Amol Kotwal, Director, Energy & Power Systems Practice, Frost & Sullivan, speaks on what can be done to turn around the distribution scenario in the country to boost the prospects of the power sector.
Electricity distribution to end-consumers has been identified as the weakest link in the value chain. What can be done to improve the same?
With over 60 distribution level State power utilities, the segment accounts to a large chunk of AT&C (Aggregated Technical and Commercial) losses of electricity in India. At nearly 25-28 per cent, overall levels in recent years, these losses are primarily composed of losses by means of pilferage. Steps are to be taken (other than financial bailout packages) in the direction of minimising these losses which will in return strengthen the balance sheets of distribution companies across States as a result of which more investments can be channelised for modernisation efforts. With modernisation drives the distribution companies can invest in automation, smart metering, upgradation of line networks, transformers etc., all of which can contribute to reducing losses. Much of the reforms needed to improve the situation today lie at the State level governments and partly with Central government and financial institutions/ regulatory entities.
Has the new government initiated any measures that will help to boost the distribution sector in India?
From a vertically integrated structure which was the case before 1995, successive Central governments have progressively initiated the unbundling of distribution entities from the conventional model (of Generation + Transmission + Distribution electricity boards) to inde¡pendent and restructured State electricity boards. Generation de-licensing, regulatory reforms and frameworks, provision for private licensees entry in distribution sector through independent networks, open access in distribution, thrust for metering infrastructure etc., are some of the many reforms undertaken in the past by the Central government and related regulatory firms. The newly elected government has yet to give any directions towards distribution sector reforms; much has been focused on the generation side reforms.
Clearly the new government has to entice the State governments with inexpensive power and cheap funds into making them reform their ailing distribution companies in a phased manner.
Much has been written and debated on how to bring down the unacceptable quantum of Aggregate Technical & Commercial losses, do you see the situation improving in the near future?
As mentioned earlier, the prima facie problem lies in non-professional running of distribution companies and power thefts, which causes burden on an honest customer and Central government to bail out these distribution companies. At its peak, the bailout packages have accounted as high as 1 per cent of our GDP in the past, which is a serious concern. The AT&C loses have remained in a band of 11 to 29 per cent in recent years, varying across States. With UP, MP, Tamil Nadu, Jharkand, Haryana accounting for a bulk of the losses, unless any substantial measures are taken by these local governments in this direction, the AT&C losses are expected to remain at same levels if not rise further thanks to the efforts from other States to cut the AT&C loses (in some cases even below national average).
The R-APDRP (Restructured Accelerated Power Development and Reform Programme) aims to reduce AT&C losses (to 15 per cent) in selected urban areas by supporting baseline data collection and the adoption of IT applications and by providing grant funding to renovate, strengthen, and modernise operational, technical, and service delivery mechanisms for distribution. Has it managed to do so?
In our understanding the programme, though delayed in certain areas, has managed to provide substantially good results. With increased focus on the same, along with push for smart grid infrastructure and parallel upgradation of line networks, it is eventually poised to provide the needed solution to high AT&C losses. What one needs to tackle is the issue of power theft, irrational tariffs, and continued poor operational dynamics (which in turn result in financial losses) of our malfunctioning distribution companies. This will eventually decide whether as a nation we can reach the desired AT&C loss levels.
How can the Centre improve the functioning of various State distribution companies?
Incentive based packages have had limited success from the past; and the Centre should create regulatory frameworks (if possible more than one across different category of States based on their local problems to tackle the issues). The Centre should also rationalise the bailout system and ensure that State governments work towards measures to gradually improve and ensure proper functioning of their distribution companies. Limited incentives such as cheap funds can be considered to entice the State governments.
Are there any policy changes that are required to further facilitate a better distribution system?
Any policy related changes that can partly route the accountability of state distribution companies to Central Government or central regulators along with clear distinction of roles can be a starting step.