Power Sector Reforms In India: A Critical Appraisal Of Orissa's Reforms Experience

Power Sector Reforms In India: A Critical Appraisal Of Orissa’s Reforms Experience SARBESH MISHRA,

M.Com, M.Phil.

Enrolment No: 6 – Commerce (2003 – 04) Research Scholar, Dept. of Commerce Utkal University, Vanivihar Bhubaneswar – 751 003. Under the Supervision of

1. Prof. Ambika Prasad Dash, PMI, NTPC Ltd. NOIDA. 2. Dr. Malay Kumar Mohanty, Ravenshaw University. Sarbesh Mishra

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About Myself Name

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Qualifications I. II. III. IV.

Experience

SARBESH MISHRA B.Com (Hons) Post-graduate In Commerce M.Phil In Commerce Ph.D. (Commerce - Submitted)

I. Lecturer in Commerce(2001–2005)–University of Delhi, Delhi. II. Lecturer in Senior Scale(2005–2007)–Army Institute of Management and Technology (AIMT), NOIDA. III. Assistant Professor(2007 Onwards)–National Institute of Construction Management and Research (NICMAR), Hyderabad

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Related to Power Sector † No power is as costly as no power Homi J. Bhabha, Father of Indian Nuclear Program

† The most challenging unbundling of all would be that of the bureaucracy Sebastian Morris, Editor, India Infrastructure Report

† Considerable increase in the average tariff without any perceptible improvement in customer service led to the fall in receivable collection Sovan Kanungo,IAS Chairman – Committee of Independent experts to review the impact of power sector reforms Sarbesh Mishra

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Organisation of the study I. II. III. IV. V. VI. VII.

Introduction Power Sector Reforms: A Conceptual Framework Growth of Power Sector Power Sector Reforms Restructuring Initiatives In Orissa’s Power Sector Socio Economic Impact Assessment of Power Sector Reforms Conclusion Sarbesh Mishra

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Preface – A Need For Reforms 1. Electric power is must for social and economic development. 2. To achieve the economic growth rates commensurate with developed nations, infrastructure holds the key. 3. Power is an indispensable unit of infrastructure. 4. Inadequate growth of power sector has led to the situation of serious consequential mismatches both in quantitative terms an qualitative aspects. Sarbesh Mishra

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Contd…. 5. In 50 years of existence of state electricity boards, annual cumulative losses exceeding Rs. 1,00,000 crores 6. The process of distribution reforms started in 1991 with the amendments in Electricity Supplies Act. 1948. 7. Orissa is the first state to reform its electricity industry with the passing of Orissa Electricity Reforms Act. 1995, came into force on 1st. April 1996. Sarbesh Mishra

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Significance of the Study 1. Highlights the extent of the reforms in power sector commenced since September 1991. 2. Systematically studies the experience of Orissa in the post reforms period and its problem over these period. 3. This research may work as tool for other states to take the initiative minus the Orissa experience.

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Objective of the Study 1. To study the government initiatives in making power sector more promising 2. To systematically analyze the reasons of Orissa’s failure to become a commercially viable corporation upto FY 2004 – 05 3. To verify the creditworthiness of power sector and if it is capable of funding future investment needs 4. To study the reasons for insignificant participation of private sector in power production Sarbesh Mishra

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Contd…. 5. To make inter state comparison of efficiency 6. To suggest alternatives to increase the cash flow without tariff hike 7. To examine the existing laws prevailing in different states to curb the menace of power theft 8. To check the extent of progress made in rural electrification 9. To study the socio economic impact assessment of power sector reforms Sarbesh Mishra

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Hypotheses 1. To study if the power sector reforms have brought the commercial viability 2. To study if the power sector reforms resulted in the supply of power at reasonable and affordable rate 3. To study if the power sector reforms have brought in fiscal discipline 4. To check if the introduction of OERC has led to rationalization of tariff structure and protected consumer’s interest Sarbesh Mishra

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Methodology 1. 2. 3.

A survey of available literature on topic Collection of data Analysis of Published and non-published journals

4. 5. 6. 7.

Analysis of primary and secondary data Analysis of circulated questionnaire Classification and tabulation of data Preparation of charts, graphs and schedules for proper presentation 8. Suggestion and remedial measures for overcoming the problems faced by the organization officials and scope for further study Sarbesh Mishra

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Initiatives † Felt that expansion and improvement of power sector can’t be fully achieved with public resources alone. † State Electricity Boards (SEBs) were fast moving towards bankruptcy. † Common Minimum National Action Plan for Power (CMNPP) convened by Prime Minister provided roadmap for a comprehensive power sector reforms in the presence of chief minister of all the states. Sarbesh Mishra

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Need for new legislation † Requirement of harmonizing and rationalizing the provisions in the existing laws to - Create competitive environment for benchmark competition which will result in enhancing quality and reliability of service to consumer. - distancing regulatory responsibilities of Govt.

† Reform legislation by several States separately. † Obviating need for individual States to enact their own reform laws. † Requirement of introducing newer concepts like power trading, open access, Appellate Tribunal etc. † Special provision for the Rural areas. Sarbesh Mishra

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Salient features of the Electricity Act, 2003 (In force from June 10, 2003)

• • • • • • • • • • • •

Role of Government Rural Electrification Generation Transmission Distribution Consumer Protection Trading / Market Development Regulatory Commission / Appellate Tribunal Tariff Principles CEA Measures against Theft of electricity Restructuring of SEBs Sarbesh Mishra

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Outcome Establishment of CERC Rationalisation of retail tariff Gradual private participation in distribution Restructuring and corporatisation of SEBs Improvement in PLF Compulsory metering for all Compulsory energy audit Evolvement of national policy on hydro power development. † Encouragement for co-generation and captive generation † † † † † † † †

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Global Perspective † Many countries started reforms in the power sector namely UK, USA, and Latin American countries like Chile, Argentina, Peru, Columbia † They have achieved improvements in the utility efficiency, reducing tariff and provided better quality of service to consumers through competition. † Restructuring led to the removal of load shedding, blackouts and high degree of T&D losses Sarbesh Mishra

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Reforms and Restructuring initiatives in Orissa’s Power Sector (Sequences) 1993 – Chief Minister announces power reforms plans 1995 – Regulatory reform bill passes legislature 1996 – Orissa Electricity Reforms Act w.e.f. 01/04/1996 1997 – OERC issues first tariff orders 1998 – Establishment of 04 distribution zones as corporation 2000 – GRIDCO’s financial worsens 2001 – Constitution of Kanungo Committee to examine reforms process 2002 – Performance of 03 zones of 04 zones worsens (SOUTHCO being the exception) Sarbesh Mishra

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What went wrong † OERC limited the increase in tariffs against WB-SAR proposal. † Assets of GRIDCO were revalued upwardly to match the increase in liabilities (Rs. 16 billion approx.) † OHPC’s tariffs were increased to meet 16% returns, thus GRIDCO caught between increasingly expensive generators and nonpaying DISCOMs. † Inaccurate baseline information for T&D losses and unrealistic performance targets. Sarbesh Mishra

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Contd…. † No budgetary support via subsidies † Poor collection rates from consumers by DISCOMs. † Government did not pay its own dues for power Rs. 1.5 billion (approximately) † The single buyer model is not necessarily the best.

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Turnaround of GRIDCO † GRIDCO started power trading with the help of NVVNL (NTPC Vidyut Vyapar Nigam Ltd.). † Gradual reduction of T&D losses with billing and collection efficiency (90%). † World Bank and DFID came forward with suitable package to fill in the required revenue gap. † During first phase of reforms services of consultant’s were extensively utilised with a cost of 3060 million rupees, their services were stopped and fixed tenure based and dedicated CMD was appointed to oversee the affairs. Sarbesh Mishra

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Socio-economic Impact Assessment of Power Sector Reforms Impact on Education – Improvement in the

current situation than in the pre-reform period due to less load shedding

Impact on Health – Timely conduct of diagnostic tests due to availability of power

Impact on Women – The availability of leisure time has increased during post-reform period.

Impact on Agriculture – Since the usage of electricity in Orissa is less so no significant change was witnessed with power reforms. Sarbesh Mishra

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Scopes for further research 1. Single Buyer Vs. Multi Buyer Model Single buyer model retains the role of government in the power sector instead of distancing it. So the research on multi-buyer model would be an ideal one at this juncture. 2.

Scope of FDI in Power Sector There has been an insignificant flow of FDI in power sector. A comprehensive research must be carried out to find the reasons for its failure and the desired roadmap for its success. Sarbesh Mishra

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THANK YOU Sarbesh Mishra

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