1. ACCELERATES NEXT STAGE REFORM
TURNAROUND OF DISCOMS
ACCELERATES NEXT STAGE REFORM A
Dr. M.K.Iyer, Member
Central Electricity Regulatory Commission
November 17, 2015

2. 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

3. 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

4. Sustainability – Internal Reform
BUSINESS TURNAROUND
Situation/
Problem Assessment
Factor Identification (External & Internal)
Problem Solving Strategy
Rollout Plans
( Pilot basis/Holistic basis)
Result Monitoring and adjustments
Sustainability – Internal Reform

5. TURNAROUND STRATEGY Turnaround strategy could be either :
A) External Measures:
Policy Rationalization
Business environment
Internal Measures :
Management Reforms
Financial Reform
Administrative
Technological Adoption
IT enabled management

6. TURNAROUND OF DISCOMS
POST ELECTRICITY ACT,2003

7. OBJECTIVES OF THE ACT AND POLICIES – DISCOM Bringing Competition
Provision for Open Access
Procuring Power - Competitive bidding
Multiple distribution licensees
Accountability & Transparency
Establishing SERC and APTEL
Unbundling of the Power Sector and Reorganization of Discom
Commercial Viability – Tariff Principles
Tariff Setting – Cost of service principle
State Government Subsidy -to bridge gap
Access to Network
Universal Supply Obligation (USO)
Rural electrification – Government Scheme
Quality & Affordability
Standard of Performance
Consumer Grievance Redressal
Reduction in T&D losses
Renewable Energy – Obligations
Mandatory RPOs
REC mechanism

8. PERFORMANCE OF DISCOMS
POST ELECTRICITY ACT,2003

9. OPERATIONAL PERFORMANCE OF DISCOMS – POST 2003
All India AT&C Losses
26.63%
25.45%
22.7%
Gap in Average Cost of Power Supply and Average Tariff Realised.
High AT&C losses.
Source : Planning Commission Annual Report on the Working of State Power Utilities & EDs

10. PERFORMANCE OF DISCOMS – POST 2003
Losses have been increased from 2010 onwards;
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

11. PULL FACTORS FOR PERFORMANCE OF DISCOMS

12. 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 , Rs 37,836 Cr in and now cr
(cont/-

13. PULL FACTORS RESPONSIBLE FOR POOR PERFORMANCE -DISCOM
Mismatch between the tariffs and cost of generating power:
Cost of supplying electricity increased at a rate of 7.4% annually between and and average tariff was increased at the rate of 7.1%.
After onwards, the gap of average cost of supply and average tariff increased significantly:
Year
Unit Cost
Average
Tariff
per Unit
Gap between
Cost and Tariff
Gap as % of
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%

14. 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 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 There are issue in realizations.

15. 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

16. FINANCIAL RESTRUCTURING
PLAN
FOR DISCOMS

17. 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.

18. 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

19. 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

20. TURNAROUND OF GUJARAT
DISCOMS: A Case Study

21. Gujarat Power Scenario in 2002
State’s installed capacity: 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
Accumulated losses Rs 8286 Crs before unbundling

22. Steps for Turnaround
Unbundling of the Sector
GEB unbundled on 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, North & West Gujarat
Aggressive capacity addition- In 2009, Gujarat becomes surplus state

23. Growth of Installed Capacity

24. Steps taken – Distribution
Investment made from 2002 onwards – Rs 16,550 Crs More than 500% rise (up to – Rs Crs)
Feeder Segregation – Jyoti Gram Yojana – Rs 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 – 7 % CAGR

25. 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
After JGY with SDT
8 to 14 hours 3-ph power
10 to 12 hrs single phase
4 to 5 hrs no power supply
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

26. 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

27. 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

28. Cost Minimization measures
Debt Restructuring reduced Interest cost by Rs. 363 Crs
Re-negotiation of PPAs reduced power purchase cost by Rs Crs
Long term power 7615 MW tied up at competitive prices (Rs )
Power purchase as per Merit Order Protocol
Intra State ABT – April 2010
Surplus power sale ( 7284 Mus )

29. Sector Turnaround
Sector turnaround from Rs 2,543 Crs loss in to a profit of Rs 203 Crs in 29

30. TURNAROUND OF DISCOMS
FOR FUTURE

31. APPROACH OF GOVERNMENT OF INDIA ADDRESSING PROFITABILITY OF DISCOMS
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

32. 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.
PILOT 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
Co-operativne federalism
IT enabled solutions

33. 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

34. 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

35. 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.

36. (TURNAROUND WILL FACILITATE NEXT STAGE REFORM)
Increase investment in Renewable
Electricity Amendment Act, 2003

37. Thank you