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Discoms need to abandon business-as-usual approach, says HERC director Sanjay verma

chandigarh Updated: Mar 31, 2015 09:43 IST
Navneet Sharma
Navneet Sharma
Hindustan Times
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Power corporations in Haryana are in dire straits. They have ‘surplus’ power, but are hampered by constraints in the supply system. The state’s own generation capacity remains idle for months and excess power is sold to other states at a loss. The financial losses are mounting due to high line losses. Worse, power tariffs and subsidy are also climbing. HT Assistant Editor Navneet Sharma talks to Haryana Electricity Regulatory Commission director, tariff, Sanjay Varma, who has studied the sector over the past 15 years to understand its complexities, shortcomings of discoms and the way forward for the new government.

What ails the power sector in Haryana?

Power sector is a heady cocktail of social, economic and realpolitik. The rigours of market forces that ensure commercial viability often get sidestepped in the name of consumers’ ability to pay and cushioning of tariff shock. As a result, three distinct consumer categories - consumers subsidised substantially by the state, subsidising consumers and cross-subsidised ones – have been created with tariff distortions, triggering distorted consumption pattern and affecting revenue maximisation. Though the state created separate entities in 1998-99 for generation, transmission and distribution with clean balance sheets, it is facing these difficulties.

What led to this mess?

As not enough attention was paid to distribution, the losses kept mounting for discoms creating cash-flow bottlenecks at transmission and generation end also. The commercial losses including theft, pilferage etc went unchecked, but not much investment was made in a targeted manner to improve the operational efficiency and quality of service of discoms. Massive generation capacities were added through long-term power purchase agreements without commensurate augmentation of T&D system and promoting load growth, including time of use tariff. Despite unmet demand, a surplus scenario emerged, leading to backing down of the generation capacities of HPGCL created by way of funding from taxpayers’ money. Cost of assets, especially the old plants at Panipat, has been recovered from the consumers through tariff. Despite the fact that they can still generate at a good planned load factor (PLF), albeit at somewhat higher fuel cost, these plants have now become sunk cost for the state.

How would you describe the financial health of discoms?

Given the eroded equity, mounting losses and negative cash flow, the financial health of discoms cannot be said to be good. They got a breather under the ‘Financial Restructuring Programme’ wherein financial institutions and banks resumed extending working capital loans, but this will not continue forever. Discoms need to achieve financial turnaround by abandoning the business-as-usual approach, proactively trading surplus power and reducing their power purchase cost.

What could be done to improve power distribution?

To begin with, the need is to make the system efficient. There are hundreds of feeders with line losses above 50%. The discoms need to cut these losses, accurately bill the energy supplied and improve revenue recovery of its billed sale of power. Also, it is possible that consumers on such feeders are given minimum power supply. There is a need to introduce franchise model successfully experimented elsewhere in the country. Last but not the least, technological solutions such as AMR and demand side measures are required.

Despite unmet demand and power cuts, why the discoms sell power to other states?

There is no base-load shortage in Haryana, but there could be peaking shortages due to system constraints rather than non-availability of power. A lot of HPGCL’s power plants remain ‘boxed up’ for a prolonged period. As northern grid is surplus, Haryana has to under-draw power or sell the same on the power exchange or by way of bilateral agreements. The under-drawn power or sale fetches it less than the average cost of power purchase. To put this in a larger perspective, India is the world’s 3rd largest producer of electricity with generation capacity of 258.7 giga watt (GW). While 180 GW of this was available last year, the quantum of power dispatched was only 140 GW. The problem is not shortage of generation capacity, but ‘entitlement’ because most discoms including private ones are incurring huge losses. Their capacity to pay for power is limited due to the gap in their cost of supply and tariff.

Who foots the bill for loss incurred on sale of ‘surplus power’?

The surplus scenario in Haryana is likely to continue for some more time. Till the time the discoms are able to trade surplus power in a judicious manner by developing a robust demand forecast model and knowing, at all times, the cost of power available to them, they are bound to incur losses in disposing of such power on a short-term basis. These losses are not a pass through. The consumers are not directly or immediately burdened, but the financial burden comes back to them sooner or later. This happened when debt restructuring (loans taken to fund the losses) took place twice in the past 10 years.

After unbundling of the HSEB in 1999, how has the state fared on second-generation reforms?

Successive governments have helped the power utilities to the extent allowed by their own fiscal position. This has come in the form of rural electrification subsidy, equity and debt contributions, but the potential of these investments has not materialised to the extent desired. Therefore, despite 15 years of regulatory reforms, the power sector in Haryana is still struggling to achieve financial viability and live up to the expectations of the consumers.