How to revitalise power sector

“Policy advocacy with the government, both at central and state level, could help in going a long way in improvement of the power sector,” says Praveer Sinha, MD and CEO, Tata Power Delhi Distribution Ltd
Major roadblocks Undeniably, the major roadblock which is paralysing the entire power sector is the poor financial condition of state electricity boards (SEBs). According to Praveer Sinha, MD and CEO at Tata Power Delhi Distribution Ltd, “It has created a paradoxical situation where SEBs lack the means to buy power from power generation units, leading to surplus power in the hands of power generators and a record low PLF, sums up the poor state of power distribution.”
In short, he explains, the inability of successive governments to implement crucial pricing reforms has remained the perennial Achilles’ heel of the Indian power sector and resulted in the accumulated losses of Rs 3.15 lakh crore loses in SEBs.
While National Tariff Policy stipulates that the SERCs should set the tariffs within the range of the average cost of supply, only few SERCs complied with this guideline. In FY 13-14, the average revenue of utilities was 0.73 paisa less than the average cost of supply leading to loss of Rs 64,040 crore to utilities. Further only 20 states out of 29 have issued annual tariff orders for FY 15-16 which indicates that despite APTEL’s strict directions of annual tariff revision, SERCs have failed to issue tariff orders by 31st March every year. “Implementation of fuel and power purchase adjustment cost framework (PPAC) remains absent in many states and in addition there has been a significant lag in recovery of PPAC in many other states,” he observes.
Hence, cost reflective nature of tariff determination with timely recovery of PPAC, time bound recovery of regulatory assets by SERC’s and efficiency improvements remain critical for the utilities to improve their financial position in a sustainable manner, states Sinha. 
Looking at the power distribution sector, it is faced with dilapidated transmission and distribution infrastructure barring few states which have taken up the reform process seriously or the limited existing private entities which are providing 24/7 power supply. “Despite of vigorous efforts from all spectrums in the industry, and various adverse factors, the power sector is still a long way from being sustainable to meet the demands of general public,” opines Sinha.  Impacts on distribution sector Commenting on the impacts of above-mentioned bottlenecks on power distribution sector, he says, “Power purchase costs have major ramifications on the end-consumer tariffs as they contribute to 80 per cent of any utilities expenses and unless the same is controlled or restricted through availability of affordable fuel, it is impossible to restrict growth in retail tariffs.” He opines that unless efficiency is induced in the generation sector, the retail tariffs can only go higher.
There is an immediate need to revamp the transmission sector to keep pace with generation and ensure seamless flow of power from one region to another. At many times, on account of transmission bottlenecks, either load shedding is done or the discoms lose out on the sale of its surplus under the deviation settlement mechanism.
However, the significant challenge faced by distribution utilities is poor financial health. Over the years, the distribution companies have been debt ridden because of expensive power, high AT&C losses and Non Cost Reflective Tariffs clubbed with inefficiencies of the generation and transmission sector all of which ultimately falls upon the end consumers. Also, the tariff revision is not done periodically by the State Regulatory Commissions (SERCs) leading to inadequate recovery of this regulated business.
According to Sinha, the companies are purchasing power due to inefficiencies of the generation companies at a higher rate. This costly power is at times surplus to the utilities due to varying demand patterns. This leaves the utility with no choice except to sell this power in the open market which fetches rates lower than the cost of power procurement incurred by the utility. This again accumulates to financial burden to the utilities.
“In North and North-West Delhi, when we started our operation, the AT&C losses were as high as 53 per cent. With vigorous innovative managerial, financial and technological interventions, we have reduced it to about single digit level of 9.87 per cent,” claims Sinha. However, he points out, at the pan India level utilities are not making significant improvement in the losses. There are various factors responsible for high losses.
Sinha feels that the companies can’t be completely dependent on the government for financial bailout. He says, they need to have constructive strategies to improve health of discoms and to yield positive outcome in the areas through strong management, establishment of strong and conductive environment, system reliability improvement, IT interventions in O&M areas, power procurement strategy to ensure uninterrupted power supply and most significantly involving economically weaker consumers to curtail theft and AT&C losses to improve efficiency through CSR interventions. “Policy advocacy with the government, both at central and state level, could help in going a long way in improvement of the power sector,” states Sinha. Short term measurements to revitalise the sector The distribution sector is under tremendous strains due to non-cost reflective tariffs. Sinha believes that distribution reforms are largely needed to be carried out at individual state level, which have largely being lacking.
“There is an immediate need to move to Cost Reflective Tariffs and revise the tariffs of utilities from a range of 7 per cent per annum to 19 per cent for amortisation of any regulatory assets created over a period of time to ensure the financial viability of discoms and the power sector as a whole. Issuance of cost reflective tariff is the only way by which a utility can be expected to recover their already invested costs, and the appropriate bodies for such allowance of tariff are SERCs, CERC and APTEL,” he suggests.
He adds, “Apart from this no privatisation has taken place since 2002 and due to financial conditions of existing SEBs the sector is unable to fetch sufficient attention from investors. Distribution being most critical link to the entire value chain needs immediate attention.”
The Delhi model of power distribution has been lauded for its success. Specially, the TPDDL case study has been studied across the world where AT&C losses have been reduced by 70 per cent. “The government should also consider the implementation of PPP model across the country and usher in more private participation both in the transmission and distribution sector which unfortunately has not been the case despite the success of Delhi model,” Sinha recommends.
In order to revitalise the power sector, Sinha says, “Power generation companies need to ensure sufficient power generation at low cost so that burden of generator inefficiency doesn’t pass to distribution companies. Like, government also needs to take steps to close down the inefficient and high cost power plants and improve the transmission infrastructure which has become a bottleneck in the seamless evacuation of power from surplus to deficit regions.” For instance, in case of Delhi power plants including Rajghat, GT Pragati and one stream of Bawana should be shut down immediately, so that the unnecessary fixed cost for the same are not paid leading to high cost which is being charged by Delhi Gencos, Sinha recommends.
Further, the government may re-look at the financial restructuring of the electricity utilities to reduce the burden on consumers and improve the financial conditions at the same time. This will create a win-win situation for both, adds Sinha. Long term measurement to revitalise the sector To bring the sustainability in the power sector, the government needs to have more comprehensive policy framework to create a win-win situation for all the stakeholders, opines Sinha.
He also suggests that the creation of regulatory assets need to be avoided by the SERCs which not only denies the utilities timely cost recovery but also burdens the end consumers with carrying cost of the regulatory asset by way of interest charges. Sinha says, “The utilities need to be insulated from state governments to prevent intervention in internal operations. This not only ensures hassle free operation but increases efficiency as well.”
There is an immediate need for all state discoms to go for new and modern technologies and for that the companies need financial help from the government. “It is understood that the companies can’t afford to have financial dependency on the government looking at the current situation,” he says.
Sinha also believes that, to reduce AT&C losses, authorities and government should provide adequate number of police personnel to support in curbing the menace of electricity theft.

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How to revitalise power sector

“Policy advocacy with the government, both at central and state level, could help in going a long way in improvement of the power sector,” says Praveer Sinha, MD and CEO, Tata Power Delhi Distribution Ltd
Major roadblocks Undeniably, the major roadblock which is paralysing the entire power sector is the poor financial condition of state electricity boards (SEBs). According to Praveer Sinha, MD and CEO at Tata Power Delhi Distribution Ltd, “It has created a paradoxical situation where SEBs lack the means to buy power from power generation units, leading to surplus power in the hands of power generators and a record low PLF, sums up the poor state of power distribution.”
In short, he explains, the inability of successive governments to implement crucial pricing reforms has remained the perennial Achilles’ heel of the Indian power sector and resulted in the accumulated losses of Rs 3.15 lakh crore loses in SEBs.
While National Tariff Policy stipulates that the SERCs should set the tariffs within the range of the average cost of supply, only few SERCs complied with this guideline. In FY 13-14, the average revenue of utilities was 0.73 paisa less than the average cost of supply leading to loss of Rs 64,040 crore to utilities. Further only 20 states out of 29 have issued annual tariff orders for FY 15-16 which indicates that despite APTEL’s strict directions of annual tariff revision, SERCs have failed to issue tariff orders by 31st March every year. “Implementation of fuel and power purchase adjustment cost framework (PPAC) remains absent in many states and in addition there has been a significant lag in recovery of PPAC in many other states,” he observes.
Hence, cost reflective nature of tariff determination with timely recovery of PPAC, time bound recovery of regulatory assets by SERC’s and efficiency improvements remain critical for the utilities to improve their financial position in a sustainable manner, states Sinha. 
Looking at the power distribution sector, it is faced with dilapidated transmission and distribution infrastructure barring few states which have taken up the reform process seriously or the limited existing private entities which are providing 24/7 power supply. “Despite of vigorous efforts from all spectrums in the industry, and various adverse factors, the power sector is still a long way from being sustainable to meet the demands of general public,” opines Sinha.  Impacts on distribution sector Commenting on the impacts of above-mentioned bottlenecks on power distribution sector, he says, “Power purchase costs have major ramifications on the end-consumer tariffs as they contribute to 80 per cent of any utilities expenses and unless the same is controlled or restricted through availability of affordable fuel, it is impossible to restrict growth in retail tariffs.” He opines that unless efficiency is induced in the generation sector, the retail tariffs can only go higher.
There is an immediate need to revamp the transmission sector to keep pace with generation and ensure seamless flow of power from one region to another. At many times, on account of transmission bottlenecks, either load shedding is done or the discoms lose out on the sale of its surplus under the deviation settlement mechanism.
However, the significant challenge faced by distribution utilities is poor financial health. Over the years, the distribution companies have been debt ridden because of expensive power, high AT&C losses and Non Cost Reflective Tariffs clubbed with inefficiencies of the generation and transmission sector all of which ultimately falls upon the end consumers. Also, the tariff revision is not done periodically by the State Regulatory Commissions (SERCs) leading to inadequate recovery of this regulated business.
According to Sinha, the companies are purchasing power due to inefficiencies of the generation companies at a higher rate. This costly power is at times surplus to the utilities due to varying demand patterns. This leaves the utility with no choice except to sell this power in the open market which fetches rates lower than the cost of power procurement incurred by the utility. This again accumulates to financial burden to the utilities.
“In North and North-West Delhi, when we started our operation, the AT&C losses were as high as 53 per cent. With vigorous innovative managerial, financial and technological interventions, we have reduced it to about single digit level of 9.87 per cent,” claims Sinha. However, he points out, at the pan India level utilities are not making significant improvement in the losses. There are various factors responsible for high losses.
Sinha feels that the companies can’t be completely dependent on the government for financial bailout. He says, they need to have constructive strategies to improve health of discoms and to yield positive outcome in the areas through strong management, establishment of strong and conductive environment, system reliability improvement, IT interventions in O&M areas, power procurement strategy to ensure uninterrupted power supply and most significantly involving economically weaker consumers to curtail theft and AT&C losses to improve efficiency through CSR interventions. “Policy advocacy with the government, both at central and state level, could help in going a long way in improvement of the power sector,” states Sinha. Short term measurements to revitalise the sector The distribution sector is under tremendous strains due to non-cost reflective tariffs. Sinha believes that distribution reforms are largely needed to be carried out at individual state level, which have largely being lacking.
“There is an immediate need to move to Cost Reflective Tariffs and revise the tariffs of utilities from a range of 7 per cent per annum to 19 per cent for amortisation of any regulatory assets created over a period of time to ensure the financial viability of discoms and the power sector as a whole. Issuance of cost reflective tariff is the only way by which a utility can be expected to recover their already invested costs, and the appropriate bodies for such allowance of tariff are SERCs, CERC and APTEL,” he suggests.
He adds, “Apart from this no privatisation has taken place since 2002 and due to financial conditions of existing SEBs the sector is unable to fetch sufficient attention from investors. Distribution being most critical link to the entire value chain needs immediate attention.”
The Delhi model of power distribution has been lauded for its success. Specially, the TPDDL case study has been studied across the world where AT&C losses have been reduced by 70 per cent. “The government should also consider the implementation of PPP model across the country and usher in more private participation both in the transmission and distribution sector which unfortunately has not been the case despite the success of Delhi model,” Sinha recommends.
In order to revitalise the power sector, Sinha says, “Power generation companies need to ensure sufficient power generation at low cost so that burden of generator inefficiency doesn’t pass to distribution companies. Like, government also needs to take steps to close down the inefficient and high cost power plants and improve the transmission infrastructure which has become a bottleneck in the seamless evacuation of power from surplus to deficit regions.” For instance, in case of Delhi power plants including Rajghat, GT Pragati and one stream of Bawana should be shut down immediately, so that the unnecessary fixed cost for the same are not paid leading to high cost which is being charged by Delhi Gencos, Sinha recommends.
Further, the government may re-look at the financial restructuring of the electricity utilities to reduce the burden on consumers and improve the financial conditions at the same time. This will create a win-win situation for both, adds Sinha. Long term measurement to revitalise the sector To bring the sustainability in the power sector, the government needs to have more comprehensive policy framework to create a win-win situation for all the stakeholders, opines Sinha.
He also suggests that the creation of regulatory assets need to be avoided by the SERCs which not only denies the utilities timely cost recovery but also burdens the end consumers with carrying cost of the regulatory asset by way of interest charges. Sinha says, “The utilities need to be insulated from state governments to prevent intervention in internal operations. This not only ensures hassle free operation but increases efficiency as well.”
There is an immediate need for all state discoms to go for new and modern technologies and for that the companies need financial help from the government. “It is understood that the companies can’t afford to have financial dependency on the government looking at the current situation,” he says.
Sinha also believes that, to reduce AT&C losses, authorities and government should provide adequate number of police personnel to support in curbing the menace of electricity theft.

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