The operational performance of the distribution segment continues to be a key concern as aggregate technical and commercial (AT&C) losses of discoms have stagnated at 25-26 per cent over the past few years despite the implementation of mega schemes such as the Restructured Accelerated Power Development and Reforms Programme (R-APDRP). The government’s attempt at improving the financial performance of discoms has met with limited success, with accumulated losses remaining huge at an estimated
Rs 3,800 billion, as of March 2015. A key issue is that while tariff revisions have become more regular, these are still not cost reflective in many states.
In a bid to facilitate the revival of discoms that have been struggling with high losses and mounting debt, the Ministry of Power launched a new debt restructuring scheme in November 2015 – the Ujwal Discom Assurance Yojana (UDAY). Through this comprehensive scheme, the government aims to find a permanent solution to the issues affecting discoms. Significantly, the government has also been making concerted efforts towards strengthening distribution infrastructure, improving energy efficiency and increasing rural electrification.
Indian Infrastructure presents an overview of the power distribution segment…
Network size and operational performance
The country’s total distribution line length and transformer capacity was estimated to be around 8.93 million ckt. km and over 598,100 MVA respectively, as of end 2014-15. As compared to the previous year (2013-14), line length increased by almost 6 per cent and transformer capacity by 10 per cent. In terms of voltage, low tension lines accounted for a predominant share in discoms’ networks at nearly 59 per cent, followed by 11 kV lines with 36 per cent share and 33 kV with 5 per cent share.
The total energy sold by discoms in 2014-15 was almost 753 billion units, marking an increase of 4 per cent over 2013-14. This was, however, significantly lower than the 7.7 per cent increase witnessed in 2013-14 over 2012-13, due to weak demand. The aggregate consumer base served by all utilities as of March 2015 increased to 227.1 million, registering a year-on-year growth of 12.4 per cent. Domestic and agricultural consumers together accounted for 87 per cent of the consumer base.
The average AT&C losses for discoms stood at 23.6 per cent in 2014-15 compared to 23.4 per cent in 2013-14. Only 26 utilities reported AT&C losses less than the national average loss level. As for metering, most utilities have achieved over 90 per cent metering in the domestic, commercial and industrial segments. However, metering coverage for agricultural consumers and distribution transformers presents significant scope for improvement.
Financial performance and capex
The Power Finance Corporation’s report on the “Performance of State Power Utilities for 2011-12 to 2013-14” points to the gloomy state of the distribution segment. Discoms in India collectively recorded losses to the tune of
Rs 637.65 billion, with 41 discoms in the red during 2013-14. Losses increased despite strong revenue growth. In 2013-14, the total income (excluding subsidy) for utilities marked a year-on-year increase of 11.61 per cent, reaching Rs 3,546.52 billion. This, however, was lower than the growth of 18.76 per cent achieved in 2012-13. The revenue gap improved marginally, with the gap on subsidy-received basis at
Re 0.73 per unit in 2013-14 compared to Re 0.85 per unit in 2012-13. Without subsidies, the revenue gap was Rs 1.15 per unit in 2013-14 compared to Rs 1.25 per unit in 2012-13.
On a more positive note, between 2011-12 and 2013-14, the aggregate book loss (on accrual basis) for utilities declined steadily. In 2013-14, the loss stood at Rs 637.65 billion, recording a year-on-year decline of 10.06 per cent. Further, in absolute terms, the total subsidy booked by utilities reduced marginally by 1.25 per cent to Rs 364.23 billion in 2013-14.
Tariffs and power purchase costs
The deteriorating financial position of distribution companies is attributed to the steep rise in power purchase costs against the limited increase in retail tariffs. Overall, the average power purchase cost of discoms is estimated to have registered a compound annual growth rate of 13.5 per cent to reach Rs 3,322 billion in 2014-15 from Rs 2,000 billion in 2010-11.
The average power purchase cost increased from Rs 3.57 per unit in 2012-13 to Rs 3.67 per unit in 2014-15. The average short-term and long-term power purchase costs in 2014-15 were estimated to be around Rs 3.95 per unit and Rs 3.37 per unit respectively, increasing from Rs 3.89 per unit and Rs 3.19 per unit respectively. Source-wise, the power procurement cost of hydro-based power was the lowest in 2013-14 at Rs 2.24 per unit. The procurement cost of renewable power was the highest at an estimated Rs 4.71 per unit, while that of thermal power was Rs 3.48 per unit.
Against the sharp increase in procurement costs, the increase in retail tariffs has been moderate. In 2012-13, tariff hikes ranged from about 1.5 per cent to 37 per cent depending on the consumer category, in 2013-14 the range was from 0.6 per cent to 26 per cent, while in 2014-15 it decreased to 2 per cent from 4 per cent. In 2015-16, tariff hikes ranged from 2.5 per cent to 16 per cent.
Category-wise, in 2015-16 too, agricultural tariffs were the lowest at Rs 2.80 per unit, while tariffs for the commercial segment were the highest at Rs 6.58 per unit. Tariffs for the domestic and industrial (high tension) segments stood at Rs 4.39 per unit and Rs 5.75 per unit respectively.
Taking cognisance of the deteriorating state of the distribution segment, the government launched UDAY in November 2015 with the aim of effecting a financial turnaround of discoms. Besides stipulating a phased takeover of discom debt by state governments, the scheme targets improving the operational efficiency of discoms, reducing the cost of power purchase and enforcing fiscal discipline on discoms. Of the 17 states that have agreed to participate in the scheme, 10 have already signed MoUs with the Ministry of Power (MoP) for implementation of UDAY. These are Jharkhand, Chhattisgarh, Rajasthan, Uttar Pradesh, Gujarat, Bihar, Punjab, Haryana, Jammu & Kashmir, and Uttarakhand. These states account for a combined debt of over Rs 1.98 trillion.
Other ongoing initiatives to revive the ailing distribution segment are the Integrated Power Development Scheme (IPDS), Deen Dayal Upadhyaya Gram Jyoti Yojana (DDUGJY), Power for All and the National Smart Grid Mission. These are aimed primarily at reducing the average transmission and distribution (T&D) losses to 15 per cent by 2019 as well as improving access to electricity in the country.
The IPDS, launched in December 2014, involves the strengthening of sub-transmission and distribution networks in urban areas through the metering of transformers, feeders and consumers, as well as deployment of information technology (IT) at discoms. The IPDS has a capital outlay of Rs 326 billion, excluding the outlay for the ongoing R-APDRP (which has been subsumed under the IPDS). So far, the IPDS has been rolled out in 3,406 towns across 435 circles/zones in 25 states entailing an approved project cost of Rs 233.16 billion. Of the total approved grant of Rs 145.54 billion from the central government, Rs 3.27 billion has been released so far.
Moreover, a major drive is under way to provide quality power to rural areas by separating agricultural and non-agricultural feeders as well as to increase rural electrification under the DDUGJY launched in December 2014. The government has approved an outlay of Rs 430 billion for the scheme. The Rajiv Gandhi Grameen Vidyutikaran Yojana has been subsumed under the DDUGJY. As of March 2016, the government has sanctioned 606 projects entailing a total cost of Rs 412.12 billion. Only 3 per cent of the sanctioned amount has been released so far. Meanwhile, as per government statistics, 98.1 per cent of the 597,464 villages covered in the national census have been electrified.
The government has also rolled out the Power for All scheme, which aims to provide reliable 24×7 power supply to domestic, industrial and commercial consumers, and to irrigation pumps for 8 to 10 hours a day depending on the agroclimatic factors in different states, as well as electricity access to all unconnected households by March 2019. The programme is designed to be implemented jointly by the central and state governments. Andhra Pradesh, Rajasthan and Delhi were the first states to join the scheme, and 19 other states have also come on board.
Improving the efficiency of electricity consumption is another key focus area. The government has launched various schemes such as Perform, Achieve and Trade (PAT), the Domestic Efficient Lighting Programme (DELP) and the Street Light National Programme (SLNP) under the National Mission on Enhanced Energy Efficiency, in order to improve the efficiency of power consumption in the country, in an attempt to reduce the supply stress on the distribution segment. Further, significant attempts are being made by the government to modernise the distribution grid through the Smart Cities Mission, the National Mission on Electric Mobility Mission and the National Smart Grid Mission (NSGM). The NSGM envisages the roll-out of 100 million smart meters over the next three-four years.
The way forward
The distribution segment is in financial disarray owing to non-cost-reflective tariffs, lack of fuel cost pass-through, and deficient efficiency improvement measures among other reasons. Stakeholders have pinned significant hope on UDAY as it focuses on both liquidity improvement and loss reduction. Significantly, there are a string of deterrents built into the scheme for non-compliance with targets. Meanwhile, the success of UDAY, as well as other ongoing schemes, in transforming the distribution segment depends entirely on the efficiency of implementation. Further, sustained improvements in segment performance cannot be achieved unless the regulators ensure that tariff revisions are both appropriate and adequate.