Detailed vision of 2012 related to distribution sector

Detailed vision of 2012 related to distribution sector


The poor financial health of bulk power purchasers (SEBs/State utilities) is a major roadblock in the development of the sector. The continuously rising commercial losses of SEBs have touched Rs.26,000 crores in 2000-01. They owe to Central Power utilities, Railways and coal companies, nearly Rs.40,000 crores. This payment deficit continues to rise and threatens the viability of the Central power utilities.

The inability of SEBs to pay has been the basic reason for poor private investment, both domestic and foreign, in spite of liberalisation of polices at Central Government level. Till the health of the SEBs improves, major investment from the private sector cannot be expected.

The poor financial health of SEBs also seriously affects their ability to invest in new generation capacity, to upgrade their Transmission & Distribution network and to undertake system improvement. Distribution is the weakest link in the chain of power supply. Hence distribution reforms have been identified as the key area of focus in the power sector reform process. The initiatives taken in this regard include:

Development of district level distribution improvement plans for all districts in the country
All the districts in the country will have a detailed distribution improvement plan. The Ministry/CEA will help the States in capacity building measures in areas related to technical and commercial activities as well as planning and development of personnel. Assistance would also be provided to SEBs to improve their accounting practices. The Expert Committee on Distribution has prepared technical manuals for project formulation, energy audit & accounting, technical specification of equipments and training. NTPC, CPRI, NPC, WAPCOS and POWERGRID have been assigned the task of capacity building in SEBs, guide them to prepare DPR, train the manpower and also supervise the execution of works in the identified circles in each States, A meeting was help with these five organisations in July 2001 wherein it was agreed that (a) the technical manual prepared by the Expert Committee be sent to all the States for guidance (b) each of these organisations be assigned certain States (c) these organisations would station their team in assigned States (d) the team would identify the area of data collection and under their supervision get the necessary data collected through the counterpart team set up at the SEB level as well as the circle level (e) analyse the data in the presence of the counterpart team using the appropriate software (f) obtain computer aided HVDS model (g) help the SEB, thereafter, to prepare DPR (h) train the manpower. In other words, the State officials will collect the data, analyse the same using computer software and prepare DPR under the supervision and guidance of these organisations. Such an approach will help in capacity building through on the job work and also through training.

The Ministry of Power is preparing the detailed scope of work for these organisations, time frame for each activity, methodology and deliverables in order to operationalise the project preparation for each of the identified circles.
District level Committees for Distribution Reforms Monitoring and District lvel Generation Resources Planning
In order to provide for an institutional arrangement at the district level to oversee work relating to formulation and implementation of projects aimed at strengthening the subtransmission and distribution system and for promoting power generation from renewable energy sources, district level commitees are proposed to be constituted.

The district-level committees would be headed by the District Collector/Deputy Commissioner. The committee could include the following:

  • Members of Parliament representing the District;
  • Members of the Legislative Assembly/Legislative Council to be nominated by the State Government;
  • Chairman, Zilla Parishad; and
  • A few non-oficial Prominent Persons to be nominated by the State Government.

The Superintending Engineer of the State Electricity Board/State Power Utility responsible for distribution in the district could be made the Convener of the Committee.

The Committee would be entrusted with the following functions:

  • To review steps taken to formulate and implement projects aimed at improving/upgrading the subtransmission and distribution system;
  • To oversee the implementation of the metering programme and the introduction of Energy Accounting System;
  • To review the implementation of energy conservation measures including Demand Side Management (DSM);
  • To promote local entrepreneurs in setting up power generation projects based on Biomass, Wind, Solar and Small Hydro;
  • To encourage involvement of local bodies and NGOs/ Cooperatives in the management of generation and distribution;
  • To explore the possibility of supplying decentralised grid energy to remote villages which cannot be connected to the grid;
  • To organise funding of projects from funds provided by the Ministry of Rural Development, Ministry of Non-conventional Energy Sources, MPs’ Local Area Development Fund, RIDF, Rural Electrification Corporation and agencies such as IREAD.

100% metering and MIS for reduction of T & D losses
Huge Transmission & Distribution (T & D) losses are a major drain on the revenue stream affecting the very survival of the SEBs. Although reported total energy losses in T & D are 24 per cent on an all India average basis, a closer examination reveals that actual losses including theft and wrong classification could be in the range of 40-45 per cent. Under reporting of losses is revealed from the following table:

State Reported T & D losses (%)
  Before reform After reform
Orissa 23 51
Andhrs pradesh 25 45
Haryana 32 47
Rajasthan 26 43

The T & D losses are pegged at around 10 per cent in bettermanaged power systems in the developed countries. In order to reduce the T & D losses, the following measures have been initiated.

  • Static meters on all 11 KV out-going feeders and HT consumers have been installed in most of the States. These meters will record active energy, power factor and load information for 45 days at a time. The data recorded in the static meters can be down loaded to a computer network and software packages will be effectively utilised to process the data for meaningful management of the distribution system.
  • Consequently, it shold now be possible to accurately account for the energy received in each 11 KV substation and 11 kV out-going feeders; energy billed and T & D losses at the various stages of transformation. It is expected that by October 2001, the metering at 11 kV ooutgong feeder level will be accomplished in all the states.
  • In the next phase of the programme, meters will be installed in all the distribution transformers and, thereafter, in the premises of the consumers. With the installation of meters at all the transformation stages and in the premises of consumers, it will be possible to operationalise the concept of “cost and profit centre.” The implementation of energy accounting system, with billing unit at sub-division level as the nodal point, the problem of commercial losses can be solved. This will help fix proper responsibility at the sub-divisional, divisional, circle and zonal levels.
  • Other measures required will include installaton of capacitors at all levels; reconfiguration of feeder lines & distribution transformers in such a way as to reduce the length of LT lines (which are characterised by large technical and commercial losses) and make the system less LT oriented, installation of smaller size energy efficient distribution transformers so that each transformer supplies power to 10 to 15 households only; reconductioring of over loaded sections; development of digital mapping of the entire distribution system; and load flow studies so that investments could be undertaken for long-term strengthening of the distribution system.
  • Along with 100 per cent metering in the districts, it is necessary to enforce energy accounting and auditing. In this regard an effective Management Information System (MIS) will be put in place to ensure effective flow of information to facilitate quick decision-making and to improve the operation and management of the distribution system.

With the adoption of above steps, it will be possible to develop the data base essential for energy accounting and also to undertake system study and promote measures aimed at improving load management.
60 Distribution circles as Centres of Excellence for Distribution Reforms under Accelerated Power Development Programme (APDP)
Under APDP, 60 distribution circles have been identified in different States for improvement/strengthening of the sub-transmission & distribution network in such a manner as to develop Centres of Excellence. This would enable States to replicate the strategy in other circles. The objective is to ensure that the investment in these distribution circles would result in quantifiable physical & financial benefits.

During the year 2000-01, Rs. 576.22 crores were sanctioned under APDP for the States to undertake short-term measures like metering at all levels covering all consumers within the circles, installation of capacitors to correct power factor and replacement of failed distribution transformers (DTs) and augmentation of transformation capacity which could result in (a) immediate financial gain (b) reduction of technical losses and (c) reduction of system break downs.

All the States have taken action to implement the short term projects. Certain States where metering has been completed, have shown immediate gain in revenue ranging from 20 to 30%.

Strengthening of sub-transmission & distribution network involves three broad areas of action viz. Commercial, technical and manpower restructuring.

  • Commercial action includes tamper proof metering at all level of transformation and for all the consumers; operationalising energy accounting up to feeder level; de-centralised computerised billing & collection; development of MIS and proper duties & responsibilities up to the line man. Commercial activities target reduction of commercial losses and improvement of revenue.
  • Technical action involves conversion of the existing distribution network into a high voltage distributon system (HVDS) which covers reduction of LT lines; taking high voltage line up to the load centre and supplying power through smaller capacity energy efficient distribtuion transformation; reconductoring of over loaded lines; power factor correction; Geographic Information System (GIS) mapping, polewise consumer information etc. This requires detailed energy audit & accounting studies, analysis of the data using software for developing component aided HVDS network model.
  • Restructuring the manpower involves review of the manpower right from the Superintending Engineer to line man and fixing proper duties, responsibilities and accountability at each level.

KV Feeder as Profit Centre
The approach mentioned above will need to be implemented for each 11KV feeder upward upto 33/11kV sub-station and in the entire identified circles. This will ensure energy accounting and reduction of commercial and technical losses in all the feeder. This way each feeder can be operationalised as an independent profit centre. This is possible as one junior engineer deals with two feeders on an average. Full responsibility can be assigned to him.

Capacity Building
Even though SEBs have expertise in different fields, strengthenign of sub-transmission & distributon network as suggested above requires an integrated knowledge. SEBs, during the regional meetings held in April and then later in June, 2001 expressed their inability to take up such work with their own manpower. It is necessary to promote capacity building exercise in the SEBs/State Power Utilities. This will enable SEB personnel to prepare detailed project reports for each of the districts/circles and implement the project using APDP funds at a later stage. It is proposed to take up capacity building exercise in the SEBs/Utilities, so that they are able to take up energy audit & accounting studies, analyse the data, using computer tools, prepare project reports and implement the same aimed at improving sub-transmission and distribution network.

Capacity building exercise will cover

  • Training the manapower
  • Making the SEB officials collect relevant data from each 11 KV feeder in the identified circle.
  • Analysis of the data using computer tools to prepare feeder wise computer aided least cost project report.
  • Supervision of implementation

Reform MOUs with the States and their monitoring
To give a strong impetus to the process of reforms, the Ministry of Power organised a Conference of Chief Ministers/Power Ministers on Power Sector Reforms on 3rd March 2001. The Conference was chaired by the Prime Minister and was also attended by the Deputy Chairman (Planning Commission), Union Finance Mnister, and Union Power Minister. In the Conference, a number of decisions on reforms, having far-reaching consequences, were taken. Of various discussions on reforms, signing of MOUs with States for undertaking reforms and restructuring in a time bound manner and linking the support of Government of India to achievement of pre-determined milestones is expected to provide the necessary impetus to the reform process. Sixteen States have already signed the MOUs and similar MOUs with most of the remainign States are at an advanced stage.

A high level Empowered Group of Chief Minister, Deputy Chairman (Planning Commission); Union Finance Minister and Union Power Minister has also been constituted to monitor and guide the reform process.

To monitor the progress of the reforms as per the MOUs, state-wise responsibility centres have been identified in the Ministry of Power.

Privatisation/Corporatisation Models of Distributon thrugh the Policy level Committee
In the Chief Ministers conference held in March 2001, it was also decided to constitute a Committee under Secreatary (Power) to suggest strategies and measures for attracting private sector investment in distribution with special reference to:

  • Methodology of seeking private sector participation;
  • Handling of past liabilities and making privatisation offer attractive to potential investros
  • Possible linking of private sector investments of generation with distribution; and
  • Increasing the number of potential investors.

The committee has made sufficient progress and is likely to submit is report shortly.
World Bank Reform Packages
The Ministry of Power is working on a special package for reforming states, whereby, the reform process could be partly funded through World Bank assistance. During the visit of the President of World Bank to India in November 2000 the issue of providing structural loans to reforming states was discussed and the World Bank has agreed to the following in principle:

  • Assistance for preparation of bankable DPRs for run of the river hydro projects.
  • Structural adjustment assistance for reforming states.
  • Assistance for renovation, modernisation and uprating of generating stations.

Implementation of Montek Singh Ahluwalia Report
In pursuance of one of the resolutions passed in the Chief Ministers’ Conference presided over by the Hon’ble Prime Minister on 03.03.2001, the Government of India constituted an Expert Group under the Chairmanship of Shri Montek Singh Ahluwalia, Member (Energy), Planning Commission to:

  • Recommend measures for one time settlement of outstanding dues of SEBs to CPSUs
  • Suggest a strategy for capital restructuring of SEBs including the provision of structural adjustment of loans so as to enable them to tide over present financial crisis and make them operationally viable.

The Expert Group has submitted its report to the Ministry of Power on Part (a) above in May 2001. As per the report, as on 28.02.2001, the SEBs owed about Rs.41,473 Crore to various CPSUs and Railways. This amount consisted of Rs.25,725 crore of principal payment and Rs.15.746 Crore by way of surcharge/interest on delayed payments. The Group deliberated on whether the settlement should be attempted independently or as a part of the reform process. They however felt that although both are interlinked, it would be prohibitively difficult for the SEBs to reform if they have to carry the huge financial burden of outstanding dues. The Group therefore recommended that this financial liability should be taken over by their States and the CPSUs should also share this burden by waiving off part of their debt. The main features of proposed scheme for one time Settlement are:

  • 50% of the surcharge/interest on delayed payments should be waived for the participating States.
  • Remaining 50% of the surcharge/interest and the full principal amount has to be securitied through bonds issued by State Governments.
  • The bonds should be issued through the RBI at a taxfree interest rate fo 8.5% per annum with terms such that entire principal is repaid between 6th and 15th years and with lock-in restrictions allowing release of only 10% bonds earch year in secondary market.
  • Timely payment of current dues and opening of LC equal to 105% of average monthly billing for preceding 12 months.
  • SEBs should accept reform based performance milestons such as setting up of SERCs, issuance and implementation of tariff orders, energy audit at 11 kV feeders, metering of distribution feeders & improvement in revenue realisation.
  • Scheme to be effective only after half of the States with Annual Billing of over Rs.500 crores from CPSUs give their consent.


  • If SEBs do not default on their current dues and adhere to performance milestones, CPSUs should pay them bi-annual cash incentives equal to 2% of value of bonds for first 4 years starting 01.04.2001.
  • If SEBs open and maintain LCs by Dec 2001, CPSUs should pay them one time cash incentive equal to 2% of value of bonds.


  • Graded reduction in supply of power/coal from CPSUs for defaulters on current payments.
  • Where defaults exceed 90 days from the date of billing, GOI to recover through adjustment against Central Plan Assistance and other devolutions from the Centre.
  • States withholding consent beyond 60 days of the scheme becoming effective to be denied discretionary allocation as well as any assistance under APDP.

The high level Empowered Group consisting of Chief Ministers, Deputy Chairman, Planning Commission, Finance Minister and Power Minister, which has been constituted to monitor and guide the reform process, has approved the recommendations with the following modifications:

  • Waiver of surcharge recommended by the Expert Group shall be increased from 50 to 60%
  • Incentives for a period of 4 years @ 4% of the face value of the bonds for achievement of performance milestones by the SEBs shall be increasd to 6% in the first year and 5% in the second year.

The Expert Group has also submitted the second report relating to strategy for capital restructuring of the SEBs. The Report is under examination.

Draft Electricity Bill
Steps are being taken to introduce the Electricity Bill in Parliament after wide ranging consultations and discussions with all the stakeholders. The Bill aims at creating an enabling frame work for a competitive and efficient power sector, which can contribute significantly to the requirements of all sectors of the economy and population. This bill, when enacted and enforced, will give a major boost to the process of power sector reforms.