Five firms keen on Odisha power distribution business

Cos eyeing to work as distribution franchisee include Crompton Greaves, Tata Power
BS Reporter | Bhubaneswar August 16, 2013 Last Updated at 20:06 IST

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Read more on: Odisha | Power Distribution | Crompton Greaves | Tata Power Delhi Distribution Ltd

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As many as five companies including Crompton Greaves Ltd (CGL) and Tata Power Delhi Distribution Ltd (TPDDL) have expressed interest to work as power distribution franchisee inOdisha during a workshop organised by Gridco Ltd and Rural Electrification Corporation (REC). Others were Bombay Stock Exchange (BSE)-listed Spanco, Calcutta Electric Supply Corporation (CESC) and SPML Infra Ltd. "One more company Essel Utility, a power distribution franchisee in Madhya Pradesh, is also keen to take up franchisee business in the state, but could not attend the workshop today, said a spokesperson of Gridco. The distribution franchisee business helps power distribution companies (discoms) to outsource some tasks by dividing their catchment area into small patches and engaging one of the franchisee. The franchisees job would be to supply and distribute electricity, take down metre readings, distribute bills, collect revenue, maintain lowtension lines and attend fuse-off calls. The workshop, Distribution Franchisee Models in India-Evolution and Future, was organised to understand the issues involved in the business across various states of India. "During the presentation, the companies said that they need more hand holding support and a longer period of contract, up to 15 years, to participate in this type of business model. We will sit together with the government before coming up with RFP (request for proposal) tender, said A K Bohra, chief executive officer of Nesco, Wesco and Southco, the three discoms managed by Reliance Infra in the state. Distribution franchisee business is not new in Odisha as Central Electricity Supply Utility, managed by Odisha Electricity Regulatory Commission (OERC), had outsourced its operation to three companies. Reliance Infra also engaged few companies for bill collection in the areas under its jurisdiction. However, such type of business model is facing several problems in the state, particularly related to bill collection as a number of self-help groups (SHGs) who were earlier paid by discoms for collecting bills have opposed the appointment of distribution franchisees.

Consumers Utility Interface Cases Downloads Power Scenario

POWER REFORM IN ORISSA - AN OVERVIEW

Highlights of the Act | Regulatory Mechanism | Functions of the OERC A NEW ERA IN UTILITY REGULATION

Orissa has been a pioneer among States in India in embarking on a comprehensive reform of the electricity industry of the State. The aim of the reform is to address the fundamental issues underlying poor performance of the Orissa State Electricity Board and restructure the power sector. The objective to make power supply more efficient, meet the needs of a growing economy and develop an economically viable power industry which will enable Orissa to attract private capital while safeguarding the interests of the consumers. The reform programme was announced by the Chief Minister of Orissa in November, 1993, formally approved by the council of Ministers in April, 1994 and was endorsed by the new state government which took office in March, 1995. On April 20, 1995, the government issued a formal statement of its power policy. A new legislation, namely, the Orissa Electricity Reform Act, 1995 (Orissa Act 2 of 1996) was enacted for the purpose of restructuring the electricity industry, for taking measures conducive to rationalization of generation, transmission and supply system, for opening avenues for participation of private sector entrepreneurs and for establishment of a Regulatory Commission independent of the state government and power utilities. Advance clearance of the legislation by the central government was issued by the Ministry of Home Affairs in early November 1995. The legislation was approved by the State Assembly on November 28, 1995. The President gave his assent in January 1996 and the Act became effective in April 1996. The restructuring of the industry became effective from the same date and the Regulatory Commission became functional on 01.08.1996 after all the three members including the Chairman had taken oath of office. HIGHLIGHTS OF THE ACT The reform legislation contains several fundamental building blocks.

Restructuring - The former OSEB has been corporatised and is designed to be managed on commercial principles in its new form GRIDCO. While the newly formed GRIDCO has been put in charge of transmission and distribution, the hydro power- generating stations owned by the government has been taken over by the Orissa Hydro Power Corporation (OHPC). Unbundling - The reform structure has incorporated principles of functional unbundling with regard to generation, transmission and distribution to be managed by separate corporations/companies. Privatisation - The OER Act, 1995 aims at fostering private sector participation in generation and gradual privatisation of transmission and distribution. Regulatory Commission - An important component is establishment of the Orissa Electricity Regulatory Commission for ensuring achievement of objectives given in the Orissa Electricity Reform Act, 1995. Licensing - Government ownership and direct control has given way to a licensing system in respect of transmission and distribution activities. Tariff - Determining tariff which would ensure commercial rate of return for investment in the electricity industry while protecting rights of all categories of consumers with respect to cost, efficiency and quality of service.

The new regulatory supervision is designed to be qualitatively and structurally different from the command and control exercised by the government so far as the electricity industry is concerned. The Orissa government's objective is to withdraw from the power sector as an operator of utilities and give way to privately managed utilities operating in a competitive and appropriately regulated power market. The Commission is designed to be an autonomous authority responsible for regulation of the power sector while policy-making power continues to be retained by the State Government. The Commission is a three member body with the necessary supporting staff. Structural Evolution REGULATORY MECHANISM The new regulatory regime is designed to insulate the electricity industry from short term political decisions and rigid bureaucratic control. It aims at ensuring that industry operates on commercial lines so that the scarce resources of the state are available for development. It has been the experience that state owned industry is utilised for achieving social and political ends such as creating avenues for employment, and giving subsidy to certain categories of consumers. This becomes detrimental to the industry resulting in non-availability of resources for maintenance and expansion, lack of accountability in performance, poor quality of service, financial sickness of the industry and unwillingness of private sector to invest in any significant manner. The new regulatory regime, on the pattern prevalent in USA and UK, is designed to create clear and transparent rules and procedures for open hearing by which the Regulatory Commission can monitor and control the essential utility industries while the interests of all those who participate in it and those who are served by it can be balanced and protected. As an independent Regulatory OERC

Issues and enforces licenses Determines tariff and charges Monitors financial viability of operators Sets service standards and monitors compliance Arbitrates in disputes between licensees Arbitrates in disputes between licensees and consumers Provides information and advice to the Government Handles consumer grievances Promotes competition in all sectors of electricity industry

An independent Regulatory Commission operating in a transparent manner creates comfort and confidence of investors from private sector by allaying the apprehension that political and personal considerations may create an uncertain climate and that the interests of Govt. or selected persons shall not be unduly favoured.

Regulatory Structure FUNCTIONS OF THE OERC

to aid and advise, in matters concerning generation, transmission, distribution and supply of electricity in the State; to regulate the working of licensees and to promote their working in an efficient, economical and equitable manner; to issue licenses in accordance with the provisions of the Reform Act and determine the conditions to be included in the licenses; to promote efficiency, economy and safety in the transmission, distribution and use of electricity in the State including and in particular in regard to quality, continuity and reliability of service so as to enable all reasonable demands for electricity to be met; to regulate the purchase, distribution, supply and utilization of electricity, the quality of service, the tariff and charges payable keeping in view both the interest of the consumer as well as the consideration that the supply and distribution cannot be maintained unless the charges for the electricity supplied are reasonably levied and duly collected; to promote competitiveness and progressively involve the participation of the private sector, while ensuring a fair deal for the customers; to collect data and forecast on the demand for and use of electricity and to require the licensees to collect such data and make such forecasts; to require licensees to formulate perspective plans and schemes in coordination with others for the promotion of generation, transmission, distribution and supply of electricity; and to undertake all incidental or ancilliary things.

The Orissa Electricity Regulatory Commission has taken up its role earnestly in the aforesaid historical and legal perspective. The Commission's task is all the more difficult because there has been no precedent of an independent regulatory Commission in electricity industry in any of the developing countries in Asia. The Commission has formulated its rules, regulation and procedure in a tailor-made manner to suit the economic and industrial development in general, and need of electricity sector in particular, in the state of Orissa while safeguarding the interests of all categories of consumers.

GENERATION DETAILS

TRANSMISSION DETAILS

DISTRIBUTION DETAILS

` All Orissa (as on 01.01.2007) Consumers LT (Domestic, General Purpose etc.) HT (CD >= 110 KVA) EHT Total Number (%) 2363552 (99.93%) Load in MVA (%) 3497.713 (68.37%)

1569 (0.06%) 54 (0.01%) 2365175

801.882 (15.68%) 816.127 (15.95%) 5115.722

WHY REFORMS ?

Increase efficiency Bring accountability Attract Private Sector Investment Establish an independent and transparent regulatory regime

ROLE OF OERC

FUNCTIONS OF OERC

POWERS OF OERC

Take measures conducive to an efficient electricity industry in the State Safeguard the interests of the consumers Prevent monopolistic behaviour by operators Establish independent and objective decision making process

Issue licenses for transmission and distribution Regulate the operations of the licensees Fix and regulate tariff Promote competetiveness Create environment for private sector participation Ensure fair deal to customers Aid and advise government on all aspects of electricity industry

Issue/revoke licenses/to approve/modify/reject tariff change proposal Set technical standards and standards for consumer protection Arbitrate between operators Issue enforcable orders Review its decision wherever necessary

THE CUSTOMER ADVANTAGE

THE POWER SECTOR ADVANTAGE

ADVANTAGE TO THE STATE

Reliable, efficient and safe power supply Lowest possible rates Awareness and implementation of rights

Commercial viability Efficient operation

Increased Private Sector Investment Availability of adequate and reliable power Availability of State resources for social sector

Why the power tariff hike is necessary

Increases in the cost of electric consumption might leave you surprised. But heres the good news. Its not you. Heres your guide to the mystery. In the last few months electricity tariff hikes have been announced in Maharashtra, Uttar Pradesh, Delhi, Tamil Nadu among other states, sparking widespread public protests but what if this tariff hike was necessary and justified? When it comes to the electricity sector, the key issue in public light is constant availability of electricity with no power cuts and cheap affordable power. Public outcry has always occurred as and when the retail tariff payable by consumers for consuming electricity in houses, offices and industries have been hiked. Do we really know why the tariff has been hiked or what thought process has gone into determining it? What is electricity tariff? Electricity tariff refers to the price at which a power utility charges its consumers for consumption of electricity. These prices differ with actual consumption, type of consumer (whether you are domestic or industrial), government structure (in a regulated structure like India the government body determines the tariff), market situation (state of economy and currency of the nation), applicable taxes, etc. Simplified brief Schematic of the electricity sector (without the government institutions)

There is a cost associated with generating electricity. A project that generates electricity sells this electricity to government/private distribution companies like the Tata Power Delhi Distribution Limited, BSES and Torrent Power at a fixed tariff. They can be referred to as the DISCOMs or utilities, with the aim of recovering costs and generating some profit like any other business or project. These power utilities supply electricity to individual houses and customers via connections and charges the consumer a fixed tariff. This tariff is again designed by the government to enable the DISCOM t o earn a profit- return and cover all its fixed, operational and maintenance costs While the tariff payable is fixed and determined for all sections of society, the state/government out of welfare provides a subsidy to some consumers like BPL consumers; wherein the effective tariff they pay is very low and the rest is paid by the government to the DISCOM. In India, each state has an overseeing government body called the State electricity regulatory commission (SERC) which determines different tariffs payable to the generator by DISCOMs and to DISCOMs by retail consumers.

The government spends an extensive amount of time and effort in determining both the retail tariff and tariff payable by DISCOMs to Generators. The commission takes into consideration each and every comment and point of view; and reasons each and every aspect that goes into determining the tariff. A lot of analysis and inspection of operations goes into determining the tariff; and the methodology followed is textbook perfect wherein private, public and government stakeholders are all involved in the decision process. Like any organization or government norm, there are cases where there are flaws and inefficiencies; but the tariff determination which is heavily influenced by industry and national economic situation is intended to protect everyones interests. For example, in the latest retail tar iff order by the Rajasthan SERC, the subsidy provided to small domestic consumers (the poorer section of society comprising low income households) and the tariff payable by them, both has increased; but still keeps the effective subsidized tariff payable the same. The fact that these electricity prices are fairly regulated by the government insulates the end consumer from market and economic volatility. The famous California electricity crisis, which followed the deregulation in 2000, saw electricity prices shoot up and traders intentionally manipulating the market to make monetary gains. The electricity sector is currently going through a major shake-up and has been heavily criticized for its inefficiencies and shortfalls. Operational and execution losses are huge and while strict action and focus is required to make the industry and process more efficient, electricity tariff revisions are also required to cope with financial pressures. The electricity sector is heavily dependent and driven by capital, and commercial and market driven factors pose a great risk.

(Courtesy: Sankarshan Mukhopadhyay / Flickr CC Attribution License) Many a times, promised subsidy is delayed or deferred; which puts tremendous pressure on a DISCOMs financial health, leading to losses. A DISCOM like any other company also is dependent on loans from banks for both its short-term and long-term operations, and deteriorating financial health will result in it defaulting on many loans and the banks refusing to support them. This affects the DISCOMs operations and its obligations to power generators, who will see this as a risk, pull out and not invest further which will bring the energy generated further down, thus pushing the cost of electricity further up. Tamil Nadu recently underwent this crisis- where new wind energy project installations which amounts for 35% of the states generated electricity dropped significantly by nearly 75% because the TN DISCOM was not paying its dues to the wind energy projects.

When power generators do not get paid, they cannot service their obligations; which ultimately negatively affects the state as the same generator would not take the risk of investing again. As per a June 12 Crisil report, Lancos receivables, as on March 2012, from its Amarkantak power plant in Chhattisgarh were Rs 555 crore,; which led to the downgrade of the power projects credit rating. Moving forward the industry should be moving towards reducing tariffs through upgraded technologies and more efficient processes but current market and trade economics require certain tariff hikes in the short-term. Not hiking the tariff for the consumer might seem politically attractive in the short term but it is a step that will only augment losses. The net estimated losses of state electricity boards is estimated to be INR 1,90, 000 Crore, with outstanding loans of INR 3.4 trillion as of July 2012. There is an estimated 14,000 Cr of unpaid bills to the private sector, which has seriously dampened the sectors outlook in the eyes of investors and banks. In fact Barclays Research estimated a tariff hike of 25-30 % just to break even. Recently the Committee on Economic Affairs (CCEA), Govt. of India approved the INR 1.90-lakh crore debt restructuring package for the S tate Electricity Boards to facilitate a turnaround of the State distribution companies (DISCOMs), which will lead to hike in tariffs. Short term tariff hikes are important for the sector to sustain what has been pretty much pushed to the limit. Not raising tariff might result in a lot of investors, banks and project developers pulling out, the way it was in Tamil Nadu. With the country already short of power, a reduction in the number of projects and investors will significantly reduce the generation capacity, drive up electricity prices, take us back a couple of years and prove disastrous for the sector.