Change in the political dispensation may reverse the direction, even though it will be a difficult task as it will need collective action at federal and state level, says Mahendra Kumar, Chief Executive Officer, Reliance Energy Trading Limited, in an interaction with Karthik Muthuveeran, while discussing about distribution reforms.
Do you think lack of political will is going to derail power distribution reforms? Will there be a change in the scenario after the elections (whichever political dispensation comes to power), or has populism come here to stay?
Lack of political will, and corrective action had derailed power distribution reforms long back. The free power concept, including that for agriculture, was removed from the power sector at the beginning of the century. However, revival of free power to agriculture in the year 2004 was practically going back on the reforms process. Thereafter, whereas the government has taken some steps for so called reforms, desired level of commitment and action could not be seen.
After a long gap of 7-8 years, there was a wave of increase in tariff in last two years. However, the new wave, starting from Delhi State, is that of competition in reducing the tariff, the beginning of the journey in the reverse direction.
The power sector is under pressure for corrective action. A change in the political dispensation may reverse the direction, even though it will be a difficult task as it will need collective action at federal and state level. Nothing is impossible.
Continuing from the above, is the current distribution model being adopted by private discoms inherently flawed? A few industry observers have indicated that the Distribution Franchisee Model should be the way forward, not the public-private partnership (PPP) model. Do you agree?
Every distribution model is a good model. Distribution licensees in Mumbai, both Tata Power Company and Reliance Infrastructure Limited, are operating very well for a long time. Such model is also working well in Kolkata and parts of Gujarat. The franchisee model has also shown good results.
In all the models, whereas responsibility for correction in the distribution system could be given to an agency, fixing of appropriate tariff from the consumers remains in the hands of the regulatory system and the problem may get shifted to the agency responsible for supply of power.
Privatisation of distribution system in one form or the other was a vision ever since beginning of reforms in early nineties. Reduction in distribution losses and improvement in quality of service in Delhi is one example of this model, which could have become an example but for the regulatory approach and keeping the tariff low through creation of regulatory assets and postponing the recovery. At the end, it comes to political willingness and appropriate regulatory system that determines the success of any model, whatsoever.
The banking sector is already overexposed to the power sector. Given this fact and the already precarious financial situation that most discoms are in, what can be done to change this sorry state of affairs?
Precarious financial condition of the discoms is one reason of this state of affairs but comes much lower in the list of reasons for this situation.
In the tariff structure, industry and commercial sectors are required to subsidise the agriculture, domestic segments, etc. The downward trend of growth in industrial sector with consequential sickness in commercial activities is disturbing the ratio of power consumption by subsidising vis-a-vis the subsidised consumers.
Regulatory commissions are tightening the parameters for fixation of generation tariff with plant availability of 80-90 per cent. As per the latest available data of December 2013, the peak demand met was 127239 MW against installed capacity of 233930 MW. Assuming annual load factor of 85 per cent, the utilisation factor will be below 50 per cent. In this market condition, there is no way that the generating companies can recover the fixed cost and meet the debt servicing requirement.
Correction in financial health of the discoms is an important factor. As envisaged 20 years back at the time of beginning of reforms, action needs to be taken urgently for privatisation of distribution, irrespective of the model that may be adopted, and the regulatory system needs to take a closer look at the ground realities while fixing the generation or supply tariff.
Aggregate technical and amp; commercial (AT and amp;C) losses continue to remain at unacceptable levels. Will this factor continue to plague the Indian power sector?
The distribution systems of Mumbai, Kolkata, Delhi and Agra are examples that prove that aggregate technical and commercial losses can be brought down to acceptable levels.
Exact accounting of consumption of power in agriculture and other such un-metered supplies, including single point connection to BPL category, is an issue to be addressed. There is need for separation of feeders for such supplies to correct the accounting system, necessitating huge investment as also the administrative correction in the implementation process.
After beginning of reforms, the best example available for reduction in AT and amp;C losses is Delhi state. Agra city, is another example showcasing reduction in AT and amp;C losses. Such examples can be traced even in the areas of government-owned distribution licensees. However, the corrective steps need to spread aggressively all over the country.
Increase in the distribution tariff and good financial health of distribution licensees are the pre-requisites for them to concentrate on their efforts for reduction in AT and amp;C losses. In line with the Statement of Objects and amp; Reasons of the Act, distancing of government from determination of tariff is required in action rather than words. That needs political willingness and commitment.
About Reliance Energy Trading
Reliance Energy Trading Limited, an affiliated company of Reliance Energy Ltd, acts as a balancing mechanism between the surplus power generating units and deficit power needing entities as also replacement of high cost power by low cost power. The company is the first trader to successfully trade RECs.
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