a dr. m.k.iyer, member central electricity regulatory commission november 17, 2015 1 turnaround of...
TRANSCRIPT
A
Dr. M.K.Iyer, Member Central Electricity Regulatory
Commission
November 17, 2015
1
TURNAROUND OF DISCOMS
ACCELERATES NEXT STAGE REFORM
OUTLINE OF PRESENTATION
• What is Turnaround ?
• Role and Responsibilities of Discoms under the Act
• Performance of Discoms – Post 2003
• Pull Factors responsible for Poor Performance
• Policy Initiatives to improve performance
• Turnaround of Gujarat Discom : Case study
• Approach by GoI for turnaround of Discoms
• Accelerates next stage reform
BUSINESS TURNAROUND
“Turnaround” connotes the financial recovery of a organization that has been performing poorly for an extended time”
“Business Turnaround” is the reversal falling results – sales and profits – through fundamental change. -----------------------------------------------------------------------------------------------------
• Turnaround is time dependent, it varies with the time• Turnaround strategy varies with the situation and time to time
StrategiesIn order to implement “turnaround”, an organization must acknowledge the problem, develop and implement problem solving strategy. The problem and solution can be either due to:
• External Factors – Policy and external measures (uncontrollable)• Internal Factors – Management and operational level measures
BUSINESS TURNAROUND
Situation/Problem Assessment
Factor Identification (External & Internal)
Problem Solving Strategy
Rollout Plans ( Pilot basis/Holistic
basis)
Result Monitoring and adjustments
Sustainability – Internal
Reform
TURNAROUND STRATEGYTurnaround strategy could be either :
A) External Measures:• Policy Rationalization• Business environment
B) Internal Measures :• Management Reforms• Financial Reform• Administrative • Technological Adoption• IT enabled management
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TURNAROUND OF DISCOMS
POST ELECTRICITY ACT,2003
• Provision for Open Access• Procuring Power - Competitive bidding • Multiple distribution licensees
Bringing Competition
• Establishing SERC and APTEL • Unbundling of the Power Sector and Reorganization of
DiscomAccountability &
Transparency• Tariff Setting – Cost of service principle• State Government Subsidy -to bridge gap
Commercial Viability – Tariff
Principles • Universal Supply Obligation (USO)• Rural electrification – Government Scheme
Access to Network
• Standard of Performance• Consumer Grievance Redressal• Reduction in T&D losses
Quality & Affordability
• Mandatory RPOs• REC mechanism
Renewable Energy –
Obligations
OBJECTIVES OF THE ACT AND POLICIES – DISCOM
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PERFORMANCE OF DISCOMS
POST ELECTRICITY ACT,2003
OPERATIONAL PERFORMANCE OF DISCOMS – POST 2003
Gap in Average Cost of Power Supply and Average Tariff Realised.
High AT&C losses.
Source : Planning Commission Annual Report 2013-14 on the Working of State Power Utilities & EDs
All India AT&C Losses
2011-12 26.63%
2012-13 25.45%
2013-14 22.7%
PERFORMANCE OF DISCOMS – POST 2003
( Annual Losses in Crore)Source : powermin.nic.in * estimated
figure
Losses have been increased from 2010 onwards;
Higher losses is due to increase in per unit cost and inability to control losses.
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PULL FACTORS FOR
PERFORMANCE OF DISCOMS
PULL FACTORS RESPONSIBLE FOR POOR PERFORMANCE -DISCOM
High Transmission and Distribution (T&D) Losses High Aggregate technical and commercial (AT&C) losses
Commercial losses was Rs 16,666 Cr in 2007-08, Rs 37,836 Cr in 2011-12 and now estimated @60000 cr 2014-15
(cont/-
PULL FACTORS RESPONSIBLE FOR POOR PERFORMANCE -DISCOM
Mismatch between the tariffs and cost of generating power: Cost of supplying electricity increased at a rate of 7.4% annually between 1998-99 and 2009-10 and average tariff was increased at the rate of 7.1%.
After 2007-08 onwards, the gap of average cost of supply and average tariff increased significantly:
Year Unit CostAverage
Tariffper Unit
Gap betweenCost and
Tariff
Gap as % ofUnit Cost
2007-08 4.04 3.06 0.98 24%
2008-09 4.60 3.26 1.34 29%
2009-10 4.71 3.27 1.44 30%
2010-11 5.06 3.67 1.39 27%
2011-12 5.70 4.39 1.31 23%
PULL FACTORS RESPONSIBLE FOR POOR PERFORMANCE -DISCOM
Debt Spiral: Working Capital have consistently increased due to high losses
and liquidity problems
Banking sector’s short term exposure to Discoms is quite substantial, and was about Rs. 1.5- 1.7 trillion as on March 2012, which is 3-3.6% of banking credit and 45-52% of total power credit
Banks reluctant to fund these losses – in turn stretching payments to their creditors
Subsidy :• Discoms on an all-India basis is about Rs. 43,000 Cr in FY 2012,
which represents an increase of 13% from FY 2010. There are issue in realizations.
ISSUES IN DETERMINING RETAIL TARIFF
Policy Directives ( specific tariff for BPL consumers,
agriculture consumers etc.)
Cross – subsidization within the category of consumers
Capacity to pay (consumer)
High power purchase cost
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FINANCIAL RESTRUCTURING
PLANFOR DISCOMS
FINANCIAL RESTRUCTURING PLANKEY FEATURES
Cabinet Committee on Economic Affairs (CCEA) approved the much awaited scheme for Financial Restructuring of State Distribution Companies (Discoms) on September 24, 2012:
Key Features:• Proposed to restructured debt worth Rs 1.9 Lakh Crores• 50% of the outstanding short-term liabilities (STLs) of Discoms as of March 31,
2012 will be taken over by state governments.• First converted into bonds to be issued by Discoms to participating lenders,
backed by a state government guarantee.• Balance 50% of STL will be rescheduled by lenders and serviced by Discoms
with a principal moratorium of three years
Eight States -Tamil Nadu, Uttar Pradesh, Rajasthan, Haryana, Jharkhand, Bihar, Andhra Pradesh and Telangana availed the scheme.
Most of these states have failed to meet the performance criteria specified in the scheme.
FINANCIAL RESTRUCTURING PLAN DEFECTS
Though FRP provides immediate relief to Discoms- but it was temporary and not designed with long term solutions
There were major unresolved issues facing the power sector, such as:
Coal shortage Land, environment clearance Regulatory Transparency Tariff hikes Operational inefficiencies Subsidy dependence Free power to some sections of the population
EFFECTIVE TURNAROUND PLAN SYNERGY WITH ADDRESSING PROBLEMS
Debt Restructuring(Short Run Solutions)
• Debt support from Government• Internal resource generation improving efficiency and tariff pricing suitably
Resolve the Problems(Long Run Solutions)
• Coal shortage• Land, environment clearance• Regulatory Transparency• Tariff hikes• Operational inefficiencies• Subsidy dependence• Free power to some sections of the population
Effective and bold measures to address the problems for long term solutions and debt restructuring for short run solutions Turn around of the Discoms
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TURNAROUND OF GUJARAT
DISCOMS: A Case Study
Gujarat Power Scenario in 2002
State’s installed capacity: 8756 MW Peak deficit: 20% Power cut / Load shedding of 4-5 hrs Low voltages due to inadequate transmission network and substations Erratic power supply due to mixed load of agriculture and villages T&D losses as high as 34.20% - rampant power theft Severe voltage fluctuations and transformer failure Retail tariff – not cost reflective Poor billing and collection efficiency Loss of Rs 2543 Crs in 2000-01 Accumulated losses Rs 8286 Crs before unbundling
Steps for Turnaround
GEB unbundled on 01.4.2005 into 7 Companies in segments for better administration, efficiency & consumer services
1 Holding & Co-ordinating Co. 1 Generation Co. 1 Transmission Co. 4 Distribution Co. each in South, Central, North & West
Gujarat
Aggressive capacity addition- In 2009, Gujarat becomes surplus state
Unbundling of the Sector
Growth of Installed Capacity
2002 2014 2017
8756
23883
30179
Growth of Installed Capacity (MW) (conventional + Non Conventional)
Addition of 6296 MW
Steps taken – Distribution
Investment made from 2002 onwards – Rs 16,550 Crs More than 500% rise (up to 2001-02 – Rs. 3340 Crs)
Feeder Segregation – Jyoti Gram Yojana – Rs. 1300 Crs
Highest cash incentive of Rs 1100 crs under APDRP
Revenue rise from Rs 7,274 Crs to Rs 29,000 Crs – 11 % CAGR
Average tariff rise from Rs 1.93 to Rs. 4.68 – 7 % CAGR
Specially Designed Transformers (SDT) on Agricultural Feeders for 1- phase power to farmers living on farms
Execution in just 30 months (March 2006)
Jyoti Gram Yojana (24x7 Supply)
Prior to JGY After JGY with SDT
• 8 to 14 hours 3-ph power • 10 to 12 hrs single phase • 4 to 5 hrs no power supply
• 24 hrs 3-ph power on JGY feeders• Minimum 8 hrs 3-ph continuous power on Agriculture
feeders• 1-ph with SDT for balance period on Ag. Feeders
Load Management with JGY
Distribution Initiatives
Use of XLPE Coated and Aerial Bunch Conductor Bifurcation of overloaded feeders Replacement of old meters with precision meters Metering at Transformer centres Automatic Meter Reading for H T System Improvement, Metering & Energy Accounting Extensive installation checking Vigilance drives to curb power theft
Distribution Initiatives
Strict penalty for power theft including imprisonment 100 % billing & collection efficiencyDisconnection for default in payment of energy bills34 Designated Courts & 5 Police StationsChecking drives in tough areas with police for unauthorized
use & theftPrompt theft assessment, compounding and prosecution
Cost Minimization measures
Debt Restructuring reduced Interest cost by Rs. 363 Crs Re-negotiation of PPAs reduced power purchase cost by Rs.
559 Crs Long term power 7615 MW tied up at competitive prices (Rs.
2.25-2.89) Power purchase as per Merit Order Protocol Intra State ABT – April 2010 Surplus power sale ( 7284 Mus - 2013-14 )
Sector Turnaround Sector turnaround from Rs 2,543 Crs loss in 2000-01 to a profit of Rs 203 Crs in 2005-06
-2543
203539 583 634
-4000
-2000
0
2000
2000-01 2005-06 2012-13 2013-14 2014-15
Profitability (Rs Crs)
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TURNAROUND OF DISCOMS
FOR FUTURE
APPROACH OF GOVERNMENT OF INDIA
ADDRESSING PROFITABILITY OF DISCOMSA) Internal Measures: Government approach is to bring the performance
of Discom on track by focusing on:• Improvise Profitability of Discom• Lowering cost of supply• Operational efficiency• Cost reduction from central support
B) External Measures:Government has introduced debt restructuring plan indicating permanent approach to address the funding of commercial losses
IMPORTANT ASPECTS WHILE IMPLEMENTING TURNAROUND
STRATEGIES(FOLLOWING DONT’S MAY BE CONSIDERED)• Pilot project approach :
There are many “pilot project” solutions implemented but did not succeed. Pilot project approach may be done away and direct implementation may be adopted.
• Carrot and Stick approach: The solution for reduction of AT&C losses will not only work through stick approach (using section 136 and
126 of the Act). Suitable strategy may be adopted.
•PILOT Enabling quarterly tariff increase• Operational Efficiency• Lowering Cost of power• Reduction in overall cost in entire chain• Addressing fuel issues – certainty of fuel• Land related issues – Land bill• Co-operativne federalism• IT enabled solutions
ACTIONS OF GOVERNMENT OF INDIAADDRESSING PROFITABILITY OF DISCOMS
• UDAY (Ujwal DISCOM Assurance Yojana) aims at permanent resolution of DISCOM issues through:
• Enabling quarterly tariff increase• Operational Efficiency• Lowering Cost of power• Reduction in overall cost in entire chain• Addressing fuel issues – certainty of fuel• Land related issues – Land bill• IT enabled solutions
WAY FORWARD/SUGGESTION TO ENSURE SUSTAINABILITY OF
TURNAROUND• Internal Reform are essential to ensure the sustainability of the turnaround of Discoms through :
• Operational efficiency • Effective strategy to reduce AT&C losses• Organization functions should be on sound
commercial principle• Skilled and motivated workforce• No more Pilot Projects • Use of efficient and IT enabled technology• DSM is to be taken in a big way
WAY FORWARD/SUGGESTION TO ENSURE SUSTAINABILITY OF
TURNAROUND• MYT – 5% increase in should be allowed subject to true up• Framework for disincentive for not controlling T&D losses
within limit• Extensive use of smart metering and implementation of smartgrid• DSM is to be taken up in larger scale
REGULATORY SUPPORT• GERC has consistently allowed tariff revision to the
distribution sector varying from 2.47% to 8.34% during last five year apart from the FPPPA pass through on a quarterly basis every year.
NEXT STAGE REFORM(TURNAROUND WILL FACILITATE NEXT STAGE
REFORM)
• Increase investment in Renewable• Electricity Amendment Act, 2003
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Thank you