state power reforms

7/30/2019 State Power Reforms

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State Power

sector

reformexperience



Background

• In late 90’s the World Bank had undertaken projects with few states in

India for investments in transmission and distribution; while also

facilitating legal, structural, financial and regulatory reforms• All projects, barring in AP, were termed not satisfactory in achieving

Project Objectives (as part of World Bank’s internal evaluation system)

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Themes Year Project Development Objectives ( PDO)Implementation CompletionReport (ICR) observations

Orissa 1996 Implement a program of regulatory, institutionaland tariff reforms

Support the institutional development of

GRIDCO,OHPC, OERC

Reinforce and rehabilitate Orissa’s power system

and DSM to make power SS and consumption

more efficient

Government should providefinancial support for the

subsidies made necessary by

its policies.

Haryana 1998

To initiate the reform process of the power sector by: Establishing the new legal, regulatory and

institutional framework (including the creation of

an Regulatory Commission and the initiation of

the privatization of the distribution business); and

Removing the most critical bottlenecks of the

power system in a few selected areas to

demonstrate the benefits, which could beexpected from a successful reform

The financial crisis of thepower sector is so deep and

reforms initiated so

comprehensive that it difficult

to capture meaningful

improvements in a short

period of project

implementation



Snapshot of Power Sector Restructuring Project ( 90’s)

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Themes Project Development Objectives ( PDO) ICR observations

AP

(1999)

To initiate the reform process by establishing

the new legal, regulatory and institutional

framework; launch of preparatory work for

privatization of distribution business;

establishment of independent regulatory

commission

To remove one of the critical bottlenecks of the

power system

Sustainable improvement in power

sector requires addressing the

complex problem of subsidized

power supply to agriculture and

resistance to metering

UP

(2000)

To support the initiation of reforms throughestablishment of the new legal, regulatory and

institutional framework; launch of preparatory

work for privatization of distribution business

To improve quality of supply by reducing

constraints

To build and develop support among key

stakeholders in the state for power sector

reform

Scope & nature of reforms shouldbe consistent with the lending

instrument and firmly grounded in

Bank’s relative role in the given

situation.

Rajasthan

(2001)

To support the ongoing reforms leading higher

sector efficiency and financial recovery (

RERC & private privatization in distribution)

Improve power supply by removing the critical

bottlenecks in power distribution and

transmission systems

PDOs should focus on project

components which are investments

Until full cost recovery through tariff

is achieved by utilities, timely

payment of subsidy support by the

state will be critical for financial

sustainability



Agenda

Learning from Banks engagement in the 90’s

Building learnings in new project – Case of Haryana

Power Sector Improvement

Flexibility in Using Different Bank Instruments –

Case of Engagement with West Bengal power sector

utilitiesCase of Engagement with MSETCL ( Covered in a

separate presentation)

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Key Learnings from Bank’s engagement in power sector

in the 90’s

5

• External agencies like the Bank can only facilitate the process by providing technical andfinancial assistance; and helping build narrative for reforms as politically winnable

• Political and administrative commitment is essential, not just at the beginning, but rightthrough

Ownership and Commitment of the governmentsare critical , with Bank as facilitator

Future

Engagements

with Haryana,

WB and

Maharashtra

• Implementation of reforms is a long term process and flexibility in design and pace of implementation is required to respond to the changes in political economy of the state asthey arise

Integration of Political Economy in theimplementation strategy

• Projects are about investments (unless DPLs) and hence Development Objectives should be aboutoutcome linked to efficient Investments too

• Expectation of the pace at which reforms can be implemented and outcomes realized should berealistic, with moderation on expectation of financial turnaround and subsidy reforms

Realistic expectations

• Upfront visible improvements in quality of power supply and customer service is importantto mobilize support for reforms

• Corporate governance and institutional reforms to ensure long term and sustainable

development• Financial management and accountability are essential

Unbundling is not sufficient



Incorporating learnings into project design of new

projects –

Case of new Haryana project (board date August 2009)

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Upfront NLTA

during project

preparation for

Institutional

strengthening

Approach has

allowed for

Flexibility to

Deal with

PoliticalEconomy challenge

Project components

On Investments

and TA

• Each project entity wentthrough Vision developmentexercise to come withblueprint of internal changethat was owned by team

• Leading to full fledged NLTAon institutional change –using process redesign

• PDOs linked to improvement of (i) transmission capability (stateincreasing generation by 100%);(ii) Distribution efficiency in pilottowns with investments onHVDS and AMI; (iii) institutionalstrengthening

• PDOs satisfactory after 2.5years of projectimplementation

• New technology on SCADAand new processes on projectmanagement are beingabsorbed

• Challenges of financialsustainability re-emerging

• Technical assistance to state

regulator for improving

regulation on benchmarking,multi year tariffs and customer

service standards

•Policy assistance on

monitoring and evaluation of

agricultural consumption

Complex reforms

through dialogue

and separateNLTA



Engagement with West Bengal Power sector utilities

Utility serving state of 80 mn people (4.5 GW system)

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Advisory mandate for World Bank on restructuring of sector ( end of 2005)

Partnership with GoWB on restructuring and

capacity building mandate (2005 till early 2007)

3 year advisory mandate on capacity building of Power Sector (through NLTA as well as supervisionresponsibility of DfID TA money) (2007 – 2010)

Investment in Rehabilitation of thermal plant(Ongoing)

Using past learning in being flexible with Bank instrument –Sustained Dialo ue followed b NLTA leadin to Investments



Learnings from West Bengal (one of leading states on

distribution reforms) now feeding into reforms in other

states

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Operational eff ic iency in vo lves intensive effor t on inclus ive and part ic ipat ive process w ith al l stakehold ers

Use Corporat izat ion as op por tun i ty for in i t iat ing Corpo rate

Governance of State Owned Enterpr ises

Separat ing ideolog ical debates on pr ivat izat ion w ith measu re

to increase product ive ef fic iency of b usiness, helps sus ta in

pol i t ica l and regulatory s upp or t to reforms

Reform effor ts n eed to b e well thoug ht, real ist ic and c redible,

with real ist ic bu siness plans th at balance the need for tar i ff

increases with credib le time bou nd m easures to improve

service standard.



Thank you

[email protected]

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