TURNAROUND OF DISCOMS
ACCELERATES NEXT STAGE REFORM
Dr. M.K.Iyer, Member
Central Electricity Regulatory Commission
November 17, 2015
1
A
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
Strategies
In 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
Sustainability –
Internal Reform
Result Monitoring
and adjustments
Rollout Plans
( Pilot basis/Holistic
basis)
Situation/
Problem
Assessment
Factor Identification
(External & Internal)
Problem Solving
Strategy
TURNAROUND STRATEGY
Turnaround strategy could be either :
A) External Measures:
• Policy Rationalization
• Business environment
B) Internal Measures :
• Management Reforms
• Financial Reform
• Administrative
•Technological Adoption
• IT enabled management
TURNAROUND OF
DISCOMS
POST ELECTRICITY ACT,2003
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OBJECTIVES OF THE ACT AND POLICIES – DISCOM
Bringing Competition
Accountability &
Transparency
Commercial Viability –
Tariff Principles
Access to Network
Quality & Affordability
Renewable Energy –
Obligations
• Provision for Open Access
• Procuring Power - Competitive bidding
• Multiple distribution licensees
• Establishing SERC and APTEL
• Unbundling of the Power Sector and Reorganization of
Discom
• Tariff Setting – Cost of service principle
• State Government Subsidy -to bridge gap
• Universal Supply Obligation (USO)
• Rural electrification – Government Scheme
• Standard of Performance
• Consumer Grievance Redressal
• Reduction in T&D losses
• Mandatory RPOs
• REC mechanism
PERFORMANCE OF
DISCOMS
POST ELECTRICITY ACT,2003
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OPERATIONAL PERFORMANCE OF DISCOMS – POST 2003
All India AT&C
Losses
2011-12
26.63%
2012-13
25.45%
2013-14
22.7%
 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
PERFORMANCE OF DISCOMS – POST 2003
 Losses
increased
onwards;
have
from
been
2010

Higher losses is due to
increase in per unit cost and
inability to control losses.
( Annual Losses in Crore)
Source : powermin.nic.in * estimated figure
PULL FACTORS FOR
PERFORMANCE OF
DISCOMS
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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
Year
increased at a rate of 7.4%
annually between 1998-99 and 2007-08
2009-10 and average tariff was 2008-09
increased at the rate of 7.1%.
2009-10
 After 2007-08 onwards, the gap 2010-11
of average cost of supply and 2011-12
average
tariff
increased
significantly:
Average
Unit Cost
Tariff
per
Unit
Gap
Gap as
between % of
Cost and Unit
Tariff
Cost
4.04
3.06
0.98
24%
4.60
3.26
1.34
29%
4.71
3.27
1.44
30%
5.06
3.67
1.39
27%
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
FINANCIAL
RESTRUCTURING
PLAN
FOR DISCOMS
16
FINANCIAL RESTRUCTURING PLAN
KEY 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
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
Debt Restructuring
(Short Run Solutions)
• Debt support from Government
• Internal resource generation
improving efficiency and tariff
pricing suitably
Effective and bold measures to address the problems for long term solutions and debt restructuring for short run
solutions  Turn around of the Discoms
TURNAROUND OF
GUJARAT
DISCOMS: A Case Study
20
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
Unbundling of the Sector
 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,
Gujarat

North & West
Aggressive capacity addition- In 2009, Gujarat becomes surplus state
Growth of Installed Capacity
Growth of Installed Capacity (MW)
(conventional + Non Conventional)
Addition of 6296
MW
30179
23883
8756
2002
2014
2017
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
Jyoti
Gram
Yojana
(24x7
Supply)
 Specially Designed Transformers (SDT) on Agricultural
Feeders for 1- phase
power to farmers living on farms
Execution in just 30 months
(March 2006)
Load Management with JGY
Prior to JGY
• 8 to 14 hours 3-ph power
• 10 to 12 hrs single phase
• 4 to 5 hrs no power supply
After JGY with SDT
• 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
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 efficiency
 Disconnection for default in payment of energy bills
 34 Designated Courts & 5 Police Stations
 Checking drives in tough areas with police for unauthorized
use & theft
 Prompt 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
Profitability (Rs Crs)
2000
203
0
-2000
-4000
539
583
634
2000-01 2005-06 2012-13 2013-14 2014-15
-2543
TURNAROUND OF
DISCOMS
FOR FUTURE
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APPROACH OF GOVERNMENT OF INDIA
ADDRESSING PROFITABILITY OF DISCOMS
A) 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.
ACTIONS OF GOVERNMENT OF INDIA
ADDRESSING 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
Thank you
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