The power distribution segment continues to be the weakest link in the power sector in terms of financial and operational sustainability. However, the segment is gearing up for reforms on the back of multiple interventions planned to be introduced by the Ministry of Power (MoP), most notably the privatisation of distribution in the union territories (UTs). In a recent webinar organised by Power Line, Mritunjay Kumar Narayan, joint secretary, MoP, spoke about the distribution segment’s performance, the pandemic-induced challenges, planned policy initiatives and the outlook for the sector. Excerpts…
Impact of the pandemic
At the outset, I must commend the efforts of power sector officials and stakeholders engaged in various activities in the sector for doing excellent work during these tough times. These are difficult times for mankind and for every sector, including power. The power sector has risen to the occasion and has been successful at providing continuous, uninterrupted electricity supply, which is commendable.
Due to the pandemic-induced lockdown and its consequent impact on demand from the commercial and industrial sectors, discoms faced unprecedented challenges in terms of revenues. To mitigate the major liquidity crisis in the sector, the Government of India (GoI) proactively came out with a liquidity infusion scheme of Rs 900 billion for discoms. All independent power producers, central public sector unit gencos, transmission companies and renewable energy generators are eligible to get support under this scheme. Many discoms from various states have availed of loans under the scheme.
We believe that the Rs 900 billion liquidity infusion scheme is going to increase further in size. Earlier, the scheme was proposed to cover dues till March 31, 2020. With the cabinet decision, it has been expanded to cover dues till June 30, 2020. The corpus is going to go up further to around Rs 1,200 billion. Loans worth Rs 700 billion have been sanctioned to various utilities, and around Rs 250 billion has been disbursed. The scheme has enabled the power sector to work to a great extent and face this liquidity challenge.
Distribution is a very important part of the entire value chain, as this is where the revenue collection takes place. Hence, the viability of the power sector depends on how the distribution segment is functioning. Making the distribution segment viable and financially sustainable is a real challenge for all of us.
Performance of the sector
A lot of work has happened in the power sector, and it has come of age in terms of infrastructure. We are self-sufficient in power generation. We are self-sufficient in terms of meeting our own electricity requirements, and we are capable of exporting electricity to some neighbouring countries. Our transmission sector has also come of age and our systems are at par with other countries in the world.
However, the distribution segment still faces challenges in terms of financial performance of the distribution utilities. The distribution utilities are mostly publicly owned and continue to suffer from various inefficiencies. On the operational efficiency front, which is indicated by the aggregate technical and commercial (AT&C) losses, most of them do not fare well. On the basis of audited accounts from 2018-19, AT&C losses are still very high at 22.01 per cent. Our objective is to bring these down to 15 per cent and even lower.
Moreover, the gap between the average cost of supply and average revenue realised, which is an important indicator of the financial performance of distribution companies, is still very large, at 72 paise per unit of electricity supplied, as of end March 2019. This is an area of concern and we have to address this.
There is no denying that a lot of infrastructure has been created and a lot of good work has happened. All villages have been electrified. All households have been electrified as well, and we have been able to connect households even in remote areas. More than 27.5 million households were given electricity connections within a short span of one and a half years. This was a stupendous task for which all states and discoms worked very hard, with support from the GoI.
Privatisation of discoms in UTs
Under the Atmanirbhar Bharat scheme, the GoI has announced privatisation of electricity distribution in the UTs. Work has already begun in right earnest and it is being monitored. In the UTs of Chandigarh, Dadra & Nagar Haveli, and Andaman & Nicobar, we have provided transaction advisory support to the respective UT administrations. The transaction strategy has been finalised. At a recent high-level meeting with the secretary (power), the progress in respect of the privatisation of discoms in UTs was reviewed.
The idea behind the move is to leverage the efficiency of the private sector. We have some discoms in the private sector that are doing well in terms of their performance on various parameters such as quality of power supplied, reliability of supply, and overall service to consumers. States stand to benefit from this due to reduced budgetary support requirement from utilities, and consumers stand to benefit in terms of better consumer services. The private sector also stands to benefit as it gets an opportunity to serve consumers.
For the UTs, bids are likely to be floated next month, and the idea is to complete the bidding exercise by end 2020. The UTs are mostly urban and compact areas, so successful implementation of privatisation in these areas will have a good impact on various states. The private sector has come of age in the electricity distribution segment and the idea is to have a partnership with it so as to leverage its efficiency and provide better service to consumers. This is one of the MoP’s initiatives to improve the performance of the distribution segment.
Reliability of supply
In terms of ease of doing business, we have done very well. In the global ease of doing business rankings, getting electricity is an important parameter. Starting from a rank of 142 in 2016, we have improved our ranking to 63 in the “Doing Business 2020” report. In particular, when it comes to getting an electricity connection, India’s rank is 22 as against 137 in 2016. This is an indicator of the fact that a lot of things have happened in the power sector to improve ease of doing business. And it is not just improving ease of doing business, but also ease of living. Every consumer, every household, every sector should get 24×7 electricity, including adequate supply to the agricultural sector.
To achieve the goal of 24×7 supply of electricity, we need to face the major challenge of losses suffered by distribution utilities. The states are also realising this. We have spoken to many of them, and they are taking various steps to address this issue. To improve the reliability and quality of supply, as well as the financial position of discoms, technology in the field.
To support smart metering, the standard bidding documents for advanced metering infrastructure (AMI) have been uploaded on the National Smart Grid Mission website after a series of consultations with the industry and state discoms. This serves as a good guide for the states so that they can move forward on their journey of AMI.
The amendments proposed in the Draft Electricity (Amendment) Bill, 2020 are path-breaking. The important considerations of the bill are ensuring consumer centricity, promoting ease of doing business and enhancing the system reliability of the power sector. Along with this bill, the MoP has proposed a revision in the Tariff Policy. The underlying idea behind this is, once again, to ensure 24×7 power supply and the rights of consumers. As per the revision, if consumers suffer gratituous load shedding, they will be eligible for compensation from discoms. Moreover, if AT&C losses are greater than 15 per cent, consumers do not have to bear the burden and the losses will not be allowed to be passed on to tariffs. Also, it has been proposed to narrow the cross-subsidy so that the industry does not have to bear a significant burden of it. The cross-subsidy will not be more than 20 per cent of the average cost of supply.
We are firm in our conviction and commitment to making the distribution sector viable. We have to collectively address this challenge, including the private sector, the public sector, the state governments and the GoI. Our honourable minister has spoken about it time and again. The states know how this needs to be addressed and where the problem lies. They have done commendable work in terms of creating infrastructure through various schemes and now everyone has access to electricity. In times to come, the power sector will get a significant facelift.