Privatization Power Sector & Reforms

Privatization of Power Sector & Power Reforms “Delhi Distribution Reforms”

INTRODUCTION • Restructuring DVB • Successfully done on 1st July 2002 • Successfully Accepted by all the sections of society • Unflinching commitment to fundamental reforms • Award “Most Progressive State Government” on 23rd Oct 2002 at Techno- Economic Summit & Expo on Power, Telecom & Infrastructure

BACKGROUND • DVB a SEB under EA’48 succeeding DESU a vertically integrated utility • This was merely a change in legal status of organization • Poor commercial performance leading to public discontent

FAST TRACK REFORM PROCESS • Strategy Paper on Reforms in Feb 1999 by GoNCTD. • Distribution Reform Policy Committee by GOI chairmanship of Shri A K Basu – – – – –

Regulatory commission (March 1999) Unbundling Disinvestment Improve Performance Protection of Staff

FAST TRACK REFORM PROCESS • Nov 1999 – SBI Capital Markets as Consultants for Reforms

• December 1999 – V K Sood – Chairperson of DERC – Draft of Electricity Reforms Ordinance were sent to GoI & several revisions were made on the basis of suggestions

FAST TRACK REFORM PROCESS • June 2000 – Coordination Committee to monitor the reforms process including representatives from different organizations & institutions

• October 2000 – Delhi Electricity Reforms Ordinance was promulgated – Empowered GoNCTD & DERC

FAST TRACK REFORM PROCESS • A Tripartite Agreement between GoNCTD, DVB, & Representative of DVB Employees – No retrenchment – No change in service conditions – Continuation of Service – Creation of Fund – Welfare schemes to continue – Ad hoc pay increase on transfer

FAST TRACK REFORM PROCESS • November 2000 – Delhi assembly passed Electricity Reform Bill

the

Delhi

• January 2001 – Investors’ Conference was organized

• Feb 2001 – RFQ were issued for inviting SoQs

FAST TRACK REFORM PROCESS • 11th March 2001 – Seven prospective bidders submitted SoQs – Delhi Electricity Reforms Act came into force – Six shell companies were formed

• June 30th 2002 – Transfer scheme was operationalised – Companies has been sold to the investors who committed the highest loss – Differential Tariffs for the Discoms

COMMAND OF AUTHORITY DVB

FAST TRACK REFORM PROCESS • Measurement of commercial Efficiency • T & D Losses do not bear scrutiny • They may be high • Concept of AT & C Losses

FAST TRACK REFORM PROCESS • Valuation of the assets • Grand total of all the assets & liabilities Rs 3160 crore • Business valuation methodologies were used which are relevant only for valuation of assets in case of liquidation of assets – Projected efficiency improvements – Reasonable retail Tariff – Projected Government assistance

FAST TRACK REFORM PROCESS

• Innovative target setting methodology adopted to achieve the sustainability Sr No Company

AT&C Losses 57.2

1

Central / East

2

North / Northwest

48.1

3

South / West

48.1

4

All

50.7

IMPROVEMENT TARGETS • • •

Variable requirement Unauthorized developments T & D losses

2002-03

2003-04

2004-05

2005-06

2006-07

Central / East

0.75

1.75

4

5.56

5.10

South / West

0.55

1.55

3.7

6

5.6

2.25

4.5

5.5

4.25

North / 1.5 Northwest

• Cost of interim period of privatization • Loan assistance of approximately Rs 3450 crore

RECENT PERFORMANCE OF Discoms

Target & Achievement of A T & C Losses in Percentage

TTARIFF COMPARISON

Employee Annual Cost per Unit of Electricity sold of various Discoms

COSUMERS PER EMPLOYEE

O & M COST OF Discoms PER SQUARE km

D T Failure Rate %

Improvement in Performance Activity

2002-03

2006-07

% Change

Load Shedding (MUs)

55.34

11.01

-80

EHV Breakdown (No.)

2443

692

-72

Response Time (Hrs)

3.78

0.45

-88

21330

7575

-64

2.35

1.5

-36

11 KV Breakdown (No.) Response Time (Hrs.)

Is it the only solution ? • Privatisation of power utilities is not the solution to shortage of electricity, but technological integration could achieve the target • Privatisation is not a solution, it is not a means for solving a problem but an end. • Reform in telecom sector were not brought about by legislative changes or by Privatisation, it all started with the introduction of technology

• Neither the value of power assets was known nor the returns, power sector could give to a strategic investor. • Investors buy assets considering that it will give some rate of return on the investment but when investors are not sure if money could be collected from consumers who is going to invest.

CONCLUSION • Delhi is now served by two best electric utilities in India, BSES & Tata Power. They had achieved their best projected results, but with the economic viability the power situation in Delhi can only get gradually better with every passing year, reversing the legacy of deteriorating service that we had seen in the past.

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