply of low cost power.

Enhancement of technical infrastructure with

better grid connectivity, sub-stations,

transformers, metering, etc at both urban and

rural levels is the main concern for the sector.

Smart grid holds potential to be taken as a

solution for reliable supply of power.


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Conference on




9AM 10 AM Registration and Morning Tea

10AM 11:15AM

Session 1: Distribution Reforms, a choice or necessity?

Open Discussion

11:15AM

11:30AM

Networking Tea / Coffee break

11:30AM

1PM

Session 2: Structural solutions for reforming distribution

Open Discussion

1PM 2PM Networking Lunch

2PM3:30PM Session 3: Reforming regulatory model, the way forward

Programme Agenda

Keynote Address / Session Chairman: Dr Pramod Deo, Chairperson, CERC

Weak financial health of SEB's / Distribution Companies?Shri Satnam Singh, CMD, Power Finance Corporation*

Flaws in regulatory model for distribution covering subsidy and tariff management?Shri Sudhir Kumar, Joint Secretary, Ministry of Power*?Shri H L Bajaj, Former Member, Appellate Tribunal for Electricity?Shri Balawant Joshi, Director, ABPS Infrastructure Advisory

Inefficient physical and technical infrastructure?Shri Rakesh Mehta, Former Chief Secretary, Delhi Government & Former Chairman, Delhi

Transco?Shri Ramesh Naraynan, CEO, BSES Yamuna Power Ltd.

Session Chairman:Shri Rakesh Mehta, Former Chief Secretary, Delhi Government & FormerChairman, Delhi Transco

Enhancement of market structure- analysing global perspective?Shri Anish De, CEO, AF-Mercados EMI

Scope for involving private participation for better and efficient working?Shri Vidur Sehgal, CEO - Govt. & Power, Spanco Ltd.

Case study on Bhiwandi and Pune model?Shri Girish Sant, Group Coordinator, Prayas Energy group

Designing a new management structure for distribution sector- a discussion?Shri Ashish Khanna, South Asia Energy & Infra, World Bank*

Session Chairman: Shri J P Singh, Member, Delhi Electricity Regulatory Commission

Globally accepted tariff models?Dr Harish K Ahuja, President Strategy & Corporate Affairs, Moser Baer Projects?Dr Leena Srivastava, Executive Director (Operations), TERI

Designing innovative tariff mechanism?Vijay L Sonvane, Member (Technical), MERC or Director (Tariffs), MERC

Need of the hour regulations?Shri Sunil Wadhwa, MD & CEO, NDPL

Reforms in existing system- open access?Shri S K Chatterjee Deputy Chief (Regulatory Affairs), CERC

Case study by TNERC (Tamil Nadu Electricity Regulatory Commission)Open Discussion


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3:30PM-

3:45PM

Networking Tea/Coffee break

3:45PM 5:25PM

Session 4:Developing retail supply infrastructure

Open Discussion

5:25PM-

5:30PM

Vote of Thanks

*Under confirmation

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Session Chairman: Shri Sher Singh Khyalia, Executive Director (Finance), GUVNL

Impact of Power Markets?Smt Rupa Devi Singh, MD & CEO, PXIL*

Balancing renewable portfolio?Shri Sher Singh Khyalia, Executive Director (Finance),GUVVNL

Enhancement of technical infrastructure with better grid connectivity?Senior Representative from REC/SBI

Smart Grid implementation?Dr Gursharan Bhatia, Regional General Manager (T&D), GE


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