Part 2 of 2 - Suggested amendments in National Tariff Policy

This is sequel to "Part 1 of 2: Suggested amendments in National Tariff Policy". 

Part 1 of 2 - Suggested amendments in National Tariff Policy

Rahul Bagdia is Co-Founder and Director
of pManifold. The co. specialize in Utilities and
Emerging Markets Research and Advisory,
and is focusing upon operationalisation and improvement in
Service Delivery of Power Distribution models.

Ministry of Power (MoP) is reviewing the Electricity Act 2003 and the National Tariff Policy 2006. 

Federation of Indian Chambers of Commerce of Industry (FICCI) recently had a small group meeting to discuss amendments in these Acts and invited suggestions. 

Mr. Rahul Bagdia, Director, pManifold Business Solutions, shared below suggestions to FICCI team on potential amendments to further create more Market governed healthy power sector in India. These are independent and individual views of the author and not to be associated with any of his affiliation with any company or whatsoever.  

Our existing Policy framework is strong; however its enforcement has been weak. The new amendments in addition to driving more market led changes, should act as better facilitator for measuring performance and enhancing governance in our utilities. Below suggestions are directed in Power Distribution space only.

Bihar Distribution Franchisee Updates: 2 LoIs issued in March

Bihar State Power Holding Company Ltd (BSPHCL), the state owned Power Distribution utility has recently issued Letter of Intent (LoI) of Distribution Franchisee of Muzaffarpur and Bhagalpur regions to Essel Utilities and SPML respectively. The LoIs has been issued in March 2013.

Tender for appointment of distribution franchisee in PESU & Gaya regions has been cancelled. It is expected that BSPHCL will float new tenders for these 2 regions soon.

We wish the winning two companies successful operationalization so that the DF model achieves its potential.

For latest updates and information from the Power Distribution Franchisee industry, join our 'LinkedIn Group' having 700+ industry professionals.

Posted by - Kunjan Bagdia @ pManifold

Comparative View of Key Performance Indicators across Gujarat’s Power Distribution Utilities

Paschim Gujarat Vij Company Ltd. (PGVCL), the largest Power Distribution Utility, compared to other distribution utilities in Gujarat, is serving more than 47 lakhs customers, across 8 districts and 44 divisions. The utility PGVCL has considerable losses (both Aggregate Technical & Commercial (AT&C) and Transmission & Distribution (T&D)) compared to other utilities and hence, is evaluating different options of Public Private Partnership (PPP) models to improve the operational efficiency and performance monitoring. They are evaluating various models including the Input Based Distribution Franchisee (IBDF), Light Capex new Orissa model and others. To have a detailed understanding of IBDF model, a team of PGVCL recently visited MSEDCL’s office in Mumbai for a deeper study on the model.

pManifold has done a quick market research to understand the performance of Gujarat’s distribution utilities on key parameters using its DF Attractiveness Matrix. The data used is of the FY 2011-12.

Key excerpts are mentioned below:

• PGVCL has highest area compared to other utilities, covering scattered geography with 8 districts and 44 divisions. 
• Total number of customers is double in PGVCL as compared to others, with highest percentage of Agricultural customers (i.e. ~11%) followed by UGVCL with (~8%). 
• Losses are highest in PGVCL, compared to others due to larger proportion of agriculture sales. Due to this, the state regulatory has set trajectory of 2% loss reduction per year for PGVCL and 1% for others.    
• Average cost of supply (ACS) is highest for PGVCL and its sales realization is least. 
• Quarterly Transformer Failure rate is also highest for PGVCL. 

Apart from the above points, based on the analysis of tariff reports, it is observed that the tariff for domestic and agriculture customer categories has remained at 70-80% and 20-30% of the average cost of supply, while the non-domestic and industrial categories pay in the range of 120-150% respectively, across different utilities. Thus, non-domestic and industrial revenues continue to cross subsidize agriculture and domestic categories.      

With a view to reduce the losses and improve the overall system efficiency, PGVCL has taken a good initiative to understand more on the Distribution Franchisee model. We hope that the preliminary thoughts picks up more traction in coming time period so that the DF model develops further and reach to its potential.

Posted by - Kunjan Bagdia @ pManifold

Interview with Mr. Ajai Nirula, COO at TP-DDL on PPP models for Power Utilities in India

Mr. Ajai Nirula, Chief Operating Officer (COO) at Tata Power - Delhi Distribution Limited (TP-DDL) was one of the sessions moderator in recently concluded IUKAN 2013. As a veteran in the Power industry, he shared his inputs on various distribution reforms and the challenges associated with it.

1. What are the current trends in PPP models for Power Utilities in India? 
• Presently, three business models are in existence i.e. Privatization, Franchisee Based (Unit Based Input Model) & Concession Based (Now recommended by Planning Commission)
• Franchisee Based Model: Operates in designated areas, responsible for network maintenance, for a fixed period (generally 15 Yrs.), Bidding is done on price you pay for per unit power purchased
• Concession Based Model: Fix tenure for 25 Yrs., Bidding party gets a license to operate in the area, bidding is done on viability gap funding concept
• Privatization Model (Delhi/Orissa): Responsible for AT&C Reduction & maintaining reliability of network, licenses to operate in designated areas, asset valuation at a notional value, incentivization on overachievement of targets, Governed through a regulator

Interim (or Mini) Distribution Franchisee through MoU route – new initiative from MSEDCL

MSEDCL has taken another step in appointing Interim (or mini) Distribution Franchisee in Multi-storey buildings in its continuous effort to reduce AT&C losses, improve customer services and collection efficiency. After the appointment of Distribution Franchisees for bigger circles like Bhiwandi, Nagpur, Aurangabad and Jalgaon, they are now appointing Mini Distribution Franchisee in areas such as - Rural / Hilly area having scattered network, IT- Park, SEZ, etc., Urban Township Area and others including small colonies (having 100 connections or more), by signing a Memorandum of Understanding (MoU).

Optimum infrastructure planning and better utilization of existing infrastructure: An alternative to new capacity building

Driving further into the 2010s, one gets a feeling that inadequate and poor performance of infrastructure available present a grave economic as well as social problem for economies. For economies to meet their full growth potential along with human and economic development, the lever that's imperative is more investment in infrastructure, be it transport or grids or water pipelines.


As we stare at the wide gap between existing infrastructure and the one required for optimized growth, one of the major concerns is how to find the money to fund the bridge. However, one of the other key factors which one needs to consider is to improve planning, delivery and operations of the infrastructure to get more and high quality capacity for less money to improve infrastructure efficiency. The attention needs to be focused on how governments together with the private sector, select, design, deliver and manage the infrastructure projects and make more out of the existing infrastructure available.

The exhibit below shows the estimated infrastructure sector-wise investment required in the period 2013 - 2030:

Sector-wise investment required in global infrastructure

The key challenges in the poor service delivery of the infrastructure are:

• inaccurate planning and forecasting leading to poor project selection
• bias of the public administrations to build new capacity rather than make use of existing ones, leading to more expensive and less sustainable infrastructure
• lack of incentives, accountability, and capabilities clubbed with risk aversion towards new technology and 
• a general inability of the public administrations to negotiate on equal terms with the infra developers, thereby leading to inefficient oversight and poor performance monitoring

The levers controlling the cost efficiency of the project portfolios of economies are:

1. Improving the project selection and optimizing infrastructure portfolio - 
• Clear definition of needs for the infra projects together with the due consideration provided for complimentary capacity planning is required to ensure lowered spending on projects
• Sophisticated evaluation methods to determine costs and benefits and prioritizing the project selection based on transparent, fact based decision making, is another critical factor
• One estimates US $200 billion saving in the infrastructure spending globally, if the project selection is done appropriately
2. Delivery Streamlining -
• Heavy investment in the project planning and design phase bears an importance in stream-lining the project delivery
• Appropriate incentives need to be designed and incorporated into the contract design helps in achieving prescribed performance specification
• An estimated saving of US $400 billion annually can be achieved by streamlining the project delivery 
3. Optimizing existing infrastructure assets - 
• One may end up with a savings of US$ 400 billion a year by boosting the asset utilization, optimizing maintenance planning and better demand-management. For eg., reducing transmission and distribution losses in water and power may come at a nominal cost of just 3% of the cost required for equivalent new production 
• Governmental measures, through the use of tools and charges to allow the demand management, are an effective solution for greater benefits 
4. Up-gradation in infrastructure governance systems - 
• A wholistic understanding of broad socio-economic growth and common understanding between various infrastructure development authorities, is basic requirement in the governance of infrastructure
• Clear division of technical and political responsibilities for infrastructure management will be required to ensure a more transparent and efficient asset management
• Appropriate role-definition for public and private players providing for role clarity on market structure, regulation, pricing and subsidies, ownership and financing, is the key
• Most importantly, a trust based engagement of all stakeholders through-out the process is must to avoid sub-optimal solutions and unnecessary delays

The figure below shows an estimated savings that can be achieved by implementing appropriate measures towards optimum infrastructure deployment:

Estimated savings possible through optimization in infrastructure portfolios and better asset utilization

Ref: Infrastructure Productivity: How to save $1 trillion, January 2013, McKinsey Global Institute