An Outcome Driven Agenda

Today, despite an ambitious electrification programme, some 400 million Indians still have no access to electricity. While 80 per cent of Indian villages have an electricity line, just 44 per cent of rural households have access to electricity. With a demand supply gap of 66 billion units and peak shortage of 16,000 MW, it is estimated that India needs to add an additional 80,000 MW of generation capacity by the year 2012. This implies that a major structural revision is needed if we are to achieve our plan for power for all by 2012.


Today, despite an ambitious electrification programme, some 400 million Indians still have no access to electricity. While 80 per cent of Indian villages have an electricity line, just 44 per cent of rural households have access to electricity. With a demand supply gap of 66 billion units and peak shortage of 16,000 MW, it is estimated that India needs to add an additional 80,000 MW of generation capacity by the year 2012. This implies that a major structural revision is needed if we are to achieve our plan for power for all by 2012.

Here, it must be understood that when anyone talks about reforms in the electricity sector, the focus is firstly on changes in management practices, commonly understood to mean privatisation, and secondly on restructuring, which is a process of separating or unbundling the power utilities. What is, however, missed out is a sector that is crucial to the success of any reforms in the power sector and one which the restructured Accelerated Power Development Reforms Programme (R-APDRP) scheme is seeking to correct, that is the transmission and distribution segment.

As Arun Kumar of KPMG says, “if one looks at the power value chain, there are three legs, that of generation, transmission and distribution. While we have started getting our act together when it comes to generation, major gaps remain in the transmission and distribution cycles. Our T&D (transmission and distribution) losses today are anything between 30 and 50 per cent.” And, it is this segment of the value chain that the government is seeking to target through the restructured APDRP.

First introduced in 1991, reforms in the power sector were taken a step further by the Electricity Act 2003 and then through the Accelerated Power Development Programme (APDP) that was renamed as the APDRP in 2002-03. The focus was to look at the distribution sector in a holistic manner and then improve performance in all segments. The main objectives of the APDRP were improving financial viability of the State Electricity Boards, reduction of T&D losses to around 10 per cent, improving customer satisfaction, increasing reliability of power supply, improving quality of supply, adopting systems approach with MIS, and bringing transparency through computerisation.

But, as the Planning Commission itself noted, the APDRP scheme fell short of expectations, with the result that of the over Rs 176.12 billion worth of projects sanctioned till March 2005, total investment was only Rs 57.68 billion or just 32.75 per cent. Also, it was seen that while the target of reducing AT&C losses was from around 40 per cent to 15 per cent over five years, the actual reduction was not more than 5 per cent, that is 35 per cent. Even then, the AT&C losses varied widely between states from 18 per cent to as much as 60 per cent.

It was because of this that the Central Government came out with the R-APDRP scheme, with the aim of restoring the commercial viability of the distribution sector by putting in place mechanisms that lead to a substantial reduction in aggregate technical and commercial (AT&C) losses. The realisation here, as V K Shah, General Manager, Power Finance Corporation, points out, was that under APDRP-1 there was no way in which we could work out the baseline data or compute the AT&C losses. “So, the restructured APDRP first seeks to address this issue of unmetered supply and proper data acquisition system. Only then does it take up the issue of system upgradation and equipment modernisation,” he adds.

Key Message: Perform!

  • The focus of the programme is on actual, demonstrable performance in terms of sustained loss reduction. Establishment of reliable and automated systems for sustained collection of accurate base line data, and the adoption of Information Technology in the areas of energy accounting are necessary pre-conditions for the sanction of a project. This is to enable objective evaluation of the performance of utilities before and after implementation of the programme, and enforce internal accountability leading to better performance.
  • The Power Finance Corporation (PFC) is the Nodal Agency for operationalising the programme under the guidance of Ministry of Power (MoP).
  • It covers urban areas, towns and cities with population of more than 30,000 (10,000 in case of special category states). In addition, in certain high-load density rural areas with significant loads, works of separation of agricultural feeders from domestic and industrial ones, and of High Voltage Distribution System (11kv) will also be taken up. Towns / areas for which projects had been sanctioned in the Tenth Plan APDRP shall be considered for the Eleventh Plan only after either completion or short closure of the earlier sanctioned projects.
  • The programme would be of the size of Rs 515.77 billion. Initially Rs 500 billion will be provided/arranged as loan from Government of India or financial institutions, out of which an estimated amount of Rs 300 billion would be converted into grant. The total grant from Government of India is estimated as Rs 315.77 billion.
  • Projects under the scheme shall be taken up in two parts. Part-A includes projects for establishment of baseline data and IT applications for energy accounting/auditing and IT-based consumer service centres. Part-B includes regular distribution strengthening projects. Apart from this, the programme envisages enabling activities like CRM modules, automation and validation of baseline data systems, project evaluations, capacity Building and development of franchisees in Distribution Sector, consumer attitude surveys, etc.
  • At the national level, the AT&C loss of state power utilities has not shown much progress over the past three years. However, the loss has reduced in towns where APDRP has been implemented. The national average AT&C loss of the distribution companies has reduced from 36.63% to 34.54% during 2002-03 to 2005-06
  • For projects taken up under Part A, 100% funds for the approved projects will be provided through loan from the Government of India on the terms decided by Ministry of Finance. The loan shall be converted into grant once the establishment of the required system is achieved and verified by an independent agency. The interest on the converted loan will be capitalised. But, no conversion to grant will be made in case the project is not completed within three years from the date of sanctioning.
  • For projects taken up under Part B, Conversion into grant will take place yearly based on the AT&C loss figures of the project area as on March 31 duly verified by the independent agency appointed by Ministry of Power. If the utility fails to achieve or sustain the 15 per cent AT&C loss target in a particular year, that year’s tranche of conversion of loan to grant will be reduced in proportion to the shortfall.
  • The scheme also envisages incentive for utility staff in towns where AT&C loss levels are brought below 15 per cent. Each distribution company would be required to implement an incentive programme for utility employees of the specific project area. State Governments and distribution companies will work with the concerned regulator to ensure that a part of the financial benefits arising out of the AT&C loss reduction are also passed on to the consumers of the project area.
  • The participation of private utilities in R-APDRP will be considered only after a period of two years from the issue of sanction.

And what perhaps can be said to be a first for the government, the R-APDRP has linked the disbursement of Central Government funds to States to actual reduction1 in losses. Says M K Goel, Director (ID&A), PFC, “in APDRP-1, initially 50 per cent grant was there and 50 per cent loan. The grant portion was straight away being given by the Central Government to the State Governments while the balance 50 per cent was to be tied up by the utilities from various financial institutions. This had certain shortcomings. Under the restructured APDRP, the money goes directly from the Central Government to the utility, with the PFC being the nodal agency to ensure such transfers.”

Karan Bajwa, Head, Public Sector, Microsoft Corporation (India), agrees that R-APDRP is a fairly ground upwards project, with definite end-points and delivery timelines. “The restructured APDRP states exactly what the utilities need to do, what the Centre is giving the money for, what it wants the outcomes to be. If the utility meets the outcome in a defined period, the loan becomes a grant, if not, the loan has to be repaid,” he says. While both components were part of the earlier reforms programme also, power utilities mostly used Central funding for system upgradation, without setting right  the distribution cycle. Now, the Centre is willing to fund 100 per cent cost of IT enablement of a utility, provided the outcomes are achieved. Goel agrees that the money under the restructured APDRP will initially be given to utilities in the form of a loan. Once they achieve the desired target, only then will it be converted into a grant. And the result is a demonstrable improvement in terms of AT&C loss reduction on a sustainable basis.

Summary of Sanctioned Projects (February 2009)

State (Rs mln) No. of Towns Sanctioned Loan Sanctioned
Andhra Pradesh 113 3880.40
Bihar 10 811.80
Goa 4 1049.00
Gujarat 17 473.70
Haryana 36 1460
Jharkhand 5 88.30
Karnataka 93 3833.30
Madhya Pradesh 82 2280.90
Maharashtra 107 1621.90
Rajasthan 87 3159.50
Tamil Nadu 27 700.40
Uttar Pradesh 5 24.90
Uttarakhand 12 85.60

Says Devender Singh, Joint Secretary in Ministry of Power, “the IT enablement of a utility, which is the first part of the restructured APDRP, involves automatic meter reading on distribution transformers and feeders; integrating meter reading, billing and collection; energy accounting and auditing; and GIS mapping of the entire distribution network.”

This is specially important and is a point that most committees set up on the power sector too have reiterated. Energy audits, and as a precursor to that, metering of consumers in order is essential if utilities are to be able to identify power flows and losses at the distribution levels.

As a paper prepared by the NCAER in 2007 revealed, “the striking aspect of these numbers is the completely inadequate metering at the level of distribution transformers; nationally, only 11 per cent of such transformers are metered. Even worse is the metering status at the consumer level at end-2006, after years of reform funds for metering and audits; large states in terms of sales of electricity units have metering levels of anywhere between 2 per cent and 34 per cent. In fact, one of the basic problems of estimating the extent of commercial losses and theft in the system has been the ability of utilities to disguise the extent of these losses by attributing losses to consumption in agriculture.”

Avers Kapil Mohan, Director, Ministry of Power, “such IT enablement of the power utilities should yield measurable, verifiable and sustainable changes. Measurable because we don’t know what are the actual losses; verifiable by an independent third party to learn the real numbers; and sustainable for long-term benefits to accrue.” 

Such IT enablement will also have immediate benefits for the consumers, both in terms of supply and tariff rationalisation, as it will bring into the ambit those who are currently not paying for the electricity or are paying less than what is actually due. Says Pankaj Mathur of HP India, “R-APDRP is a large information technology initiative that can have a telescopic effect on an entire generation. It is the first step towards making sure that the power that is generated is distributed in the most efficient manner.”

Utilities will have the advantage of using the latest technology, thereby leapfrogging several technology cycles. For instance, smart grids, which is the next  big thing in the distribution segment can be introduced. This will enable two-way communication with the consumers, remote load control, load profiling, and even integrate generation at the consumer’s end into the grid.

Once the basic system is in place, a utility can do any number of add-ons.  “In fact, India is at an advantage here as the good part of R-APDRP is that we are starting from the billing part, which can allow us to ensure that technology induction is uniform, allowing any upgrades to be easily introduced,” feels Mathur.

However, Arun Kumar says while Part A of R-APDRP does talk about creating a baseline data, the system requirement specification document for energy auditing and accounting does not talk about upgradation. “It only sets a maximum timeline of three years and minimum of 18 months,” he says. To this, Devender Singh says, “we have taken care that the specifications are such that they are technology and vendor neutral. Provisions have also been made to incorporate any technological upgradations.”

So then what are the challenges? According to Arun Kumar, staffing is a very serious issue. “This is one issue that needs to fully understood at the Central level and in a State at the management level. While for meeting this capacity gap, IT consultants are being appointed at the State-level and they are making a three-year commitment, these consultants need to be fully trained on the magnitude of the task on hand.”

In fact, there is the feeling that the amount bid by some companies for the role of IT consultants appears to be unrealistic. Says S K Urmalia, General Manager, PFC,  “there is some improper understanding of the scope of the work involved. Some IT consultants thought that preparation of the detailed project report was the only job they had to do, but it is beyond that. Now the utilities are also realising this and they are bringing these things into the RFP document that they are issuing to all the IT consultants.”

“Also, the power utilities themselves do not appear to have all the resources and manpower in place to take the work forward. Distribution companies have very high volumes of transactions on a daily basis. For example, a distribution company in Madhya Pradesh would have roughly Rs 4 billion of annual revenue, implying thereby that daily transactions of Rs 10 million are taking place on an average. They need trained manpower to handle such huge volumes. In fact, few recruitments have been made by most utilities in the last decade in a bid to cut down on their costs,” adds Arun Kumar.

Concurs Avkash Saxena, General Manager, PFC, “Our power utilities have to gear up to take up such IT-related work. So, first of all we are creating the IT infrastructure for them and in addition we are preparing their personnel and for this purpose, we are conducting various training programmes. We will be doing this in a phased manner covering almost 20,000 people in all the utilities in India.”

It is to tackle the problem of training the requisite workforce that utilities like the West Bengal State Electricity Distribution Company Ltd have already initiated employee training and capacity building programmes. In fact, the utility has been able to launch several successful IT initiatives to cut down on its T&D losses. Says Company Director Sanghamitra Modak, “Already in a number of locations, we have done GIS mapping and consumer indexing. Of course, billing and other things are already computerised, and we have also started several capacity building initiatives. We can service our consumers in a better way as some of the IT programmes have already been implemented in our system.”

On his part, Devender Singh says that challenge of the restructured APDRP is in the implementation of Part A of the scheme because this is for the first time that a national rollout of such an ambitious scheme is taking place.

While our IT industry is fairly big and well-diversified, nobody has done such an extensive exercise of applying IT for improving the distribution infrastructure. So, while the IT industry can see this as a huge business opportunity, it is one in which they still have to develop the requisite domain expertise.” But all agree that the R-APDRP is one scheme that seeks to bring in rationalisation, improve customer interface, cut down losses. It takes a ground-upwards view of streamlining the entire energy infrastructure in the country.

Seeing in the R-APDRP a huge opportunity both for its consumers and for itself, the West Bengal State Electricity Distribution Co. Ltd. is one of the few discoms in the country that has initiated reforms at the ground level. Says Company Director Sanghamitra Modak, “already, we have completed GIS mapping, consumer indexing and set up the zonal computer centre in a number of locations. While billing and other things had already been computerised, we have now taken up capacity building. We have already started working on ERP and are training a core group for enabling IT in the company.”

According to her, the impact of these is already visible as losses have come down quite substantially and “we are expecting to decrease them even more by segregating and rationalising the feeders, and load balancing. While in 2004 we had AT&C losses of between 36 per cent and 40 per cent, these have today come down to below 20 per cent.”

The discom has identified 62 towns for R-APDRP activity and expects to soon receive clearance for initiating the programme from the Ministry of Power. “We have already gone in for the appointment of a consultant. Once the project is implemented, a consumer will be able to get much more efficient service. Probably, we will be in a position to decrease tariffs also as we expect our cash flows to improve substantially. Moreover, with a toll free number, consumers will be in a position to contact the utility in case system failures and fault docketing. Also, online payment of bills will be possible,” Modak pointed out.

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