Institutional Mechanism for Electricity Distribution in Rural Areas: Opportunities from New Electricity Act

1. Institutional Mechanism for Electricity Distribution in Rural Areas: Opportunities from New Electricity Act Haribandhu Panda, Ph.D. Professor INSTITUTE OF RURAL MANAGEMENT ANAND – 388 001

2. Plan of Presentation • Present Scene of Rural Electricity System • General • Orissa experience • Bihar experience • Existing Approach Vs New Approach • What can be Done?

3. Present Scene of Rural Electricity System • Consumers’ Perception About Distribution Company • Harassing attitude of employees • Lack of accountability • Unequal treatment • Unfair blame • Tariff higher than the quality of power deserves

4. Present Scene of Rural Electricity System Distribution Company’s Perception About Services Offered • Subsidized Power to Agriculture and Domestic segment is the cause of • Poor financial health • Irrational increase in demand for electricity • Poor maintenance of distribution infrastructure • Lower rate of capacity addition • Long distance distribution lines leads to • Higher distribution loss • Low reliability of supply • Low energy use density

5. Present Scene of Rural Electricity System • Availability of Electricity • 43.5% of Rural Households (60,180,685) (Census of India 2001) • 54% of villages (3,24,319) • Quality of Electricity Service • Frequent and long interruptions(14 hour brown out) • Large voltage fluctuations (+/- 40%) • Service delivered not when needed but when available

6. Present Scene of Rural Electricity System • Investment required for full coverage of villages: Rs 1,07,823 Crore (Planning Commission, 2000/01 prices) • Average annual investment in last decade: Rs 8,800 crore • Need a paradigm shift in approach

7. Reform in Electricity Sector: Some Experience from Orissa • Per capita consumption of electricity • 1995/96: 370 kWh • 1999/00: 334 kWh • Average tariff increase (1991-2000): at a cumulative rate of 15.5% annually (without any significant improvement in customer service) • The transmission and distribution loss • 1995/96: 46.94% • 2001/02: 46.63% • Loss in the LT segment at 68%

8. Reform in Electricity Sector: Some Experience from Orissa • Collection as a percentage of billing • 1995/96: 90.5% • 1999/00: 74.6% • Rural electrification: Distribution companies often missing target and divert resources • Electricity supply to 720 LI points and 461 villages damaged during cyclone in October 1999 were not restored even after eight months

9. Reform in Electricity Sector: Some Experience from Orissa • The proportional consumption of electricity in agricultural sector has come down • Declining trend in number of pump sets energised. • Switching-over to diesel engine driven pump-sets • Mostly Defective or unmet red electricity supply in LI system

10. Reform in Electricity Sector: Some Experience from Orissa • Load factor charging (8% on the contract demand from June to October and 15% on the contract demand from November to May) • Subsidy from REC (Rs 15,000/LI point) is difficult to come through and advance payment (for material and labour) is increased from 125% to 154%. • The investment in new meters and distribution network upgradation is not being done.

11. Reform in Electricity Sector: Some Experience from Orissa • Micro-privatisation: Village Bidyut Sanghas (Village level electricity committee of 5-6 members) • Activities: meter reading, bill distribution, regularisation of illegal connections, recommendation for new connections, advising for disconnections and credit control, liaising with authorities, complaint redressal • Service charge: Rs 0.85 and Rs 0.65 for meter reading and bill distribution respectively • VBS helped in increasing revenue, empowering villagers in certain areas

12. Private Power Market in Bihar • Main distribution lines by the private power supplier and arterial lines by the consumer • Electric poles of SEBs used for laying wires • FR Tariff (Rs/100 watt/month or Rs/ampere/month) • Voltmeter and ampere meter at distribution point and safety fuse at the consumer point

13. Private Power Market in Bihar • Penalty of one day no power for burnt fuse and cost of circuit breaker • Low voltage supply • 40-62% return on capital invested

14. Private Power Market in Bihar: Cost of power to consumer

15. Conclusion from Present Scenario • Through Traditional Approach • Full coverage is difficult to achieve in near future • Expensive • Reform in the present form did not lead to improvement in rural electricity scene

16. Conclusion from Present Scenario • Consumers are ready to pay a fair price for the desired quality of electricity • Informal systems • often cheap • have the flexibility to meet expectations of rural consumers • Face many problems to be effective • There is a need for paradigm shift

17. Existing approach Supply driven Centralized Government sole provider of service Full coverage expensive and time consuming Demand shrinking Increase dependency New approach Integrated Decentralized Government is central star in the constellation of service providers Full coverage cheaper and speedier to achieve Demand creating Empowering Existing approach vs. New approach

18. The Electricity Act 2003: Harbinger of New Approach Part II: National Electricity Policy and Plan Section 4: National Policy on Stand Alone Systems for Rural Areas and Non-conventional Energy Systems The Central Government shall, after consultation with the State Governments, prepare and notify a national policy, permitting stand alone systems (including those based on renewable sources of energy and other non-conventional sources of energy) for rural areas.

19. The Electricity Act 2003: Harbinger of New Approach Part II: National Electricity Policy and Plan Section 5: National Policy on Electrification and Local Distribution in Rural Areas The Central Government shall also formulate a national policy, in consultation with the State Governments and the State Commissions, for rural electrification and for bulk purchase of power and management of local distribution in rural areas through Panchayat Institutions, users’ associations, cooperative societies, non-governmental organizations or franchisees.

20. The Electricity Act 2003: Harbinger of New Approach Part II: National Electricity Policy and Plan Section 6: Obligations to Supply Electricity to Rural Areas The Appropriate Government shall endeavour to supply electricity to all areas including villages and hamlets.

21. What can be done? Develop local level institutions to: • Meet electricity needs by local generation and grid support • Meet cooking energy needs by a combination of biogas, producer gas and LPG • Reduce domestic and irrigation electricity demand and cooking energy demand through demand side management measures

22. What can be done? (Contd.) Develop local level institutions to: • Own financial stake and run on commercial line • Become self reliant on primary energy sources: crop residue, energy plantation, etc. • Empower local community by Economic (through job) and institutional (through management) means

23. What can be done? (Contd.) Possible Institutions: • Users’ cooperative companies • Panchayat • NGO • Franchisees • Private companies

24. What can be done? (Summary) • Promote Total Energy Management Centers at Local Level with scope for micro-generation and micro-distribution. Only electricity distribution will not be effective. • Identify minimum size of network that can be independently managed (bring down competition to circle level) • Reduce entry barrier for decentralized electricity system • Allow flexible tariff system by linking with service quality • Innovative regulatory measures near the service provider

25. Thought from Prof. A. K. N. Reddy “If sustainable development is the desire, then the energy system chosen for the country in general and rural area in particular must advance rural economic growth, that is, they must be economically efficient, need oriented and equitable, self-reliant and empowering, and environmentally sound”.