While the Ujwal Discom Assurance Yojana (UDAY) is a step in the right direction, timely tariff reforms are the key to its success, says Lalit Jalan, chief executive officer, Reliance Infrastructure Limited (RInfra). Excerpts from a recent interview with Power Line…
How would you assess the sector’s performance in the past two decades? What have been the three most noteworthy achievements in the sector?
The performance of the power sector in the past two decades has been encouraging due to the efforts made by both the government and the private sector. The three biggest achievements in the sector have been – additions in generation and transmission capacities to meet the growing demand; the integration of a pan-Indian transmission corridor and debottlenecking of corridors to a certain level; and the growing importance of renewable energy as a clean energy source. The sector has witnessed significant transformation in the past two decades owing to various reforms initiated since 1990-91, including the enactment of the Electricity Act, 2003; the unbundling of the state electricity boards and privatisation; the setting up of regulatory commissions; and the formation of the Appellate Tribunal for Electricity (APTEL) for strengthening the dispute resolution mechanism. However, in hindsight, the distribution segment has not transformed in the same manner as generation and transmission. The government’s UDAY scheme is a step in the right direction to ensure financial stability, particularly in the distribution segment, and in general in the power sector.
What are the biggest challenges for the power sector at present?
The distribution segment is the revenue source for the entire power sector value chain. However, due to mounting losses and regulatory concerns, it remains in an abyss today. Private sector participation is still very limited. The segment needs to address issues regarding non-periodic and inadequate tariff revisions, as well as regulatory assets creation. The other aspect that has not worked out fully is coal allocations. Around 45,000 MW of generating assets are stressed either due to the absence of fuel supply agreements (FSAs) and coal linkages or power purchase agreements (PPAs). There is also no clarity on the signing of FSAs for linkage-based projects that will be commissioned after March 31, 2016. The lack of assured fuel linkages is resulting in low plant load factors (PLFs). Another major issue is the non-availability of domestic gas, which has affected power plants aggregating nearly 24,000 MW of capacity. Further, the transmission network needs to be strengthened as even in metro cities like Delhi and Mumbai there is a fear of brownouts.
In order to address sector concerns, the government must give priority to distribution segment reforms. It needs to create an enabling environment for private sector participation in distribution along the lines of the Mumbai, Kolkata and Ahmedabad models, given their success. Investments should be promoted in information technology and automation, especially in network operations, the meter-to-cash cycle, energy audit, etc., taking a cue from the RInfra model. The Gujarat and Maharashtra model must be followed for agricultural feeder separation to ensure 24×7 power supply for non-agricultural loads and eight hours’ supply for agriculture loads. There should be targeted load shedding in areas with high aggregate technical and commercial (AT&C) losses, as has been done in Maharashtra. Solar panels with battery technology must be used for rural electrification through decentralised distributed renewable energy generation. Further, special police stations/courts should be established as specified in the Electricity Act, 2003.
The government must also execute regulatory reforms on a priority basis. There should be superintendence and control of APTEL over the Central Electricity Regulatory Commission and the state electricity regulatory commissions (SERCs) for compliance with APTEL’s directives. The independence of the SERCs, both in appointments and in functioning, must be ensured. Besides, the government needs to adopt a non-discriminatory approach between public and private utilities for policy benefits such as subsidies, restructuring packages, grants and other incentives. In addition, it must find a one-time resolution of issues related to FSAs, coal linkages and PPAs. It must also ensure timely right-of-way clearances for faster execution of transmission projects. The power minister is working in a time-bound manner to address concerns and we are hopeful of better days for the sector.
Do you think that UDAY will help the state discoms achieve a turnaround?
UDAY provides an enabling platform for a financial turnaround and revival of the power sector, with a primary focus on discoms. The scheme recognises that discoms are trapped in a vicious cycle with operational losses being funded by debt. The aggregate debt of discoms had increased to Rs 4.3 trillion in 2014-15, representing a 100 per cent increase over 2011-12. The interest rate on discom debt is close to 14-15 per cent.
Under UDAY, discoms get an opportunity to break even in the next two to three years through an improvement in operational efficiencies (reduction in AT&C losses), reduction in the cost of power, lowering of interest costs and enforcement of financial discipline through alignment with state finances. However, its success hinges on persistent implementation by states and timely issuance of tariff orders, which at present are not very encouraging. Out of 28 SERCs in India, 11 are yet to issue tariff orders for 2016-17. The SERCs in Tamil Nadu, West Bengal, Assam and Tripura have chosen not to initiate suo moto proceedings despite the absence of petitions from state discoms. Moreover, for UDAY to be successful, AT&C losses must be reduced dramatically, which seems difficult given the current level of management and the political interference. In addition, UDAY should not discriminate between end-consumers and include private discoms as well. If implemented in Delhi, it would help reduce interest rates by up to 4 per cent and bring down tariffs for end-users.
What have been the most significant achievements for RInfra’s power business?
We have successfully commissioned all transmission packages under the Western Region System Strengthening Scheme and Parbati-Koldam Transmission Company Limited. In addition, we have completely transformed the Delhi and Mumbai distribution systems with the introduction of state-of-the-art technology. On the generation front, Reliance Power (RPower) is currently among the top three private sector generators with an aggregate capacity of over 6,000 MW (including 1,000 MW owned by Reliance Infrastructure). We operate the world’s largest integrated power plant at Sasan, built at an investment of over Rs 270 billion. It produces nearly 4,000 MW of power at a PLF of over 90 per cent. Besides Sasan, our portfolio includes thermal power plants (TPPs) at Rosa and Butibori as well as renewable energy projects.
What are the company’s key priorities in the power sector for the next two to three years?
As a group strategy, all future generation investments will be through RPower, while RInfra will focus on the transmission and distribution business. In generation, we are trying to resolve issues related to our Samalkot TPP, which is currently stranded due to the unavailability of gas. We are exploring alternative solutions for the power plant, such as using its equipment for our Bangladesh project. We also plan to expand the Butibori TPP for Mumbai and the Rosa TPP for Uttar Pradesh. In the renewable energy space, we are not very enthused by the current market prices. If prices improve, we would like to make big investments in renewables. At present, the residual life assessment study for the Dahanu power plant is under way to extend the plant’s life by another 20 years.
On the distribution front, we have to resolve the regulatory issues with the Delhi business at the earliest. We are also focusing on catering to the increased power demand in Mumbai and Delhi by upgrading our networks. The lack of future-proofing of transmission grids in both the cities is an area of great concern and we are trying to resolve this issue. We are also working towards installing a complete smart grid solution across the power sector value chain in Mumbai. For RInfra, engineering, procurement and construction will be one of the major pillars of growth going forward, given an aggregate opportunity of Rs 2,000 billion planned by the government across various sectors, Further, we have identified defence as the new high-growth sector.
How has the performance of the company’s distribution business been in Mumbai and Delhi over the past year?
The operational performance of our discoms has been outstanding. With an aggressive focus on loss reduction, AT&C losses for Mumbai and Delhi have come down to less than 9 per cent and 12 per cent respectively. The quality and reliability of power have improved significantly. There is a growing customer focus with a number of initiatives such as online new connection applications, personalised web-based “My Account” services, customised outage notifications, and complaint management through WhatsApp, etc. Consumer services are also being provided on social media platforms such as Facebook and Twitter. As for new initiatives, our focus is on developing a world-class service experience for customers, currently unheard of in the In-
dian utility segment. This will be achieved through the induction of smart metering to enable load management by consumers. In order to overcome space constraints in metro cities, we are deploying latest technologies such as compact substations and receiving substations.
What is your outlook for the sector and what are the key trends that you foresee?
I am cautiously optimistic about the sector’s outlook. UDAY is the last bullet that the government has fired for discoms to attain financial sustainability; however, AT&C loss reduction and tariff reforms will be critical. Over the next few years, renewable energy, especially solar, will gain prominence. The target of 24×7 power to all consumers is also expected to be achieved. There will be a marked improvement in fuel availability. In transmission, the commissioning of mega projects will help remove bottlenecks. Further, the private sector is expected play a greater role in distribution.