Unbundling of State Electricity Boards under Electricity Act, 2003 by Govt. of India

1. 1 Unbundling of State Electricity Boards under Electricity Act, 2003 by Govt. of India BY HIMACHAL POWER ENGINEERS� ASSOCIATION

2. 2 CONTENTS National Power Scenario Power Sector Reforms in India Agenda/resolutions (GOI Initiative) Features of Electricity Act 2003 Is unbundling of SEBs mandatory? Unbundling a legal opinion Results Expected through unbundling/restructuring What has been the reality? Some suggestions

3. 3 NATIONAL POWER SCENARIOInstalled Capacity in 1947 1,300 MWInstalled Capacity as on 31.3.2008 1,36,000 MW Demand Estimates(FY2012) 16th EPS* Energy Demand(Billion Units) 750 Peak Demand 155,000 Installed Capacity required to 195,000 meet peak demand(MW) Additional Capacity required(MW) 60,000 Present Energy Shortages 8.2% Peak Demand Shortfall 13% *Energy Power Survey by GOI

4. 4 Power Reforms in India With the advent of policy of liberation & globalization, the power policy was also amended in 1991 with the sector opened up for private participation. In the policy statements of early 1990�s, it was projected that the foremost ailment affecting the power sector is �Power Shortage.� The slogan was power at any cost is preferable to no power�.

5. 5 POWER SECTOR REFORMS Initiatives of Govt. of India (As per resolutions passed in Chief Minister/ Power Minister�s Conference on 3rd March 2001) Noted the challenges confronting the Power sector. Agreed that there is an urgent need to depoliticise power sector reforms and speed up their implementation.

6. 6 AGENDA/RESOLUTIONS passed in the CM�s conference on 3rd March 2001 Maximizing Generation �Capacity Addition of 1,00,000MW by 2012. Distribution reforms Energy audit of 11 kV feeders in the next six months Full metering by December 2001 Commercial viability through any or all of the following Creating Profit Centers Handing over local distribution to Panchayats/local bodies/Franchisees/ User Association Privatisation of Distribution Or any other means

7. 7  Completing Electrification of all Villages and Houses Rural electrification may be treated as basic minimum service under PMGY. Rural electrification must be completed by the end of 10th plan i.e. by year 2007. Full coverage of the households may be targeted for the end of the 11th plan i.e. by 2012 Tariff Determination by regulatory commission and Subsidies

8. 8 Support for Govt. of India to States To achieve definite milestones Interest rate for PFC and REC would be brought down. One time settlement for all past dues of SEBs/Utilities to CPSUs AGENDA/RESOLUTIONS passed in the CM�s conference on 3rd March 2001

9. 9 In this context MoUs were signed by Govt. of India with respected States. With Himachal Pradesh MoU was signed on 31.03.2001

10. 10 FEATURES OF ELECTRICITY ACT 2003  Then came Electricity Act 2003

11. 11 The Electricity Act, 2003 Important Events: Electricity Bill 2000 was placed in Lok Sabha on 30th Aug, 2001 and was referred to Standing Committee on Energy which submitted its report on 19th Dec., 2002. This bill was passed by Lok Sabha & Rajya Sabha on 9th April, 2003 & 5th May, 2003 respectively. Bill received President�s Assent on 26th May, 2003. Contd��

12. 12 The Electricity Act, 2003 Important Events: This was notified in the Gazette of India on 2nd June, 2003 and finally �In exercise of powers conferred, the Central Government appointed the 10th day of June, 2003 as the date on which the following of the said Bill came into force as Electricity Act, 2003, namely: - Sections 1 to 120 and Sections 122 to 185�

13. 13 Main features of Bill / Act (Under Statements of Objects & Reasons) Extracts from EA 2003 The main features of the bill are as follows: Generation is being delicensed and captive generation is being freely permitted. Hydro projects would, however, need approval of the State Government and clearance from the Central Electricity Authority which would go into the issues of dam safety and optimal utilisation of water resources . There would be a Transmission Utility at the Central as well as State level, which would be a Government company and have the responsibility of ensuring that the transmission network is developed in a planned and coordinated manner to meet the requirements of the sector. The load dispatch function could be kept with the Transmission Utility or separated. In the case of separation the load dispatch function would have to remain with a State Government organisation/company.

14. 14 Main features of Bill / Act (Under Statements of Objects & Reasons) There is provision for private transmission licensees. There would be open access in transmission from the outset with provision for surcharge for taking care of current level of cross subsidy with the surcharge being gradually phased out. Distribution licensees would be free to undertake generation and generating companies would be free to take up distribution licensees. The State Electricity Regulatory Commissions may permit open access in distribution in phases with surcharge for- Current level of cross subsidy to be gradually phased out along with cross subsidies; Obligation to supply. .

15. 15 Main features of Bill / Act (Under Statements of Objects & Reasons) For rural and remote areas stand alone systems for generation and distribution would be permitted. For rural areas decentralized management of distribution through Panchayats, Users Associations, Cooperatives or Franchisees would be permitted. Trading as a distinct activity is being recognised with the safeguard of the Regulatory Commissions being authorised to fix ceilings on trading margins, if necessary. Where there is direct commercial relationship between a consumer and a generating company or a trader the price of power would not be regulated and only the transmission and wheeling charges with I surcharge would be regulated ..

16. 16 Main features of Bill / Act (Under Statements of Objects & Reasons) There is provision for a transfer scheme by which company/companies 'Can be created by the State Governments from the State Electricity Boards. The State Governments have the option of continuing with the State Electricity Boards which under the new scheme of things would be a distribution licensee and the State Transmission Utility which would also be owning generation assets. The service conditions of the employees would as a result of restructuring not be inferior. An Appellate Tribunal has been created for disposal of appeals against the decision of the CERC and State Electricity Regulatory Commissions so that there is speedy disposal of such matters. The State Electricity Regulatory Commission is a mandatory requirement. Provisions relating to theft of electricity have a revenue focus.

17. 17 The Electricity Act, 2003(No.36 of 2003) �An Act to consolidate the laws relating to generation, transmission, distribution, trading & use of electricity & generally for taking measures conducive to development of electricity industry, promoting competition therein, protecting interest of consumers and supply of electricity to all areas, rationalisation of electricity tariff, ensuring transparent policies regarding subsidies, promotion of efficient and environmentally benign policies, constitution of Central Electricity Authority, Regulatory Commissions & establishment of Appellate Tribunal and for matters connected therewith or incidental thereto� (Be it enacted by Parliament in fifty fourth year of republic of India as follows�)

18. 18 IS UNBUNDLING OF SEBs MANDATORY AS PER ACT 2003? After the enactment of Electricity Act 2003, it is being propagated by some interested groups that it is now mandatory for the states to separate generation, transmission and distribution operations. What actually the legal provisions of the Act 2003 provides for � Let us ponder �

19. 19 IS UNBUNDLING OF SEBs MANDATORY AS PER ACT 2003? TRANSITIONAL PROVISIONS Section 172(a):- �State Electricity Boards-- shall be deemed to be State Transmission Utilities (STUs) and a licensee for a period of 1 year---.Provided that the state government may by notification authorize the SEB to continue to function as STU and a licensee for such period beyond the said period of one year as mutually decided by the Central and State Governments� LEGAL OPINION: The first proviso to Section 172(a) of the Electricity Act, 2003 enables any SEB to continue as STU or licensee �for such further period beyond the said period of one year�. The quoted words do not restrict the duration or the period upto which SEB may continue as STU and a licensee. Only rider is that STUs shall not engage in the business of trading after the specified period. [Section 30].

20. 20 Part-4(v) - Distribution licensees would be free to undertake Generation & Generation companies would be free to take up Distribution Licensees. Part-4(ix) � There is provision for a transfer scheme by which company/companies can be created by the State Government from SEBs. The state Governments have the option to continuing with SEBs which under the new scheme of things would be a distribution licensee and the State Transmission Utility, which also be owning generation assets. Is Unbundling of SEBS Mandatory as per Act 2003?

21. 21 Section 131- Reorganisation of SEBS SECTION 131(2): �Any property, interest in property, rights and liabilities vested in the State Government under Sub-Section (1) shall be re-vested by the State Government in a Government company or in a company or companies, in accordance with the transfer scheme so published� LEGAL OPINION Sub-sections (1) and (2) of Section 131 do not make it mandatory for SEB to be disintegrated into the following separate entities: State Transmission Utility; generating company; transmission licensee; and distribution licensee. If that would have been the intention then the above quoted statutory provisions would expressly said so.

22. 22 UNBUNDLING OF SEB �LEGAL CONCLUSION There appears to be a flexibility on the State Government to form one or more companies and vest in them such business that are allowed under the Act. This is confirmed by the decisions of the Parliamentary Standing Committee on Energy as the said Report clarifies on the stated objectives and intention behind the aforesaid Sub-sections (1) and (2) of Section 131 of Act. (the Supreme Court of India has taken the view that legislative history within circumspect limits may be consulted by courts in resolving ambiguities. REFER State of Mysore vs. R.V. Bidop, AIR 1973 SC 2555, Sub-Committee of Judicial Accountability vs. Union of India AIR 1992 SC 320, Sriram Chits and Investments (P) Ltd., vs. Union of India AIR 1993 SC 2063) In R.S. Nayak vs. A.R. Antulay (1984) 2 SCC 183, a Constitution bench of the Supreme Court held that the report of the committee which preceded the enactment of a legislation, reports of joint parliamentary committee and report of a commission set up for collecting information leading to the legislation are permissible external aids to construction of the Act. )

23. 23 Standing Committee on Energy (2002), 13th Lok Sabha (Ministry of Power)-31st Report - The Electricity Bill, 2001 (Presented to Lok Sabha & Laid in Rajya Sabha on:19.12.2002 �16.31 During oral evidence a representative of the Ministry of Power deposed before the Committee as under: - �There are enabling provisions in the Bill for a statutory transfer scheme or schemes, through which one or more companies can be created from the State Electricity Boards. So, the Electricity Boards and the State Governments could utilise these provisions for restructuring the State Electricity Boards into one or more companies, if they wish to do so. If a State Government wishes to continue with the State Electricity Boards, it could also do so. There is flexibility, but in terms of the legal framework. The State Electricity Board would be the State Transmission Utility and the distribution licensee in the area of the State. The States have been given full flexibility in adopting reform model/path that they consider proper. Unbundling of the Electricity Boards is not mandatory. The States have a choice to do so or not to do so. These provisions have fully taken care of the concerns that have been expressed.�

24. 24 UNBUNDLING OF SEB �LEGAL CONCLUSION Thus there is no legal obligation under Electricity Act 2003 on any State Govt. to create separate Generation, Transmission and Distribution companies. SEB may continue in the bundled form as �One Company� carrying out the functions of Generation, Transmission & Distribution in which case the company would be the distribution licensee & State Transmission Utility which would also be owning generation assets. Further State Govt. can also seek consent of GOI to continue as SEB itself. However to carry out �Trading� functions, a separate entity may be created

25. 25 Present Status of SEBs in country In all there have been 21 SEBs & 8 EDs in the country Out of 21 SEBs, 13 SEBs stands unbundled and 2 Nos. privatised. As per proviso under section 172(a), HPSEB has been granted extension up to 31.05.08(though verbal) HPSEB is one of the 8 SEBs which are bundled at the moment

26. 26 States where SEBs have been unbundled so far Orissa (Privatized) 1996 Haryana 1999 Andhra Pradesh 1999 Karnataka 1999 U.P. 2000 Uttrakhand 2001 Rajasthan 2001

27. 27 SEBs unbundled so far Delhi (Privatized) 2002 M.P. 2002 Assam 2004 Gujarat 2004 Maharashtra 2005 West Bengal 2007

28. 28 Reasons Extended for Unbundling of SEBs SEBs are commercially unviable so need to be corporatised & privatised & should be run as commercial ventures SEBs are monolithic and unmanageable. Enables reduction in T&D losses Unbundled entities would attract private investment particularly in distribution Unbundling would generate competition leading to higher efficiencies. Generation would be a profit making segment which will attract huge investment

29. 29 Results Expected Efficiency Economy Competition Transparency Better Consumer Services Better performance

30. 30 What is the reality today? 1st Assumption After Corporatisation, Companies would work on commercial principles and financial viability of the sector would be ensured

31. 31

32. 32 Unbundling & Commercial Viability of the sector- IIPA Report HARYANA Amount of receivables has increased from Rs. 1119 Cr. to Rs. 2852 Cr. in five years after unbundling & subsidy burden from Rs. 532 Cr. to Rs. 1252 Cr. Financial position of DISCOMs has NOT improved even after the full cost of service tariff has been allowed by commission & full subsidy amount provided by State Govt. Financial gap on subsidy received & revenue realized basis has almost doubled from 16 P/U in 2002-03 to 25 P/U in 2004-05 for DHBVAL & from 17 P/U to 48 P/U for UHBVNL

33. 33 Unbundling & Commercial Viability of the sector-- IIPA Report In Rajasthan The accumulated losses from 1996-97 to 1999-2000 were Rs 3,857 crore while in the post-restructuring period, the losses in the first four years were Rs 6,641 crore. Debt liability increased from Rs. 2015 Cr. to Rs. 4559 Cr. in four years after unbundling. Per unit deficit has increased from 31P/U in 1993-94 to 117P/U in 2004-05. The establishment cost has increased after unbundling. The losses in 2000-01 which were Rs. 132 Cr. (after cleaning up of balance sheets of the new companies) has again increased to Rs. 1651 Cr. in 2005-06.

34. 34 Unbundling & Commercial Viability of the sector-- IIPA Report KARNATAKA Instead of being a net contributor to the State�s treasury, the restructured companies continue to depend heavily on Government subsidy. The subsidy burden has increased from Rs. 705 Cr. in 1996-97 to Rs.1140 Cr. in 2005-06. The financial loss has increased from Rs. 652 Cr. in the pre-restructuring period to Rs. 1141 Cr. during 2005-06 Chairman of the State Regulatory Commission has termed the restructuring of the KEB a failure, since the new companies do not have adequate autonomy and financial independence.

35. 35 The other Adverse Effect Volume of traded power increased by nine times in the last five years and cost of traded power increased from Rs.2.25/unit to Rs.8.54/unit U.I. Rate got jacked up from Rs.4.20/unit at 49Hz in 2002-03 to Rs.10.00/unit at 49Hz in 2007-08

36. 36 UI Rate PERIOD Rate 01-01-2002 to 31-03-2004 04.20 01-04-2004 to 30-09-2004 06.00 01-10-2004 to 29-04-2007 05.70 30-04-2007 to 06-01-2008 07.45 07-01-2008 Onwards 10.00

37. 37 What is the reality? 2nd Assumption STATE ELECTRICITY BOARDS ARE HUGE ORGANISATIONS AND THUS INEFFICIENT UNBUNDLING WILL LEAD TO BETTER MANAGEMENT

38. 38 Is HPSEB Un-manageable?

39. 39 ARE SMALL ORGANISATIONS MORE EFFICIENT?

40. 40 ARE SMALL ORGANISATIONS MORE EFFICIENT? On the distribution side, big SEB like Tamil Nadu SEB is maintaining AT&C loss level between 16% to 18%, HPSEB is having a loss level of 15.5%. On the other hand, one private company (BSES Yamuna) in Delhi controlling a tiny pocket of densely populated area is having AT&C loss of over 50% and both the companies of Haryana are having loss level of more than 40%. One company of Karnataka i.e GESCOM is having AT&C loss of 52.73% and Southern Orissa Distribution Company has loss level of 45.5%. CONCLUSION It is not the size of the organization but the manner in which these are managed which make it efficient or manageable. Even small companies are badly managed whereas integrated SEBs like TNEB, HPSEB, PSEB are performing far better than these companies.

41. 41 What is the reality? 3rd Assumption UNBUNDLING ENABLES REDUCTION OF DISTRIBUTION LOSSES THUS LEADING TO CHEAP POWER.

42. 42

43. 43 T&D IN SEBs

44. 44 REDUCTION OF T&D LOSSES The overall T&D losses in most of the unbundled companies are still very high (above 40%) whereas bundled SEBs like PSEB, Tamil Nadu and HPSEB, SEBs are maintaining T&D losses below 24%, 20% and 15% respectively. At the time of restructuring of SEBs many states declared higher than actual T&D losses Metered sale is better indicator for loss reduction analysis

45. 45

46. 46 HAS UNBUNDLING LOWERED THE TARIFFS

47. 47 Himachal Pradesh continues with the distinction of having the lowest tariff in the country.

48. 48 What really happened? 4th Assumption WILL GENERATE COMPETITIVE ENVIRONMENT LEADING TO HIGHER EFFICIENCIES

49. 49 General Performance of unbundled utilities: IIPA Report In case of Haryana AT&C losses in two Discoms are 38.26% & 42.59% because of poor collection efficiency The number of interruptions has shown a marked increase since 2001-02 for both the DISCOMs The average duration of interruptions have almost doubled. Failure rate of DTs continues to be high

50. 50 General Performance of unbundled utilities: IIPA Report Rajasthan In the post-restructuring period, the number of raids & penalty amount realised has significantly come down year after year In the matter of prosecutions/compounding, the figure has come down drastically after restructuring The administrative control of the top management has slackened with the greater involvement of the Government in the day-to-day management of the power companies. The establishment cost has gone up after restructuring & performance of Discoms have not improved in post restructuring period

51. 51 General Performance of unbundled utilities: IIPA Report Rajasthan Lot of funds have been pumped in the system but outcome does not seem to be commensurate with the investment Specialisation which was developed in the past is not evident now After restructuring, junior level officers are posted as MDs of DISCOMs resulting in increased Government influence in day to day working

52. 52 General Performance of unbundled utilities: IIPA Report Uttar Pradesh No focused initiatives to improve transmission infrastructure. No noticeable growth in the 11 kV and LT network adversely impacted the quality of supply and service to the consumers. Metering in DS:50%, 42% villages unelectrified, 19.84% rural households electrified Collection levels gone down even further during post-reform period

53. 53 General Performance of unbundled utilities: IIPA Report Uttar Pradesh Excessive Government interference in organisational and operational matters has often undermined least cost procurement, led to unwise investment decisions, prevented tariffs from being raised to an efficient level, and promoted excessive staffing. Restructured entities re still headed by a common Chairman & Director/Finance Situation is no better than of the erstwhile UPSEB

54. 54 General Performance of unbundled utilities: IIPA Report MADHYA PRADESH MPSEB is heavily dependent on subsidy support from the State Government. The amount of subsidy was around Rs 794 crore in 2004-05 (about 15 per cent of the revenue earned by the DISCOMs from sale of power). The failure rate of DTs has increased by 4.75 % (from about 18.13 per cent in 2001-02 to 22.88 per cent in 2004-05). The percentage of metered domestic consumers has come down from 84 per cent in 2000-01 to 81 per cent in 2004-05, which is a disturbing trend. The collection efficiency in respect of agricultural and domestic consumer categories has suffered after the restructuring. In the case of agricultural consumers, the collection efficiency has deteriorated progressively from 88 per cent in 2000-01 to as low as 21 per cent in 2004-05. It is equally poor for the domestic consumers and have come down from as high as 95 per cent in 2000-01 to 79 per cent in 2004-05.

55. 55 General Performance of unbundled utilities: IIPA Report Anti Theft Measures: For prevention of theft of electricity, State Government enacted law in 2001. Several administrative measures, undertaken by the companies to check power theft, include: strengthening of the Vigilance Squads, replacing bare LT conductors by armoured cables/HT lines, setting up of 92 special courts for speedy trial of electricity theft cases. However, enforcement measures for elimination of theft of electricity have slowed down in the State. The number of FIRs lodged has come down with 1,607 FIRs in 2003-04 and 522 FIRs in 2004-05 and the recovery towards the cases involved in theft declined from 78 to 75.8 per cent of the demand raised. The percentage T&D losses from 1995-96 to 1998-99 were shown to be in the range of 19 to 21 per cent before restructuring. After restructuring, the losses were revised to 31.94 per cent in 1999-2000 and 47.18 per cent in 2000-01. The reduction in the loss levels after restructuring has been slow and losses dropped only by less than 3 per cent in four years (43.48 per cent in 2004-05). Metered sale has come down from 50.59% in 1996-97 to 38.23% in 2004-05

56. 56 General Performance of unbundled utilities: IIPA report MPPGCL has been able to improve the PLF from 46 to 66 per cent AND availability has increased from the level of 75 per cent in 1995-96 to 87 per cent during 2004-05. After reorganisation of the State, installed generating capacity left in the State was about 2,940 MW. There was only a marginal increase of about 50 MW hydro capacity. However, with regard to the thermal capacity, there has been no further addition since 2002-03. The State has been facing acute peak demand as well as energy shortages. The peak power deficit and energy shortages have been as high as 28 and 23 per cent respectively in April 2006.

57. 57 General Performance of unbundled utilities: IIPA Report GENCO had spent a very little amount on R&M activities as compared to the amount approved by the Commission under this head. The Commission, in its tariff order dated 10 December 2004, had allowed Rs 140.31 crore under R&M of generating stations, but the GENCO failed to utilise the approved amount. For 2005-06, the Commission had approved Rs 131.91 crore under this head. But the repeated failure to utilise the funds approved for the much-needed R&M activities is baffling when it is urgently needed to increase generation and improve the PLF.

58. 58 General Performance of unbundled utilities: IIPA Report ASSAM ASEB was restructured in Sept. 2003. State Regulatory Commission was constituted in 2001 & has issued four tariff orders. Asian Development Bank provided a soft loan of US $250 Million out of US $ 150 Million were for revamping & rest for strengthening of T & D system. Commercial loss (without subsidy) increased from Rs. 244 Crore in 1995-96 to Rs. 656 Crore in 2003-04 & further to Rs. 1081 Crore in 2004-05. T & D loss Year 1995-96 2000-01 2003-04 2004-05 T&D Loss 24.18 40.71 39.31 51.76 Transmission Loss Level : 9%

59. 59 General Performance of unbundled utilities: IIPA Report ANDHRA PRADESH: The metered electricity consumption has increased from 38 per cent in 1999-2000 to 52.4 per cent by 2004-05; The overall collection efficiency in the post-reform period is ranging from 96.52 to 102.87 per cent as compared to 92.74 per cent in 1999- 2000; and all the six restructured Power Utilities in the State are registering profits since 2004 The DISCOMs have not been granted full autonomy. Though separated from APTRANSCO more than five years ago, these are still operating under the directions and guidance of APTRANCO. The functioning of the Utilities is more or less akin to that of the erstwhile APSEB.

60. 60 Performance of Tamil Nadu SEB: IIPA Report The Board could take pride for 100 per cent consumer metering, billing and collection, thanks to its long-established systems. Implementing energy audit in all the 22/11 kV feeders, having line losses of more than 10 per cent; 100 per cent metering of 11 kV feeders; Special focus on energy conservation; Computerisation of inventory management; Computerisation of LT and HT billing; A focus on consumers through call centres and a web-enabled consumer redressal system;

61. 61 Performance of Tamil Nadu SEB: IIPA Report An excellent system for monitoring interruptions in supply; Installation of high quality meters; Installation of capacitors both in substations and in consumer premises to improve the system power factor; Close monitoring of billing, collection and disconnections; High level of PLF of thermal power stations by better maintenance and management; and Efficient use of the hydel storage to mitigate the peak-hour shortages.

62. 62 Performance of West Bengal SEB: IIPA Report The WBSEB achieved turnaround pending its restructuring. Commendable work has been done in the State in the matter of metering, billing and collection. The quality of service has also improved significantly. Conscious attempts have been made to reduce theft of electricity. WBSEB has been unbundled in 2007 into three companies one each for Generation, Transmission and Distribution.

63. 63 What really happened? 5th Assumption UNBUNDLING WOULD HELP IN BRINGING IN MORE AND BETTER FOCUSED INVESTMENTS IN ALL SEGMENTS SINCE GENERATION WILL BE PROFIT MAKING SEGMENT SO IT WILL ATTRACT HUGE INVESTMENTS

64. 64 Has unbundling facilitated flow of private capital in the sector? GENERATION Most of the generating plants in private sector have been set up in the Southern & the Western states of India notably Gujarat , Maharashtra, Andhra Pradesh, Tamil Nadu etc. not because of the structure of the utilities but due to their locational advantage viz near to port or source of fuel and overall investment climate in the state. No generating plant in private sector has been set up in Haryana, Punjab, Rajasthan or Uttar Pradesh. On the other hand, private investment in generation (1166 MW) has been made in Tamil Nadu having an integrated SEB. In HP IPPs has already added about 436 MW.

65. 65

66. 66 Has unbundling facilitated flow of private capital in the sector? Distribution Orissa was first state to privatize its entire distribution business in 1999. All the four companies were handed over to private sector One private investor (AES) left the management of CESCO with unpaid liability of over Rs. 400 Cr. & remaining three companies being managed by BSES (a Reliance company) being served show cause notice for suspension of their distribution license by State Regulator DELHI was the second state to hand over distribution to private sector. The CAG report on privatization carried in Delhi and a House committee headed by a ruling party MLA has passed serious strictures on the whole exercise Delhi Govt. was supposed to pay a subsidy to Rs. 3450 Crore during these 5 years but the subsidy amount was exhausted much earlier to prevent tariff shock to the consumers.

67. 67 Has unbundling facilitated flow of private capital in the sector? No private player has taken over distribution company of any state after Delhi Failure to attract private investment in Distribution sector forced the Central Government to launch �Accelerated Power Development Reform Programme� in 2002 and a budget provision of Rs. 40,000 Cr. during 10th plan was made for strengthening of distribution network.[Delhi availed Rs. 872 Cr. under APDRP, HP: 322 Cr.] The flow of central funds including grants in the distribution sector with riders to improve performance parameters particularly reduction in Aggregate Technical and Commercial losses (AT&C) in the towns/circles covered under APDRP, helped many utilities to reduce losses.

68. 68 Has unbundling facilitated flow of private capital in the sector? The general improvement in the performance parameters of many states relating to distribution sector particularly after the year 2002-03 is more due to flow of funds with riders to achieve Key Performance Indicators (KPIs) under APDRP rather than unbundling or otherwise.

69. 69 Rural Electrification:- A Victim of Reforms During 8th and 9th plans (1992-2002) the rural electrification was totally ignored with no specific scheme launched to fund the rural electrification projects. During these 10 years, only about 8000 villages were electrified in the country. As per 2001 census, there were still more than 1,50,000 un-electrified villages Ulimately, Central Government introduced Rajiv Gandhi Grammin Vidyutikaran Yojna (RGGVY) in April 2005 with 90% grant to the states to electrify all 1,25,000 unelectrified villages and 7.8 Cr. households including 2.34 Cr BPL households at an estimated cost of Rs 16,000 Cr. (38875 villages & about 18 lac households have been electrified in two years under this scheme. )

70. 70 What really happened? 6th Assumption SMALL COMPANIES WILL HAVE QUICKER DECISION MAKING WHICH WILL BE REQUIRED MORE & MORE IN THE FUTURE DUE TO THE RAPIDLY GROWING COMPETITION & TRADING IN ELECTRICITY MARKETS

71. 71 IS SEPARATION OF FUNCTIONS DESIRABLE? It is a fact that even after several years of unbundling and various provisions of the Act, all the unbundled utilities are operating their generation, transmission & distribution businesses under unified control in the same manner as was existing in erstwhile SEBs. This is being carried out either by formation of a holding company or through a common Chairperson for all the companies. Companies instead of operating its power system in an independent manner, have authorised one agency in the state to manage the power system operations particularly power purchase, scheduling etc.

72. 72 IS SEPARATION OF FUNCTIONS DESIRABLE? In a scenario of power shortage, the major objective is the optimum utilization of available power generation capacity. Economy in grid operation is achieved only through a unified and vertically integrated grid operation system starting from the generating station and going down to the consumer power supply. This matching of generation with demand can be better achieved only through a vertically integrated structure covering generation, transmission & distribution.

73. 73 IS PRIVATE SECTOR WORKING IN UNBUNDLED MANNER ? Reliance Energy/BSES are operating in an integrated mode even after the enactment of Electricity Act 2003. BSES having distribution license for western suburbs of Mumbai is also generating power from 500 MW Dahanu Thermal Plant and has established 473 KM transmission network with three 220/33KV receiving stations to take supply to its distribution network. In Delhi also, Reliance has approached Delhi Govt. for allotment of land in Najafgarh or Tikri to set up 1400 MW generating plant. NDPL is also setting up its own generating plant in Delhi. Torrent�s Power Company is an integrated company engaged in generation, transmission and distribution in cities of Ahmedabad ,Gandhinagar & Surat in Gujarat. Its installed capacity is 500 MW and distribute power to 2 million consumers through 300 KM EHT,4481 KM HT and 17500 KM LT mains.

74. 74 IS PRIVATE SECTOR WORKING IN UNBUNDLED MANNER ? CESC (Calcutta Electricity supply company) having generating capacity of 975 MWs also distribute power to 12 million consumers in the metropolitan area of Kolkata. Similarly Tata Power Company with generation capacity of 2300 MW and transmission network of 1200 Ckt. Km also distributes power in Mumbai. So, if private companies can generate, transmit and distribute the power in its area of operation then why SEBs are denied the same opportunity to optimize their operations ? SLOGAN OF RELIANCE ENERGY: SERVICE FROM �GAS WELL TO WALL SOCKET� IN AN INTEGRATED MANNER

75. 75 Are Companies After Unbundling Working Independently? In Haryana, the power procurement cell is working under generation company (earlier it was under Transco). All the decisions of power procurement, sale, banking are being taken by this company. Though there is separate system operation organization but the power scheduling, power cuts, overdrawls are being carried out unofficially by Chief Engineer/ power procurement . In Delhi where private companies are operating for the last five years, all the power procurements are being handled by Transco. Though officially the new contracts are being signed by the companies but they cannot schedule the powers of their own. It has to be decided by Delhi Transco In Rajasthan the system operation organization was under Transmission Company. To bypass the provisions of the Act, Rajasthan has placed the power procurement group of the officers drawn from transmission company under Jaipur Discom. This cell is making all the procurements on behalf of all the other DISCOMs

76. 76 COST OF RESTRUCTURING The restructuring or unbundling of SEB is a high risk, low return and irreversible process which cannot be undertaken without clear objectives and the capacity to bear huge financial cost during transition period. Financial Restructuring Plan (FRP) with specific commitments from state government for financial turnaround of the sector is an integral part of reform package.

77. 77 COST OF RESTRUCTURING Gujarat Govt. during restructuring of its SEB has committed a total of Rs. 15352 Crore for five years i.e. an average of Rs. 3070.4 Cr per year. U.P. assumed the past liability of more then Rs. 31300 Crore by writing off state govt. loans, interest liabilities, CPSU liabilities plus owing employees terminal benefits & GPF liabilities amounting to over Rs. 8000 Crore. Karnataka Government took over loan liabilities of Rs 1,050 crore, written off bad and doubtful debts amounting to Rs 866 crore, and took over the terminal and pension liabilities of the KEB/KPTCL staff till the date of restructuring. M.P State Government took over liabilities of MPSEB to the tune of Rs 4,431 crore

78. 78 Reforms Of 1990�s :Capacity Addition During 9th & 10th Plans As per 15th EPS, an additional installed capacity of 57000 MW during 9th plan & 67000 MW in the 10th plan i.e. a total capacity addition of 124000 MW in 10 years was required which needed an investment of more than Rs. 9, 90,000 Crore Since it will not be possible to add more than 20000 MW in each plan through public sector due to funding constraints so remaining 84000 MW has to be financed through private sector. The unrealistic demand projections through successive Electric Power Surveys (EPS) and precarious financial health of the central government in early 1990�s created panic reaction in the establishment forcing it to rely excessively on private sector to add generating capacity.

79. 79

80. 80 REFORMS OF 1990�S: Over-Dependence on Private Sector Only 53.77%, 47.25% and 57.52% of capacity addition targets fixed for 8th, 9th & 10th Plans respectively were achieved. From 1992 to 2007 i.e. in 15 years private sector added only 8433 MW against total capacity addition of 56618 MW achieved by the country during this period.

81. 81

82. 82

83. 83

84. 84 RESTRUCTURING OF HPSEB Suggested Model

85. 85 EXISTING SYSTEM OF HPSEB( As on March 31, 2008) POWER SYSTEM INSTALLED CAPACITY 467 MW VILLAGES ELECTRIFIED 16915 Nos HAMLETS ELECTRIFIED 4082 Nos CONSUMER CONNECTED 18.30 Lacs CONNECTED LOAD 4037302 KW EHV STATIONS 36 Nos DISTRIBUTION SUB-STNS. 19627 Nos H.T LINES 29471 KMS L.T LINES 51924 KMS

86. 86 MISSION STATEMENT

87. 87 H.P. SCENARIO - HOW WE DIFFER FROM OTHER STATES Our systems are small & well manageable 100% consumer metering and billing in the State No gap in supply & demand (we can meet demand - only question of tariff) There is no free power to any category of consumers and all are billed Most of the Hydro Power Plants execution already being done through IPPs/ joint Sector/ Central Sector as being envisaged as major objective through reforms HPSEB controls only 467 MW & taking up very small fraction of Generation Projects

88. 88 ILLS OF OUR SYSTEM OWN GENERATION IS LESS THAN THE DEMAND WITHIN THE STATE HIGHER CONSTRUCTION COST PER MW INADEQUATE INVESTMENT IN DISTRIBUTION SYSTEM & ITS RAPID GROWTH (HT:LT RATIO 1:2.5) HIGH T&D LOSS WITHIN THE STATE HIGH ESTABLISHMENT COSTS HIGH COSTS OF POWER PURCHASE UNECONOMIC TARIFF STRUCTURE POLITICAL INTERFERENCE LACK OF ACCOUNTABILITY

89. 89 HPSEB�s Turn Around Strategy/Model � TO MAKE THIS ORGANISATION A LEAN, TRIM & SELF SUSTAINED ORGANISATION� MORE SEB OWNED GENERATION IMPROVEMENT IN DISTRIBUTION SYSTEM TO BRING DOWN H.T:L.T RATIO SPEEDY ELECTRIFICATION OF LEFT OUT VILLAGES & HAMLETS FURTHER REDUCTION IN T & D LOSSES REDUCTION IN COSTS OF POWER PURCHASE REDUCTION OF ESTABLISHMENT COSTS REDIFINING STAFF & FIELD FUNCTION USE OF MODERN MANAGEMENT TOOLS ESTABLISHMENT OF SEPARATING ACCOUNTABILITY OF ALL

90. 90 Capacity Additions � A Must Capacity Addition HPSEB must double up its Generation Capacity to 1000MW by 2012. Also one Thermal Plant of 500MW is required to mitigate the shortages during winter months when hydro generation falls down to 15 to 20%.

91. 91 OUR STRENGTH OUR MANPOWER READY TO ACCEPT ANY CHALLENGE AVAILABILITY OF EXPERTISE FOR GENERATION, TRANSMISSION & DISTRIBUTION OF ELECTRICAL POWER UNIQUE DISTINCTION OF 100% METERING BILLING & COLLECTION HIGHEST HOUSEHOLD AVERAGE RATIO IN THE COUNTRY A SMALL & MANAGEABLE BOARD

92. 92

93. 93 Myth about employees strength Total No. of consumers 18.92 lac Total No. of MkWh sold per year 6200 MU Total No. of employees engaged on energy generation, transmission, distribution & bill collection etc. 17000 Nos. i) No. of employees per 1000 consumers 9 ii) No. of employees per MkWh sold 3.6 All India averages 11.3 & 3.7 for (i) & (ii) respectively

94. 94 HPSEB SIGNED MOU WITH GOI MOU Signed by GOHP with Ministry of Power, GOI on 31st March, 2001 PREAMBLE �The Govt. of Himachal Pradesh is committed to reforming its Power Sector with a view to achieve commercial viability and provide reliable and quality power at competitive prices to all consumers in the State� This MOU will be for a period of five years and will be subject to review annually 10/11 major milestones set in the MOU to be achieved in specified time frames.

95. 95 OUR PROPOSED MODEL In order to effect efficiency, economy & promptitude in the areas of investigation, planning, execution of HEPs, generation, O & M of existing plants transmission & distribution, there is need to isolate the functional responsibility of each one of these so that focused attention is ensured .These centers with separate accounts will be : Project construction Wing O&M (Existing Power Houses) Wing Transmission Wing Operation Wing Separate Entity to take care the Trading i.e. Sale and Purchase of power with outside agencies.

96. 96 OUR PROPOSED MODEL

97. 97

98. 98 MEMBER(ADMN) Controls & accountability in respect of :- All administrative functions HRD/HRM Placements/recruitments as per the requirements of different wings

99. 99 OUR PROPOSED MODELMEMBER (F&A) Controls & accountability in respect of :- To finalise the budgets for all the wings of the board on year to year basis Release of monthly limits for the works and monitoring of expenditure Head-wise Maintenance of separate accounts, profit & loss statement of all the four independent centres i.e. Project Const. Wing O & M (Power Houses) Wing Transmission Wing Distribution Wing To finalize sale and purchase of power with out side agencies.

100. 100 OUR PROPOSED MODELMEMBER (GENERATION & TRANSMISSION) Controls & accountability in respect of :- O & M of Power Houses under operation O&M of all the available Transmission system infrastructure of 66 kv level and above R & M of Power Houses under Operation Plans for new EHV schemes, sanctions and constuction/implementation Determination of costs per unit at Bus Bar Level of various Power Houses, up to distribution grid station transmission costs , wheeling charges etc. Evacuation of power from own power houses to distribution grid station & import & export of power

101. 101 OUR PROPOSED MODELMEMBER (PROJECTS) Controls & accountability in respect of :- Preparation of Master Plan for Hydro Power Development Investigations & Preparation of Pre-feasibility reports of all HEPs under Master Plan Preparing of DPRs and obtaining various clearances Construction/Commissioning of HEPs under execution in State Sector & taking up new projects Determination of generation cost at Bus Bar level

102. 102 Controls & accountability in respect of :- Operation & Maintenance of entire electricity distribution system in the Pradesh Future Distribution Planning, preparing of schemes, sanctions and construction/implementation Determination of energy costs at distribution level and customer class wise OUR PROPOSED MODELMEMBER (OPERATION)

103. 103 OUR PROPOSED MODEL All the four Wings shall work independently under the controls of respective Members of the Board with decentralisation of Powers Separate accounting system shall be put in place for each Wing & shall be maintained by Chief Accounts Officer Responsibility Centre � CAO with assistance from respective CEs & Secy. Office

104. 104 HPSEB MARCHES AHEAD�

105. 105

106. 106

107. 107

108. 108

109. 109

110. 110

111. 111

112. 112

113. 113

114. 114

115. 115

116. 116

117. 117

118. 118

119. 119

120. 120

121. 121

122. 122

123. 123 Reduction in T&D LOSSES(in %AGE)

124. 124 Why we propose this model? Our systems are small and geographic & demographic conditions of State are stringent. In case Generation, Transmission & Distribution activities become separate entities, the problem of integrated/coordinated grid operation would become unmanageable. In the conditions of scarcity, vertically integrated utilities can definitely perform better. To continue as an extended arm of the Govt. to take up social obligations. Last but not the least, HPSEB has performed well and has been ranked 4th in the study conducted by ICRA for MOP on performance of SEBs/Utilities in Power Sector reforms.

125. 125 Therefore, we finally suggest: Let HPSEB be contributed as one entity: Management of SEBs is made professional & accountable; Internal reforms are geared up; Functional unbundling under overall aegis of SEB be done to make it responsive, accountable & sustainable organisation. A separate entity for trading functions be created.

126. 126 Why power reforms initiated in the country in 1991 has not shown results? The main reason for the failure of the power sector reforms process in our country is that it has been conceived, drafted and managed primarily by consultants/financial experts who understand the intricacies of financial and market economy but not of power system engineering. The power engineers have been totally marginalised & sector has been captured by the non-professionals in the states Without motivated managerial class, no organisation can improve its performance

127. 127 WAY FORWARD State Level Initiatives Insulate the sector from unwanted political and bureaucratic controls. Professionalize the top management of the Board having fixed tenure but linked with performance. The sector which is an INDUSTRY needs top managers/technocrats. Memorandum of agreement (MoA) between the state government and the management be signed wherein the achievement of performance targets and matching support expected from the state government should be clearly defined. Revamp the State Regulatory Commission by inducting top professionals of respective fields with sufficient experience of the power sector as per the letter and spirit of the Act.

128. 128 WAY FORWARD Commercial Viability Timely filing of tariff petitions and implementing the tariff orders in letter and spirit. Ensuring quarterly advance payment of subsidy by the state government as per Electricity Act 2003. Ensuring commercial discipline in the organization by increasing transparency and accountability at all levels. Cleaning up the balance sheet and ensuring adequate financial support through Financial Restructuring Plan (FRP) in the next 3 to 5 years to make the sector commercially viable in the long run.

129. 129 WAY FORWARD Internal Reforms Each generating station and distribution circle be declared a profit centre with commensurate delegation of powers. Memorandum of Agreement (MoA) spelling out targeted performance parameters expected from each officer incharge of profit centre be signed with between Superintendent Engineer and the utility. The continuation or future promotions of the officers to the top posts may be linked to their performance. Make each 11 kV feeder a �Business Unit� under the charge of �feeder manager� accountable for each unit fed into the system. Similar MoA may be signed with feeder incharge.

130. 130 WAY FORWARD Ensure energy audit up to DT-level to identify pockets of high losses. Set up special police stations and special courts to try theft of energy cases. Introduce I.T to bring transparency, efficiency and accountability. I.T would go a long way in reducing the human interface thus tackling corruption at various levels. Functional restructuring of the distribution set up at the gross root level particularly in the high density urban areas by dispensing with the existing structure.

131. 131 WAY FORWARD Convert HPSEB from �person driven� to �system driven� organization with intensive HRD initiatives. Introduce HRD to optimize employees productivity and align them with the organizational goal. Change the outdated rules & procedures Put all initiatives and changes proposed in the power sector before the public and employees and encourage open debate / discussion on the subject

132. 132 The failure of reforms through unbundling/ privatization is a reality and Success of Reforms through �Open Access� is a belief. Integrated, autonomous HPSEB with functional unbundling is the only solution

133. 133 Therefore, HP Govt. may request Govt. of India to give its consent for the continuance of HPSEB as it is i.e. as State Transmission Utility and a licensee up to 2012

134. 134

135. 135