Report of Indian Institute of Public Administration ... - Ministry of Power

FOREWORD 

Electricity is the most versatile form of energy and a strategic input providing a source of 

livelihood for various segments of society. The power sector is a prime mover and an 

effective engine of economic growth. Sustaining India’s current turbo growth rate requires 

massive infusion of investments and predicated and sound policies for efficient power 

generation, transmission and distribution. Over the years, the SEBs had played a very vital 

and vibrant role in extending the outreach of electricity to even remote corners of the country. 

However, by the 1990s, the SEBs were found to be beset with unsustainable inefficiencies, 

unviable tariffs, high T&D losses, mounting subsidies, lack of adequate attention to the 

distribution segment, sub-optimal performance, wasteful practices and lackadaisical financial 

management. All these led to financial fragility of the entire sector. 

Due to the uninspiring financial position of the vertically integrated monolithic SEBs, the 

power sector was failing to attract the much-needed investments for its development. Power 

sector reforms were necessitated to turn around the sector. Orissa was the first State to 

restructure its SEB and thereafter, 12 more States followed suit. Enactment of the Electricity 

Act, 2003, is doubtless a distinct watershed in the Indian power sector, as it introduced 

innovative concepts like power trading, Open Access, Appellate Tribunal, etc., and special 

provisions for the rural areas. The Act has made it mandatory for all the States to restructure 

their SEBs. Since, by now, sufficient experience was available to gauge the performance of 

the restructured Utilities, the Ministry of Power felt it opportune to have the issue revisited 

and studied in depth, based on the hindsight and foresight warranted by the emerging 

challenges. 

With this end in view, MoP entrusted the Indian Institute of Public Administration with the 

task of undertaking a comprehensive study on ‘Impact of Restructuring of SEBs’. After 

wide consultations, IIPA drafted a team of experts with rich domain knowledge of the 

operational dynamics of the power sector. We acknowledge the outstanding work done by 

the members of the `Group of Experts’ at all stages of the Study. All of them carried an 

incisive State-specific review and helped in drafting of the National Report most diligently 

and objectively. All of them generously contributed their time and attention and completed 

their task most meticulously and methodically. 

The key findings of the Study are: 

• Restructuring is a necessary but not a sufficient condition for turnaround of the power 

sector. It is important to note that restructuring is only the beginning and not the end of 

the process. It must be accompanied by continuous complementary efforts to enhance 

efficiency in the sector and improve the quality of service to consumers. 

• Strong and sustained political support during all phases of restructuring is the key. Taking 

the employees into confidence and enlisting their willing support and strengthening the

institution of Electricity Regulators are critical factors for success and sustainability of 

power sector reforms. 

• Most of the GENCOs, TRANSCOs and some of the DISCOMs have now become 

financially viable. Consequently, they are able to attract additional investments and better 

technological and managerial interventions. 

• It has been noticed that most of the restructured Utilities are beaming positive trends in 

respect of key parameters wherever reasonable autonomy has been provided to them. The 

level of consumer satisfaction in these States is also significantly higher. Restructuring 

has brought in the required accountability in the power sector triggering improved 

performance. Such positive correlation needs to be further reinforced through welldesigned 

systems and adoption of best practices on a continuing basis. 

• Restructuring should not be misconstrued as privatisation. It requires demystification, 

aggressive education and creation of a strong constituency to preserve, promote and 

develop the essence of restructuring. 

We are thankful to Shri Sushilkumar Shindeji, Hon’ble Union Minister of Power, for very 

graciously agreeing to receive the Report. We are grateful to Shri R.V. Shahi, Secretary 

(Power), Government of India, who was always ready and willing for consultations and 

insightful views resulting in huge value addition to the Report. Shri A. K. Basu, Chairperson, 

CERC, was very kind to spare his valuable time along with his team of Chairpersons of the 

State Electricity Regulatory Commissions and enlighten us about the Regulatory issues 

pertaining to the power sector. Thanks are also due to Shri Ajay Shankar, Additional 

Secretary, Shri Rakesh Nath (Chairperson, CEA), Shri Mrutunjay Sahoo, JS&FA and Shri 

Alok Kumar, Director for their sterling support to the project. We are also beholden to the 

Trade Union representatives, led by Shri E. Balanandan, Chairman, NCCEEE for candidly 

sharing their views on employees’ issues with the Group of Experts. Thanks are also due to 

CEA, PFC, REC and MNES for their inputs and support. All the concerned State 

Governments and Power Utilities were positive and proactive and responded readily to the 

IIPA’s detailed questionnaire. 

It is fervently hoped that this Report would positively facilitate a heightened appreciation of 

the issues and challenges confronting the power sector. It is our belief that the findings 

would trigger a rejuvenated power sector regime with well designed, and efficiently executed 

policy initiatives, enjoying fullest support of all the stakeholders. The key message emerging 

from the Study is: “If power sector wins, everybody wins”. To accomplish such a win-win 

situation, the time to act is here and now. 

P. Abraham P. L. Sanjeev Reddy 

Project Co-Director Project Director

PREFACE 

The country has been registering 8 per cent GDP growth rate for the last few years and a 

target of more than 8 per cent GDP growth rate has been envisaged during the Eleventh Plan. 

To sustain this pace of growth, electricity generation also needs to grow commensurately. 

This would require an aggregate annual investment of at least Rs 1,00,000 crore in the power 

sector. It was felt by the Ministry of Power that the faster pace of reforms is the key to meet 

the ever-evolving challenges. Ministry of Power desired that a study be conducted on the 

impact of the restructuring exercise on the power sector to assess the performance gains, 

shortcomings, and difficulties, if any, in the entire reorganisation exercise, so as to introduce 

mid-course corrective measures. 

IIPA was entrusted with the instant Study because of its proven record of excellence, for over 

half a century, in the field of Public Service, Policy Making and Capacity Building. The 

Study is designed to bring out overall trends in the performance of the Power Sector, starting 

five years before reorganisation and thereafter. The purpose of the Study is to evolve the 

process of introducing appropriate policy interventions that will impact policy-making 

through better interaction and greater participation and involvement of the State Utilities, as 

well as all other Stakeholders. 

Some States had already restructured their SEBs even before the enactment of the Electricity 

Act, 2003, some have done so after its enactment and some other States are in the process of 

doing so. In all, 12 States were selected for the Study based on the following criteria: 

• Almost all the States, which have restructured their SEBs: and 

• To draw a fair comparison and flag performance indicators between the restructured 

entities and the present SEBs, the top two performing SEBs in the country, namely those 

of Tamil Nadu and West Bengal, were also selected for the study. 

The instant Study, the first of its kind to be undertaken at the national level on the 

restructuring of SEBs, is unique in a number of aspects like: 

• `Group of Experts’ comprised of 10 members with wide-ranging experience and domain 

expertise in all important areas of the power sector; 

• 12 States were studied in depth. All the energy departments of these States have given 

their responses to detailed questionnaire of IIPA; 

• A detailed performance analysis of as many as 60 power Utilities, spread over all regions 

of the country was carried out; 

• Extensive consultations with all stakeholders including Employees’ Unions, Regulators 

and decision-makers, etc.;

• 360 0 feedback was obtained on the Draft Report from the concerned State Governments, 

power Utilities, etc.; and 

• The report runs into more than 1000 pages spread over four Volumes. 

A report of this magnitude is due to the contributions and support of a number of persons, 

who made very significant contributions in bringing the report to its present form. 

Dr. P.L. Sanjeev Reddy, IAS (R), Project Director and Shri P. Abraham, Project Co-Director 

steered the project right from its inception to its finalisation. Their deep knowledge and 

perceptive views helped in imparting a sense of direction and focus to the Report. 

Reports pertaining to the individual States were prepared by the respective Experts. From the 

findings of these Reports, the National Report was built by consensus. All the Experts went 

about their task most meticulously and systematically. Despite their onerous duties, they were 

always available with their insightful suggestions, for fine-tuning the Report. 

Sincere appreciation is also due to S/Shri K.M. Kapoor, P.S. Bhandari, Jaideep Lakhtakia, 

and Satish Kumar (of the Ministry of Power) who were very cooperative and provided all 

relevant data and inputs required from time to time. Shri A.K. Rajput, Deputy Director, CEA 

put in sustained efforts at all stages of preparation of the Report and helped in organising the 

inputs and data in a logical and systematic form. 

Valuable secretarial assistance was rendered by S/Shri B. Haridasan, Mehar Singh Bisht and 

Smt. Nirmala, who most willingly devoted long hours in organising, compiling, the copious 

data and inputs and painstakingly entering the same into the computer. Shri J.A. Rama 

Moorty, Project Officer, edited the entire Report and also provided administrative assistance. 

Shri Sunil Dutt, Publications Officer, IIPA, rendered valuable editorial advice which helped 

in making the Report much more presentable. Thanks are also due to S/Shri G.K. Arora, 

Kishan Tanwar, Attar Singh, Bhuvan Chander and Islam Ali for the support rendered by them 

throughout the duration of the Project. 

Besides the above, there have been a number of persons who helped at various stages of the 

Project. Constraints of space preclude mentioning them by name. Their contributions are 

gratefully acknowledged. 

P.C. Shekar Reddy 

Project Coordinator

Performance of Generating Companies 

Annexure -XI 

S.No. Parameter 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 

Andhra Pradesh - 1999-00 

1 Installed Capacity (MW)# 5210 5765 6208 6214 6255 6756 7238 7616 7787 8072 8860 

2 IC - State Sector (MW) 4974 5225 5475 5711 5726 5876 6179 6479 6639 6640 6939 

3 Gross Generation (MU)$ 21235 24074 25853 27896 30519 29930 28823 27217 26629 30868 -- 

4 PLF (%) 77.40 78.30 82.00 76.80 83.20 86.30 86.30 88.50 86.20 89.60 -- 

5 Plant Availability (%) 90.20 89.00 90.90 85.30 89.70 89.20 89.60 92.50 90.60 92.50 -- 

6 Auxiliary Consump.(%)* 9.38 9.15 9.15 9.16 9.21 9.09 10.05 9.19 9.44 9.21 9.38 

7 Secondary Oil (ml/kWh) 3.45 2.52 1.39 1.34 1.15 0.78 1.33 1.00 0.70 0.49 0.57 

8 Heat Rate (kcal/kWh) 2721 2659 2579 2570 2547 2509 2514 2484 2493 2439 -- 

Karnataka - 1999-00 


2 KPCL 3027 3027 3228 3474 3868 3943 4063 4350 4365 4530 4640 

3 Gross Generation (KPCL) 14289 11929 15929 15970 19540 19493 18878 18141 19178 19822 -- 

4 PLF (%) 67.70 70.20 75.20 81.60 82.30 81.30 81.10 79.92 88.40 83.30 -- 

5 Plant Availability (%) 83.60 86.20 88.70 90.70 87.40 87.60 -- -- -- -- -- 

6 Auxiliary Consump. (%)* 9.75 10.64 8.26 8.20 8.16 7.97 8.52 8.44 8.58 8.82 8.79 

7 Secondary Oil (ml/kWh) 1.18 0.78 0.77 1.30 2.41 -- 1.05 0.70 0.50 0.69 0.73 

8 Heat Rate (kcal/kWh) 2437 2630 2548 2540 2488 2498 2496 2529 2576 

Haryana - 1999-00 




4 PLF (%) 42.82 47.66 49.17 49.24 53.24 49.73 60.80 66.44 74.91 69.46 66.77 




8 Heat Rate (kcal/kWh) -- -- -- -- 3378 3505 3432 3365 3318 3287 3.73 

A-1

S.No. Parameter 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 

Orissa - 1996-97 




4 PLF (%) 67.00 69.40 65.30 76.20 85.60 81.58 70.64 71.24 81.60 86.04 -- 


6 Auxiliary Consump.(%)* 10.01 11.57 11.65 10.23 10.25 10.59 10.68 -- 9.38 9.47 9.65 

7 Secondary Oil (ml/kWh) 3.53 5.00 4.28 1.68 1.31 2.13 1.52 1.70 -- 0.76 0.65 

8 Heat Rate (kcal/kWh) -- -- -- 2478 2447 2355 2296 2430 2465 2437 -- 

Madhya Pradesh- 2002-03 




4 PLF (%) 58.70 62.30 66.00 67.20 69.40 66.70 72.20 72.20 70.00 71.78 -- 




8 Heat Rate (kcal/kWh) 3005 3015 2909 2919 2855 3013 3160 3018 3102 3118 -- 

Rajasthan - 2000-01 




4 PLF (%) 73.70 75.60 80.50 78.10 82.30 85.00 85.00 85.00 82.00 85.00 -- 

5 Plant Availability (%) 77.40 80.30 89.30 83.20 86.50 87.80 -- -- -- -- -- 



A-2

S.No. Parameter 

Uttar Pradesh - 1999-00 

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 




4 PLF (%) 47.30 49.10 48.80 48.90 49.80 57.19 59.76 58.40 57.70 57.50 -- 

5 Plant Availability (%) 60.40 62.70 63.10 61.30 64.30 64.89 72.07 74.03 73.28 -- -- 


7 Secondary Oil (ml/kWh) 

All India 

5.30 3.86 4.70 5.84 11.12 6.97 2.33 2.20 4.90 1.14 5.00 


2 IC - State Sector (MW) 55646 53737 55467 56870 58493 60850 65875 63711 67380 69161 -- 

3 Gross Generation (MU) 379877 395889 421747 448544 481055 501204 517439 532693 565102 594456 617382 

4 Gross Gen. State Sector 235798 235359 243725 256546 268641 270788 290245 282405 304648 315365 -- 

5 PLF (%) 63.00 64.40 64.70 64.60 67.30 69.00 69.97 72.34 72.96 74.82 73.71 

6 PLF (%)-State Sector 58.00 60.30 60.90 60.80 63.70 65.60 66.62 68.93 68.80 69.77 -- 

7 Plant Availability (%) 77.80 79.13 78.78 78.88 79.89 79.84 79.91 81.83 81.93 82.93 81.78 


9 Secondary Oil (ml/kWh) 4.53 4.36 3.45 3.50 3.59 2.76 2.70 -- 2.30 1.37 1.77 

* Auxiliary consumption (%) is in respect of thermal plants 

# Installed Generating Capacity (Utilities Only) 

$ State Sector 

(Source : CEA) 

Note: Figures of PLF, Plant Availability, Auxiliary Consumption, Secondary Oil Consumption and Heat Rate are in respect of Thermal Power Plants. 

A-3

Performance of Transmission Companies 

Annexure-XII 

Parameter 

Andhra Pradesh (1999-2000)* 

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

Total Length of Transmission Lines (ckt km) 17847 18354 20073 20700 20700 22070 24888 28968 26143 27406 

Transmission Losses (%) 

Karnataka (1999-2000)* 

8.98 8.94 8.18 7.55 6.11 4.91 



Haryana (1999-2000)* 

6.55 4.89 4.18 



Orissa (1996-97)* 

6.78 7.17 6.78 7.18 5.67 



Madhya Pradesh (2002-03)* 

5.00 5.17 5.11 4.15 3.92 



Rajasthan (2000-01)* 

8.25 8.17 8.20 7.93 6.12 5.62 



Uttar Pradesh (1999-2000)* 

4.10 4.17 3.68 4.72 4.59 



All India 

5.50 5.50 5.50 5.92 5.67 4.97 


* Year of Restructuring of SEB 


A-4

Voltage 

Level 

400 kV 

220 kV 

Annexure -XII(A) 

Yearwise Targets Vs. Achievements IX and X Plans for Transmission Lines 

State 1997-98 1998-99 1999-2000 2000-01 2001-02 Total 9th Plan 2002-03 2003-04 2004-05 2005-06 

(ckt.km.) 

2006-07 

Utility P* A# P A P A P A P A P A P A P A P A P A P A 

Haryana 0 0 0 0 0 0 0 0 0 

Rajasthan 162 162 0 0 0 0 0 0 0 0 162 162 0 0 327 329 0 0 210 0 250 

UP 391 197 260 293 480 475 5 158 1 1 1137 1124 0 0 0 0 0 0 140 675 20 

Gujarat 41 16 137 120 191 207 42 1 60 0 471 344 64 49 16 13 0 0 150 66 155 

MP 100 10 100 215 198 200 0 0 222 101 620 526 150 21 338 245 254 241 0 0 0 

Maharashtra 145 187 204 120 330 660 412 307 203 40 1294 1314 31 43 131 118 20 9 0 11 211 

AP 0 0 50 0 487 656 234 190 585 997 1356 1843 168 130 520 136 536 310 60 337 44 

Karnataka 50 134 155 136 226 218 530 548 0 0 961 1036 3 0 0 0 0 0 0 0 0 

Orissa 0 0 0 0 212 0 212 155 57 24 481 179 200 137 40 32 95 141 0 2 39 

W. Bengal 0 0 0 0 290 290 0 0 22 0 312 290 22 0 22 22 0 0 0 49 660 

Total (SS) 963 706 980 884 2488 2720 1495 1419 1150 1163 7076 6892 

Total 

(All India) 

2990 2767 3004 3262 3128 3336 1973 2091 1780 1780 12875 13236 

Haryana 186 152 110 43 137 131 164 153 55 28 652 507 75 72 278 282 129 320 300 306 308 

Rajasthan 234 232 314 278 304 162 204 161 153 401 1209 1234 55 181 226 208 394 606 390 658 381 

UP 39 0 89 95 93 36 226 52 111 60 558 243 17 58 228 317 59 12 180 221 392 

Gujarat 278 311 371 567 160 277 463 360 317 236 1589 1751 234 198 675 633 103 79 210 98 361 

MP 104 38 170 170 50 46 330 217 120 119 774 590 100 88 9 10 40 18 205 205 189 

Maharashtra 347 644 179 285 185 247 391 426 366 358 1468 1960 216 295 445 442 343 184 175 162 384 

AP 326 323 229 184 495 945 372 452 538 840 1960 2744 593 804 310 177 163 123 180 46 222 

Karnataka 212 271 85 42 381 332 530 595 499 524 1707 1564 323 86 265 369 336 283 130 130 211 

Tamilnadu 44 89 99 266 175 171 539 502 374 313 1231 1341 266 375 205 206 303 203 120 143 166 

Orissa 147 135 24 0 218 0 530 342 400 216 1319 693 466 340 75 211 260 289 105 150 279 

W. Bengal 24 0 30 0 12 530 190 73 408 99 664 702 132 78 153 251 30 10 90 95 88 

Assam 0 0 0 0 0 0 5 25 25 

Total (SS) 2406 2569 2514 2701 2884 3141 4669 3364 4132 3495 16605 15270 

Total 

(All India) 

2824 2914 3210 3330 3553 3932 5058 3674 4240 3543 18885 17393 

Length of Transmission Lines (State Sector) Plan during 2006-07 to 2011-12 (ckt.km.) 


State 

Voltage 

Level (kV) 

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 * P-Planned 

400 234 900 1032 686 740 # A- Achievement 

AP 

220 502.69 1355.88 333 706.99 152 

132 360 420 240 240 180 

220 224 32 470 85 536 

Karnataka 110 20 90 51 60 

66 160 40 40 10 170 

400 0 100 100 100 200 

Haryana 220 22 210 180 180 180 240 

132 21 223 300 360 330 330 

400 180 430 695 0 0 1080 

Rajasthan 220 472 738 307 0 0 594 

UP 

132 

220 

132 

375 

168.5 

80.27 

0 

0 

261 

0 

60 

159 

0 

144 

181 

0 

80 

100 

0 

520 

350 

A-5

Yearwise Targets Vs. Achievements IX and X Plans for Sub-Stations 

Annexure-XII(B) 

Voltage State 1997-98 1998-99 1999-2000 2000-01 2001-02 Total 9th Plan 2002-03 2003-04 2004-05 2005-06 

(ckt.km.) 

2006-07 

Level Utility P* A# P A P A P A P A P A P A P A P A P A P A 

Haryana 0 0 0 0 0 0 0 0 0 

Rajasthan 0 0 0 0 0 0 315 315 630 315 945 630 630 315 945 315 945 630 0 315 0 

UP 630 0 630 945 755 440 630 0 945 945 3590 2330 0 0 0 0 315 0 630 945 630 

Gujarat 0 0 315 315 945 1445 1130 315 815 815 3205 2890 0 0 0 0 0 0 0 315 630 

MP 315 630 0 0 0 0 0 0 0 0 315 630 0 0 0 0 0 315 0 630 0 

Maharashtra 315 315 630 315 315 1260 630 630 630 0 2520 2520 0 630 1945 1445 500 500 315 0 420 

AP 0 0 0 0 945 0 1260 945 630 945 2835 1890 0 0 0 0 315 0 630 1575 630 

400 kV Karnataka 0 0 0 0 0 0 0 0 815 500 815 500 315 0 630 1130 0 0 0 500 630 

Tamilnadu 0 400 0 0 0 315 315 0 630 

Orissa 630 0 0 0 630 0 0 630 0 

W. Bengal 0 0 0 0 630 630 0 0 0 0 630 630 0 0 630 0 0 0 735 0 315 

Assam 0 0 0 0 0 0 0 0 0 

Total (SS) 1890 1260 2205 2205 3905 3775 4280 2520 4780 3520 17060 13280 

Total 

(All India) 

3150 2205 2205 2835 6990 6230 5855 4095 6355 5095 24555 20460 

Haryana 250 100 450 150 400 250 200 300 200 100 1500 900 400 400 800 955 600 810 600 450 850 

Rajasthan 200 400 200 200 250 400 400 1000 300 400 1450 2400 0 250 490 550 300 420 300 900 100 

UP 200 0 200 700 100 200 200 100 1080 460 1780 1460 160 240 100 820 300 660 320 460 460 

Gujarat 500 450 600 1300 300 950 650 450 400 550 2450 3700 350 250 600 500 400 1150 0 400 500 

MP 320 320 160 125 160 285 320 320 0 0 960 1050 0 160 160 320 640 1120 640 680 480 

Maharashtra 450 1075 150 400 350 845 650 1920 325 450 1925 4690 275 775 700 1425 675 1745 475 855 525 

AP 600 831.5 450 350 500 1000 400 550 500 300 2450 3032 632 1100 600 732 300 100 200 200 400 

220 kV Karnataka 500 1050 500 800 400 900 300 300 300 200 2000 3250 600 500 200 600 200 500 500 400 500 

Tamilnadu 150 250 300 450 475 600 700 1195 410 450 2035 2945 150 50 100 200 300 100 400 700 300 

Orissa 300 60 200 100 250 200 300 320 200 0 1250 680 600 120 0 0 400 200 200 140 400 

W. Bengal 160 0 160 0 640 640 960 0 0 0 960 960 320 160 1280 1120 800 640 600 160 320 

Assam 0 0 0 0 100 0 75 0 75 0 250 0 25 0 0 0 25 37 275 250 225 

Total (SS) 5360 6017 4690 5435 5335 8060 6045 8155 5310 4220 27640 31887 

Total 

(All India) 

5410 6017 4840 5485 5435 8210 6195 8155 5410 4320 27290 32187 

* P-Planned # A- Achievement 


A-6

Transmission Sub-Station Capacity Addition (State Sector) during 1997-98 to 2011-12 

Annexure-XII(C) 

State Voltage (kV) Capacity 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 

400 

MVA 

Number 

945 

2 

945 

3 

1575 

4 

2520 

4 

630 

1 

AP 220 

MVA 

Number 

831.5 

9 

350 

5 

1000 

9 

550 

7 

300 

3 

1100 

11 

731.5 

8 

100 

1 

200 

1 

1600 

8 

1400 

7 

1000 

5 

800 

4 

600 

3 

132 

MVA 

Number 

192 

6 

280 

7 

160 

4 

160 

4 

120 

3 

400 

MVA 

Number 

630 

1 

630 

1 

630 

1 

1260 

2 

Haryana 220 

MVA 

Number 

100 

2 

150 

2 

250 

3 

300 

4 

100 

1 

400 

4 

955 

10 

810 

9 

450 

5 

200 

1 

200 

1 

800 

4 

800 

4 

1000 

5 

1600 

8 

132 

MVA 

Number 

148 

7 

352 

11 

384 

12 

480 

15 

416 

13 

448 

14 

400 

MVA 

Number 

500 

1 

1130 

3 

500 

1 

500 

1 

630 

1 

1630 

2 

Karnataka 

220 

110 

MVA 

Number 

MVA 

Number 

1050 

8 

800 

8 

1100 

10 

300 

3 

200 

2 

500 

4 

600 

5 

500 

5 

400 

3 

1200 

6 

260 

13 

600 

3 

280 

15 

1000 

6 

180 

9 

800 

4 

150 

8 

1800 

9 

100 

5 

66 

MVA 

Number 

786.8 

29 

412.8 

19 

256.4 

8 

1600 

8 

100 

5 

MP 

400 

220 

MVA 

Number 

MVA 

Number 

630 

2 

320 

2 

125 

1 

285 

2 

320 

2 

160 

1 

320 

2 

315 

1 

1120 

7 

630 

2 

680 

5 

Orissa 

400 

220 

MVA 

Number 

MVA 

Number 

60 

1 

100 

1 

200 

2 

320 

1 

120 

2 

200 

2 

630 

2 

140 

2 

400 

MVA 

Number 

315 

1 

315 

1 

315 

1 

315 

1 

630 

2 

315 

1 

945 

3 

Rajasthan 220 

MVA 

Number 

400 

4 

200 

3 

400 

4 

1000 

10 

400 

4 

250 

3 

550 

6 

300 

3 

900 

11 

300 

3 

500 

5 

100 

1 

800 

8 

132 

MVA 

Number 

300 

15 

400 

MVA 

Number 

315 

1 

630 

2 

440 

2 

945 

2 

945 

3 

UP 220 

MVA 

Number 

700 

7 

200 

2 

100 

1 

460 

7 

240 

3 

820 

11 

660 

7 

460 

7 

780 

5 

200 

1 

860 

4 

120 

1 

1180 

4 

132 

MVA 

Number 

120 

6 

280 

10 

80 

4 

40 

2 

100 

2 

120 

2 

All India 

400 

220 

MVA 

Number 

MVA 

Number 

8210 7655 

90 

2205 

6 

4220 

49 

3520 

9 

5315 

62 

1345 

5 

8372 

88 

3205 

9 

8662 

93 

1760 

5 

6995 

79 

5540 

16 


A-7

Performance of Distribution Companies 

Annexure-XIII 

Parameter 

Andhra Pradesh (1999-2000) 

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

Length of 33 kV Lines (ckt km) 25,114 25,782 26,549 27,906 27,906 31,972 32,655 46,787 32,732 33,580 


Distribution Lines upto 500 Volts 407,653 412,511 384,315 464,769 464,769 447,933 448,949 645,409 447,428 486,237 

Ratio LT to HT (upto 11 kV) 2.60 2.62 2.42 2.86 2.86 2.63 2.54 2.27 2.39 2.40 

HT Lines (ckt km)/1000 sq km 570.07 573.13 576.68 590.18 590.18 618.23 643.01 1034.12 679.83 736.48 

LT Lines (ckt km)/1000 sq km 1482.11 1499.77 1397.26 1689.76 1689.76 1628.55 1632.25 2346.52 1626.72 1767.81 

No. of Distribution Transformers 146215 146215 146215 172014 177344 177344 177344 264962 331508 405997 

Aggregate Capacity of DTs (kVA) 

DTs Failure Rate (%) 

11121738 11121738 11121738 10259123 10765846 10765846 107658 19253256 20774972 22495826 

- Central Distribution Co. 23.73 16.27 11.87 9.48 

- Northern Distribution Co. 25.03 32.9 24.42 18.83 15.81 11.72 

- Eastern Distribution Co. 28 20 13.87 9.48 7.25 

Karnataka (1999-2000) 

14.16 9.26 8.45 7.01 

Length of 33 kV Lines (ckt km) 5175 5175 6016 6189 6381 6655 6864 6864 6878 7242 


Distribution Lines upto 500 Volts 312054 312933 451220 465678 351241 359964 367690 370702 405958 417605 





Aggregate Capacity of DTs (kVA) 6493215 6493215 6493215 7547142 12012274 12861815 13618012 13618012 11142573 18773263 

A-8

Parameter 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

Haryana (1999-2000) 



Distribution Lines upto 500 Volts 102639 103266 103878 103878 105749 105749 105749 107695 107969 111150 





Aggregate Capacity of DTs (kVA) 6317560 6317560 6822865 7272612 7272612 7272612 7272612 8939692 9535301 10306617 


Orissa (1996-97)* 

33.00 27.80 25.73 20.19 16.56 15.68 16.15 16.30 

Length of 33 kV Lines (ckt km) 9,841 9,841 9,440 9,440 9,440 10,209 10,209 10,199 - 11,026 



Ratio LT to HT (upto 11 kV) 1.06 1.06 1.17 1.17 1.17 1.19 0.96 0.96 - 0.95 



No. of Distribution Transformers 22,938 22,938 22,938 31,290 31,290 31,290 31,290 31,290 22,181 34,424 

Aggregate Capacity of DTs (kVA) 


1,660,364 1,660,364 1,660,364 4,837,950 4,837,950 4,837,950 4,837,950 4,837,950 1,847,571 2,643,156 

- NESCO 17.00 15.00 14.00 13.00 11.00 15.00 

- WESCO 18.57 19.50 20.49 18.65 16.91 

A-9

Parameter 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

Madhya Pradesh (2002-03)* 








Aggregate Capacity of DTs (kVA) 11,630,648 11,820,877 12,410,070 14,149,999 14,149,999 14,149,999 14,149,999 14,595,914 15,411,238 28,047,304 


Rajasthan (2000-01)* 

14.1 14.56 18.13 20.37 24.14 22.88 









DTs Failure Rate (%) 13.43 13.49 15.01 17.55 

A-10

Parameter 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

Uttar Pradesh (1999-00)* 










All India 

20 20 20 


Length of 11 kV Lines (ckt km) 1,523,749 1,533,518 1,593,105 1,634,840 1,660,453 1,711,619 1,753,331 1,936,689 1,869,371 1,971,722 

Distribution Lines upto 500 Volts 3,081,842 3,108,830 3,405,788 3,538,189 3,525,121 3,574,500 3,679,596 3,985,909 3,859,504 3,953,456 




No. of Distribution Transformers 1,642,664 1,694,711 1,869,024 1,999,989 2,089,009 2,140,153 2,207,340 2,364,709 2,492,274 2,916,588 


* Year of Restructuring of SEB (Source: CEA) 

A-11

Percentage Transformation, Transmission and Distribution Losses 

(including Energy Unaccounted for) in States/Union Territories (UTs) 

Annexure-XIV 

STATES/UTs 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

1 Haryana 27.49 26.79 26.78 25.00 30.80 32.39 32.77 34.04 35.33 38.28 39.82 39.22 37.65 32.07 32.11 

2 Himachal 20.96 19.81 19.98 18.80 19.17 16.41 18.42 20.22 26.35 22.76 23.38 25.55 21.16 22.76 28.9 

3 J&K 42.96 50.08 48.13 46.37 50.07 49.03 49.97 51.34 47.97 45.04 45.39 48.85 45.55 45.54 41.08 

4 Punjab 19.26 21.75 19.61 19.70 17.19 18.32 18.95 18.79 17.98 18.32 26.58 27.70 24.42 25.96 25.42 

5 Rajasthan 25.76 23.07 22.71 24.85 24.65 29.29 25.88 26.42 29.41 30.33 29.76 43.06 42.61 43.74 44.68 

6 UP 27.13 26.13 24.68 24.37 21.87 22.75 25.06 26.47 30.28 40.37 36.94 37.62 34.16 35.17 34.39 

7 Uttaranchal 32.39 25.17 49.23 39.3 

8 Chandigarh 23.72 29.64 26.21 27.27 28.44 33.72 21.88 22.38 22.48 24.70 25.41 24.97 24.06 39.06 30.37 

9 Delhi 24.93 24.66 24.02 32.54 35.08 49.57 49.64 48.51 50.54 46.67 44.27 43.97 45.82 43.66 45.4 

10 BBMB 4.43 4.33 3.52 3.64 4.05 3.85 3.12 3.84 4.47 4.14 4.32 4.81 5.20 1.22 0.98 

11 Gujarat 23.44 23.56 22.20 20.81 20.87 21.03 21.42 24.41 25.34 25.34 28.14 26.87 28.52 24.20 30.43 

12 MP 17.98 25.82 22.52 21.78 20.75 19.27 20.59 20.94 21.05 33.67 46.07 44.55 43.31 41.44 41.3 

13 Chhattisgarh 33.75 37.86 42.55 28.06 

14 Maharashtra 18.26 18.61 18.51 17.83 17.47 18.21 17.72 18.04 17.82 29.20 33.81 37.28 34.01 34.12 32.4 

15 D&N Haveli 17.69 19.66 17.98 12.64 11.35 9.31 8.80 12.90 15.37 31.69 39.84 27.22 40.26 15.10 16.00 

16 Goa 24.97 23.78 21.85 24.50 26.87 26.06 23.50 31.02 30.40 27.56 28.70 25.18 40.26 45.05 35.97 

17 Daman&Diu 16.85 15.9 15.67 22.34 16.30 12.80 8.15 14.69 21.83 11.33 11.38 7.52 14.95 16.88 15.56 

18 AP 22.93 20.25 20.65 20.21 18.05 19.58 33.09 32.28 33.56 37.65 36.63 26.81 30.11 27.73 23.96 

19 Karnataka 20.17 19.93 19.62 19.49 19.35 19.15 18.86 19.06 30.57 37.31 34.93 33.83 24.57 23.29 26.08 

20 Kerala 22.36 22.47 22.77 20.52 20.81 21.48 21.37 19.12 17.69 17.76 18.44 32.21 27.45 21.63 22.48 

21 Tamilnadu 17.98 18.44 17.30 16.99 17.12 16.13 17.22 17.06 16.75 17.01 15.72 16.06 17.31 17.16 19.28 

22 Lakshadweep 18.62 17.43 18.72 16.99 17.84 17.23 15.11 15.70 12.78 10.13 6.71 10.94 11.29 11.85 10.20 

23 Pondicherry 19.2 18 15.31 15.80 15.00 16.54 17.38 13.56 10.44 12.25 7.93 12.00 21.10 11.60 18.15 

A-12

STATES/UTs 1990-91 1991-92 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

24 Bihar 16.47 18.31 17.15 15.12 15.28 12.62 18.16 11.01 16.53 15.46 17.86 51.70 37.98 36.66 38.88 

25 Jharkhand 26.39 21.19 25.35 19.62 

26 Orissa 25.77 25.3 25.87 23.07 23.66 25.63 50.38 49.79 43.20 44.26 44.91 47.34 45.36 57.09 44.02 

27 Sikkim 24.53 25.89 22.55 22.60 21.22 16.47 29.24 22.87 12.44 12.07 24.98 31.73 54.85 54.99 50.49 

28 West Bengal 17.69 19.72 17.53 15.96 19.45 19.98 20.62 20.35 22.89 26.33 29.44 31.67 25.93 31.01 28.54 

29 A & N 19.83 21.66 23.62 23.71 22.38 19.25 19.15 20.59 20.03 16.52 17.49 29.20 19.78 25.95 12.63 

30 DVC 2.61 2.3 1.99 1.33 0.64 2.15 1.98 1.21 2.56 2.48 4.75 3.63 3.34 2.69 2.69 

31 Assam 24.1 22.66 21.41 22.44 24.18 27.60 25.97 27.32 38.72 38.96 40.71 42.78 38.30 39.31 51.76 

32 Manipur 28.02 24.43 22.35 23.92 25.30 24.85 22.95 21.09 59.55 62.06 58.49 62.35 63.66 65.18 70.61 

33 Meghalaya 11.56 11.65 11.62 17.89 19.03 12.66 19.48 12.13 19.93 27.38 20.97 22.66 21.92 16.73 28.35 

34 Nagaland 26.08 23.14 27.26 33.45 36.12 35.17 26.81 29.79 26.52 32.32 24.60 52.32 56.71 55.00 48.26 

35 Tripura 29.59 31.96 30.64 30.53 31.96 30.86 30.11 31.11 26.82 29.63 43.89 40.38 40.64 46.44 59.54 

36 Arunachal Pr. 19.99 28.2 32.32 42.04 45.30 37.12 32.62 34.10 30.60 47.12 34.41 53.58 38.95 47.54 42.96 

37 Mizoram 29.63 34.95 29.04 31.89 29.76 25.18 34.35 46.84 44.79 47.63 45.42 49.77 46.91 55.54 66.14 

All India 22.89 22.83 21.80 21.41 21.13 22.27 24.53 24.79 26.45 30.93 32.86 33.98 32.54 32.53 31.25 


A-13

Commercial Profit/Loss (without Subsidy) of State Power Utilities 

Annexure - XV(A) 

States 1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 

(Rs crore) 

2001-02 2002-03 2003-04 2004-05 

Andhra Pradesh -4 -23 -981 -1255 -939 -1376 -2679 -3117 -2559 -2948 -1232 -1579 -1194 

Assam -205 -197 -255 -261 -244 -439 -322 -214 -379 -696 -776 -656 -1081 

Bihar -280 -190 -189 -211 -442 -495 -605 -511 -670 -896 -966 -987 -1122 

Chhattisgarh 204 643 561 370 

Delhi -207 - 0 -578 -626 -760 -1039 -1103 -1055 -1092 -803 -1781 -812 

Gujarat -519 -493 -550 -1003 -952 -1364 -2039 -3778 -3920 -3146 -2267 -3031 -2125 

Haryana -404 -507 -468 -554 -635 -765 -704 -1247 -1960 -948 -803 -785 -1449 

Himachal Pradesh 2 -51 19 11 -19 -33 -88 -206 -92 -107 -52 -46 -37 

Jammu & Kashmir -225 -293 -347 -363 -507 -661 -835 -793 -990 -703 -1089 -989 -1080 

Jharkhand -255 -462 -730 -1183 

Karnataka -19 -2 -164 -502 -652 -322 -847 -975 -1675 -1870 -1599 -1315 -1107 

Kerala -65 -75 -129 -183 -208 -199 -411 -646 -1129 -1254 -935 -916 -239 

Madhya Pradesh -493 -377 -594 -602 -464 -1058 -2655 -3151 -3264 -1703 -835 -667 -764 

Maharashtra 162 189 276 -408 -92 -11 160 -1479 -1404 -540 -255 -549 -804 

Meghalaya -8 -3 -21 -20 -15 -26 -50 -53 -44 -34 -52 64 -9 

Orissa -85 -196 -136 -231 -375 -392 -538 -187 -216 -261 -944 193 303 

Punjab -626 -693 -681 -644 -603 -943 -1354 -2113 -1477 -1868 -1386 -663 -1520 

Rajasthan -260 -415 -412 -430 -498 -640 -1331 -1899 615 -1324 -1739 -1777 -2037 

Tamil Nadu -258 -302 -2 -77 -257 -296 -741 -1442 -1447 -5174 -2100 -1360 -2030 

Uttar Pradesh -808 -1202 -1152 -1136 -3378 -3692 -3692 -2596 -2534 -2518 -2374 -2116 -3624 

Uttranchal -26 23 -40 -179 

West Bengal -258 -231 -339 -322 -398 -492 -1089 -842 -1059 -1706 -914 -296 -275 

All India -4560 -5060 -6125 -8770 -11305 -13963 -20860 -26353 -25259 -29331 -21193 -19722 -22129 

(Source : Planning Commission and PFC) 

A-14

Commercial Profit/Loss (with Subsidy) of State Power Utilities 

Annexure-XV(B) 

States 

(Rs crore) 

1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

Andhra Pradesh -4 -23 -37 4 -89 -1376 -130 -53 -932 284 855 1467 1231 

Assam -205 -197 -255 -261 -244 -439 -322 -214 -379 -549 -587 -631 -907 

Bihar -280 -190 -189 -211 -442 -495 -605 -511 -670 -1167 -1456 -1511 -1606 

Delhi -207 NA NA -578 -626 -760 -1039 -1103 -1055 -- -881 -1609 -584 

Gujarat 100 92 106 108 111 119 -366 -2501 -2604 188 101 -343 649 

Haryana -368 -447 -13 46 7 -32 -340 -835 -1548 -919 -5 187 -392 

Himachal Pradesh 2 -51 19 11 -19 -33 -88 -206 -92 -120 -98 83 -58 

Jammu & Kashmir -225 -293 -347 -363 -507 -661 -835 -793 -990 50 -1112 -996 -1032 

Karnataka 32 34 43 51 54 58 67 76 76 213 103 412 621 

Kerala -65 -75 -120 -130 -176 -199 -205 -181 -348 -682 138 -211 -117 

Madhya Pradesh -113 38 -80 -8 -163 -812 -2534 -2718 -2800 -2197 11 1015 -296 

Maharashtra 162 189 276 222 166 295 515 605 -1404 -451 -368 415 2209 

Meghalaya -2 4 -14 -12 -7 -17 -41 -43 -34 -24 -55 65 -23 

Orissa 26 30 25 27 -363 -386 -538 -187 -212 36 -475 422 464 

Punjab -626 -693 -681 -644 -603 -943 -1354 -1709 -1477 -1415 -40 1528 1315 

Rajasthan 22 10 77 81 63 65 -134 -133 615 -1581 -626 -412 -578 

Tamil Nadu 92 226 348 339 330 274 335 -1192 -1197 -4457 700 -494 -139 

West Bengal -258 -158 -242 -240 -343 -402 -1040 -793 -1009 -1181 -94 183 713 

Uttar Pradesh -808 -1202 85 381 -1821 -1853 -1853 -2596 -1734 -1395 -295 -1004 -3557 

All India -2725 -2706 -998 -1178 -4674 -7598 -10509 -15088 -17794 -16725 -4846 -2268 -3438 


A-15

Rs crore 

30000 

25000 

20000 

15000 

10000 

5000 

0 

Losses of State Power Utilities (without Subsidy) 

All State 

Utiltiies 

Group-1 

States 

Annexure-XV(C) 

1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

All State Utilities 4560 5060 6125 8770 11305 13963 20860 26353 25259 29252 20887 19465 21998 

Group-1 States excluding UP 1472 1519 2756 4152 4188 5311 9793 11680 10114 8689 7932 7751 7239 

Other States excluding UP 2280 2339 2217 3482 3738 4960 7375 12078 12611 15397 10581 9598 11135 


A-16

Rs crore 

45000 

40000 

35000 

30000 

25000 

20000 

15000 

10000 

5000 

0 

Losses of State Power Utilities (without Subsidy) 

Business as usual continues vs. Effect of Reforms and Restructuring 

Annexure-XV(D) 

All State Utilities 4560 5060 6125 8770 11305 13963 20860 26353 25259 29252 20887 19465 21998 21334 20808 

Group-1 States 

excluding UP 

All SEBs/ Utilities- 

Business as usual continues 

Group-1 excluding UP - 

Business as usual continues 

Business as 

usual 

all SEBs 

Business 

as usual 

Group-1 

Reduction in 

Losses for 

Group-1 

1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 

1472 1519 2756 4152 4188 5311 9793 11680 10114 8689 7932 7751 7239 6499 5867 

29252 31940 34993 38046 41098 44151 

11680 11566 13000 14435 15870 17305 18740 20174 


A-17

Rs crore 

5000 

0 

-5000 

-10000 

-15000 

-20000 

Cash Profit/Loss of State Power Utilities (with Subsidy) 

All State 

Utilities 

Group-1 

States 

Other 

States 

Annexure-XV(E) 

1992-93 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

All State Utilities -2725 -2706 -998 -1178 -4674 -7598 -10509 -15088 -17794 -16725 -4846 -2268 -3438 

Group-1 States (excluding UP) -613 -357 15 -377 -1118 -3243 -4649 -4953 -5856 -4164 -1018 1482 466 

Other States excluding UP -1305 -1147 -1098 -1181 -1735 -2502 -4006 -7539 -10203 -11166 -3533 -2746 -347 


A-18

Rs crore 

60 

50 

40 

30 

20 

10 

% of Losses of Group 1 States 

excluding UP compared to all 

the states (excluding UP) 

0 

Percentage of Losses of Group-1 States (excluding UP) 

compared to all the States (excluding UP) 

Effect of 

Restructuring 

Annexure-XV(F) 

1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

55 54 53 52 57 49 45 36 43 45 39 


A-19

Annexure-XV(G) 

Commercial losses of State Power Utilities as a Percentage of Revenue (sale of power) 

States 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

Andhra Pradesh -54.85 -28.57 -34.48 -64.27 -68.95 -42.57 -49.86 -16.66 -20.56 -13.93 

Assam -71.23 -60.57 -108.39 -70.77 -38.45 -56.30 -110.30 -115.99 -81.59 -124.68 

Bihar -18.07 -34.78 -33.63 -42.68 -28.44 -33.70 -99.12 -106.39 -104.22 -113.91 

Chhatishgarh 11.28 27.96 22.56 15.19 

Delhi -37.05 -35.16 -34.21 -48.12 -46.25 -38.82 -33.61 -47.91 -17.46 

Gujarat -30.69 -22.79 -27.67 -37.20 -67.93 -58.00 -44.54 -29.77 -36.89 -24.26 

Haryana -47.70 -45.15 -46.04 -37.99 -65.33 -87.11 -34.96 -27.59 -24.23 -42.90 

Himachal Pradesh 3.64 -5.41 -7.62 -18.20 -36.49 -13.95 -16.72 -6.87 -4.67 -3.04 

Jammu & Kashmir -655.83 -819.47 -700.08 -834.18 -381.34 -440.20 -244.17 -180.15 -199.26 

Jharkand -27.60 -44.55 -68.93 -106.67 

Karnataka -27.54 -30.52 -12.14 -30.32 -29.58 -44.64 -42.01 -35.62 -22.26 -16.95 

Kerala -26.61 -30.98 -20.84 -34.39 -39.77 -55.79 -64.44 -37.69 -33.24 -8.19 

Madhya Pradesh -18.17 -11.11 -25.22 -56.25 -56.39 -52.45 -47.07 -19.44 -13.74 -14.89 

Maharashtra -5.80 -1.08 -0.12 1.61 -14.10 -12.45 -4.49 -2.05 -4.15 -5.72 

Meghalaya -36.50 -26.56 -36.73 -75.10 -65.76 -45.56 -35.79 -42.28 40.76 -4.04 

Orissa -25.40 -32.71 -28.85 -36.93 -11.54 -12.14 -15.66 -50.16 9.74 14.13 

Punjab -31.30 -24.78 -33.91 -40.96 -59.49 -37.21 -41.85 -26.76 -11.20 -25.97 

Rajasthan -21.71 -20.97 -21.57 -40.12 -50.16 15.44 -34.39 -43.29 -42.92 -44.89 

Tamil Nadu -1.88 -5.79 -5.65 -13.26 -23.24 -19.40 -65.40 -22.93 -12.54 -18.23 

UP(Power corp.) -30.87 -87.38 -79.32 -79.32 -46.83 -38.72 -40.06 -39.63 -53.75 -55.82 

Uttranchal -10.12 3.44 -4.23 -23.96 

West Bengal -24.17 -27.89 -27.22 -59.69 -40.27 -47.36 -72.97 -34.93 -7.75 -6.80 

All State Utilities -23.63 -25.71 -27.35 -37.90 -42.93 -35.77 -41.69 -26.20 -22.04 -22.60 


A-20

Percentage 

Commercial Losses of State Power Utilities as a Percentage of Revenue (Sale of Power) 

60.00 

50.00 

40.00 

30.00 

20.00 

10.00 

0.00 

All State 

Utilities 

Group-1 

States 

Annexure-XV(H) 

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

All State Utilities 23.63 25.71 27.35 37.90 42.93 35.77 41.69 26.20 22.04 22.60 

Group-1 States 31.85 25.69 27.90 47.84 50.55 37.87 45.68 29.06 24.46 20.20 

Other States 19.18 25.73 27.03 32.02 38.33 34.49 39.85 24.74 20.72 23.93 

Other 

States 

(Source: Planning Commission and PFC) 

A-21

% to 

Amount 

Revenue Amount 

% to 


% to 


% to 


% to 


Subsidy Booked & Subsidy Received and Percentage of Subsidy Booked & Received to Total Revenue 

(For Utilities selling directly to consumers) (Rs crore) 

2000-01 

2001-02 

2002-03 

Sl. 

No. 

State 

Subsidy Booked Subsidy Received Subsidy Booked Subsidy Received Subsidy Booked Subsidy Received 

% to 

Revenue 

1 Andhra Pradesh 2936 61.4 2788 58.30 2437 41.2 2437 41.2 1509 20.41 1509 20.41 

2 Haryana 820 36.44 820 36.44 763 28.13 763 28.13 829 28.49 829 28.49 

3 Karnataka 1821 50.27 708 19.54 2211 49.67 1872 42.05 1333 29.69 1240 27.62 

4 Madhya Pradesh - - - - 543 15.01 543 15.01 668 15.55 851 19.81 

5 Orissa 0 0 0 0 0 0 0 0 0 0 0 0 

6 Rajasthan - - - - 1324 34.39 286 7.43 1047 26.06 278 6.92 

7 Uttar Pradesh 240 3.85 240 3.85 862 13.72 862 13.72 849 14.17 849 14.17 

8 Assam 52 8.45 0 0 52 8.29 0 0 80 11.97 80 11.97 

9 Gujarat 2021 33.22 2021 33.22 2579 36.51 2579 36.51 1,805 23.70 1,527 20.05 

10 Maharashtra -373 -3.2 -373 -3.20 0 0 0 0 0 0 0 0 

11 Tamil Nadu 1693 22.8 250 3.37 323 4.01 323 4.01 2,212 24.15 2,212 24.15 

12 West Bengal 215 10.22 50 2.38 239 10.23 100 4.28 0 0 0 0 

All India 12183 17.25 14541 20.67 9563 13.59 12,907 15.96 11,577 14.32 

% to 

Amount 


% to 


% to 


2003-04 

2004-05 

Sl. 

No. 

State 

Subsidy Booked Subsidy Received Subsidy Booked Subsidy Received 

% to 

Revenue 

1 Andhra Pradesh 1515 19.73 1515 19.73 1303 15.20 1303 15.20 

2 Haryana 1026 31.67 924 28.52 1102 32.62 1102 32.62 

3 Karnataka 1529 25.88 1172 19.84 1569 24.02 1400 21.43 

4 Madhya Pradesh 818 16.85 1,049 21.61 817 15.93 817 15.93 

5 ORISSA 0 0 0 0 0 0 14 0.65 

6 Rajasthan 1060 25.60 534 12.90 1298 28.60 690 15.20 

7 Uttar Pradesh 0 0 0 0 693 10.67 693 10.67 

8 Assam 0 0 0 0 70 8.04 70 8.04 

9 Gujarat 1,101 13.40 2,017 24.55 1,101 12.56 2,026 23.11 

10 Maharashtra 0 0 0 0 1 0.01 1 0.01 

11 Tamil Nadu 250 2.30 250 2.30 925 8.30 925 8.30 

12 West Bengal 0 0 0 0 0 0 0 0 

All India 9,905 11.07 10,101 11.29 10956 11.19 11,693 11.94 

(Source : PFC) 

Annexure-XV(I) 

A-22

Percentage 

25 

20 

15 

10 

5 

0 

-5 

Percentage of Energy Shortage (Group-1 States) 

Annexure-XVI(A) 

1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 

Andhra Pradesh 9 7 8 9 7 3 1 1 

Delhi 2 3 5 3 2 1 1 2 

Haryana 2 2 3 2 3 5 6 9 

Karnataka 13 8 9 13 10 14 4 1 

Madhya Pradesh 6 7 12 15 16 13 14 14 

Orissa -3 -3 -3 0 2 2 1 1 

Rajasthan 3 5 4 1 2 1 1 4 

Uttar Pradesh 15 10 17 13 20 

India 6 5 8 8 9 7 7 8 

India 

(Source : MoP) 

A-25

Percentage 

35 

30 

25 

20 

15 

10 

5 

0 

-5 

India 

Percentage of Peak Shortage (Group-1 States) 

Annexure-XVI(B) 

1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 

Andhra Pradesh 9 12 15 20 19 11 2 2 

Delhi 8 12 13 8 9 3 2 3 

Haryana 8 0 3 3 3 5 10 9 

Karnataka 16 16 13 17 22 12 5 10 

Madhya Pradesh 25 30 25 13 14 22 19 22 

Orissa 2 5 -2 7 6 7 0 2 

Rajasthan 4 0 3 1 2 0 8 14 

Uttar Pradesh 15 9 14 17 20 

India 13 14 12 13 13 12 12 12 

(Source : MoP) 

A-26

Per Capita Consumption of Electricity (kWh per year) 

Anneure-XVII 

States 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

Andhra Pradesh 

(1999-2000)* 

345.70 391.00 405.33 433.96 433.14 699.74 672.64 718.84 764.75 

Karnataka 

(1999-2000)* 

340.14 387.09 350.64 367.02 411.74 638.03 611.16 642.26 660.04 

Haryana 

(1999-2000)* 

503.78 488.02 502.41 530.20 544.31 924.37 997.08 923.83 950.69 

Orissa 

(1996-97)* 

308.90 308.18 321.16 334.28 342.89 550.02 470.18 695.42 735.49 

Madhya Pradesh 

(2002-03)* 

366.95 377.51 398.17 353.13 294.82 495.48 520.35 474.78 515.50 

Rajasthan 

(2000-01)* 

301.23 314.34 330.28 339.51 349.54 517.41 566.14 539.62 583.32 

Uttar Pradesh 

(1999-2000)* 

196.56 199.53 198.79 179.06 191.08 311.28 316.13 299.63 308.83 

ALL INDIA 334.26 348.50 360.01 364.45 366.12 559.18 566.69 592.00 612.50 


* Year of Restructuring of SEB 

Note : From 2001-02 onwards the figures refer to annual per capita consumption of electricity 

as per new definition adopted. 

A-27

Percentage 

70.00 

60.00 

50.00 

40.00 

30.00 

20.00 

10.00 

0.00 

-10.00 

Presentage of Subsidy Booked to Total Revenue 

States 

Annexure-XV(J) 

AP Haryana Karnataka MP Orissa Rajasthan UP Assam Gujarat Maharashtra Tamilnadu West Bengal All India 

2000-01 61.40 36.44 50.27 0.00 3.85 8.45 33.22 -3.20 22.80 10.22 17.25 

2001-02 41.20 28.13 49.67 15.01 0.00 34.39 13.72 8.29 36.51 0.00 4.01 10.23 20.67 

2002-03 20.41 28.49 29.69 15.55 0.00 26.06 14.17 11.97 23.70 0.00 24.15 0.00 15.96 

2003-04 19.73 31.67 25.88 16.85 0.00 25.60 0.00 0.00 13.40 0.00 2.30 0.00 11.07 

2004-05 15.20 32.62 24.02 15.93 0.00 28.60 10.67 8.04 12.56 0.01 8.30 0.00 11.19 

(Source : PFC) 

A-23

Percentage 

70.00 

60.00 

50.00 

40.00 

30.00 

20.00 

10.00 

0.00 

-10.00 

Presentage of Subsidy Received 

to Total Revenue 

States 

Annexure-XV(K) 

AP Haryana Karnataka MP Orissa Rajasthan UP Assam Gujarat Maharashtra Tamilnadu West Bengal All India 

2000-01 58.30 36.44 19.54 0.00 3.85 0.00 33.22 -3.20 3.37 2.38 

2001-02 41.20 28.13 42.05 15.01 0.00 7.43 13.72 0.00 36.51 0.00 4.01 4.28 13.59 

2002-03 20.41 28.49 27.62 19.81 0.00 6.92 14.17 11.97 20.05 0.00 24.15 0.00 14.32 

2003-04 19.73 28.52 19.84 21.61 0.00 12.90 0.00 0.00 24.55 0.00 2.30 0.00 11.29 

2004-05 15.20 32.62 21.43 15.93 0.65 15.20 10.67 8.04 23.11 0.01 8.30 0.00 11.94 

A-24

Introduction to Volume-II 

Study on ‘Impact of Restructuring of SEBs’ 

Synopsis of Volume-I of the Report has been presented in this 

Volume. It primarily contains the operative portion of the 

National Report, i.e., Recommendations and Way Forward. 

This Volume has been specifically prepared to serve as a ready 

reference and to ensure wider dissemination. For any 

clarifications, please refer to Volume-I.

CONTENTS 

Executive Summary............................................................................................ 1 

A. Background ......................................................................................................... 1 

B. Overview of the Sector ....................................................................................... 3 

C. Restructuring Models and Progress.................................................................. 3 

D. Outcome of Restructuring of the Power Sector ............................................... 5 

E. Regulatory Commissions.................................................................................... 6 

F. Rural Electrification........................................................................................... 6 

G. Other Findings .................................................................................................... 7 

H. Findings and Recommendations ....................................................................... 7 

Chapter-1 

Recommendations............................................................................................... 9 

6.1 Political Commitment and Support .................................................................. 9 

6.2 Detailed Policy Statements............................................................................... 10 

6.3 Communication Strategy ................................................................................. 10 

6.4 Consultancy Support........................................................................................ 11 

6.5 Human Resources Development Issues .......................................................... 12 

6.6 Financial Restructuring Plans......................................................................... 13 

6.7 Managing the Reforms Process ....................................................................... 13 

6.8 Role of the Electricity Regulatory Commissions ........................................... 13 

6.9 Establishing a Power Sector Reform Fund .................................................... 15 

6.10 Access to Central Institutional Funds by Privatised Utilities....................... 15 

6.11 Reconstitution of the Board of Directors........................................................ 16 

6.12 Memoranda of Agreements ............................................................................. 16 

6.13 Better Management Practices.......................................................................... 16 

6.14 Capacity Building and Developing Management Cadres ............................. 17 

6.15 Centre for Manpower Planning and Development........................................ 17 

6.16 Accountability and Corporate Governance ................................................... 18 

6.17 Participation of Civil Society Organisations .................................................. 18 

6.18 Citizens’ Charter .............................................................................................. 19 

6.19 Universal Metering of Service Connections ................................................... 19 

6.20 State Government Initiatives and Support to Prevent Theft ....................... 19 

6.21 Energy Accounting and Auditing.................................................................... 20 

6.22 Reducing Cross-Subsidies................................................................................ 21 

6.23 Fostering Competition Through Open Access............................................... 22 

6.24 Data Management Systems.............................................................................. 23 

6.25 Adoption of Information Technology in Power Sector ................................. 23 

6.26 Outsourcing of Works/Services....................................................................... 23 

6.27 Encouragement to Non-Conventional Energy Sources................................. 24 

6.28 Rural Electrification......................................................................................... 24 

6.29 State-Level Planning and Coordination ......................................................... 25 

Chapter - 2 

Way Forward .................................................................................................... 26 

7.1 Steps to be Taken by the Ministry of Power .................................................. 26 

7.2 Steps to be Taken by the State Governments................................................. 29 

7.3 Steps Suggested for Implementation by the Utilities..................................... 31

A. BACKGROUND 

EXECUTIVE SUMMARY 

A1 The pre-eminent role of ‘electricity’ in the growth of a nation’s economy is 

well-established. To sustain the envisaged GDP growth rate of more than eight 

per cent, electricity generation has also to grow at about the same rate. The 

Tenth Five Year Plan aims at a generating capacity addition of 41,110 MW. 

However, the achievement is likely to be about 75 per cent of the target. The 

total installed generating capacity in the country at the end of 2005-06 was 

1,24,287 MW. Though India ranks fifth in the world in terms of electricity 

generated, the annual per capita consumption is a miniscule, 631.5 kWh (2005- 

06 provisional figure), one of the lowest in the world. The world average of 

annual per capita consumption in 2003 was 2,429 kWh. 

A2 The current Five Year Plan emphasises the need for power sector reforms 

through ‘restructuring’ of the State Electricity Boards (SEBs), by establishing 

regulatory mechanisms, and by effecting overall improvement of the physical 

and financial attributes of the SEBs. The enactment of the Electricity Act, 2003 

(EA, 2003) was a milestone in the development of the power sector, and aims 

at, inter-alia, supply of electricity to all citizens at reasonable tariff, provision 

of transparent subsidies, establishment of Electricity Regulatory Commissions 

and Appellate Tribunal, and promotion of policies conducive to the growth of 

the electricity sector. The EA, 2003 has, in particular, made ‘restructuring’ of 

SEBs, on functional basis, mandatory. 

A3 SEBs have been in existence for over 40 to 50 years, and have had several 

achievements to their credit. However, on the whole, SEBs had become 

unviable and unprofitable, with heavy accumulated losses and liabilities. They 

were blamed for poor service delivery, mainly due to inefficient planning and 

sluggish execution of capital works, inadequate maintenance, low generation 

[low Plant Load Factor (PLF)], high Transmission and Distribution (T&D) 

Losses, erratic supply to consumers, and perennial financial losses. Such inept 

and consistently sub-optimal performance on all fronts by the SEBs in general 

convinced the planners and policy-makers about the need to reorganise the 

SEBs into smaller, viable, uni-functional Utilities, with clearly defined 

jurisdictions and tasks, as part of the power sector reforms. This hypothesis 

followed the realisation that the earlier attempts at reforming the generation 

segment of the electricity value chain had not achieved the desired results; and 

reforming the distribution segment was considered essential for improving the

National Report (Vol.-II) 


technical and financial performance, increased consumer care, corporatisation 

of distribution segment and attracting significant private participation in the 

power sector. 

A4 Starting with Orissa, which restructured its SEB in the mid-1990s, 12 more 

States (including NCT of Delhi) have ‘reorganised’ their SEBs till now. Some 

of them had restructured their SEBs prior to the enactment of the EA, 2003 

whereas some others have done so after the enactment of the Act. The 

remaining SEBs are legally obliged to do so in the near future. It is in this 

context that the Ministry of Power (MoP) entrusted the Indian Institute of 

Public Administration (IIPA) with the task of evaluation of the impact of the 

restructuring of SEBs with reference to the time-frame, pattern, process and the 

methodology adopted, as well as the overall performance of the restructured 

Utilities. This Report, presented in four volumes, contains the findings and 

recommendations of IIPA, which had enlisted the services of a Group of 

Experts to carry out the study. 

A5 The Group of Experts had the benefit of discussions on several issues relating 

to the power sector in the following important meetings: 

Sl. 

No. 

Date Participants Issues Discussed 

1. 21.07.2006 

2. 24.08.2006 

3. 13.09.2006 

4. 14.09.2006 

Shri. E. Balanandan, Chairman, 

‘National Coordination 

Committee of Energy 

Employees and Engineers and 

other representatives of the 

Committee. 

Shri R.V. Shahi, Secretary 

(Power), Govt. of India, Senior 

officers of MoP and officials of 

MNES, REC and CEA. 

Principal Secretaries (Power) 

of States, Chairpersons and 

MDs of State power Utilities. 

Shri A.K. Basu, Chairperson, 

CERC and Chairpersons of six 

SERCs. 

2 

Issues and concerns relating to 

employees of the electricity sector. 

Points raised by them and 

responses of ‘Group of Experts’ 

are at Annexure-III (Volume-I). 

It was decided that meetings be 

held with Principal Secretaries 

(Power) of States, Chairpersons/ 

CMDs of State Power Utilities and 

with Electricity Regulators to fine 

tune the Recommendations. 

360 0 feedback was obtained on the 

preliminary Report. 

Issues pertaining to the institution 

of Electricity Regulators. For 

details, please refer to Para 6.8, 

Chapter-6 (Volume-I).



A6 The valuable inputs and suggestions offered by the above-mentioned persons 

are gratefully acknowledged. 

B. Overview of the Sector 

B1 Capacity additions as a percentage of targets during the Eighth, Ninth and 

Tenth Five Year Plans are 54, 47 and 75(anticipated) per cent respectively. 

However, the shortfall in the Tenth Plan has been partly offset by improved 

plant performance and reduction of T&D losses. Growth in electricity 

generation during the Ninth Plan period was three per cent per annum. During 

the last three years, growth in electricity generation has been consistently above 

five per cent. During the period April to October 2006, the growth rate 

recorded was 7.1 per cent. 

B2 Energy and peak shortages in 2005-06 were still as high as 8 and 12 per cent 

respectively. In order to reduce these shortages, and to meet the increasing 

demand in the coming years, during the Eleventh Plan, another 62,475 MW of 

generating capacity will have to be added. As per the estimation of the CEA, 

this will have to include 13,500 MW from the private sector. Capacity addition 

of such a magnitude will call for an additional investment of approximately Rs 

5,00,000 crore, to be sourced from both the public and private sectors. The 

World Bank estimates also are more or less similar. 

B3 The above projection of massive investment requirements in the sector 

underscores the need for intensive sector reforms, since on the one hand, the 

Utilities in the public sector will have to work more efficiently and improve 

their performance to create more investment resources, while on the other, the 

sector will have to attract adequate private investments to supplement the 

efforts of the public sector. Inevitably, this will call for a change management 

involving reorganisation and restructuring of SEBs and fostering competition, 

to improve productivity, efficiency and transparency in the sector. 

C. Restructuring Models and Progress 

C1 The restructuring of SEBs (which have been performing one of the most 

essential and basic public service, but had become monopolist, monolithic, 

unviable and large organisations) would tend to be a huge exercise, calling for 

careful and meticulous planning and execution. The review of the seven States 

where the restructuring was completed has led to a finding that “the process is 

highly sensitive to several factors; and calls for unstinted political 

3



commitment and support, public sensitisation on the issues involved, highly 

placed champions for the reform, excellent consultancy support, cooperation 

of the employees and an efficient FRP which would free the newly-formed 

Utilities from the burden of past liabilities”. 

C2 An important finding is that the untimely withdrawal of political support before 

the restructured Utilities stabilise in their working would jeopardise the reform 

process. Similarly, consultants should not only assist to frame the models and 

chalk out the process of restructuring, but must also provide handholding 

support to the new Companies during the initial years. Further, it would be of 

prime importance to enlist the support and cooperation of the employees at 

various levels, and instill identity and loyalty with the new restructured entities 

through change management efforts to bring forth an attitudinal change 

amongst them. It should also be ensured that the service interests and career 

advancement of the employees under the new set-up are fully protected so that 

their loyalty and commitment to the new companies remain intact. 

C3 The States, which restructured their SEBs, have in general adopted a more or 

less similar model for the process, with a few modifications to suit their 

individual requirements. Orissa completed the entire restructuring exercise in 

one go, and subsequently allowed private sector participation in the distribution 

segment. In other cases, initially, one or two Generating Companies (GENCOs) 

and a combined Transmission and Distribution Company were formed as 

successors to the SEB; and the former was, in the second stage, restructured 

into one Transmission and two or more Distribution Companies. In yet a third 

model, the SEB itself was not dissolved, but was retained as a Holding 

Company to look after the residual and coordination functions, while forming 

one Transmission and different Distribution Companies. The analysis leads to 

the conclusion that the second model, adopted by States like Andhra Pradesh, 

Haryana, Karnataka and Uttar Pradesh is more appropriate and practical, and is, 

therefore, recommended for adoption by the remaining States, which are 

mandated under the law to restructure their SEBs. 

C4 A related issue is the ideal mix of zones for determining the jurisdiction of the 

new DISCOMs. In the cases reviewed, States have adopted an urban-rural mix 

as the basis, which appears logical. However, States will have to review this 

model at later stages so as to introduce more competition. Similarly, there is 

also a need to make the Transmission Company in each State responsible for 

4



statewide planning and coordination, for which these Utilities would need to be 

strengthened by inducting experts in energy planning. 

D. Outcome of Restructuring of the Power Sector 

D1 The extensive Statewide surveys and analyses carried out for this study 

discloses that on the whole, in majority of the States, there are considerable 

improvements in the performance of the Utilities after the restructuring. The 

broad conclusion is that, despite some shortcomings, the overall impact of 

restructuring has been positive and in the right direction. Overall 

improvements were noticed in Andhra Pradesh, Haryana, Karnataka and Orissa 

in the following areas: 

i) Trend towards reducing AT&C losses; 

ii) Increased and more focussed investments; 

iii) Capacity additions and strengthening of the power systems; 

iv) Localisation and reduction of inefficiencies; 

v) Improved customer care; 

vi) Progress in metering, billing and collection, etc.; 

vii) Increased accountability of the Utilities; 

viii) Establishment of Regulatory Mechanism; 

ix) Empowerment of consumers; and 

x) Reporting and reviewing of performance of the Utilities on a regular 

basis. 

D2 However, inadequate measures to control electricity thefts, pilferages, 

unregulated/unmetered supplies to the agricultural sector, and unreliability of 

service emerge as areas of concern and reflect on management inadequacies 

and future challenges for the power sector. 

D3 The position in Rajasthan and Uttar Pradesh, however, leaves much to be 

desired, while the progress in Madhya Pradesh is partial. One factor that was 

noticed in most States mentioned above was the need to make the restructured 

companies more autonomous and independent, and to inculcate 

professionalism amongst the staff. A number of recommendations to effect 

these changes are included in this report at appropriate places. 

5



D4 The States of Assam, Gujarat and Maharashtra have restructured their SEBs 

after the enactment of the EA, 2003 and require special mention. The process 

followed in Assam and Gujarat appears to be quite comprehensive and could be 

termed as good. However, the model followed by Maharashtra, with only one 

Distribution Company in position, does not offer the best option from the angle 

of efficiency and interest of customers. Besides, the political support and 

commitment displayed in the initial stages of the restructuring was not 

sustained. There is a need to review and reinforce the process in Maharashtra. 

E. Regulatory Commissions 

E1 The State Electricity Regulatory Commissions (SERCs) have played a positive 

role in the power sector reform process. Their functions, especially those 

related to tariff matters, have brought about a refreshing change in the 

working of the sector. 

E2 However, there is a need to assign a more effective role in the changing 

environment after the enactment of the EA, 2003 to introduce greater 

transparency and public participation in the proceedings before the 

Commissions so as to make their functioning free of political influence. 

E3 SERCs have to become more proactive, and ensure uniformity in their 

approach to issues that would promote competition through non-discriminatory 

Open Access and determine efficiency-based surcharge, review of plans for 

new capacity additions and in implementation and enforcement of the codes 

and standards of performance, etc., to enhance efficiency of the Utilities as part 

of their accountability against the stated objectives. 

E4 It would also be desirable for the SERCs to work with stakeholders in evolving 

new rules and regulations. This Report includes recommendations regarding 

capacity building and strengthening of the SERCs and making them more 

independent and autonomous. 

F. Rural Electrification 

F1 Although fund flow to restructured companies from REC sources has 

improved, since the restructured Utilities are now commercial concerns, they 

are not likely to display adequate attention to rural electrification and supply of 

sufficient power to rural areas, unless effectively monitored for their 

performance in this area. Hence, it is necessary to keep a close watch on this 

programme so as to avoid possible shortfalls in the achievement of national 

6



targets. Rural Electrification Programme should not be seen as adding yet 

another burden of losses on the Utilities through conventional technical system 

extension. 

G. Other Findings 

G1 One of the major gains of the process of restructuring is the improved 

commercial performance of the Utilities. The losses which were on the increase 

until 2001-02, started diminishing after that, and came down from Rs 29,252 

crore in 2001-02 to Rs 21,998 crore in 2004-05. (The losses may have been of 

the order of Rs 38,000 crore if allowed to continue in a ‘business as usual’ 

mode.) Similarly, the States (excluding Uttar Pradesh) that have restructured 

their SEBs have registered profits (with subsidy), after 2003-04. Further, 

excluding Rajasthan and Uttar Pradesh, these States together have substantially 

reduced their ratio of commercial losses (without subsidy), to revenue. The 

percentage of subsidy as a ratio of respective revenues has also come down in 

some restructured States, which is a positive indication. 

G2 In the performance ratings secured by the Utilities for 2005, several 

restructured States occupy fairly high rankings. It is pertinent that three such 

States have been assigned top positions. However, the lower than expected 

performance of some others highlights the need for improving the working of 

the restructured Utilities by securing strong political commitment, improved 

management practices and better financial and management controls, etc. 

H. Findings and Recommendations 

H1 Based on the extensive Statewide reviews and analyses, a large number of 

important recommendations have been included in this Report for necessary 

follow up by the Ministry of Power, Government of India, and the concerned 

State Governments. These have been categorised separately for the use of the 

intended stakeholders as ‘Way Forward’ in a subsequent chapter. The major 

recommendations are as follows: 

i) Need for sustained political commitment and support for the reform; 

ii) Need to issue Detailed Policy Statements (DPS) to spell out the future 

policy and programmes; 

iii) Need for an effective and forceful communication strategy; 

iv) Need to make available excellent, competent consultancy support to the 

State Governments; 

7



v) Need to develop a forward-looking and transparent HRD policy after 

taking the staff representatives into confidence; 

vi) Suggestions for managing the reform process; 

vii) Suggestions to make the regulatory mechanism more effective; 

viii) Need for the Central Government to support Power Sector Reform Funds; 

ix) Strengthening the boards of directors and management cadres of the 

restructured Utilities; 

x) Increasing the accountability and autonomy of the Utilities by 

private/employees’ participation in the equity base, appointment of 

independent directors, etc.; 

xi) Reducing cross-subsidies through political commitment; and 

xii) Introducing various measures, which would improve efficiency and 

productivity of Utilities. 

I. This Report is divided into four volumes. The details are as follows: 

Volume No. Details 

Volume-I 

Volume-II 

Volume-III 

Volume-IV 

7 Chapters focussing on common issues on the ‘Impact of 

Restructuring of SEBs’, which will be relevant and of interest 

to the Ministry of Power, State Governments and the 

restructured Utilities in general. 

Executive Summary, Findings and Recommendations and the 

Way Forward of Volume-I. 

Detailed State-wise chapters covering each of the 12 States 

studied. 

Summarised versions of individual State Reports on the 

impact of restructuring of SEBs, relating to 12 States covered 

in the study. 

8

CHAPTER - 1 

RECOMMENDATIONS 

Recommendations have been extracted from Chapter-6, Volume I of the National 

Report. 

For easy and ready reference, Para Nos of Volume-I have been retained. (For 

clarifications/further details, please refer to Chapter-6, Volume-I of the National 

Report.) 

6.1 Political Commitment and Support 

6.1.5 Reform efforts in the politically sensitive power sector would succeed only 

with the strong backing and support of the political hierarchy. It is also 

necessary to get the ‘buy-in’ of all political parties and other vocal groups for 

the reform efforts through an appropriate communication strategy. Since it is 

convenient to let the reform take a back seat in the face of populist programmes 

and policies, it would appear that the necessary magnitude of political 

commitment and support for power sector reforms could be won only at the 

national level. All these efforts should be consolidated through a national level 

political commitment. Ministry of Power should take the initiative in securing 

such a commitment and for this purpose the following twin-track approach may 

be adopted. 

(a) Convene a conference of Chief Ministers and State Power Ministers early 

to review the impact of the reform and to take forward the reform process 

in the light of this Report, among other things. 

(b) A special meeting of States which have not yet restructured their SEBs to 

persuade them to restructure their SEBs in compliance with the provisions 

of the EA, 2003. 

6.1.6 Further, in the MOAs to be signed with the State Governments, the following 

may be incorporated: 

(a) As soon as the restructuring is completed, the State Governments should 

appoint suitable and technically competent officers to hold the post of the 

CMD in each of the new companies and give them a fixed tenure of at 

least three years in the first instance. 

(b) The States should grant full autonomy for the functioning of the new 

companies and should enforce the principle of corporate accountability.



(c) A Financial Restructuring Plan (FRP) to be formulated for the controlled 

transition period, not exceeding five to six years, to enable the new 

companies achieve financial turnaround. 

6.1.7 It is also recommended that Ministry of Power may consider not granting any 

further extensions of time to States for completing the restructuring process 

(since continuing such extensions would go against the spirit of the EA, 2003). 

6.1.8 Accelerated Power Development and Reforms Programme: Further, funds 

under APDRP may be made available subject to the conditionality of 

restructuring the SEBs and allowing the DISCOMs to function as fully 

autonomous corporate bodies. 

6.2 Detailed Policy Statements 

6.2.1 As part of the political commitment and support, State Governments, which are 

yet to undertake the restructuring of SEBs should bring out a Detailed Policy 

Statement (DPS) which should clearly spell out the objectives and the level and 

the nature of financial and administrative support during the reform process to 

the Utilities after the restructuring. The policy should, inter-alia, provide for 

the financial turnaround of the Utilities within a defined period. 

6.2.3 It is recommended that the State Governments should be encouraged to bring 

out DPS detailing the objectives, goals, methodology and process, covering all 

important issues related to taking forward the reform, especially the policies 

and programmes for human resources development and communication 

strategy, based on the political commitment arrived at to implement the reform 

measures. The DPS should also include all important events and milestones to 

be achieved, together with definite time frames. 

6.3 Communication Strategy 

6.3.8 The contact programme with consumers and community-based organisations 

including residents welfare associations, women’s groups, and students should 

be worked out. Agricultural extension workers could carry messages about 

energy conservation to farmers in furthering the cause of power sector reforms. 

6.3.10 An internal communication strategy involving face-to-face meetings of the 

employees with the CEOs, publication of newsletters, designing of a corporate 

identity programme, employees’ suggestions schemes, etc., must be drawn up 

as part of the strategy. 

10



6.3.11 In general, the communication strategy should have the following components, 

among others: 

(a) The need, advantages and essentiality of the power sector reforms and its 

rationale; 

(b) Likely benefits such as quality power supply, consumer care and 

grievance redressal that would be available to the consumers at large; 

(c) Positive impact on public finance due to reduction of subsidy burden on 

the Government, and the resultant availability of additional resources for 

social development programmes; 

(d) Impact on industrial and economic development of the State; 

(e) Measures proposed to safeguard the service interests of employees, 

including past and future terminal benefits; and 

(f) Involvement of the civil society to launch a campaign against theft and 

misuse of electricity. Mobilising eminent citizens to endorse through 

media the need to put a restraint on prevalent wrong practices in the 

power sector and promote voluntarism in helping the law enforcement 

agencies. 

6.3.12 In order to take forward the reform to success, it is imperative to put in place a 

competent, practical and target-oriented communication strategy, to be 

developed with the help of media experts. Encouraging consumer advocacy 

groups and sharing of information would create better participative space and 

lead to better understanding of the reform, including the regulatory process, by 

the civil society at large. 

6.3.13 Role of the Media 

Ministry of Power would do well to coordinate the campaign to be carried out 

jointly with the State Governments and distribution companies and target all 

stakeholders, both in the urban and in the rural areas. 

6.4 Consultancy Support 

6.4.5 Good consultancy support in the initial and transition phases of the 

restructuring process is an essential requirement for its success. The States now 

engaged in the restructuring exercise should take recourse to such consultancy 

support. 

11



6.4.6 The major findings and recommendations of consultants of Group-1 States, 

would be useful as guidance material for the senior officials of the State 

Governments and Utilities of both Group-2 and Group-3 States. Accordingly, 

these may be made available through a designated agency for use of such 

officials, subject to the confidentiality clauses and agreements stipulated by the 

authors of such Reports. 

6.4.7 Since States may find it difficult to mobilise the required finance for availing 

such assistance, it is only appropriate that the MoP must help to find resources 

for the same. 

6.5 Human Resources Development Issues 

6.5.5 The restructuring process and methodology should devote adequate attention to 

the various sensitive issues likely to arise in the course of reorganisation of the 

cadres and should provide for elaborate manpower planning. There is a need to 

take the staff representatives into confidence and educate them on the 

imperatives and merits of restructuring the Electricity Board and the 

opportunities, which would be thrown open for their career advancement. Apart 

from entering into well-structured Tripartite Agreements with the staff 

representatives, the restructuring scheme should also provide adequate 

incentives to encourage the staff to get integrated with the restructured 

companies. Competent consultancy support from HRD specialists should be 

provided to the managements of the restructured companies to put in place 

appropriate personnel policies, which would enhance productivity. 

6.5.6 In developing the HRD Policy, representatives of staff associations/unions 

should be taken into confidence. The objective of the policy should be to 

enhance the morale and motivation of the employees at all levels by inculcating 

professionalism and by securing the loyalty of the staff through training and 

confidence building measures. The policy should safeguard the past and future 

terminal benefits and also the career progression of the staff of the restructured 

companies. 

6.5.7 Right-sizing of the Staff and Strengthening the Managerial Cadres 

The poorly managed Utilities should adopt the norms as followed in bettermanaged 

companies in the power sector. Simultaneously, middle and top 

management levels should be strengthened by induction of professionals. This 

right-sizing exercise should be undertaken without hardship to any employee. 

12

6.6 Financial Restructuring Plans 



6.6.2 The State Governments should establish medium term plans (if they are not 

already in place) to target a gradual reduction and eventual elimination of the 

subsidy (except for life-line support for clearly defined categories like BPL 

families, etc.) over a defined period, and spell out clearly in their respective 

Medium Term Expenditure Frameworks (MTEFs). The maximum subsidies 

that would be made available to each restructured company, on a reducing 

scale, during the defined period. FRPs should clearly identify the components 

of financial assistance to be provided by the Government at the time of 

restructuring as also during the transition period for stabilising the restructured 

companies. Further, FRPs should be given wide publicity and should be 

subjected to regular monitoring and review at the highest level every year. 

6.6.3 The State Governments should be requested to include the FRPs in their 

performance budgets and also highlight the progress in the Annual Plan 

documents. Also, the Planning Commission should review the implementation 

status of FRPs during the Annual Plan discussions of the respective States. 

6.7 Managing the Reforms Process 

6.7.3 The model adopted by the Government of Andhra Pradesh for managing the 

reform may be followed after customisation, by other States. (Model No. II, as 

mentioned at Para 4.6.4, Chapter- 4). 

6.7.4 It is recommended that each State should establish/reactivate a high-level 

Empowered Committee under the Chief Secretary of the State to guide and 

direct the reform process. The Committee should not only meet regularly and 

monitor the progress but also should bring out periodical ‘comprehensive 

progress reports’ on the achievements and shortfalls and take remedial actions 

in line with the agreed path. These reports should also be available in the public 

domain. 

6.8 Role of the Electricity Regulatory Commissions 

6.8.2 (a) MYT frameworks have been developed and are under implementation in 

some States. This is a good development and it is felt that MYT approach, 

consistent with the EA, 2003 and NTP, should be adopted by all the ERCs 

within the next two years, wherever this has not been adopted so far. 

(b) A convention should be developed by the States, who are the owners of 

majority of the Utilities in the country, that orders and directions issued 

13



by the ERCs are invariably honoured, like those of the High Courts. 

Wherever there is a difference of views or difficulties in implementation, 

consultations with the Regulator should be held to iron out the 

differences. More importantly, there is a need to make the provisions for 

penalty for non (or delayed) compliance more stringent. 

(c) It is recommended that new guidelines should be issued by the 

Government giving broad principles for fixation of surcharge applicable 

to Open Access. Because of the range of differences and the depth of the 

problems in each State, a uniform rate for all the states is not practicable. 

It is therefore sufficient if basic principles alone are prescribed by the 

Government of India. 

(e) In addition to acting as quasi-judicial bodies, the Commissions will have 

to play a more proactive role in implementing the provisions relating to 

Open Access, MYTs and standards of performance (SOP), as envisaged in 

the National Electricity Policy and the National Tariff Policy. 

(g) It is felt that the Regulators should not only formally consult among 

themselves more often in relation to the regulatory decisions and their 

impact and implications on the Utilities but also to bring in a more 

harmonious approach to common issues such as competition, Open 

Access, etc., in the larger interest of the sector growth. For this purpose, 

the Forum of Regulators (FOR) and the informal institution of Forum of 

Indian Regulators (FOIR) should become effective consultative platforms 

for bringing better understanding through sharing of information and 

experience. It is also recommended that these two bodies should find new 

ways of interacting with the user groups and representatives of the 

Utilities. 

6.8.3 To further strengthen this mechanism and to ensure autonomy and 

independence of the Commissions, the following issues need to be addressed 

urgently: 

(a) Providing publicity for the decisions of the Commissions and Tribunals: 

MoP/CERC/SERCs/Appellate Tribunal may devise a suitable mechanism 

to ensure the publication of important orders and directives of the Central 

and various SERCs on the pattern of the publications of the higher 

judiciary, and to give adequate publicity to them through DAVP or other 

agencies, as required. 

14



(b) Staffing Requirements of the Commissions: The Commissions should 

have full autonomy in matters relating to staffing pattern, organisational 

structure and adequate powers to recruit staff, as required. An overall 

ceiling on expenditure could, however, be fixed. 

(c) Funds for the Commissions: In view of the inordinate delay in making the 

Fund operational, it may be desirable to fix appropriate time limit for the 

same. 

(d) Powers of Civil Courts for the Commissions: While the Regulatory 

Commissions have been given the same powers as those vested in the 

civil courts in proceedings before them, and also in respect of matters 

specified under section 94 of the EA, 2003, their orders do not have the 

same force as those of the Appellate Tribunal. 

(i) Recourse to the Ombudsman: There should be only one channel to be 

crossed before the consumer can approach the Ombudsman. 

6.9 Establishing a Power Sector Reform Fund 

6.9.1 The Expert Committee on State-Specific Reforms (2002) had recommended 

the establishment of a Power Sector Reform Fund (PSRF) to enhance the 

creditability and mitigate the risk of policy reversals, so as to ring-fence both 

the liabilities and the inflows earmarked for the sector restructuring. Recently, 

the Orissa Electricity Regulatory Commission (OERC) has recommended the 

setting up of such a fund. The above recommendations are endorsed and it is 

urged that all States should establish adequate PSRF. 

6.9.2 The PSRF should also be used to meet specified expenses such as providing 

consultancy support to the new companies for institutional strengthening, 

capacity building and exceptional assistance to meet situations arising out of 

natural calamities, etc. 

6.9.3 …..a part of the corpus, say up to 50 per cent, on an equal contribution basis 

should be given from the Central Government resources. 

6.9.4 The regulations and guidelines to administer the PSRF should be formulated in 

consultation with the respective SERCs. 

6.10 Access to Central Institutional Funds by Privatised Utilities 

6.10.2 In order to accelerate the reforms process, Central Financial Institutions like 

PFC and REC should be requested to extend their assistance to the privatised 

distribution companies by relaxing their norms, as required. For instance, such 

15



assistance should be provided without insisting on State Government’s 

guarantee; but on requirement of mortgaging the assets to be created with such 

financial assistance. 

6.10.3 Moreover, similar assistance must also be made available to the States, where 

privatised Utilities are in position, from Central funds earmarked under 

APDRP, RGGVY, etc, without any discrimination. This is being recommended 

because such assistance would directly benefit the consumers and would be in 

the nature of a subvention to the Utilities and do not attract any returns; 

eventually this subvention goes to the consumers by way of lower tariff. 

6.11 Reconstitution of the Board of Directors 

6.11.2 In order to professionalise the board of directors, it is recommended that at 

least 50 per cent of the directors should be independent directors, drawn from a 

panel of experts with experience in the disciplines of management, human 

resources development, power technology, finance, commerce, etc. It should 

also be ensured that adequate number of functional directors representing major 

disciplines of technical, finance and human resources management are inducted 

into the boards of all Utilities. Further, no political personnel or political 

decision-makers including the Ministers of the State Government should hold 

any position on the boards of the restructured companies. 

6.12 Memoranda of Agreements 

6.12.1 The instrument of Memorandum of Agreement (MOA) with firm, specified 

annual performance targets for achievements, as existing in the case of Central 

Public Sector Undertakings (CPSUs), should be institutionalised between the 

restructured companies and the Departments of Power/Energy of the respective 

State Governments. The MOA should also include the commitments and 

obligations of the State Governments vis-à-vis the Utilities to facilitate the 

fulfillment of the targeted level of performance. 

6.13 Better Management Practices 

6.13.7 In order to empower the restructured companies with autonomy, the State 

Governments should allow the Utilities to function without any restrictions and 

management controls, as would apply to corporate bodies under the Companies 

Act. Further, the management cadres of the new companies must be 

strengthened by inducting competent and experienced middle and top level 

functionaries who will be able to work more independently and professionally. 

The CMDs/managing directors and functional directors of the companies 

16



should be appointed for a minimum tenure of three years and made accountable 

for achieving set targets and may be given incentives for higher achievements. 

6.13.8 The selection process for the posts of CMDs, managing directors and 

functional directors of the restructured companies should be strictly based on 

professional excellence. The policy of not allowing a person to hold more than 

one post should be strictly followed and the practice of appointing the 

CMD/MD of one company (or the Secretary of the Government department) as 

the Chairperson of any other company should be discontinued. 

6.14 Capacity Building and Developing Management Cadres 

6.14.4 Indian Institutes of Management (IIM) should be encouraged to devise 

customised management development programmes and Executive MBA 

programmes with specialisation in power sector management, and the Utilities 

should be encouraged to nominate their middle level managers for such 

intensive programmes based on selection criteria to be evolved jointly with 

IIMs, who may also be associated with such selections. Training and Academic 

Institutes like Administrative Staff College of India (ASCI) and Indian Institute 

of Public Administration (IIPA) could also play a major role in the 

management development initiatives for the power sector by evolving 

appropriate training modules. 

6.14.5 State Governments should explore the availability of competent executives 

from the industry/CPSUs to take over the senior positions of the restructured 

companies on contract basis/deputation for fixed terms (as is being done in 

Utilities of Gujarat where professionals from the open market are inducted at 

Executive Directors level, on fixed tenure basis, with compensation packages 

linked to targeted performance achievements). It is necessary to provide 

attractive compensation packages to such appointees without being constrained 

by the State Civil Services pay structures. 

6.15 Centre for Manpower Planning and Development 

6.15.1 It would be desirable to establish a ‘Centre for Manpower Planning and 

Development’ (CMPAD) as part of an existing institutes of excellence like 

IIPA, National Power Training Institute (NPTI), ASCI, etc. The CMPAD 

should be tasked not only with manpower planning and development, but 

should also act as an agency to collect and collate data and information about 

various issues related to HRD. The CMPAD could also act as a knowledge 

bank to provide information to Utilities by circulating through its websites and 

17



other Internet options on important developments and successful projects in 

different States (like Akshay Prakash Yojana in Maharashtra) for use by others. 

6.15.2 Ministry of Power should provide funding support to the CMPAD in the initial 

years. However, over a period of time, the CMPAD should become selfsustaining 

by pricing its services to the Utilities. 

6.16 Accountability and Corporate Governance 

6.16.1 To improve corporate governance, it would be desirable to supplement and 

strengthen reform efforts with a parallel strategy to involve the public in the 

affairs of the companies through participation in their equity base. 

6.16.2 Public participation in the equity base of the new companies would accentuate 

the autonomy and the accountability of these public corporate bodies to the 

public, which is certainly desirable. It will also make the managements of these 

undertakings more responsive to corporate objectives, needs and public 

perceptions. Viewed from this angle, there is a strong case for offering part of 

the shareholdings of the restructured companies to the public and financial 

institutions, with a portion earmarked for allotment to the employees of each 

company at attractive rates. To start with, such public offerings could be 

restricted to 26 per cent of the shareholdings, which would ensure that these 

companies retain their status as Government companies. This will also enable 

the companies to mobilise funds for their expansion. Any such measure will, 

however, have to be preceded by a suitable FRP, which would make the 

companies sufficiently attractive for the market to respond to equity 

participation and also enable them to absorb market borrowings. 

6.16.3 Meanwhile, the initiative should commence with offering part of the shares of 

the separate generation companies (as in the case of CPSUs), which are making 

profits. Shares of these companies will be attractive enough for the market to 

respond positively to any public issue. 

6.17 Participation of Civil Society Organisations 

6.17.3 The engagement of ‘Grama Vidyuth Pratinidhis’ in Karnataka to augment the 

billing and collection has resulted in improved collections. The active 

involvement of the customers and customers’ advocacy groups in the reforms 

efforts will indeed produce beneficial effects, as evidenced from the 

Maharashtra and Karnataka experience. State Governments and the 

restructured companies should evolve policies and procedures for increasing 

18



public participation in chosen areas of interface with DISCOMs, which would 

surely go to increase the customer satisfaction levels, apart from resulting in 

improved performance of the Utilities. Such initiatives should be encouraged 

and appropriate incentives provided to sustain these efforts. 

6.18 Citizens’ Charter 

6.18.2 It is recommended that all restructured companies, especially the distribution 

companies, should establish Citizens’ Charters in consultation with consumer 

advocacy groups and civil society organisations expeditiously and display the 

major components of the charters in all their offices and outlets prominently. 

Nodal officers should be appointed to implement the charters and to monitor 

the customer satisfaction level. 

6.19 Universal Metering of Service Connections 

6.19.3 It is recommended that the MoP and State Governments should give full 

support to implement the Universal Metering Programme, to be completed 

within a definite time period, in line with the provisions of section 55 of the 

EA, 2003 which stipulate that metering should be done in respect of all 

consumer connections (including agricultural). It should also be ensured that 

after the meters have been installed, they are checked regularly and defective 

meters are replaced. Further, minimum charges may be levied in case meters 

are not found working, so as to compel the consumers to get them replaced 

promptly. (The minimum charges may be higher than the average consumption 

by the consumer, so that the consumers are discouraged from attempting to 

damage and tamper with the meters). 

6.20 State Government Initiatives and Support to Prevent Theft of Electricity 

6.20.2 ……. 

(a) Suitable incentives may be devised for detecting and checking the cases of 

theft of electricity as has been practiced in West Bengal, Tamil Nadu and 

Gujarat. 

(b) Strict vigilance measures should be adopted and special courts and special 

police stations (wherever they have not been set up) should be established 

to deal with the cases of electricity thefts. 

6.20.5 State Governments should take a proactive role in preventing and eliminating 

theft of electricity by giving full support to the DISCOMs. Such support should 

include establishing the required number of special courts, making available 

19



adequate number of police personnel and prosecutors, etc., to make the drive 

against theft of electricity effective. Additionally, State Budgets should provide 

adequate funds to establish the special courts and vigilance mechanism, in 

consultation with the DISCOMs. 

6.20.6 Further, Regulatory Commissions may be urged to allow the cost of 

establishing special courts and related expenditures such as the cost of police 

personnel, etc., as a pass through in the tariff. 

6.20.7 District Magistrates (DMs) and Superintendents of Police (SPs) should be 

required to play a greater role in handling power theft matters, since without 

their active support, DISCOMs may not be successful in dealing with such 

cases effectively. Grant of cash awards and incentives to the personnel of the 

Utilities and to the district officials concerned who handle the electricity theft 

cases would provide further motivation and encouragement. 

6.21 Energy Accounting and Auditing 

6.21.1 For effective energy audit, it is necessary to conduct proper energy accounting. 

The principles of energy accounting are well known. In practice, however, 

certain common difficulties/gaps are noticed. These and the solutions to 

overcome them with a view to getting as near as possible to the optimum 

solution are noted below: 

(a) A precision energy meter of at least 0.2S class of accuracy should be 

provided, along with provision of similar class of EHV current 

transformer in the generator transformer bay. CEA’s ‘Regulations on 

Installation and Operation of Meters’ need to be followed for this purpose. 

(b) All EHV express feeders and all 11/22/33 kV feeders (including feeder for 

station auxiliaries/colony supply) should be provided with meters. As far 

as possible, all these energy meter readings should be collected from the 

DAS of the sub-station itself. Simple checks such as to ensure that the 

loss in the EHV transformer is less than 1 per cent and the sum total of 

incoming and outgoing energy on the 11/22/33 kV busbar is zero or near 

zero should be done every hour by the DAS or by the staff on duty where 

DAS is not provided. 

(c) All distribution transformers in industrial area/urban area/high 

consumption area should be provided with meters on the LV side. The 

energy loss should be directly computed by the billing computer without 

any manual input of billing data. 

20



(d) In respect of sub-stations feeding an industrial area, the meter readings of 

all high tension (HT) consumers, high voltage (HV) feeders, distribution 

transformers and low tension (LT) consumers should be taken at a round 

hour and in a short period on either side of this round hour for obtaining 

realistic figures of loss of energy. 

(e) The energy loss should be computed in kWh lost (and money lost on 

applicable tariff). Each site-in-charge should be responsible to reduce the 

kWh loss and this should be one of the important parameters for appraisal 

of his/her performance. 

6.22 Reducing Cross-Subsidies 

6.22.5 The obligations of the States to provide subsidy to the agricultural sector 

remains unabated, and keeps increasing. On the other hand, the fiscal inability 

of the State Governments to provide the subsidy will seriously jeopardise the 

entire reform process, which aims to rationalise the tariff structure and achieve 

commercial viability in the sector. 

6.22.6 There is no denying that the success of the power sector reforms is highly 

dependent on arriving at an acceptable solution to tackle the issue of free and 

highly subsidised electricity supply to the agricultural sector. 

(a) The State Governments, along with the concerned Electricity Regulatory 

Commissions, should review the existing policy of flat rate tariff for 

agricultural consumers, since these consumers have the freedom to 

consume unlimited quantity of power as compared to the consumers 

whose pumpsets are subjected to metering. 

(b) A connected issue is the serious problem of lack of proper water 

conservation and inefficient use of pumpsets used for irrigation by 

farmers for crops, which are highly water intensive. As a result, the watertable 

is gradually going down. It is, therefore, necessary to adopt a 

multidisciplinary approach to sensitise the farmers about the measures for 

water conservation and efficient use of irrigation pumpsets and 

machinery. 

(c) The NEP affirms that over the last few decades, cross-subsidies have 

increased to unsustainable levels. Cross-subsidies hide inefficiencies and 

losses in operations. There is a need to correct this imbalance without 

giving tariff shock to consumers. The existing cross-subsidies would need 

to be reduced progressively and gradually. This directive has to be 

21



implemented in a time-bound manner. The example of the West Bengal 

State Electricity Board (WBSEB) which charges tariff at the rate of Rs 

1.50 per unit from the agricultural sector is a model to emulate. 

(d) The issue of reasonable recovery from the agricultural sector is closely 

linked to the political commitment and support extended by the political 

leadership for reforms efforts. The mindset that free power or highly 

subsidised power is a Fundamental Right should be removed from the 

consumers of this category. 

(e) There is a clear need to define the “creamy layer” among the farmers, 

those who are the “haves”, and to distinguish them as a class apart from 

the poor and marginal farmers. It is a fact that the former group is in a 

better position to pay a reasonable price for the electricity consumed by 

them. The decision should be taken at the national level to address this 

issue and ensure that the subsidies are only targeted towards small and 

marginal farmers. Also, State Governments should formulate policies to 

encourage differential cropping patterns aligned to the water-tables. 

(f) A detailed financial plan should also be put in place to bring down the 

subsidy support on a diminishing pattern, with targets and set goals for 

each year and for each DISCOM. 

(g) MoP should circulate a consultation paper (converging all related issues) 

on “Reducing Cross-subsidies” and continue its efforts to arrive at a 

political commitment on this vital issue. 

6.23 Fostering Competition Through Open Access 

6.23.3 Captive generation, as brought out in the Tariff Policy, is an important means 

for making competitive power available, provided an enabling environment is 

created to encourage the connecting of captive plants to the grid. Open access 

would encourage non-captive users to draw power from captive plants at 

negotiated rates, provided Regulatory Commissions fix a reasonable surcharge 

for open access. In its absence, captive plants would remain under-utilised. As 

brought out in Chapter-3, the average PLF of captive plants with a total 

installed capacity of 19,103 MW (1 MW and above size) was at the low level 

of only 42.8 per cent (2004-05), which could be raised significantly in the 

interest of the economy by encouraging Open Access. 

6.23.4 Ministry of Power should take the lead in the matter and strive to arrive at a 

practical solution, in consultation with FOR, by prescribing broad principles for 

22



determining “surcharges”, which would create an appropriate climate for the 

extensive use of open access and the resultant competition. 

6.24 Data Management Systems 

It is essential that demand projections, extent of technical and commercial 

losses and all other relevant updated data of all the States as well as the entire 

country are readily available with a designated central agency for effective and 

proper utilisation. It is recommended that MoP may entrust this task to an 

appropriate agency. 

6.25 Adoption of Information Technology in Power Sector 

6.25.1 Computerised Online Information System 

(a) To derive greater economic value, setting up of an end-to-end Enterprise 

Resource Planning (ERP) based Information Technology (IT) solution 

would be beneficial. The system should incorporate solutions in respect of 

all operations of the restructured companies including finance, purchase, 

inventory management, maintenance management, project management, 

process management, energy billing and receivables, energy audit, 

management of customer relations, power system network studies, human 

resources development and associated area of payroll applications, etc. 

(b) Installation of a comprehensive computerised solution would result in 

substantial reduction in paper work besides achieving economy in 

operations and improving the work culture in the organisation. Presently 

such a system is being installed in Gujarat. The State may be requested to 

organise a National Workshop to share its experience with other Utilities 

in the country. 

(c) Consumer grievance redressal system should be made online and it should 

be made possible to monitor the same in hierarchical order. 

6.26 Outsourcing of Works/Services 

6.26.2 All restructured companies should carefully develop their outsourcing policy 

and strategies after identifying their strengths and weaknesses and keeping in 

mind consumers’ interest, and ensure that there are checks and balances built 

into the system. The policy should also be transparent and be established after 

taking the staff into confidence. 

23

6.27 Encouragement to Non-Conventional Energy Sources 



6.27.1 At present, the installed capacity and total generation from RES come to only 

6190.86 MW and 6180.84 GWh respectively. These represent only 5 per cent 

and 1 per cent respectively of the corresponding all India grand totals from all 

the sources of electrical energy. 

6.27.2 Use of conventional energy for heating purpose, etc., in industrial and 

commercial complex and large residential blocks could be discouraged by 

making solar heating systems mandatory by providing appropriate tax 

incentives and other benefits. 

6.27.3 In line with the EA, 2003 and NEP, State Governments and restructured 

companies should endeavour to give its rightful place to RES generation and 

ensure that the objectives of the EA, 2003 and the NEP are fulfilled by 

specifying targets and providing the required encouragement, in consultation 

with the FOR. Policies of State Governments, which are coming in the way of 

harnessing full potential of renewal energy, should be reviewed with the 

intervention of MoP and MNES. 

6.28 Rural Electrification 

6.28.3 In order to accelerate the Rural Electrification Programme, the following 

recommendations are made: 

(a) Where it is not feasible to extend the conventional grid due to remoteness 

of villages, focus may be on non-conventional sources of energy by 

planning and developing a loop of local areas (cluster). 

(b) The recent initiative of franchisee models should be pursued vigorously. 

The example of West Bengal to promote decentralised management of 

distribution systems with the involvement of the local population could be 

replicated by other States. 

(c) Restructured Utilities should accord high priority for rural electrification 

in their Business Plans and in the proposed MOAs/Annual Performance 

Targets, which should be closely monitored by their respective States. 

(d) 11 kV feeders should be erected separately for rural domestic and 

agricultural supplies, which will facilitate better load management and 

improved recovery as was accomplished in Gujarat. The practice of 

Andhra Pradesh in providing single-phase transformers for domestic and 

24



other non-power loads with 24 hours power supply is also worth 

following. 

6.29 State-Level Planning and Coordination 

6.29.2 As the single carriage of power in the State from the generating units to the 

distribution levels, connecting both ends, the transmission companies will 

undoubtedly be the most appropriate and suitable agency to undertake all 

functions related to State-wide planning and coordination. 

6.29.3 In order to enable the State owned transmission companies to perform these 

functions efficiently and with a larger perspective, it is essential to induct 

experienced and competent planners and support staff into these companies. 

25

CHAPTER - 2 

WAY FORWARD 

Way Forward has been extracted from Chapter-7, Volume-I of the National 

Report. 

For easy and ready reference, Para Nos of Volume-I have been retained. 

7.1 Steps to be Taken by the Ministry of Power 

7.1.1 Convene a special conference of Chief Ministers of States, which have not yet 

reorganised their SEBs (or are still in the process of restructuring), to persuade 

them to restructure SEBs in their respective States as per a systematic plan and 

with dispatch, as proposed in this Report. [Para 6.1.5 (a)] 

7.1.2 As a sequel to the above, convene a conference of all the Chief Ministers and 

State Power Ministers to take stock of the progress and impact of power sector 

reforms so far in their respective States, and to arrive at a political commitment 

to speed up the process, through concerted actions, as recommended in this 

report. [Para 6.1.5] 

7.1.3 Review and modify MOAs to be signed with State Governments in future to 

include, among other things, conditions relating to grant of full autonomy to the 

restructured companies. [Para 6.1.6] 

7.1.4 Plan and coordinate a national communication strategy involving media and 

civil society, jointly with the State Governments on the objectives, necessity 

and merits of reforms in the power sector. [Para 6.3] 

7.1.5 Announce a policy decision not to grant further extensions for 

postponing/delaying the restructuring exercise of SEBs in the States, which 

have not yet reorganised their SEBs. [Para 6.1.7] 

7.1.6 Assist State Governments to obtain resources from multilateral/bilateral 

institutions and other sources to finance their consultancy costs for the 

restructuring process. [Para 6.4.7] 

7.1.7 Coordinate through a designated agency and make available the best practices, 

findings and recommendations of consultants and expert bodies on 

restructuring and transitional issues in respect of successful model(s) to all 

State Governments. [Para 6.4.6]



7.1.8 Take steps to strengthen the Regulatory mechanism at the Centre and State 

levels by undertaking the following steps, among others: 

(a) Persuade all States to honour the orders and directives of the Regulatory 

Commissions and to resolve disagreements through a consultative 

process. 

(b) Encourage the Regulatory Commissions to take a more proactive role in 

implementing provisions of ‘Open Access’, Multi Year Tariff (MYT), 

Standards of Performance (SOP), etc. Further, issue modified guidelines 

regarding fixation of surcharge applicable to ‘Open Access’. 

(c) Encourage the Regulatory Commissions to strengthen the internal 

consultative process and sharing of information and views by making 

FOR/FOIR more effective. 

(d) Sensitise the public about the regulatory process by publicising the major 

decisions and orders of the Regulatory Commissions through the print and 

electronic media and websites. Encourage the regular publication of 

major decisions through ‘Law Reporters’. 

(e) Create a better working environment for the Regulatory Commissions by 

vesting them with sufficient autonomy and powers in matters relating to 

staffing pattern, funds, organisation and recruitment of staff needed by 

them. 

(f) In order to ensure the requisite authority and autonomy to the Electricity 

Regulatory Commissions, appropriate steps need to be taken to 

holistically address the following issues: 

i) Powers of civil courts for execution of orders [as conferred on 

Appellate Tribunal under Section 120(3)]; [Para 6.8.3 (d)] 

ii) Reference to the CERC on policy directions by State Governments, 

issued in public interest. The decisions of CERC in such matters 

should be final; [Para 6.8.3 (f)] 

iii) Subsidy for reductions in charges specified under sections 46, 47 

and 50; [Para 6.8.3 (e)] 

iv) The terms of office of the Chairperson and the Members of the 

Appellate Tribunal; [Para 6.8.3 (h)] 

27



v) Direct cognizance by the Ombudsman in special cases. Uniform 

procedure for filing of appeals before the Commission against the 

decisions of Ombudsman; [Para 6.8.3 (i)] 

vi) Fixing time-limit for creation of ‘State Electricity Regulatory 

Commission Fund’, if not already created; [Para 6.8.3 (c)] 

vii) Inducting the Chairpersons of both CERC and CEA as permanent 

members of the Selection Committees for the State Commissions. 

[Para 6.8.3 (k)] 

7.1.9 Constitute a Power Sector Reform Fund (PSRF) in States, with a commitment 

for matching contributions from the Central Budget. [Para 6.9.3] 

7.1.10 Request the Central Financial Institutions to render assistance also to 

DISCOMs, whose major Share-holding is by the private companies, by 

relaxing norms; and extend financial support to them under APDRP, RGGVY, 

etc., on a level playing field. [Para 6.10] 

7.1.11 Coordinate with IIMs, IIPA, ASCI and NPTI to impart structured management 

training and development programmes to the personnel of State Power 

Utilities. [Para 6.14.4] 

7.1.12 Establish a Centre for Manpower Planning and Development in the Power 

Sector. [Para 6.15] 

7.1.13 Request the Department of Administrative Reforms and Public Grievances 

(DAR&PG) to assist Utilities to establish Citizens’ Charters and in capacity 

development to implement these charters. [Para 6.18] 

7.1.14 Circulate a consultation paper on ‘Reducing Cross-subsidies’ on the lines 

suggested in this Report and vigorously pursue efforts to build up political 

commitment issue, as recommended. [Para 6.22.6 (g)] 

7.1.15 Review the formula established for fixing the Open Access surcharge in 

consultation with FOR and make necessary modifications. [Para 6.23.4] 

7.1.16 Identify a national level agency to collect, update and process the power sector 

data on technical, financial and commercial aspects and establish Data 

Management Systems for dissemination to stakeholders. [Para 6.24] 

28

7.2 Steps to be Taken by the State Governments 



7.2.1 Review the current status of restructuring (as brought out in Chapter-6 of the 

Report) and analyse the findings and recommendations for taking forward the 

Reform Process. 

7.2.2 Formulate Detailed Policy Statements (DPS) on the future strategy for power 

sector development with targets and milestones, with the approval of the State 

Cabinet. [Para 6.2] 

7.2.3 Reactivate the High-level Empowered Committee under the State Chief 

Secretary to guide and direct the reforms process. This committee should issue 

periodic comprehensive progress reports against set targets. [Para 6.7.4] 

7.2.4 Establish a comprehensive communication strategy as recommended in this 

Report, with the help of professionals in the field and involve Utilities, media, 

civil society, eminent citizens and local bodies in its implementation. 

[Para 6.3.12] 

7.2.5 Evolve a forward looking and effective HR policy, which would motivate the 

staff of the Utilities for higher efficiency and would also assure them of their 

terminal benefits and career prospects. Further, initiate action to review the 

staff norms, and strengthen the managerial cadres, as required. [Para 6.5] 

7.2.6 Review and update the FRPs with specific commitments and targets to bring 

about financial turnaround of Utilities and include them in Medium Term 

Expenditure Framework (MTEF), performance budgets and Annual Plan 

discussions. [Para 6.6] 

7.2.7 Create a healthy convention of invariably implementing the directions and 

orders of ERCs and resolving disagreements, if any, through a consultative 

process. Also, extend full autonomy and assistance to Regulators in matters of 

organisation, staff complement, appointment of staff, funds, infrastructure 

facilities, etc., subject to an overall budget ceiling. [Para 6.8.2 (b)] 

7.2.8 Initiate action to establish the PSRF expeditiously, in consultation with the 

Ministry of Power and the respective Regulatory Commissions. [Para 6.9] 

7.2.9 Ensure greater autonomy and efficiency to the board of directors of the Utilities 

by inducting at least 50 per cent directors from a panel of experts in relevant 

disciplines. Also induct adequate functional directors into the boards and desist 

from inducting political appointees to the boards. [Para 6.11.2] 

29



7.2.10 Institute the system of MOA, with annual performance targets, mutual 

commitments and obligations between Utilities and the Departments of 

Energy/Power. The State Governments should honour the commitments and 

obligations as agreed to in the MOA. [Para 6.12.1] 

7.2.11 Commit to a policy of granting full autonomy to the restructured Utilities. 

Facilitate the strengthening of the management cadres by inducting 

professionals, on fixed tenures of minimum three years, with specific targets 

for achievements. [Para 6.13.7] 

7.2.12 Desist from appointing the Secretary (Power) as chairperson of any power 

Utility. Chairperson/CMD/Director (Finance)/Company Secretary, etc., of one 

Utility should not hold a post in any other power Utility. [Para 6.13.8] 

7.2.13 Sponsor competent middle-level officers with the necessary aptitude for 

management development/training to designated professional training institutes 

of repute. [Para 6.14.4] 

7.2.14 Facilitate public participation by offering 26 per cent equity in Generation 

Companies to the public and also with a percentage earmarked for employees 

at attractive rates. Undertake suitable restructuring plans to assist financially 

weak Utilities to achieve turnarounds as a prelude to public participation, 

restricted to 26 per cent, in the equity base of the DISCOMs. [Para 6.16.2] 

7.2.15 Establish a policy to increase public participation in chosen areas of interface 

with the Utilities, to increase customer satisfaction and overall improved 

performance. Also, ensure that all Utilities establish and implement efficient 

Citizens’ Charters and appoint nodal officers to monitor their implementation. 

[Para 6.18.2] 

7.2.16 Provide complete support to Utilities to achieve universal metering 

programme, covering all categories of consumers. Also, a minimum charge 

(higher than the charges for their average consumption) be introduced so that 

consumers are compelled to get their defective meters replaced. [Para 6.19.3] 

7.2.17 Extend total support to Utilities to detect and prevent theft of electricity by 

establishing special courts and Police Stations, deputing adequate police 

personnel and prosecutors for such tasks, and providing adequate funds in the 

budget for this purpose. Institute awards and incentives to the district officials 

who play an active role in prevention of electricity thefts. [Para 6.20.5] 

30



7.2.18 Review, in consultation with the Regulatory Commissions, the current policy 

of Flat Rate Tariff for the agriculture sector, to deter the consumers from 

availing unlimited quantity of power; and explore means to gradually reduce 

the cross-subsidy over a given period. [Para 6.22.6 (a)] 

7.2.19 Encourage the development of non-conventional energy sources through 

innovative measures; such as providing suitable incentives and discouraging 

the use of conventional energy for heating purposes in large industrial, 

commercial and residential complexes and making solar energy systems 

mandatory. [Para 6.27.3] 

7.2.20 Entrust the State Transmission Corporation with the task of Statewide 

planning for the power sector; and induct experienced personnel for such 

assignments. [Para 6.29] 

7.2.21 The States, which have not yet reorganised their SEBs, may review and adopt 

with suitable customisation, the model followed by Andhra Pradesh, Haryana, 

Karnataka, etc., (Model II, as mentioned at Para 4.6.4, Chapter-4) for 

restructuring their SEBs. [Para 6.7.3] 

7.3 Steps Suggested for Implementation by the Utilities 

7.3.1 The Utilities should design a focused and effective communication strategy, 

jointly with the respective State Governments by engaging professionals in this 

field. The ‘message’ should highlight the imperatives and benefits of the sector 

reforms and all stakeholders should be targeted. The strategy should also 

include: conducting face-to-face meetings with staff representatives and 

enlisting the participation of civil society organisations, etc. [Para 6.3] 

7.3.2 Enlist the support of the media, especially the electronic media, to spread the 

message and beneficial effects of the reform process; involve Gram Panchayats 

and other local bodies in the communication strategy. [Para 6.3.13] 

7.3.3 Prepare an efficient and forward looking HR policy with the help of consultants 

to enhance professionalism, morale and motivation of the staff at all levels. 

Also, initiate action to right-size the staff and strengthen the middle and top 

management levels by inducting professionals. [Para 6.5] 

7.3.4 MoAs should be signed with State Department of Energy/Power, specifying 

annual targets and commitments. [Para 6.12] 

31



7.3.5 Prepare a programme for increased civil society participation in the areas of 

consumer interest, on the lines of Akshay Prakash Yojana (APY) in 

Maharashtra and Grama Vidyuth Pratinidhi (GVP) in Karnataka and other 

appropriate models. [Para 6.17] 

7.3.6 Establish Citizens’ Charters in all offices and divisions as mandated by the 

Department of Administrative Reforms and Public Grievances, Government of 

India, and take action to implement them earnestly, in cooperation with 

consumer advocacy groups. [Para 6.18] 

7.3.7 Ensure that the Universal Metering Programme is accorded top priority. Also 

ensure that meters are checked regularly and defective meters replaced 

promptly. [Para 6.19] 

7.3.8 Pursue with the concerned State Government to secure its full support and 

cooperation to detect and prevent electricity thefts; follow up regarding 

establishment of special courts, special police stations and prosecutors, etc., by 

regular interaction. [Para 6.20] 

7.3.9 Strengthen energy audit by providing precision meters of the prescribed 

accuracy, feeder meters, and installing adequate checks, in accordance with the 

set guidelines. [Para 6.21] 

7.3.10 Establish fair and transparent outsourcing strategy for each company, (after 

taking the staff representatives into confidence), by identifying suitable 

functions, aimed at achieving better efficiency and customer satisfaction with 

proper checks and balances. [Para 6.26] 

7.3.11 Foster the application of feasible IT solutions, such as consumer indexing, 

AMR, GIS, DAS, etc., in the power systems. [These should be validated by the 

Regulatory Commissions/independent agencies and should be made a 

prerequisite for decision-making on Annual Revenue Requirements (ARR) 

filed by the Utilities before the appropriate Commission]. [Para 6.25.2] 

7.3.12 Accord high priority for rural electrification in the business plan, and also 

include the targets in the MoAs to be signed with the Department of 

Energy/Power. Undertake plans to provide separate 11 kV feeders for rural 

domestic and agricultural supplies, to facilitate better load management and 

improved recovery. [Para 6.28] 

32

TABLE OF CONTENTS 

Executive Summary ...............................................................................................1.1 

Chapter 1 - General Findings and Recommendations .......................................1.8 

Chapter 2 - Restructuring Exercise....................................................................1.19 

Chapter 3 - Impact of Restructuring..................................................................1.24 

Chapter 4 - Specific Issues...................................................................................1.27 

4.1 Generation ........................................................................................1.27 

4.2 Transmission.....................................................................................1.30 

4.3 Distribution.......................................................................................1.33 

4.4 Electricity Regulatory Commission .................................................1.49

1 INTRODUCTION 

ANDHRA PRADESH 


Andhra Pradesh State Electricity Board (APSEB) was one of the largest and 

most efficiently run power utilities in the country. The State witnessed 

phenomenal growth in the power sector after the formation of the APSEB in 

1959. 

APSEB was earning three per cent rate of return (ROR) on net fixed assets 

consistently till the late 1980s. The financial strain started from 1989-90 and 

the situation continued to worsen over the years. By the end of the year 1997- 

98, the outstanding dues of APSEB were of the order of Rs 2,600 crore. 

Due to the prevailing financial crisis, APSEB was not in a position to raise 

funds for its capital investments. The financial institutions started insisting on 

restructuring of APSEB as a pre-condition for lending capital support for 

investments. Accordingly, the State Government decided to undertake 

restructuring of APSEB. 

1.1 Restructuring Exercise 

A High Level Committee headed by Shri Hiten Bhaya, ex Member, Planning 

Commission, recommended the restructuring of the power sector by separating 

generation, transmission and distribution functions. The reform initiatives were 

started by the Government in April 1997 with the issue of a policy statement 

clearly stating the objectives of the reforms and the strategy to be followed to 

achieve the same. 

1.2 Implementation of Reform Process 

The reform and restructuring exercise started in Andhra Pradesh power sector 

in June 1997 with the creation of a Reform Cell headed by an officer of the 

rank of chief engineer. Officers, both serving and retired, with requisite skills 

and experience were inducted into the Reform Cell. Active involvement of the 

members of the Board in the reform exercise was evident from the fact that 

weekly meetings were held at the Board level to review the progress of reform 

activities. The Secretary (Energy), Government of Andhra Pradesh also 

participated in these review meetings, where the requisite approvals were also 

obtained.

State Reports (Vol.-III) 

Study on `Impact of Restructuring of SEBs’ 

The following milestones in the reform process are worth mentioning: 

• Carrying out negotiations with the employees’ associations and unions and 

entering into tripartite agreements involving the State Government, APSEB 

and the employees’ associations/unions. 

• Carrying out intensive publicity campaign on the need for reforms. 

• Enactment of Andhra Pradesh Electricity Reform Act, 1998. 

The World Bank provided funds for the projects in transmission and 

distribution segments and also loan assistance for the consultancy services in 

the initial stage. Major part of the resources for the consultancy support has 

been secured in the form of grants from the Canadian International 

Development Agency (CIDA) and the Department for International 

Development (DFID) of United Kingdom. 

1.3 Restructuring of APSEB 

The restructuring exercise started with the reorganisation of vertically 

integrated APSEB into Andhra Pradesh Power Generation Corporation 

(APGENCO) for generation function and Transmission Corporation of AP Ltd 

(APTRANSCO) for transmission and distribution functions. 

The First Transfer Scheme vesting the assets, liabilities personnel, etc., with the 

APGENCO and APTRANSCO was implemented w.e.f. 1 February 1999. The 

Andhra Pradesh Electricity Regulatory Commission came into existence in 

April 1999. 

The distribution function was subsequently separated from APTRANSCO with 

the creation of the following area based distribution companies (DISCOMs): 

DISCOM Headquarters 

Eastern Power Distribution Company Ltd. (APEPDCL Vishakapatnam 

Northern Power Distribution Company Ltd. (APNPDCL) Warangal 

Central Power Distribution Company Ltd. (APCPDCL Hyderabad 

Southern Power Distribution Company Ltd. (APSPDCL) Tirupati 

The Second Transfer Scheme, vesting the distribution assets, liabilities, 

personnel, etc., with the four DISCOMs, came into effect in 2001. 

1.2


The bulk supply trading, which was initially under the control of the 

transmission company, was transferred and vested with the DISCOMs, through 

the Third Transfer Scheme w.e.f. 10 June 2005. 

1.4 Impact of Electricity Regulatory Commission 

Andhra Pradesh Electricity Regulatory Commission (APERC) has played a 

very important role in the successful implementation of power sector reforms 

in the State. APERC has not only come up with regular tariff orders annually 

on time since 2000-01, but also notified several regulations, codes and 

guidelines for effective functioning of the utilities. The proactive role played by 

APERC has largely contributed to improved performance by the Utilities both 

in operational and customer-care matters. The standards of performance have 

been fixed and regulations framed for their implementation. 

APERC has introduced the Multi Year Tariff (MYT) framework from 2006-07. 

The Commission has been functioning quite independently as there is 

practically no interference in its functioning from the State Government. 

1.5 Performance of the Utilities 

Reform and restructuring has benefited the power sector in Andhra Pradesh, as 

all the restructured Utilities have achieved commercial viability in a span of 

five years. The company-wise achievements are analysed below: 

1.5.1 Generation Company 

The capacity additions made by APGENCO under the State sector in the first 

six years is 970 MW. During this period, the State has achieved total 

generation capacity addition of 3,776 MW from all sources as indicated below: 

State Sector (APGENCO) 970 MW 

Central Sector 1,686 MW 

Private Sector 575 MW 

Non-conventional and other sources 545 MW 

Total 3,776 MW 

APGENCO’s total installed capacity at the end of 2004-05 was 6,581 MW. 

Further, the company has taken up projects for addition of 2,123 MW and these 

projects are under various stages of implementation. 

About 1,500 MW capacity gas-based power stations, executed under private 

sector, are in an advanced stage of completion. 

1.3



The performance improvements achieved after restructuring of APSEB are 

indicated below: 

• Plant load factor (PLF) has improved from 77.6 to 89.7 per cent. 

• Plant availability has improved from 84.8 to 92.5 per cent. 

• Oil consumption level has come down from 1.7 ml/kWh to 0.50 ml/kWh. 

• Auxiliary consumption level has come down from 9.17 to 9.09 per cent. 

• Annual electricity generation has increased from 27,000 MU to 29,000 MU. 

• The company has been earning profits right from its inception. 

1.5.2 Transmission Company 

APTRANSCO is among the best performing transmission companies 

(TRANSCOs) in the country. The company has made sizeable investments and 

strengthened the transmission network. 

There has been a substantial growth in the transmission network after 

restructuring. The following table gives an idea of the growth pattern of the 

transmission network during the last six years: 

Growth of Transmission Lines and Sub-stations 

Particulars Total Increase 

400 kV Lines (ckt km) 2,033 



400 kV Sub-stations (No.) 3 



The performance improvements achieved by APTRANSCO in the operation of 

transmission system in the State are: 

• Transmission losses have come down from 8.98 per cent (1999-2000) to 

4.91 per cent (2004-05), a reduction of 4.07 percentage points in five years. 

• The maximum and minimum voltages at 132 kV level have improved from 

129 kV and 92 kV (1999-2000) to 140 kV and 121 kV respectively by 

2004-05. 

• The system frequency has improved from 51.12 Hz (max) and 47.80 Hz 

(minimum) in 1999–2000 to 50.84 Hz (max) and 48.62 Hz (minimum) in 

1.4


1.5.3 Distribution 

2004-05. It would be seen that both the maximum and minimum 

frequencies have been brought closer to the standard figure of 50 Hz. 

With the separation of electricity distribution function from APTRANSCO, 

four DISCOMs came into existence from the year 2000. Several improvements 

have been noticed in the performance of the Utilities after restructuring. 

The companies have achieved considerable reduction in distribution losses. The 

position in the last four years is shown below: 

Reduction in Distribution Losses 

DISCOM 

Distribution Losses (%) 

2001-02 2004-05 

SPDCL 21.31 18.12 

NPDCL 26.81 19.20 

CPDCL 27.10 20.17 

EPDCL 17.90 15.30 

After restructuring of APSEB, the failure rate of distribution transformers 

(DTs) has been brought down substantially. This is evident from the table 

given below: 

Distribution Transformers Failure Rate (%) 

DISCOM 2001–02 2002–03 2003–04 2004–05 

SPDCL 14.16 9.26 8.45 7.01 

NPDCL 24.42 18.83 15.81 11.72 

CPDCL N.A. 16.27 11.87 9.48 

EPDCL 13.87 9.48 7.25 N.A. 

Since a large number of DTs have been added in the system and High Voltage 

Distribution System (HVDS) has also been adopted, the failure rate is likely to 

go down further. Addition of new DTs will also result in relieving the 

overloaded DTs. 

The improvements made in metering by the DISCOMs are: 

• All categories of services, except agricultural, are provided with meters. 

Almost 100 per cent services in these categories have been metered. 

• Metering of agricultural services is 21 per cent in SPDCL, 8 per cent in 

EPDCL and 2 per cent in the other two DISCOMs. 

1.5



• The metered consumption has increased from 38 per cent in 1999-2000 to 

52.4 per cent by 2004-05. 

• Electronic meters have been installed in respect of all industrial and high 

value services. 

• Metering of all 33 kV and 11 kV feeders has been completed. 

• About 36,300 DTs are provided with meters. 

There is a marked improvement in the billing and collection of revenues after 

the restructuring. This is evident from the figures given below: 

• Billing demand has increased from Rs 4,841 crore (1999-2000) to Rs 

8,817 crore (2004-05). 

• The overall collection efficiency in the post-reform period is ranging from 

96.52 to 102.87 per cent as compared to 92.74 per cent in 1999-2000. 

The turnover of the DISCOMs has increased year by year and the companies 

have achieved turn around from loss making to profit earning entities. EPDCL 

is in profits from 2002-03 onwards. SPDCL and NPDCL achieved the turn 

around by 2003-04, while the CPDCL has joined them in 2004-05. Thus all the 

six restructured power utilities in the State are in the profit margin from 2004- 

05. 

1.5.4 Subsidy 

Prior to reform and restructuring, no cash subsidy was being provided by the 

State Government, though there were accounting adjustments like conversion 

of loan into equity, etc. Consequent to restructuring, the Government has 

provided revenue subsidy in cash, in compliance of the Tariff Orders of 

APERC 

Due to substantially better performance by the Utilities, the subsidy component 

has come down gradually from Rs 1,626 crore in 2000-01 to Rs 1,303 crore in 

2004-05. 

The cross-subsidy component in the tariff structure has also gradually come 

down from 24.35 per cent in 2000-01 to 16.39 per cent in 2004-05. There has 

also been a reduction in the retail tariffs in respect of the subsidising categories 

of consumers (i.e. industrial and commercial) over the years. 

1.6


1.5.5 Customer Service 

After restructuring, APERC has not only fixed the standards of performance 

(SOP) but is also monitoring their implementation. As a result, there is a 

marked improvement in the consumer services. Consumer grievance redressal 

forum has been established in each DISCOM and the Ombudsman has also 

been appointed to handle appeals. 

2 ISSUES AND WAY FORWARD 

Restructuring of SEBs is only an important step in the reform process of the 

power sector. However, much more needs to be done till the goal of creating a 

vibrant and viable power sector is reached. To achieve this, the sector needs 

continued support from the Government. The way forward to ensure sustained 

growth is: 

• The newly established power Utilities need to pursue the reform initiatives 

to further improve their performance on a sustainable basis. 

• It is imperative that the boards of directors of the Utilities are strengthened 

by inducting experienced professionals from the fields of power 

engineering, management, and finance, etc., as part time directors. 

• Action has to be taken to develop competent cadre of professionals to man 

senior positions in the restructured Utilities. In the meanwhile, 

professionals with adequate experience can be inducted on contract basis to 

the top-level positions in areas like finance, human resources, information 

technology, etc. 

• Directors on the boards of the newly created entities should be inducted 

through a transparent selection process to ensure that only competent 

professionals of adequate experience man these key positions. 

• The functional directors in the Board need to be given autonomy to operate 

and take decisions independently on the subjects allotted to them. Only 

policy issues need to be brought before the Board. 

• There is a need to delegate authority and responsibility to the 

managers/officers at all levels. It would help in fixing accountability and 

also enhance the scope for developing managerial skills. 

• DISCOMs have not been accorded full autonomy. Though the DISCOMs 

were separated from APTRANSCO more than five years ago, they are still 

1.7



operating under the directions and guidance of the APTRANCO. Each 

DISCOM should be empowered to function independently, guided by its 

own board of directors. 

• After restructuring, engineering professionals, with adequate experience 

from the power sector, were appointed as CMDs for five out of the six 

Utilities. At present, only one DISCOM is headed by an engineering 

professional. The power sector needs the services of experts with 

knowledge of intricate problems of the sector. The need of the hour is to 

choose competent persons with knowledge, experience and expertise in the 

relevant field for heading the power Utilities. Adequate avenues should be 

created so that, in course of time, competent and deserving professionals get 

an opportunity to rise to head the Utilities. 

• The vigilance activity in the DISCOMs is presently being controlled 

through the Joint Managing Director (Vigilance) of APTRANSCO. It 

should be decentralised and each DISCOM needs to handle this activity 

independently. 

1.8


CHAPTER 1 

GENERAL FINDINGS AND RECOMMENDATIONS 

1.1 IMPLEMENTATION OF REFORMS 

Andhra Pradesh has achieved a fair amount of success in the implementation of 

power sector reforms. 

The process of implementation of power sector reforms and restructuring in 

Andhra Pradesh was quite smooth with least resistance from its main 

stakeholders - the employees. The systematic approach adopted in identifying 

the problems and tackling them with utmost care right from the very beginning 

has yielded good results. The methods adopted may serve as useful guide to 

other States, which are contemplating to go for power sector reforms. The 

major factors that contributed to the success of reforms in the State are: 

• Support of the State Government. 

• Creation of a separate Reform Cell headed by a chief engineer in APSEB 

for carrying out the reforms process. 

• Creation of working groups in the reforms cell by pooling resources from 

both the retired and serving officers of the APSEB, whose rich experience 

and exposure to the problems of the power sector have greatly helped in 

planning and implementation of the reform programme. 

• Giving wide publicity to the problems being faced by the power sector and 

the necessity for undertaking reforms. 

• Carrying out negotiations with the employee associations and unions and 

gaining their support by entering into tripartite agreements involving the 

State Government, APSEB and the employee’s associations/unions. 

• Recognising the employees as major stakeholders in the reform process and 

addressing their concerns. 

• Sensitising the legislators, media representatives, industrial and other 

consumer associations and employees on the then ongoing reform 

programme. 

• Involvement and active participation of the Secretary (Energy) of the State 

Government and the Members of APSEB in the weekly meetings conducted 

to review the progress of reform activities. 

1.9



• Provision of good consultancy support by M/s ICICI, SNC Lavalin 

(Canada), PricewaterhouseCoopers, Arthur Anderson, NERA and others. 

1.2 MILESTONES 

Important milestones in the implementation of power sector reforms in Andhra 

Pradesh are: 

• Entering into tripartite agreements with the employee associations and 

unions. 

• Enactment of Andhra Pradesh Electricity Reform Act, 1998 (Act No. 30 

of 1998 of Andhra Pradesh) and creation of Andhra Pradesh Power 

Generation Corporation (APGENCO) for generation function and Andhra 

Pradesh Transmission Corporation (APTRANSCO) for transmission and 

distribution functions from 1 February 1999. 

• Establishment of Andhra Pradesh Electricity Regulatory Commission on 1 

April 1999. 

• Creation of four separate DISCOMs, namely EPDCL (headquarters, 

Visakhapatnam), NPDCL (headquarters, Warangal), CPDCL 

(headquarters, Hyderabad and SPDCL (headquarters, Triupati) as 

subsidiaries of APTRANSCO. 

• Conferring financial autonomy on the DISCOMs. 

• APTRANSCO withdrawing from the power trading function and 

entrusting the responsibility of purchasing bulk power directly from the 

generating companies to the DISCOMs. 

1.3 GENERAL FINDINGS AND LESSONS LEARNT 

The general findings and lessons learnt regarding specific issues in the power 

sector reform and restructuring process in Andhra Pradesh are discussed below: 

1.3.1 Political Support 

Andhra Pradesh was fortunate in getting strong political support for the power 

sector reforms from the beginning. Shri N.T. Rama Rao, the then Chief 

Minister of Andhra Pradesh, took the initiative in 1995, by appointing a High 

Level Committee to study and report on the ways and means to restructure the 

SEB. In 1997, the Government came out with a policy statement on reforms 

and restructuring of the power sector. The Government actively supported the 

1.10


publicity campaign undertaken by the APSEB to educate the public on the need 

for reforms. The policy statement of the Government clearly indicated that 

steps would also be taken to promote private sector participation in distribution. 

It reflected strong political support to the power sector reforms. No wonder, the 

process of implementation of the power sector reforms and restructuring was 

carried out smoothly with least resistance from the employees. 

1.3.2 Planning and Consultants Support 

The policy statement of the Government provided the general outline of the 

proposed reforms and the changes contemplated in the organisational structure. 

Detailed analysis of issues involved, planning and implementation of various 

steps in the reform process were carried out by the specially created Reforms 

Cell with the active support of the Government and the APSEB. Valuable 

inputs provided by the national and international consultants helped in 

resolving issues at various stages of the reform process. ‘. As major chunk of 

the ‘Technical Assistance’ support was through grants, there was not much 

financial burden on the State for receiving the consultancy support. 

Good consultancy support in the initial phase of reform process is an essential 

requirement for the success of the reforms. It was available for Andhra Pradesh 

through ICICI (financial restructuring), SNC Lavalin (technical fields such as 

load forecasting, generation planning, load flow studies, transmission planning, 

etc.), PricewaterhouseCoopers (organisational structures, human resources, 

etc.) Arthur Anderson (institutional development) and National Economic 

Research Associates, USA (assistance to the Regulatory Commission). 

1.3.3 Impact of Electricity Regulatory Commission 

The regulatory process is a very vital element of the reform and restructuring 

process of the power sector. Establishment of an independent Regulatory 

Commission is essential not only to exercise regulatory control but also to 

bring in the necessary co-ordination between different entities/players created 

in the process of restructuring. 

APERC came into existence w.e.f. 1 April 1999. The Commission took control 

of regulating the power sector in right earnest. Measures taken by APERC, 

which had impacted the State power sector are: 

1.11



• Granting of Licenses to APTRANSCO (transmission and bulk supply 

license) and the four DISCOMs (distribution and retail supply license), 

prescribing detailed conditions to carry out their functions. 

• Prescribing standards of performance to the licensees. 

• Carrying out tariff adjustments every year. Tariff revisions were not 

allowed earlier for political reasons in spite of rising costs of inputs and 

labour. 

• Fixing the subsidy to be provided by the Government annually and ensuring 

the flow of subsidy to the power Utilities on a regular basis. Earlier, there 

was no flow of cash subsidy. 

• Bringing transparency in the functioning of power Utilities by conducting 

public hearing on tariff filings. 

• Allowing only prudent expenditure by exercising control over the 

investments proposed by the Utilities. 

• Scrutiny and clearance of the power purchase agreements proposed to be 

entered into by the Utilities. 

All the above measures taken by APERC have started yielding results and the 

improvement in the overall functioning of the Utilities are quite visible. The 

major gains of the measures taken by the APERC are: 

• Regular annual tariff adjustments allowed by the Commission has bridged 

the gap between the expenditure and revenue. The revenue deficit for the 

year 1997-98 was about Rs 1,170 crore. 

• There is regular flow of cash subsidy from the Government and a gradual 

reduction in the subsidy component on account of efficiency gains. It has 

come down from Rs 1,626 crore (2000-01) to Rs 1,303 crore (2004-05). 

• The efficiency improvements in metering, billing and collection, brought 

about with the close monitoring by the Commission, has largely contributed 

to the increase in the annual receipts from Rs 4,841 crore (1999-2000) to Rs 

8,817 crore (2004-05). 

• Overall T&D losses have come down from 38 per cent (1999-2000) to 21.4 

per cent (2004-05). 

• Gradual reduction in cross-subsidy component provided by the industrial 

sector, resulted in reduction in the retail tariffs applicable to the sector. 

1.12


• Standards of performance for consumer services are fixed and enforcement 

mechanism ensured through the consumer grievance redressal forums 

established in the DISCOMs and the appointment of Ombudsman. 

1.3.4 Organisational Development and Autonomy 

The power industry in the State grew phenomenally during almost four decades 

of the existence of APSEB. Rise in consumer strength from a mere two lakh in 

1960 to more than one crore by 1998-99 indicated its growth in good measure. 

Along with the growth, APSEB, a vertically integrated power Utility, had to 

encounter certain managerial problems, both operational and financial in 

nature. On account of the increasing gap between the demand and supply, the 

Board has to impose power cuts and restrictions affecting the quality of supply. 

Non-remunerative tariffs and revenue deficits had left APSEB in a financial 

crunch, posing a serious challenge to its capacity of debt servicing and resource 

mobilisation. After studying and analysing the prevailing conditions, the High 

Level Committee of experts, appointed by the Government, suggested bringing 

in certain changes in the organisational structure of the power industry in the 

State. In 1997, the Government gave its approval for reform and restructuring 

of power sector. Ultimately the restructuring of APSEB took place in February 

1999 and two corporate entities Andhra Pradesh Power Generation Corporation 

(APGENCO) for generation function and Transmission Corporation of Andhra 

Pradesh (APTRANSCO) for transmission and distribution functions were 

created. The distribution function was later separated from the APTRANSCO 

and vested in four DISCOMs created on geographical area basis (north, east, 

central and south). 

1.3.4.1 Benefits 

The benefits derived by creation of corporate bodies in place of APSEB are 

analysed hereunder: 

• APSEB was one of the largest power Utilities in the country and it had 

become unwieldy to manage effectively. Six separate corporate entities 

were created in place of APSEB to manage the affairs either on functional 

lines as in the case of generation and transmission companies or on local 

area segment basis as in the case of DISCOMs. 

• In the restructured scenario, inefficiencies are localised and largely 

identified by the DISCOMs. The State generation company took control of 

1.13



power stations in the State and faced no problems of management. The 

transmission company has generally being running in an efficient manner 

and transmission losses in the system are not very high. There have been 

significant achievements in the reduction of the distribution losses after the 

DISCOMs came into existence. 

• In the integrated set up (APSEB), inadequate investments were made on 

development of transmission and distribution network as priority was 

always accorded to the generation segment. Now the companies can 

independently plan and implement their investments. In APSEB, project 

finances, received from the funding agencies for the transmission and 

distribution networks, were often getting diverted to the generation 

segment. In the present set-up, there is no scope for such a contingency. 

• APSEB was functioning more or less like a Government department with 

little or no commercial orientation. The new corporate bodies can bring in 

more commercial focus in their functioning. 

• It has become easier for the DISCOMs to obtain project approval, sanction 

of estimates/funds because of the existence of local corporate headquarters. 

1.3.4.2. Deficiencies 

The deficiencies in the organisational structure in Andhra Pradesh power sector 

are: 

• DISCOMs have not been accorded full autonomy. These companies are 

still functioning under the directions and guidance of APTRANSCO. 

• There is a need for clear-cut delegation of powers and authority to different 

levels of managers/officers. At present, almost all powers and authority rest 

with the corporate headquarters, as was the case with the erstwhile APSEB. 

• Not much of accountability and responsibility are assumed by the fieldlevel 

officers since adequate powers and authority have not been delegated 

to them. Such an environment is not conducive for the development of 

managerial skills in the individuals, who have to provide quality output in 

their day-to-day operations. Poor quality of output not only hampers the 

progress but also eventually affects the performance of the company. 

• The board of directors of the restructured entities are appointed by the 

Government, which holds 100 per cent shares in these companies. Many a 

time, the selection is not based on the knowledge and competence of the 

1.14


individuals but by other considerations and compulsions. Consequently, the 

new corporate bodies are unable to achieve the reform goals since their top 

managements are ill-equipped to take forward the reform initiatives. 

• The bureaucratic influence on the governmental decisions has resulted in 

Chief Executive level positions (i.e. CMDs) in the restructured corporate 

bodies being gradually occupied by the officers from the administrative 

service, ignoring even the competent engineering professionals with 

experience of more than three decades in the power sector. The incumbents 

from the administrative service are often being transferred in a short span 

of a year or two. Such decisions and practices can hamper the progress of 

reform. 

• The functional directors in the Board have not been given full autonomy to 

take decisions independently on the subjects allotted to them. 

• One of the major goals of reform is to limit the role of the Government to 

policy and planning matters, leaving the day-to-day management of the 

power Utilities to the respective Boards. However, in actual practice, the 

interference and influence by the Government is still in evidence. 

The power Utilities in Andhra Pradesh will be able to perform much better if 

the above deficiencies are suitably addressed. 

1.3.5 Human Resources Development 

Human Resource Development is recognised as a vital factor for the healthy 

development of the power sector. Employees are major stakeholders in the 

reform process and their support is necessary for successful implementation of 

reforms. Realising the above fact, negotiations were held with the employee 

associations and unions in Andhra Pradesh in the early stages of the reform 

process. Tripartite agreements were entered into with the employees’ 

associations and unions, assuring them that the service interests and conditions 

of the staff would be safeguarded. 

1.3.5.1. Human Resources Management 

The restructured power Utilities have taken the following steps in HR 

management: 

• Created separate human resource management cells in each company to 

handle HR issues. 

1.15



• Inducted HR specialists from outside to head the HR management cells. 

• Availed consultancy support to frame new service conditions for the 

employees recruited by the companies and to suggest improvements in the 

service conditions of the existing employees. 

• Compiled relevant data of the existing employees. 

1.3.5.2. Action Called For 

Despite efforts made in this direction, further steps are required in the 

following areas: 

• Effective HR planning and forecasting the future HR needs. 

• Performance management including developing the performance indicators 

and institutionalising the performance review system. 

• Developing job descriptions and specifications. 

• Recruitment and selection strategy and career development. 

• Promotion and transfer policies. 

• Developing competency profiles and regular monitoring/review of 

competency of senior level managers. 

• Improvement of the training facilities and planning and conducting regular 

courses for skills development of the personnel of the Utilities. 

• Effective dispute resolution and grievance redressal process. 

• Creation and maintenance of an effective HR information system. 

1.3.6 Performance Improvement 

After restructuring, there is a marked overall improvement in the operations of 

the power Utilities in Andhra Pradesh. Major improvements have been brought 

about in the following areas: 

• Metering, billing and collection of revenues. 

• Bridging the gap between expenditure and receipts. 

• Facilitation of flow of funds for capital works. 

• Reduction in AT&C losses. 

• Reduction in transformer failure rate. 

1.16


• Improved customer care. 

However, there is scope for further improvements as indicated below: 

• Continuation of firm support from the Government for reform and 

restructuring; 

• Appointment of persons committed to reforms to the board of directors; 

• Establishment of transparent and proper selection process for appointments 

of the CMD and other board directors. 

• Strengthening vigilance cells in the DISCOMs to take effective measures to 

minimise electricity thefts. At present, the vigilance activity of all the four 

DISCOMs is controlled and monitored through the Joint Managing Director 

(Vigilance) of the transmission company. Decentralisation of this activity 

will place more responsibility on the individual boards of managements and 

foster competition to curb pilferages and thefts of energy. Personnel chosen 

to serve in the Vigilance Cells should be of proven integrity. 

• There is a general impression that the morale of the staff at consumer 

interface point is low. The management should take effective measures to 

address this issue. 

1.3.7 Customer Satisfaction 

Measures taken to improve customer service include: 

• Fixing of consumer service standards by the Commission. 

• Consumer grievance redressal procedures. 

• Institutionalising the consumer’s grievance redressal mechanism by 

creating consumer grievance redressal forums and the institution of 

Ombudsman. 

• Creation of consumer complaint cells at sub-division level for recording and 

monitoring complaints. 

As a result of the measures already taken, there is an improvement in the 

customer care. However, further improvements can be achieved by fully and 

effectively operationalising the consumer grievance redressal forums. 

1.17



1.3.8. Implementation of parallel measures including APDRP 

The DISCOMs have received good support from the Accelerated Power 

Development and Reforms Programme (APDRP) for network strengthening. 

The schemes covered under APDRP are in various stages of implementation. 

The following benefits have been derived by implementing the schemes under 

APDRP: 

• Reduction of distribution losses; 

• Reduction of interruptions; and 

• Reduction in over loading the power and distribution transformers, thereby 

reducing the transformer failures. 

The following measures are suggested for effective use of resources under 

APDRP: 

• Realistic assessment of the improvements required in the project areas at 

the time of preparation of the project; and 

• Benchmarking the parameters for proper assessment of the benefits derived 

after implementation of the projects. 

1.18


2.1 INTRODUCTION 

CHAPTER 2 

RESTRUCTURING EXERCISE 

APSEB was one of the well-managed SEBs in the country. It was consistently 

earning three per cent rate of return (ROR) on net fixed assets till the late 

1980s. The financial strain started in the 1989-90, when it achieved only 0.81 

per cent ROR. The deterioration in the financial position continued and by the 

end of 1997-98, the outstanding dues of APSEB were the order of Rs 2,600 

crore. The worsening financial situation of APSEB was caused by: 

• Increase in the capital costs due to increase in the costs of capital 

equipment; 

• Increase in the running costs due to increase in the costs of fuels (coal, oil, 

etc.) and transportation charges; 

• Increased burden of debt servicing; 

• Lack of political support to allow tariff adjustments to meet the growing 

cost of supply; 

• Introduction of slab rate tariff to agricultural consumers in 1982-83; 

• Increase in consumption by the agricultural consumers due to the addition 

of adding new services (of the order of one lakh or even more every year); 

• No flow of cash subsidy from the State Government; and 

• Rising T&D losses due to inadequate investments in the T&D network 

expansion and illegal tapping of electricity by the users. 

Due to the prevailing financial crisis, APSEB was not in a position to raise 

funds for its capital investments. Even the Power Finance Corporation (PFC) 

and the Rural Electric Corporation (REC) had stopped further lending on 

account of mounting overdue payments. The Independent Power Producers 

(IPPs) were facing problems in getting financial closures for their projects 

because of the weak financial health of APSEB, which was conceived as the 

sole buyer of the power produced by them. The FIs, both national and 

international, started insisting on reform and restructuring of APSEB as a 

precondition for lending support for the capital requirements of the power 

1.19



sector. Realising the gravity of the situation, the State Government decided to 

go in for reform and restructuring of APSEB. 

2.2 BACKGROUND 

2.2.1 High Level Committee 

Realising the need for reform and restructuring of APSEB, in January 1995, the 

State Government appointed a High Level Committee headed by Shri Hiten 

Bhaya, ex Member, Planning Commission, to study and report on the issues of 

restructuring of power sector, private investments in the industry, guidelines on 

tariffs, etc. The High Level Committee, consisting of the following eminent 

power sector experts, presented its report to the Government in April 1995: 

Shri Hiten Bhaya, Ex-Member, Planning Commission Chairman 

Shri N. Tata Rao, Ex-Chairman, APSEB Member 

Shri S. Sankara Guru Swami, Ex-Secretary (Energy), 

Government of India 

Member 

Shri K. Balaram Reddy, Chairman, APSEB Member 

Shri E.A.S. Sarma, Secretary (Energy), Government of A.P. Member 

One of the major recommendations of the Committee was restructuring of 

power sector by separating generation, transmission and distribution functions. 

The report was immediately placed before the State Assembly for a debate. 

2.2.2 Common Minimum National Action Plan 

The Government of India had taken several initiatives to revitalise the ailing 

power sector in the country including convening a Conference of Chief 

Ministers of different States. The outcome of the Conference was the 

recognition of the need for reforms in the power sector and enunciating the 

steps required to be taken by the State Governments to implement the reforms. 

The ‘Common Minimum National Action Plan for Power’ was released by 

Government of India after the Chief Ministers’ conference. The Common 

Minimum National Action Plan contained among other things: 

• Restructuring of SEBs; 

• Setting up of an autonomous State Electricity Regulatory Commission; 

• Private sector participation in distribution business; and 

1.20


• Tariff for agricultural sector to be fixed at not less than 50 paise per unit 

(kWh) to start with and gradually to be brought up to 50 per cent of the 

average cost of supply. 

2.2.3 Policy Statement on Reforms 

The Government of Andhra Pradesh, duly recognising the need for reforms in 

the power sector, issued a policy statement in April 1997 clearly stating the 

objectives of the reforms and the strategy to be followed in implementing them. 

Restructuring the APSEB, establishment of an independent SERC and tariff 

reforms were part of this strategy. 

The restructuring contemplated in the policy statement was as indicated below: 

“Restructuring of the APSEB, by way of restructuring the vertically integrated 

Electricity Board into commercially viable functional entities for generation, 

transmission and distribution. The transmission function will be handled by the 

APSEB, which itself would be converted into a corporate body under the 

Indian Companies Act, 1956 with the State Government as the sole equity 

holder. The generating stations of the APSEB would also be constituted into a 

separate generating company. The power distribution system in the State shall 

be separated into distinct contiguous areas, each of which would be 

administered by a separate DISCOM. Each DISCOM would be sustainable 

both technically and financially on an autonomous basis. In the first instance, 

all such DISCOMs would function as wholly-owned subsidiaries of the 

transmission company. Based on further technical studies, steps would be taken 

to promote private sector participation in distribution through setting up of 

appropriate mechanisms like joint ventures, etc.” 

It is clear from the above that the State Government intended to promote 

private sector participation in the distribution business. 

2.2.4 Performance of APSEB 

APSEB was one of the largest and most efficiently run power Utilities in the 

country. Since the formation of the Board in 1959, the State witnessed 

phenomenal growth in the power sector. The figures given below bring out the 

tremendous achievements made by APSEB during its existence of about four 

decades: 

1.21



Particulars 1959-60 1997–98 

Installed generation capacity (MW) 213 7,276 

Villages electrified (No.) 2,496 26,565 (100%) 

No. of consumers (lakh) 2 100 

No. of agricultural connections (lakh) 0.13 20 

In spite of the impressive performance of APSEB, it had to face certain serious 

problems in managing the power sector. Some of them were: 

• Increasing revenue deficit year after year; 

• Coping with un-remunerative tariffs due to lack of support from 

Government for tariff revisions; 

• Outstanding liabilities (amounting to Rs 2,600 crore) at the end of the 

year 1997-98; 

• Due to poor financial position of the Board, FIs were not willing to 

provide project finances; 

• Due to lack of adequate investments, the gap between demand and 

supply widened; 

• Power shortages which led to increased power cuts; and 

• Government not providing subsidy in cash. 

2.3 PROGRESS OF RESTRUCTURING 

The reform and restructuring exercise in Andhra Pradesh power sector started 

in June 1997 with the creation of a Reform Cell. Officers, with requisite skills 

and experience (serving as well as retired) were selected and drafted to the 

Reform Cell. Ten working groups were also constituted. Each group was 

entrusted specific task. The reports prepared were presented to the members of 

the Board for appropriate decisions. Active involvement of the members of the 

Board in the reform exercise was evident from the fact that the weekly 

meetings were held at Board level to review the progress of reform activities. 

Secretary (Energy), Government of Andhra Pradesh also took part in these 

review meetings. The process followed greatly helped in implementation of the 

restructuring process. 

On 1 February 1999, APSEB was restructured into APTRANSCO and 

APGENCO. 

1.22


APTRANSCO handled the transmission and distribution functions and 

APGENCO was assigned the generation function. Subsequently, the 

distribution function was separated from APTRANSCO and the following 

DISCOMs were created: 


APEPDCL Vishakapatnam 

APNPDCL Warangal 

APCPDCL Hyderabad 

APSPDCL Tirupati 

The APERC came into existence in April 1999. 

The following milestones are worth mentioning: 

• Carrying out publicity campaign to gain requisite support of various 

stakeholders; 

• Conducting negotiations with employees’ associations and unions and 

entering into tripartite agreements; 

• Enactment of the Andhra Pradesh Electricity Reform Act, 1998; 

• Preparation and implementation of two Transfer Schemes – one for 

transfer of assets, liabilities and personnel from APSEB to APGENCO 

and APTRANSCO and the other for transfer of distribution assets, 

liabilities and personnel from APTRANSCO to the four successor 

distribution companies; and 

• Preparing the Financial Restructuring Plan (FRP) and obtaining the 

necessary approval. 

Initially, the bulk supply trading function was with APTRANSCO. However, 

in line with the provisions of the EA, 2003, the trading function has since been 

transferred from the APTRANSCO to the respective DISCOMs. 

2.4 PRESENT STATUS 

As a result of restructuring, six corporate entities have come into existence in 

place of APSEB. APERC, established in April 1999, has so far issued seven 

tariff orders starting from the year 2000-01. The rural electric co-operative 

societies have been merged with the territorial DISCOMs. Andhra Pradesh did 

not encounter any major problems in the restructuring exercise. So far the 

implementation of reform measures has been smooth and successful. 

1.23

CHAPTER 3 

IMPACT OF RESTRUCTURING 

3.1 ORGANISATIONAL PATTERN OF THE RESTRUCTURED ENTITIES 

The Reforms Cell, set up by APSEB, developed the organisational structures 

for APGENCO and APTRANSCO. Recommendations on issues such as 

composition of the board of directors (whole-time and part-time) were placed 

before the APSEB and the Government and the same were accepted with minor 

modifications. The top level management structures implemented for 

APGENCO and APTRANSCO initially are indicated below: 

3.1.1 Structure of APGENCO 

Director/ 

Thermal 

APGENCO Top-Level Organisational Chart 

Executive Director (HR) is not a member of the board of directors but he will 

function independently and report directly to the board. The other six 

(including CMD) are whole time functional directors. Though the maximum 

number of Directors in the company can go up to 12, the actual number of 

directors is restricted to six. There are no independent outside directors (parttime) 

on the board. 

3.1.2 Structure of APTRANSCO: 

Director/ 

Transmis 

sion 

Director/ 

Hydel 

Director/ 

Technical 

Director/ 

Finance 

Director/ 

Commercial 

APTRANSCO Top-Level Organisational Chart 

Director/ 

Distributi 

on 

Chairman & Managing Director (CMD) 

Director/ 

Distn-II 


Director/ 

Distn-III 

Director/ 

Tech. 

Director/ 

Comml. 

Executive 

Director/HR 

Director/ 

Finance 

Director/ 

Time 

Directors-3 

Of the two independent directors on the Board, one is the CMD of APGENCO 

and the other is a representative of the Power Grid Corporation of India



Limited (PGCIL). The Secretary and the Member (Finance) of the erstwhile 

APSEB have been inducted to the positions of CMD and Director (Finance) 

respectively in the board of directors of APTRANSCO. All other directors 

appointed are from engineering background with experience in APSEB. 

Subsequently, the Board has been further expanded with the induction of two 

joint managing directors, one for HR and administration (from Indian 

Administrative Service) and the other for vigilance and security (from Indian 

Police Service). 

With the creation of four DISCOMs certain changes have been made in the 

composition of board of directors of APTRANSCO. The three positions of 

Director (Distribution) have been abolished and the incumbents posted as MDs 

of three DISCOMs. The Director (Technical) of APTRANSCO was posted as 

MD of the fourth DISCOM. The MDs of the DISCOMs were later made CMDs 

of the same. 

The structure of the APTRANSCO management board has been further altered. 

At present, Principal Secretary (Energy) and Secretary (Finance) of the State 

Government are part-time directors in the board of APTRANSCO. 

3.1.3 Structure of DISCOMs 

DISCOMs were created as subsidiaries of APTRANSCO in 2001. Initially, the 

companies started functioning with only one top-level executive, i.e., the 

managing director. The CMD of APTRANSCO was Chairman of all the four 

DISCOMs. The DISCOMs have later become autonomous and their Boards 

were reconstituted with the induction of whole-time directors and redesignating 

the managing director (MD) as chairman and managing director 

(CMD). The top-level organisational structure of the DISCOMs is indicated 

below: 

Top-level Organisation Chart of DISCOMs 

Director/ 

Operations 


Director/ 

Projects 

Director/ 

Planning & 

Commercial 

1.25 

Director/ 

Finance 

Non-Whole 

Time 

Directors-2


Any two whole time directors of APTRANSCO also function as part-time 

directors in each DISCOM. One of the four DISCOMs has only four wholetime 

directors, including the CMD, whereas the other three DISCOMs have 

five whole-time Directors. 

3.2 FUNCTIONAL AUTONOMY AND INADEQUACIES 

APGENCO and APTRANSCO have adequate functional autonomy, since there 

is minimal interference by the Government. The DISCOMs originally started 

as subsidiaries of APTRANSCO and later became independent with the 

constitution of their own Boards of directors. The power procurement function, 

which was handled earlier by APTRANSCO, is now being performed by the 

respective DISCOMs under the multi-buyer model (MBM). However, the 

DISCOMs are still functioning under the control and guidance of 

APTRANSCO. 

1.26

4.1 GENERATION 



CHAPTER 4 

SPECIFIC ISSUES 

Consequent to restructuring, the generation assets of the erstwhile APSEB were 

vested with APGENCO. The company undertakes the responsibility of 

operation and maintenance of the existing power plants and also takes part in 

creating new capacity additions in the State. The company initially had power 

purchase agreements (PPAs) with APTRANSCO. Since the bulk supply trading 

function is no longer with APTRANSCO, power generated by APGENCO is 

being directly sold to the four DISCOMs in the State w.e.f. June 2005. 

4.1.1 Capacity Additions 

At the time of initiating reforms, it was contemplated that most of the future 

capacity additions would come from independent power producers (IPPs) and 

the contribution from APGENCO would be very limited. The planning cell and 

the investment promotion cell, which were looking after capacity additions in 

APSEB, were transferred to the control of the transmission company at the 

time of restructuring. Hence the responsibility of planning for capacity 

additions, calling bids and entering into commercial agreements rested with 

APTRANSCO. 

The generation capacities, as existing at the end of 1998–99 (a year prior to 

restructuring) and end of 2004–05, from various sources are indicated below: 

Table: Progress in Installed Generating Capacity 

Source 

1.27 

Installed Capacity (MW) 

1998–99 2004–05 Increase 

State Sector 

(APSEB/APGENCO) 

5611 6581 970 

Central Sector 885 2571 1686 

Joint Sector 272 272 - 

Private Sector 424 999 575 

Non-conventional 

Energy and other sources 

138 683 545 

Total 7330 11106 3776


It can be seen that the major capacity additions of 1,686 MW had come from 

the central sector, of which 1,000 MW was from the State dedicated Simhadri 

Power Station of NTPC, located at Vishakapatnam. Private sector contribution 

was only 575 MW in six years. The following major power stations, planned 

under the private sector, did not materialise for want of financial closures: 

• 1000 MW Power Station at Vishakapatnam by M/s Hindujas. 

• 1000 MW Power Station at Krishna Patnam by M/s GVK Power and BBI. 

• 500 MW Power Station at Ramagundam by M/s BPL. 

After restructuring, APGENCO’s major contribution was the 900 MW 

Srisailam Left Bank Hydel Station (6x150 MW). The balance sheets of the 

State Utilities has inspired enough confidence in the FIs to provide financial 

support for the projects of APGENCO. The following projects of APGENCO 

are under various stages of execution: 

Project Capacity 

Schedule of 

Completion 

RTPP-II Stage 2 x 210 MW 2006-07 

VTPS-IV Stage 1 x 500 MW 2008-09 

KTPS-VI Stage 1 x 500 MW 2009-10 

Bhupalapalli Thermal Station 1 x 500 MW 2008-09 

Jurala Hydel Station 

1 x 39 MW 

5 x 39 MW 

2006-07 

2008-09 

Nagarjunasagar Tailpond Hydel Station 2 x 25 MW 2008-09 

Pochampad Hydel Station Unit-4 1 x 9 MW 2008-09 

Total 2,213 MW 

The following gas-based power plants, under the private sector, are expected to 

be commissioned soon: 

GVK Extension I 220 MW 

Vemagiri Stage I 370 MW 

Gouthami Stage I 464 MW 

Konaseema 445 MW 

Overall, there is satisfactory progress in capacity additions after reform and 

restructuring of the power sector. 

1.28

4.1.2 Operational Efficiency 



The performance of APGENCO is shown in the table below: 

Performance of APGENCO 

Performance 

Parameters 

1998-99 

1999-2000 2000-01 

After Restructuring 

2001-02 2002-03 2003-04 2004-05 

Installed capacity (MW) 5,611.5 5,626.5 5,627.5 5,927.5 6,396.7 6,560.9 6,580.9 

Energy generated (MU) 27,022.8 29,632 29,163 28,003 2,6370 25,420 28,717 

Auxiliary consumption (%) 9.17 9.21 9.09 9.01 9.07 9.15 9.09 

Secondary oil consumption 

(ml/kWh) 

1.70 1.26 0.98 0.95 0.64 0.56 0.50 

Plant Load Factor (%) 77.6 83.2 85.1 86.3 88.9 86.0 89.7 

Plant availability (%) 84.8 89.7 89.2 89.6 92.5 90.6 92.5 

Employees per MW of 

Installed capacity 

2.56 2.69 2.16 2.06 1.85 1.77 1.72 

The above performance data reveals the following: 

• The energy generation increased initially in the first two years after the 

new company was formed but again fell on account of shortfall in Hydel 

generation due to inadequate inflows into the reservoirs; 

• PLF has increased from 77.6 per cent in 1998-99 to 89.7 per cent in 2004- 

05; 

• Plant availability has increased from 84.8 to 92.5 per cent during the same 

period; 

• Auxiliary consumption is consistently in the range of 9 per cent; 

• Secondary oil consumption has come down from 1.70 ml/kWh to 0.50 

ml/kWh in the last six years; and 

• The ratio of employees per MW installed capacity has gradually come 

down from 2.56 to 1.72. 

It is evident from the above that there is commendable improvement in the 

performance of APGENCO. 

4.1.3 Profit/Loss 

APGENCO has consistently earned profits right from its inception. The 

following figures show the company’s performance from 2002-03 to 2004-05. 

Particulars 2002-03 2003-04 2004-05 

Profit after tax (Rs crore) 55.73 10.46 51.64 

Percentage of net profit to equity capital 3.23 0.56 2.71 

1.29


4.1.4 Way Forward 

The generation wing of APSEB was performing well even before restructuring. 

The overall performance of APGENCO has further improved during the last 

five years. Vijayawada Thermal Power Station and Rayalaseema Thermal 

Power Station have won national level awards for best performance several 

times in the last ten years. However, sustained efforts are required to maintain 

the performance levels. The way forward for the generation company is: 

(i) Restoring the post of Chairman and Managing Director (CMD). The 

post was recently split into two positions and the Principal Secretary 

(Energy) was made the Chairman of APGENCO. Another officer of the 

administrative services was posted as Managing Director. The position of 

CMD was created in line with that of the Central power Utilities, as part 

of the power sector reforms, and splitting it would not serve the purpose; 

(ii) Appointment of an experienced and competent generation specialist 

as chairman and managing director. After the post of CMD was split 

up the position of managing director has been filled by an officer of the 

administrative service. Power generation is a highly technical field and 

requires to be headed by a generation specialist, who has the experience 

and knowledge of the intricate problems of power generation. There is no 

dearth of such specialists; 

(iii) Originally, there was only one PPA between APGENCO and 

APTRANSCO and the billing was based on the overall cost per unit 

delivered. The same procedure is continuing even now. There is a need 

to have station-wise PPAs structured and entered into with the DISCOMs; 

and 

iv) There is scope for further reduction in the percentage of auxiliary 

consumption (which is above nine per cent at present). 

4.2 TRANSMISSION 

As already mentioned, the transmission and distribution assets were initially 

vested with APTRANSCO at the time of restructuring in 1999. Subsequently in 

2002, the distribution business was separated with the creation of four 

DISCOMs. Again in June 2005, the bulk supply business was transferred from 

APTRANSCO, leaving only transmission and load dispatch functions under its 

control. The bulk supply transactions at present are handled directly by the four 

DISCOMs. In due course, the load dispatch function would get separated and 

1.30



APTRANSCO would manage only the transmission function. Though the 

distribution function has been separated from APTRANSCO, the company is 

still exercising control over the four DISCOMs, which is diluting the principle 

of separating distribution function from transmission. 

4.2.1 Reduction in Transmission Losses 

APTRANSCO has achieved appreciable results in reducing transmission losses 

as can be seen from the table below: 

Particulars 

1999 

-00 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

2004 

-05 

Transmission losses (%) 8.98 8.94 8.18 7.55 6.11 4.91 

Reduction in losses over 

1999-2000 (percentage points) 

- 0.04 0.80 1.43 2.87 4.07 

Reduction in losses from 8.98 per cent in 1999-2000 (i.e. the first year after 

restructuring) to 4.91 per cent in 2004-05 indicates the significant efforts made 

by APTRANSCO in this vital area. Strengthening of the transmission network 

did not receive adequate attention in the integrated set-up of APSEB. After 

restructuring, APTRANSCO has been able to pay better attention to 

strengthening the transmission network. This has resulted in sizeable reduction 

in transmission losses. 

4.2.2 Operational Efficiency 

Operational efficiency of the transmission system in Andhra Pradesh has 

improved after restructuring, as can be seen from the reduction in transmission 

losses in the last five years. The maximum and minimum frequency levels have 

improved during the same period from 51.12 Hz and 47.80 Hz to 50.84 Hz and 

48.62 Hz respectively. 

The maximum and minimum voltages recorded at 132 kV level in 1999-2000, 

(i.e. the first year after restructuring) were 129 kV and 92 kV respectively. By 

2004-05, the maximum and minimum voltages at 132 kV level have improved 

to 140 kV and 121 kV respectively. This indicates the improvement in the 

voltage levels of the transmission system. 

The availability of the transmission system and the cost recovery after 

restructuring are indicated in the table below: 

Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 

Availability of 

transmission system (%) 

99.60 99.44 99.97 99.35 99.85 

Recovery of cost (%) 77.19 97.49 102.47 100.64 100.33 

1.31


The system availability has been always above 99 per cent and the cost of 

recovery has improved to over 100 per cent. 

4.2.3 Network Expansion 

APTRANSCO initially received investment support from the World Bank for 

the vital projects of network expansion and strengthening. The first 400 kV 

transmission project was completed with investment support provided by 

OECF (presently Japanese Bank for International Co-operation or JBIC in 

short). Financial assistance was also received from PFC and REC for the 

transmission projects of APTRANSCO. The table below gives an indication of 

the increased investments in the transmission before and after restructuring; 

Before Restructuring After Restructuring 

Years 

Investment 

(Rs crore) 

Years 

Investment 

(Rs crore) 

1995-96 99.57 1999-00 424.19 

1996-97 60.96 2000-01 420.14 

1997-98 115.29 2001-02 459.11 

1998-99 205.00 2002-03 362.62 

2003-04 248.01 

2004-05 415.38 

The transmission network expansion after restructuring is indicated in the table 

below: 

Item 

At the end of the 

Year 

1998-99 2004-05 

1.32 

Total 

Increase 

Average 

Annual 

Increase 

400 kV lines (ckt km) - 2,033 2,033 339 

220 kV lines (ckt km) 8,203 11,462 3,259 543 

132 kV lines (ckt km) 10,634 13,351 2,717 453 

400 kV sub-stations (No.) - 3 3 1 

220 kV sub-stations (No.) 56 78 22 4 


The above figures reveal that greater and focussed attention is being given to 

expansion of the transmission network after the creation of APTRANSCO. 


APTRANSCO is among the best performing transmission companies in the 

country. The company has made sizeable investments and strengthened the 

transmission network. However, there is scope for further improvement as 

indicated below:



(i) Distribution is a separate business, now under the control of the four 

independent DISCOMs, which are required to perform better in a 

competitive environment. The only link the DISCOMs have with 

APTRANSCO is in utilising the transmission network and paying the 

transmission charges as per the tariff orders of APERC. Under the 

circumstances, it is appropriate that APTRANSCO does not exercise 

control over the operations of the DISCOMs, so that their autonomy is 

ensured; 

(ii) The main activities of TRANSCO are: operation and maintenance of the 

transmission system, carrying load flow studies, planning and executing 

the network expansion and the load dispatch operations are. Experience 

and in-depth knowledge of the transmission system operations should be 

the main criteria for selecting persons to manage TRANSCO. This aspect 

should be kept in view while appointing CMDs and other directors to the 

STU. 

(iii) The appointment of directors should be through an established selection 

process, keeping in view job specifications, qualifications and experience. 

(iv) The CMD and other directors should be initially appointed for a fixed 

period of three years. Any further extension, based on merit, should be for 

minimum period of two years. 

(v) After the distribution function has been separated, not much vigilance 

activity has been left with TRANSCO. Hence, the company does not 

require a director level officer to oversee the vigilance activities. Each 

DISCOM may have its own Director/Executive Director position for 

effective monitoring of vigilance activity. 

(vi) There is scope and need for further reduction in transmission losses. 

4.3 DISTRIBUTION 

Distribution is the most vital segment of the power industry, which has a direct 

interface with the end users of electricity. Over the years, there has been 

substantial growth in the distribution network and the number of consumers. At 

the time of initiating power sector reforms, the number of electricity consumers 

in the State was more than one crore. Associated with this growth, the 

problems of managing the distribution system have also increased, affecting the 

quality of supply. The gap between expenditure and revenue increased 

gradually, due to rising input costs, failure to get the tariff adjustments carried 

1.33


out in time and delivery of power to certain categories of customers at 

subsidised rates, without getting compensated though cash subsidies from the 

Government. The overdue payments of APSEB to the lenders, suppliers and 

contractors had crossed Rs 2,600 crore. Due to these circumstances, the State 

Government has decided to undertake reform and restructuring of the power 

sector. 

At the time of restructuring APSEB into two corporations in 1999, the 

distribution function was vested with APTRANSCO. Later in 2000, the 

distribution function was separated from APTRANSCO and vested with four 

area based DISCOMs, as mentioned earlier. 

An analysis of the performance of DISCOMs during the last four years gives a 

clear indication of the overall improvements in various fields of distribution 

business. 

4.3.1 Power Supply Position 

The demand and supply gap in both peak demand and energy existed in 

APSEB. The shortfall in the peak demand and energy prior to restructuring is 

indicated in the table below: 

Peak and Energy Shortfall: Prior to Restructuring of APSEB 

Particulars 1994-95 1995-96 1996-97 1997-98 1998-99 

Peak demand (MW) 790 1,000 1,110 850 800 

Energy (MU) 1,609 2,215 2,318 1,496 560 

Rostering of agricultural feeders and imposing load restrictions on the 

industrial customers were some of the measures adopted to manage the 

shortages. Also, there were unscheduled interruptions on account of load 

shedding. The situation has improved gradually in the post-reform period 

mainly because of the commissioning of the 900 MW Srisailam Left Bank 

Power Station and the 1,000 MW NTPC’s Simhadri Thermal Power Station (at 

Vishakapatnam). The shortfall in peak demand and energy in the post-reform 

scenario are shown in the table below: 

Peak and Energy Shortfall: After Restructuring of APSEB 

2001-02 2002-03 2003-04 2004-05 

Peak load shortage (MW) 10 4 4 113 

Energy shortage (MU) 25 394 403 493 

1.34



It can be seen from the above that there is a significant improvement in the 

power supply position in recent years. At present, there are no load shedding 

and also there are no restrictions on industrial consumers. 

4.3.2 Distribution losses 

The reduction of losses in the distribution system (both technical and 

commercial) are shown in the following table: 


Reduction of 

DISCOM 

2000-01 2001-02 2002-03 2003-04 2004-05 

Losses in last four 

years (% point) 

SPDCL N.A. 21.31 21.22 19.34 18.12 3.2 

NPDCL 26.81 23.28 21.24 20.24 19.20 7.6 

CPDCL N.A. 27.10 23.29 20.63 20.17 6.9 

EPDCL 17.90 17.30 16.80 15.30 N.A. 2.6 

It is observed that the losses in all the four DISCOMs are coming down 

gradually. The loss levels in NPDCL and CPDCL are high and the reduction in 

the losses achieved is also substantially high at around seven per cent. The 

losses in the EPDCL are the lowest at 15.3 per cent. SPDCL has brought down 

the losses from 21.31 per cent in 2001-02 to 18.12 percent in 2004-05. All the 

DISCOMs have brought down the distribution losses. 

4.3.3 Transformer failures 

The transformers failure rate (%) in the DISCOMs are as indicated below: 

Transformers Failure Rate (%) 

Particulars 2001-02 2002-03 2003-04 2004-05 

SPDCL 

Power transformers N. A. N. A. N. A. N. A. 

Distribution transformers 14.16 9.26 8.45 7.01 

NPDCL 

Power transformers 5.38 4.53 3.61 3.82 


CPDCL 

Power transformers 7.65 3.98 4.17 2.99 


EPDCL 

Power transformers 6.13 5.61 2.03 N.A 

Distribution transformers 13.87 9.48 7.25 N.A 

It can be seen from the above, that there is a reduction in the transformer 

failures (both power as well as distribution transformers) in the DISCOMs. In 

the case of NPDCL and CPDCL, though the reduction in distribution 

transformer failures is substantial, the percentages of failures at the end of 

1.35


2004–05 are still high at 11.72 per cent and 9.48 per cent respectively. Overall, 

there is a substantial reduction in the DTs failure rate as compared to the 28 per 

cent in 1999–2000 (the first year of restructuring). There is scope for further 

reduction and the trend indicates that the companies will bring in further 

improvements in the coming years. 

4.3.4 Metering 

The percentages of metered connections are indicated below: 

DISCOM Category 

Metering in DISCOMs 

Percentage of Services Metered 

2001-02 2002-03 2003-04 2004-05 

SPDCL Agricultural - - - 21.40 

Domestic - 97.0 97.5 98.5 

Industrial - 100 100 100 

Others - 100 100 100 

NPDCL Agricultural - - - 2 

Domestic 70 80 90 100 

Industrial 100 100 100 100 

Others 100 100 100 100 

CPDCL Agricultural - - - 2 

Domestic - - - 100 

Industrial - - - 100 

Others - - - 100 

EPDCL Agricultural 3.34 4.78 7.86 N.A. 

Domestic 100 100 100 100 

Industrial 100 100 100 100 

Others 100 100 100 100 

The improvements made in metering by the DISCOMs are as follows: 

• All categories of services except agriculture are metered. The percentage of 

metered services in all categories, other than agriculture, is almost 100 per 

cent. 

• Metering of agriculture services is 21 per cent in SPDCL, 8 per cent in 

EPDCL and 2 per cent in the other two DISCOMs. 

• The metered electricity consumption has increased from 38 per cent in 

1999-2000 to 52.4 per cent by 2004-05. 

• All industrial and high value services are provided with electronic meters. 

• All 33 kV and 11 kV feeders in the system have been metered. 

• Metering has been completed in respect of about 36,300 DTs. 

1.36

4.3.5 Billing and Collection 



The billing demand and collection over the years after restructuring are shown 

below: 

Details of Billing and Collection 

(Rs crore) 

Particulars 1999–2000 2000-01 2001-02 2002-03 2003-04 2004-05 

Revenue billed 4,841 5,780 6,438 7,550 8,391 8,817 

Revenue collection 4,490 5,597 6,623 7,451 8,100 8,641 

Percentage collection 92.74 96.84 102.87 98.69 96.52 97.90 

The annual revenue collected has almost doubled in the last five years after 

restructuring. The collection efficiency has increased from 92.74 per cent in 

1999-2000 to around 98 per cent in 2004-05. 

4.3.6 Collection Efficiency 

The collection efficiency in respect of major consumer categories (domestic, 

agricultural and industrial) in the four DISCOMs are indicated below: 

Collection Efficiency (%) 

Consumer Category 2001-02 2002-03 2003-04 2004-05 

SPDCL 

Domestic 97.40 98.94 97.90 95.72 

Industrial 99.23 101.02 99.67 98.77 

Agricultural 85.46 79.92 42.39 27.86 

NPDCL 

Domestic 88.29 92.07 84.61 91.93 

Industrial 99.79 98.50 97.87 98.32 

Agricultural 78.36 80.52 49.26 93.34 

CPDCL 

Overall collection 

efficiency 

97.59 91.19 102.15 95.21 

EPDCL 

Domestic 100.00 98.82 99.33 - 

Industrial 100.00 99.06 99.72 - 

Agricultural 90.00 86.88 64.74 - 

Collections under the domestic and industrial categories are consistently good 

in EPDCL. In NPDCL the collection efficiency in the domestic category has 

increased from 88 to 92 per cent, whereas the efficiency in the industrial 

category has been maintained around 98 per cent. Under the agricultural 

category, the percentage of collections has come down in the years 2003-04 

and 2004-05 in SPDCL due to the continued drought conditions in the area 

served by the company. Also, the State Government’s policy announcement of 

free power to agricultural category had affected the revenues under this 

1.37


category. In the case of CPDCL, the company has furnished figures of overall 

collection efficiencies under the three categories. 

In 2004-05, the overall collection across the State was around 98 per cent. 

DISCOMs need to put in extra efforts to achieve collection efficiency of 100 

per cent and more to reduce the arrears. 

The arrears of revenue are indicated below: 

Arrears (Rs crore) 

DISCOM 2001-02 2002-03 2003-04 2004-05 

SPDCL 297 347 492 443 

NPDCL 436 385 214 251 

CPDCL 833 955 946 1,085 

EPDCL 114 106 152 NA 

It can be seen from the above, that over the years that there has been a 

reduction in the arrears of NPDCL. However, the arrears in the other three 

DISCOMs are increasing gradually. The arrears of revenue in CPDCL have 

crossed Rs 1,000 crore. Though the revenue potential of CPDCL is high, 

compared to the others, the management needs to pay special attention to 

analyse and bring down the arrears of revenue. EPDCL has the lowest arrears, 

mainly because of the generally good paying culture of the customers in the 

region. 

4.3.7 Government Subsidy 

No cash subsidy was provided by the Government, prior to implementation of 

reforms. After initiating reforms, the State Government provided good 

financial support both in terms of taking over certain past liabilities and in 

providing necessary revenue subsidy in cash. The financial support of the State 

Government in 1999-2000 (the year of restructuring) was Rs 3,064 crore. The 

details of the revenue subsidy support provided by the Government from 2000- 

01 to 2004-05 are shown below: 

Utility 

Subsidy provided (Rs crore) during 

2000-01 2001-02 2002-03 2003-04 2004-05 

APTRANSCO 1,626 - - - - 

SPDCL - 542 438 402 334 

NPDCL - 547 353 307 342 

CPDCL - 184 506 579 464 

EPDCL - 288 212 227 163 

TOTAL 1,626 1,561 1,509 1,515 1,303 

The subsidy support has come down from Rs 1,626 crore in 2000-01 to Rs 

1,303 crore in 2004-05. This is primarily due to performance improvements 

1.38



achieved after restructuring. A reduction of more than Rs 300 crore in the 

revenue subsidy is significant especially in the context of the present policy of 

the State Government to provide free power to the agricultural consumers. The 

Government has also provided additional subsidies as indicated below: 

Details of Additional Subsidy Provided 

2000-01 2001-02 2002-03 2003-04 

(Rs crore) 

2004-05 

1,309 896 367 - 509 

The above data indicates that the State Government is committed to support 

reforms in the power sector. 

There is also gradual reduction in the percentage of cross-subsidy component 

provided by the industrial and commercial categories of consumers as indicated 

below: 

Percentage of 

cross-subsidy 

2000-01 2001-02 2002-03 2003-04 2004-05 

24.34 22.49 21.68 20.00 16.39 

The reduction in the cross-subsidy component has facilitated reducing the 

tariffs applicable to the subsidising categories of consumers. The reduction in 

the tariffs of these categories of consumers is given below: 

Consumer/Category 

Reduction in tariff (paise/unit) 

Consumption 

range (kWh) From To Difference 

LT-Non-domestic 51–100 660 625 35 

101–200 700 625 75 

> 200 745 625 120 

LT-Industrial First 1,000 units 385 375 10 

Balance 430 375 55 

HT-Industrial First 1 lakh 376 280 at 132 kV and 96-115 

units 

above 

Next 1 lakh 390 310 at 33 kV 66-85 

units 

330 at 11 kV 46-65 

Balance 395 

HT-Non-industrial 450 365 132 kV and 

above 

85 

390 at 33 kV 60 

440 at 11 kV 10 

HT-Railway traction 460 420 40 

The gradual reduction in the tariffs applicable to the paying categories of 

consumers would encourage the growth in the number of such consumers. 

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4.3.8 Financial Performance 

The companies have shown gradual progress in the financial performance over 

the years as shown below: 

Financial Performance 

DISCOM Particulars 2001-02 2002-03 2003-04 

(Rs crore) 

2004-05 

SPDCL Turnover 2,076 2,389 2,416 2,468 

PAT/Loss -2.54 -2.03 2.60 5.97 

NPDCL Turnover 926 1182 1158 1208 

PAT/Loss -51.09 -0.68 0.95 3.30 

CPDCL Turnover 2,363 3,553 4,061 4,959 

PAT/Loss 0 -127 -21 1.66 

EPDCL Turnover 1,223 1,415 1,546 2,013 

PAT/Loss -28.90 3.85 1.85 15.36 

The turnover of each DISCOM has increased over the years. Initially, the 

DISCOMs were incurring losses. The financial performance has gradually 

improved over the years. By 2003-04, three DISCOMs could register profits. 

From 2004-05, the fourth DISCOM (CPDCL) has also started earning profits. 

4.3.9 Investments 

In the pre-reform scenario, the investment support had almost come to a 

standstill because of the poor financial status of APSEB. PFC and REC have 

stopped releasing new loans on account of accumulation of over due payments 

of the past loans. The restructured power Utilities regained the confidence of 

the investors by clearing their dues. The DISCOMs are now receiving adequate 

financial support from the FIs for successfully pursuing their schemes. 

Investments in the distribution segment from 2001-02 to 2004-05 are shown 

below: 

Investments in Distribution Sector 

(Rs crore) 

DISCOM 2001-02 2002-03 2003-04 2004-05 

NPDCL 81.31 167.69 193.25 212.26 

CPDCL 169.44 343.40 399.95 323.27 

EPDCL 75.01 143.52 181.72 - 

Initially, investment support was provided by the World Bank under the 

Adjustable Programmable Lending (APL) Loan. Later, support was received 

from the REC, PFC, etc. After the reforms, there is adequate investment 

support for the network expansion and improvements as can be seen from the 

succeeding paragraphs. 

1.40

4.3.10 Network Development 



The distribution network development before and after restructuring is are as 

shown below: 

Development of Distribution Network Prior to Restructuring 

Particulars 1995-96 1996-97 1997-98 1998-99 1999-2000 

1.41 

Average 

Annual 

Growth 

33 kV lines (ckt km) 23,615 24,024 25,216 26,559 29,884 1,400 

11 kV lines (ckt km) 1,50,543 1,53,167 1,56,634 1,61,845 1,66,244 3,628 

LT lines (ckt km) 3,92,786 397626 404621 414540 4,24,277 8,402 

33 kV sub-stations (No.) 1,420 1,470 1,521 1,594 1,764 85 

Distribution 

transformers (No.) 

1,41,839 1,48,024 1,60,003 1,71,766 1,86,847 11,031 

Development of Distribution Network After Restructuring 

Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 

Average 

Annual 

Growth 

33 kV lines (ckt km) 30,517 30,537 32,284 32,711 33,560 735 

11 kV lines (ckt km) 1,69,649 1,65,299 1,78,056 1,86,723 2,02,282 7,208 

LT lines (ckt km) 4,60,863 4,42,209 4,67,313 4,73,928 4,86,191 12,383 

33 kV sub-stations (No.) 1,862 1,941 2,123 2,329 2,474 142 

Distribution 

transformers (No.) 

2,01,801 2,16,801 2,42,668 3,23,033 4,05,937 43,949 

Note: The length of lines (33 kV, 11 kV and LT) were reconciled in 2001-02. 

Comparison of the network development before and after restructuring reveals 

the following: 

• The average annual growth of 33 kV lines after restructuring is low on 

account of reconciling the figures in 2001-02 and also on account of the 

length of lines required to be laid for the sub-station being short; 

• The average annual growth of 11 kV lines in the post-reform scenario is 

almost double the average growth before reforms; 

• Average growth in the LT lines has increased compared to the pre-reform 

period. It will come down in the future due to adoption of HVDS; 

• The annual average rate of addition of 33 kV sub-stations has increased 

from 85 to 142; 

• There is fourfold increase in the annual average addition of distribution 

transformers; and


• High rate of increase in the 11 kV lines and the distribution transformers is 

on account of introduction of HVDS with single-phase distribution 

transformers as well as small capacity three-phase distributions 

transformers (16 kVA and 25 kVA). 

4.3.10.1 High Voltage Distribution System 

The High Voltage Distribution System (HVDS), being implemented by the 

DISCOMs in Andhra Pradesh, aims at replacement of low voltage network by 

high voltage network by installing a large number of smaller capacity 11 

kV/400 volts transformers for supply to agricultural consumers. The benefits of 

the implementation of HVDS are: 

• Loss reduction; 

• Prevention of unauthorised agricultural connections; 

• Reduction in transformer failures; and 

• Improvement in efficiency of pumpsets. 

By the end of 2004-05, the number of pumpsets covered under HVDS was 

more than 1.4 lakh. The DISCOMs are planning to bring the total agricultural 

connections under HVDS in a phased manner. Detailed project reports, 

covering more than 21 lakh pumpsets, have been sent to JBIC and REC for 

obtaining financial support. 

4.3.11 Customer Relations 

Customer service was not getting adequate attention of the management in the 

pre-reform period. Consumer service centres have now been established at 

section level, where the complaints of the consumers are received and attended 

to. 

The objective of reforms is to provide quality power to consumers at 

reasonable rates. In line with the above objective, APERC has taken steps to 

ensure improvement in customer services. In this connection, APERC has 

notified the following regulations: 

• Standards of performance; 

• Consumers right to information; 

• Consumer grievance redressal procedure; 

1.42



• Establishment of forums and Vidyut Ombudsman for redressal of consumer 

grievances; 

• Licensee’s duty for supply of electricity on request; and 

• Electricity Supply Code. 

The standards of performance have been notified by the APERC. It covers the 

time schedules fixed by the Commission for different services to be rendered 

by the licensee. The Commission also specified the penalties to be paid by the 

licensees in the case of default in time schedules specified in the performance 

standards. 

Procedures have thus been laid down for implementation of performance 

standards relating to consumer services. The consumer grievance redressal 

forums, established in all the four DISCOMs, have started functioning. The 

institution of Vidyut Ombudsman is also in place to deal with appeals against 

the orders of the forums. The Number of complaints received from the 

consumers and attended to by the DISCOMs in recent years is as given below: 

Details of Complaints 

Particulars 2003-04 2004-05 

Total No. of complaints received 1,72,693 1,92,731 

No. of complaints attended 1,66,531 1,87,619 

Percentage of complaints attended 96.43 97.35 

Steps taken by the DISCOMs to improve consumer services are as follows: 

• 324 Customer Services Centres have been established to cover all towns, 

municipalities, corporations and sub-divisional headquarters in the rural 

areas to handle the complaints; 

• Vidyut Adalats are held to resolve billing complaints at Mandal HQs once 

in a month; 

• Distribution transformer replacement centres have been increased from 85 

to 272; 

• Spot billing, using hand held computers, have been introduced in all the 

areas; 

• On-line bill collection facility has been made available in Hyderabad City 

and all the towns through e-seva centres; 

1.43


• On-line bill collection facilities to the villages have been introduced 

through Rural Service Delivery Points (RSDP) centres in stages. So far, 

1,400 such centres have been established; 

• Load sheddings are practically nil; 

• Because of various system improvements carried out by the DISCOMs, 

unscheduled interruptions have been minimised; 

• Reduction in transformers failure rate and the consequent decrease in 

supply failures; and 

• Maintenance of distribution lines has improved. However, there is scope 

for further improvement by effective supervision and monitoring the premonsoon 

inspections and rectification of defects in time. 

Overall, the consumer service facilities have improved after restructuring. In 

future, the customer services are likely to improve further, with the 

implementation of several steps already taken by APERC/licensee. 

4.3.12 Information Technology Initiatives 

The DISCOMs have taken various steps to introduce Information Technology 

(IT) application in their operations. The DISCOMs have created IT cells in 

their corporate offices. The initiatives taken so far are: 

• Establishment of Supervisory Control and Data Acquisition (SCADA) 

System at Hyderabad for collection, monitoring and analysis of on-line 

data of the sub-stations in and around Hyderabad city; 

• Billing irregularities and metering errors are tracked using the Consumer 

Analysis Tool (CAT) software; 

• Monitoring and Tracking System (MATS) is used to track the cases 

against consumers, right from case booking to its ultimate closure; 

• Transformer Information Managements System (TIMS) tool is being used 

to track the maintenance schedule of the distribution transformers; 

• Steps have been taken to introduce Remote Meter Reading (RMR) 

facilities to monitor the number of hours of supply to agricultural feeders; 

• Enterprise Resource Package (ERP) is being introduced for adopting 

systematic automated procedures; and 

1.44



• Substantial progress has been achieved in the use of IT in the DISCOMs. 

There is need to use the existing systems effectively to analyse and take 

corrective measures wherever required. Also other areas, where the IT can 

be beneficially utilised, are to be explored for effective management 

control of the distribution system. 

4.3.13 Theft of Electricity 

Theft of electricity is largely contributing to commercial losses in the 

distribution sector. Constant efforts are made by the Vigilance Wing and field 

engineers to contain the theft. The number of cases detected and the amounts 

recovered year-wise are indicated below: 

Particulars 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

No. of theft 

cases detected 

Total revenue 

recovered (Rs crore) 

21,586 18,505 35,536 1,08,889 91,168 1,28,006 

12.11 9.01 12.61 13.16 13.08 11.08 

In Andhra Pradesh, the local Courts have been given the powers of special 

courts, to be established under the EA, 2003. 

4.3.14 Rural Electrification 

In Andhra Pradesh, 100 per cent village electrification was completed by the 

year 1992. However there are certain hamlets, dalitwadas, weaker section 

colonies, etc., which are still to be electrified. The position of rural 

electrification at the end of the year 2004-05 is shown below: 

Item 

Total 

Existing No. 

Electrified by 

2004-05 No. 

Percentage Balance 

No. 

Towns 264 264 100 Nil 

Villages 26,586* 26,565 100 Nil 

General hamlets 31,664 31,253 98.7 411 

Tribal hamlets/ 

9,893 8,741 88.36 1152 

habitations 

Dalitwadas 53,195 49,298 92.67 3897 

Weaker section colonies 27,277 24,129 88.46 3148 

Rural households 1,33,72,300 90,35,700 67.57 43,36,600 

* Ten villages are submerged, nine villages are un-inhabited and two villages are occupied by 

NTPC. 

There are 9,650 tribal villages electrified with Solar Photo Voltaic (SPV) 

panels. These villages are also being gradually covered by conventional lines. 

1.45


By the year 2004-05, 8,975 (93 per cent) of such villages have been covered by 

conventional lines. The balance to be covered are 675. 

The companies have programmed to cover the balance habitations and 

households under the RGGVY in a phased manner by 2007-08. In this 

connection, detailed project reports have been sent to REC. Out of Rs 803 

crore requested for this purpose, REC has so far sanctioned an amount of Rs 

666 crore (covering 17 districts). The balance projects covering five districts 

are also expected to be sanctioned by REC shortly. The process of tendering 

and awarding works is in progress. The schemes include augmenting the 

network and erection of 23 No., 33/11 kV Sub-stations. 

4.3.14.1 Electrification of Model Villages 

The Government of Andhra Pradesh has launched a new scheme, “Integrated 

Novel Development in Rural Areas and Model Municipal Areas” 

(INDIRAMMA) for achieving 100 per cent electrification of habitations and 

households in the identified model villages and model colonies of the 

Municipalities. The model villages and the colonies are to be identified by the 

district administration and the scheme sanctions are obtained from REC under 

RGGVY. The Scheme is to be implemented in three years. The following 

guidelines for implementation of the scheme have been issued: 

• All the beneficiaries of household electrification under both BPL and non- 

BPL have to pay an application fee of Rs 25 and security deposit of Rs 

100 up to 250 Watt and beyond at Rs 300 per kW and part thereof; 

• In respect of BPL households, service wires and the meter board along 

with meter with pilfer proof box, cutout, bulb holder, switch and earth 

terminal will be provided by the DISCOMs; 

• In respect of non-BPL households, the beneficiaries have to provide 

service wire, service connection materials and internal wiring; and 

• The district administration will conduct ‘Grama Sabhas’ at all the villages 

to inform the public about implementation of the INDIRAMMA 

programme. The field officers of the DISCOMs will attend the Grama 

Sabhas and coordinate with other departments in getting the benefits of 

the scheme communicated to the public. 

1.46

4.3.15 Power supply to Agricultural Consumers 



Government of Andhra Pradesh has decided to provide free power to the 

agricultural consumers with effect from 14 May 2004. There has been a spurt 

in agricultural consumption in August and September 2004, causing severe 

strain on the supply system, resulting in power swings and blackouts in certain 

areas of the State. The Government, after taking all aspects into consideration, 

has modified the policy of power supply to agriculture w.e.f. the financial year 

2005-06. According to the modified policy, the criteria for eligibility of the free 

power has been specified. The policy proposes to provide incentives and 

disincentives in order to promote energy saving measures. Agricultural 

consumers, who are ineligible for free power, have been covered under the 

subsidised low tariff category. The tariffs approved by the Commission for the 

year 2005-06 take into consideration the modified policy of the Government. 

The tariffs for the agricultural category consumers for the year 2005-06 are 


Power Supply Tariffs for Agriculture 

Category No. Purpose Fixed charges 

V (A) Agriculture 

With DSM 

measures 

Without DSM 

measures 

Dry land farmers (connections 2.5 Acres) 

Corporate farmers & IT Assessees 

Dry land farmers (connections 2.5 Acres) 

Corporate farmers & IT Assesses 

1.47 

*Rs210/HP/Year 




Energy 

charges 

paise/unit 

V (B) Out of turn allotment (Tatkal): with DSM ------ 20 

*Equivalent flat rate tariff. 

Free power is applicable for dry land farmers with less than or equal to three 

connections and wet land farmers with less than or equal to 2.5 acres of land. 

Demand Side Management (DSM) measures by the farmers is given weightage 

for getting tariff concessions. There are about 24 lakh agricultural connections 

in the State. Supply to the agricultural feeders is regulated for 7 hours a day. 

Tatkal Scheme has been introduced for giving out-of-turn connections to the 

0 

0 

20 

20 

100 

0 

0 

50 

50 

200


pumpsets by providing meters. All new services of the farm sector are being 

given supply only if DSM measures are adopted by the farmers. 

Lift irrigation schemes are given priority by the State Government in order to 

reduce exploitation of ground water. All the 213 existing HT lift irrigation (LI) 

schemes are being provided with dedicated feeders to ensure 16 hours supply to 

them. All the new lift irrigation schemes coming up are with dedicated feeders 

to regulate the supply for specified hours in a day. 


The DISCOMs in the State have improved their performance over the years 

and have started earning profits. There is scope for further improvement both in 

operational and financial performance. The following measures are required to 

be taken to strengthen the organisations and to ensure further improvement in 

the performance of the DISCOMs: 

• Continuation of the firm political support for implementation of reforms; 

• Institution of an effective process for selecting competent professionals 

for the positions of director in the boards of the companies; 

• Ensuring that the CMDs, appointed to the DISCOMs, have domain 

expertise of the power sector; 

• Appointment of some outside experts in the corporate management as 

part-time directors in each company is necessary; 

• The DISCOMs are still controlled and guided by APTRANSCO despite 

having their own boards of management. They need to function 

independently without further `parental’ handholding. The companies 

need to grow on their own in an environment of competition; 

• Whole-time directors in the companies need to function independently 

while taking decisions on issues other than that of policy; 

• Vigilance activity needs to be handled by the DISCOMs independently; 

• Managers/officers at various levels need to be empowered with clear 

delegation of powers. Authority will bring in responsibility and 

accountability to achieve better results, besides developing managerial 

skills in the functionaries; 

• Under the EA, 2003 the Government is required to establish special 

courts. The existing courts, identified for this purpose by the Government 

1.48



may not be able to serve the purpose of quick disposal of the cases 

relating to theft/misuse of electricity; 

• Human resource cells in the DISCOMs need to be strengthened by 

inducting qualified personnel from outside until the companies develop 

their own cadre of adequate skills and experience; 

• The mindset and the style of functioning of the officers and staff have not 

changed much even after they have come under the control of corporate 

bodies. Special training courses need to be conducted to bring in result- 

oriented corporate work culture; 

• There is need to improve the image of the staff at the consumer contact 

levels and bring in better consumer relations and improve consumer 

services; and 

• Continued efforts by the DISCOMs are essential to ensure improvements 

in the technical as well as the financial performance in a sustainable 

manner; 

4.4 Electricity Regulatory Commission 

In Andhra Pradesh, the SERC came into existence in April 1999. The 

Commission was constituted under the provisions of Andhra Pradesh 

Electricity Reform Act, 1998. The Commission initially started functioning 

with some officers deputed from APTRANSCO. ‘Technical Assistance’ 

services at various points of time were provided by reputed consultants. Some 

of the major achievements of the Commission are: 

• Organisational set-up and recruitments; 

• Framing of ‘conduct of business’ regulations; 

• Issue of licenses for transmission and bulk supply and distribution and retail 

supply to APTRANSCO; 

• Issue of distribution and retail supply licenses to the rural electric cooperative 

societies; 

• Issue of power procurement guidelines; 

• Consumers’ right to information regulations; and 

• Standards of performance regulations; 

1.49


4.4.1 Regulations and Tariff Orders 

The Commission has issued Tariff Orders regularly every year in the third 

week of March, so that the orders are effective for the next financial year. The 

utilities are mandated to file their Annual Revenue Requirements (ARRs) and 

tariff applications every year by December. The utilities have adhered to the 

time schedules prescribed for filing the ARRs and tariff applications. The 

Commission calls for the objections from the stakeholders and also conducts 

public hearings at different places in the State (at one place in the jurisdiction 

of each DISCOM) before finalising the tariffs. The Commission has framed 

regulations for a MYT framework. Under these regulations, each distribution 

licensee has to make the filings in respect of distribution business for a control 

period of five years. However, the first control period is for three years, starting 

from 2006-07 to 2008-09. The filings for the retail supply business are to be on 

an annual basis for the first control period and thereafter for entire control 

period for the subsequent control periods of five-year duration. The first tariff 

orders cover under the MYT framework issued by the Commission cover the 

following: 

• Tariffs for wheeling of electricity (distribution business) for the entire 

control period of 2006-07 to 2008-09; and 

• Retail supply tariffs for 2006-07. 

A number of regulations were issued by the Commission before the EA, 2003 

came into force. Some of them were modified in terms of the provisions of the 

new Act. 17 Regulations have been notified by APERC under the EA, 2003. 

The regulations, guidelines and codes issued by the Commission cover the 

broad spectrum of the items relating to the functioning of the Commission and 

the licensees and also relating to the protection of the interests of the 

consumers. 

4.4.2 Appointment of Electricity Regulators 

Andhra Pradesh Electricity Reform Act, 1998 stipulates that the three member 

Commission shall consist of one technical member (Graduate Electrical 

Engineer) with knowledge and experience in the power industry and two others 

with specialisation and adequate experience in any one of the disciplines like 

economics, law, commerce, accountancy, finance or administration. However, 

at any point of time, the Commission shall not consist of more than one 

1.50



member from the same discipline. The chairperson and members of the 

Commission were appointed in March 1999 as per the provisions of the said 

Act. 

The members are selected by a selection Committee consisting of: 

i. 

A retired Chief Justice of any High Court or a 

retired Judge of the Supreme Court 

1.51 

Chairman 

ii. The Chairman of the Central Electricity Authority Member 

iii. The Chief Secretary of the State Member 

The selection committee shall have to submit the panel of two suitable persons 

for each of the commission members to the State Government in alphabetical 

order, from among whom the State Government shall appoint one of the two as 

a member of the Commission. 

The procedure prescribed for selection of the chairperson and members of the 

State Commission in the EA, 2003 is almost the same except for a minor 

difference in the composition of the Selection Committee. According to the 

provisions of the EA, 2003, the Selection Committee shall consist of: 

a) A person who has been a Judge of the High Court. 

b) The Chief Secretary of the State. 

c) The Chairperson of the CEA or the Chairperson of the Central Electricity 

Regulatory Commission.


The organisational chart of APERC is as follows: 

Secretary 

Director 

Engineering 

Jt. Director - 1 

Dy.Directors - 3 

ORGANISATIONAL CHART 

Director 

Tariffs 

Jt. Director - 1 

Dy.Directors - 3 

Chairman & 

Members 

1.52 

Director 

Law 

Dy.Director - 1 

Jt. Director 

I.T. 

Director 

Administration 

The officers and staff required were initially taken on deputation from the 

APTRANSCO. Subsequently, all positions were filled by recruitment. At 

present, the Commission has its own officers and staff. Retired officers with 

adequate qualifications and experience in the relevant discipline have been 

appointed to the positions of secretary and some directors on contract basis. 

The selection and recruitment of officers and staff is done by the Commission 

independently without the involvement of the State Government. 

There is transparency in the functioning of APERC. The Commission 

invariably goes through the process of public hearing before taking decisions 

on matters relating to tariffs and other matters of public interest. In matters 

relating to the consumer service, the Commission has notified the standards of 

performance for the licensees and set up the mechanism to oversee the 

implementation through consumer grievance redressal forums and 

Ombudsman. Due to close monitoring and control, the Commission has 

ensured improvements in the operational and financial performance of the 

utilities. 

APERC is acclaimed as one of the best performing regulatory institutions of 

the country.


EXECUTIVE SUMMARY..……………………………………………………………….3.1 

CHAPTER-1 

BACKGROUND OF REFORM EFFORTS……...…………………………...………….3.5 

State subsidy to the power sector ............................................................................ 3.8 

Factors Leading to Restructuring of the KEB..................................................... 3.12 

CHAPTER-2 

A FACTSHEET OF THE REFORM EFFORTS………………..……………………...3.15 

Initial Study on Restructuring of the Electricity Board...................................... 3.15 

Consulting Support................................................................................................. 3.16 

Regulatory Commission ......................................................................................... 3.20 

Establishing CESCO .............................................................................................. 3.20 

Tariff Reform.......................................................................................................... 3.21 

Independent Power Producers Policy................................................................... 3.21 

Recommendations of FDP Consultants ................................................................ 3.22 

Distribution Margin................................................................................................ 3.23 

Formation of the KTPCL as the Successor to KEB ............................................ 3.25 

Status of Personnel Dispersal ................................................................................ 3.26 

Establishment of Pension Trust............................................................................. 3.26 

CHAPTER-3 

PROGRESS OF RESTRUCTURING……………….…………………………………..3.27 

General issues.......................................................................................................... 3.27 

Organisational Pattern........................................................................................... 3.27 

Autonomy of Restructured Companies ................................................................ 3.29 

Composition of the Board of Directors................................................................. 3.29 

Financial Autonomy ............................................................................................... 3.30 

Continuation of the Subsidy Payments................................................................. 3.32 

Metering Progress................................................................................................... 3.33 

CHAPTER-4 

ANALYSIS OF THE RESTRUCTURING PROCESS………………………………...3.35 

Restructured organisational pattern and functional autonomy......................... 3.35 

Achievements in Financial Operations by DISCOMs......................................... 3.37 

CHAPTER-5 

LESSONS LEARNT……………………………………….……………………………..3.40 

CHAPTER-6 

WAY FORWARD………………………………………………………...………………3.43

INTRODUCTION 

KARNATAKA 


The Government of Karnataka initiated the power sector reforms in 1997. The State 

Government also announced the reform policy, which aimed at attracting private 

sector investments, establishing a regulatory mechanism to promote competition, 

improved operational efficiency and cost reduction, and encouraging energy 

conservation. The policy professed the restructuring of the Karnataka Electricity 

Board (KEB) into one transmission and several distribution companies (DISCOMs) 

and redeployment of the staff so as to improve operational efficiency and customer 

satisfaction. The policy was very objective and focussed in its approach and spelt out 

the Government’s resolve to implement the sector reform on a sustained basis. 

ELECTRICITY REFORM ACT, 1999 

In pursuance of the policy statement, the State Government issued the Karnataka 

Power Sector Reform Act, 1999, which provided for the establishment of the 

Karnataka Electricity Regulatory Commission (KERC). It also resulted in the creation 

of the Karnataka Power Transmission Corporation Limited (KPTCL) to carry out all 

functions of the KEB, (which stood dissolved), pending the formation of four 

DISCOMs. Government of Karnataka also gave significant financial relief to the 

sector by taking over the loan liabilities of Rs 1,050 crore and by writing off bad and 

doubtful debts amounting to Rs 866 crore, and the terminal and pension liabilities of 

the staff till the date of restructuring. 


Based on competent professional advice from reputed consultants, the State 

Government established four DISCOMs. The new companies were formed on an 

urban–rural mix. Subsequently, in 2004-05, one more supply company was formed by 

carving out five districts from an existing DISCOM. Karnataka’s experience of 

establishing an independent generation company as early as in 1971 was refreshing. 

DETAILED POLICY STATEMENT 

The Detailed Policy Statement (DPS) issued by the Government of Karnataka aimed 

at providing equitable access to basic and reasonably priced electricity service to all 

by the year 2010, meeting the entire requirements of commercial and industrial sectors 

so as to accelerate economic growth, promotion of environmental friendly energy use,



and accelerated reform process. More importantly, the DPS also envisaged the 

eventual disinvestments of the shares in KPCL, as well as the early privatisation of the 

distribution companies. It also sought to extend maximum autonomy to the power 

companies to manage their business along commercial lines. An Independent Power 

Producers’ Policy was also issued in 2001. 

FINANCIAL DEVELOPMENT PLAN 

The Consultants appointed to develop the Financial Development Plan (FDP) were of 

the view that a conventional privatisation strategy would not appeal to prospective 

bidders, and proposed the deployment of distribution margin, under which the State 

Government was to share substantial risks during a transition period of five years, 

while investors would mainly bear the risks of operating costs, capex and penalty for 

unsatisfactory performance. The privatisation process was to be by bidding, and the 

successful bidder was to hold a minimum of 51 per cent shares in the company. 

INTEGRATION OF THE STAFF 

Even though the Transfer Schemes provided for the permanent absorption of the staff 

in the various new companies, Government of Karnataka could not make it effective 

so far because of litigation by concerned employees. The restructured DISCOMs have 

been in operation for four years now, and have performed reasonably well. On the 

downside, however, they have not attained adequate managerial and financial 

autonomy, and are yet to imbibe an appropriate corporate culture among their staff 

and managers. Moreover, instead of being a net contributor to the State’s treasury, the 

restructured companies continue to depend on Government subsidy. 

ACHIEVEMENTS OF THE NEW COMPANIES 

Among the achievements of the restructured companies, the most notable ones are the 

reduction in transmission losses by KPTCL to a level of 4.18 per cent (which is 

regarded as one of the best in the country), the gradual reduction of T&D and AT&C 

losses by the DISCOMs, the progress in metering, billing and collection for all 

categories except the agricultural segment, increasing investments to improve the 

overall quality of power supply, better customer care, grievance redressal mechanism 

and higher level of satisfaction. The restructured companies are also more viable units 

for managerial control and efficiency. However, there are several areas where the new 

companies need to exhibit better performance, including the critical area of financial 

performance. 

3.2

Karnataka 

In order to achieve the above objectives, the DISCOMs need to be made more 

autonomous by delegating additional powers to them, distancing them from (political) 

interferences and influences, and by reconstituting their Boards of Directors. There is 

also a need to integrate the staff of the KEB, now working on the rolls of KPTCL, 

with the respective DISCOMs. 

LESSONS LEARNT 

The most important lesson from the Karnataka experience is that political 

commitment is the most important driver for reforms. In its absence, there are very 

remote chances for drastic turnarounds in this politically sensitive sector. Further, 

there must be one or more strong and dedicated champions for the reform at the top 

level in the Government, who must act as major catalysts for the reform efforts. 

Another important lesson is the need to get the ‘buy-in’ of the staff of the organisation 

to implement the reform. Unfortunately, the State Government does not appear to 

have paid sufficient attention to this aspect, which has resulted in the continuation of 

the work culture as was existing prior to restructuring. The delay in integrating the 

staff with the new companies also has had its adverse effects on their morale and 

motivation. 

WAY FORWARD 

The most important factors required to accelerate the reform efforts in Karnataka 

include the following: 

(A) Securing political commitment to the sector reform, for which the Ministry of 

Power must take the initiative. A national political consensus on an acceptable 

power sector reform policy, and agreement on a minimum action programme to 

be implemented according to a time schedule would have to be put in place. 

(B) Since one of the main reasons for the poor financial performance of the 

DISCOMs is the free power to the agricultural sector, there is need to tackle this 

issue at the national level. The creamy layer among the farmers must be 

persuaded to pay for the power consumed by them; the possibility of linking the 

‘support price’ mechanism with the metering and payment for electricity 

consumed might be considered in this regard. 

(C) The State Government must establish a high-level Planning and Monitoring 

Agency to oversee the reform. This should have the support of an expert group 

comprising of experienced professional experts. 

3.3



(D) The Reform Cell in the Secretariat must be strengthened by inducting senior 

committed officials who could guide and support the reform process. 

(E) There is need to re-establish a powerful and innovative communication strategy 

to educate all stakeholders, especially the staff of the companies, the farmers, etc. 

(F) The Boards of the power sector companies must be reconstituted by inducting 50 

per cent professionals from outside. Efforts should also be made to develop a 

strong, professional management cadre; the CEOs must be appointed on contract 

basis. 

(G) DISCOMs must be granted adequate autonomy required to manage their affairs 

on commercial lines. The practice of appointing the managing director of 

KPTCL as the chairman of DISCOMs must be discontinued. KPTCL’s Board 

must be made more professional and the political appointees on its Board must 

renounce those posts. 

(H) Government of Karnataka must prepare a Detailed Financial Action Plan with a 

specific programme to discontinue the subsidy over the medium term. The 

DISCOMs, which are financially weak, must have specially designed targets and 

goals to improve their finances. 

(I) The new companies must be required to sign Annual Performance Contracts with 

specific targets and goals related to all areas of their performance, based on their 

Business Plans, which must be monitored closely. In return, they must be granted 

the required autonomy and support to carry out their tasks with efficiency. 

(J) A Human Resources Development Plan for the integration of the staff with the 

new companies and their career advancement with adequate incentives to opt for 

the new companies must be implemented early. 

(K) Partial divestment of government’s shares in the restructured companies, as also 

in KPCL, to the public and to the employees of these companies, will bring in 

better corporate culture and accountability. A decision in this regard must be 

taken after working out the strategy. 

3.4

Karnataka 

INTRODUCTION 

CHAPTER - 1 

BACKGROUND OF REFORM EFFORTS 

The State of Karnataka has a total area of 1,91,790 sq km and a total population of 

about six crore. The State receives abundant rainfall and has a large number of rivers 

and reservoirs, which act as perennial source of water supply and energy. The State is 

well-known for its lush green tropical forests, sandalwood and coffee, hospitable 

climate, tourism, friendly people, educational institutions, and of late, its premier role 

as the main centre for development of Information and Communication Technology 

(ICT) and Biotechnology. The State has been achieving an average State Domestic 

Product (SDP) growth rate of about 8 per cent per year in the recent years, about the 

same level as the growth rate of the GDP of the country. 

The first hydroelectric project in India, Sivasamudram Project, was established in 

1902 in Karnataka. That perhaps showed the way, and the State can be justifiably 

proud that about 3,673 MW of its total installed capacity (2004-05) of 8,355 MW (44 

per cent) comes from this renewable source of energy. Another matter of gratification 

for the State is that it was perhaps the first to have a separate utility for generation of 

power, the Karnataka Power Corporation Limited (KPCL), which accounts for about 

56 per cent of the total installed capacity in the State. KPCL has been functioning as a 

generating company since 1971. 

The per capita consumption of electricity in 2004-05 in the State comes to 660.04 

units per year as compared to the national average of 612.50 units. 

The Government of Karnataka was a pioneer in the matter of power sector reforms, 

and started its initiatives in this regard from the mid-1990s onwards. The prime 

motivation came from the policy formulated by the MoP in 1991 to encourage greater 

private sector participation in electricity generation, supply and distribution fields; 

followed by the changes in the Electricity (Supply) Act, 1948 to provide for this as 

well as changes in the financial and administrative environment to facilitate the 

policy 1 . The State Government also recognised that the poor financial health of the 

major utility, the Karnataka Electricity Board (KEB) (which was established in 1956), 

was draining the fiscal resources of the State, and also that there was need to improve 

1 Reform Policy for the Energy Sector: Proceedings of the Government of Karnataka: 30 January 1997. 

3.5



the levels of customer service through power sector reform. The Government of 

Karnataka accordingly announced its policy and approach to power sector reforms in 

January 1997. The reform process of the power sector would complete one decade by 

the end of the current year (2006). It would be appropriate at this stage to take stock of 

the progress of the reforms carried out so far, analyse the gains and shortcomings, if 

any, and identify the way forward, to make the reform process more successful. This 

report is an attempt in that direction. 

BACKGROUND INFORMATION 

The total installed generating capacity in Karnataka including Central allocations and 

private power comes to 8,355 MW, of which 3,673.30 MW comes from hydro 

resources 2 . Some 1,470 MW comes from the only coal-based power station (with 

seven units) at Raichur (RPSS) of KPCL; the rest comes from Central allocation, 

private generation capacity, Vishweshwaraiah Vidyut Nigam Limited (VVNL), and 

renewable sources (wind power). As mentioned earlier, KPCL accounts for about 56 

per cent of the total generation. The State receives 1,618.69 MW of power as its share 

from the Central Power Companies. The VVNL 3 has an installed capacity of 354.32 

MW, including from its diesel generators (127.92 MW) as well as from hydropower 

sources (226.40 MW). The private sector generation comes to about 280.95 MW 

(hydel) and 588 MW (thermal). There are also several wind energy firms of small 

capacities, which supply power to the State Grid. It is pertinent that the total private 

power supply amounts to 1,741.61 MW, which works out to about 21 per cent of the 

installed capacity. 

The break up of the generating capacity in the State is as given in the following table: 

Table: Details of Generating Capacity (MW) 

KPCL VVNL Central Private Total 

Thermal 1,470.00 127.92 1,618.69 588.00 3,804.61 

Hydel 3,165.95 226.40 - 280.95 3,673.30 

RES 4.55 (Wind) - - 872.66 877.21 

Total 4640.50 354.32 1,618.69 1,741.61 8,355.12 

{KPCL and VVNL put together accounts for about 60 per cent of the installed capacity.} 

Energy available for transmission during the last three years, as per the information 

provided by KPTCL is as follows: 

2 

The Powerline of Karnataka; KPCL Publication. 

3 

VVNL was formed in 1999, at the time of winding up of the KEB, to transfer the diesel generating stations 

under its control to the new utility. 

3.6

Karnataka 

Table: Energy Available for Transmission (MU) 

2002-03 2003-04 2004-05 

Energy available (MU) 29,279 31,217 33,110 

Energy Delivered (MU)∗ 27,266 29,676 31,711 

Transmission Loss, MU (%) 1988 (6.55%) 1527(4.89%) 1383 (4.18%) 

(Source: KPTCL) 

∗ Sold to DISCOMs 

The following statistics will provide an overview of the length of the transmission 

capacity available in the State, as at present: 

Table: Length of Transmission Lines (ckt km) 

Voltage Level (kV) 2002-03 2003-04 2004-05 

400 1976.346 1976.846 1977.846 

220 7835.745 8281.795 8351.115 

110 6529.680 6891.310 7182.690 

66 6645.819 7073.319 7347.989 

33 6968.740 7071.740 7175.620 

Total 29,956.330 31,295.010 32,035.260 


The break-up of the customer base on an appropriate basis is as follows: 

Category of 

Consumers 

Table: Details of Consumer Base 

Number of 

Consumers 


the category 

to total 

3.7 

Average 

Realisation 

(Rs/unit) 


energy to total 

Consumption 

Domestic 88,47,542 76 2.30 20 

Agricultural 14,12,604 11 0.40 44 

Industrial (HT) 6,243 0.5 4.24 14 

Industrial (LT) 1,86,823 2 3.88 8 

Commercial 10,88,780 9 5.66 4 

Others 1,24,000 1.5 10 

Total 1,16,65,992 100 100 

(Source: Annual Accounts) 

The total energy generated by the State utilities during the year 2004-05 was 33,110 

MU against which the total power input into the system was 31,711 MU. Energy sales 

by the DISCOMs, however, came to only 23,325 MU (2004-05: Vision 2020 

Karnataka Power Sector). The transmission loss came to 4.18 per cent and the 

distribution loss was estimated at 26.57 per cent. The T&D losses was recorded at 

29.5 per cent during the year. The AT&C loss was higher at 36.65 per cent. The power 

demand in the State has been growing at the rate of about 8 per cent per year. The 

only thermal power station at Raichur with a total installed capacity of 1,470 MW has



been performing at a high level of plant load factor and has been the recipient of 

several awards for its PLF, reduction of secondary and fuel oil consumption, etc. 

KARNATAKA ELECTRICITY BOARD AND ITS PERFORMANCE 

A brief account of the performance of KEB, before it became extinct on 31 May 1999 

would be of some interest. During the year 1998-99, the total energy generated in the 

generating stations within the State was 17,066 MU and the total power available for 

sale was 22,746 MU. However, the actual sale to the consumers came to only 15,909 

MU, which worked out to about 70 per cent of availability. The T&D loss during the 

year, as per the records of the Board, came to 6,868 MU (30.2 per cent). About 44 per 

cent of the total sales were to the agricultural sector, which was the lowest revenue 

generator. 

In its last year of functioning, namely, 1998-99, KEB had a total income of Rs 

3,927.26 crore (inclusive of Rs 913.89 crore of rural electrification subsidy) and 

incurred a total expenditure of Rs 3,860.27 crore, thereby generating a surplus of Rs 

66.99 crore. Excluding the above subsidy, the year would have closed with a shortfall 

in income of Rs 846.9 crore. The capital expenditure for the year was Rs 676.40 crore. 

The total outstanding loans came to Rs 2,242.04 crore. The accumulated depreciation 

was Rs 1,333.76 crore, with gross fixed assets valued at Rs 4,063. 98 crore. 

The Board, at the time of its dissolution, had a staff strength of 45,982 including those 

on contract basis. Establishment expenses came to Rs 743.24 crore, which amounted 

to some 19.25 per cent of the total expenditure for the year. 

STATE SUBSIDY TO THE POWER SECTOR 

Power sector all over the country is known for the heavy subsidies provided to it year 

after year by State Governments, and Karnataka is no exception. But for such 

subsidies, the KEB would not have survived for long; indeed, the major determinant 

and the prime motivation for reform in the power sector, as mentioned earlier, came 

from the high, unsustainable level of subsidies, which remained an all-time threat to 

the fiscal stability of the State. The subsidy was mainly intended to benefit the 

agricultural sector; but in the absence of efficient and complete metering of the energy 

sold by the utilities to various categories of consumers, there was no mechanism (even 

now) to assess the actual extent of energy supplied to the farmers for genuine 

3.8

Karnataka 

agricultural use, and a large part of the commercial losses was categorised as T&D 

losses - a euphemism for theft 4 ! 

The following table gives the extent of subsidy provided by the Government of 

Karnataka to the power utilities in the recent years: 

Table: Extent of Government Subsidy to the Utilities (Rs crore) 

2000 2001 2002 2003 2004 2005 2006 

-01 -02 -03 -04 -05 -06(BE) -07(BE) 

1,246.42 1,897 1,636.50 1,341.95 1,569 1,750 2,373 

The extent of subsidy involved can be gauged from the fact that during the current 

year (2006-07), the subsidy amount of Rs 2,373 crore, provided in the State Budget 

comes to about seven per cent of the Revenue Expenditure for the year, and is in 

excess of the capital budget deficit for the year by Rs 866 crore. An amount of Rs 

1,800 crore out of the current year’s subsidy amount is intended towards consumption 

by agricultural pumpsets, while Rs 227 crore will go to regularise the unauthorised use 

of power for irrigation pumpsets and to incentivise the metering of the pumpsets. The 

following Table gives the trend of subsidy booked, subsidy received, and percentage 

of subsidy booked to revenue in respect of utilities in Karnataka: 

Table: Details of Subsidy Booked and Received: Utilities 

2002-03 2003-04 

(Rs crore) 

2004-05 

DISCOM Subsidy Subsidy 

% of 

Subsidy Subsidy Subsidy 


Subsidy Subsidy Subsidy 


Subsidy 

booked received booked to booked received booked to booked received booked to 

Revenue 

revenue 

revenue 

BESCOM 316 350 13.64 189 86 5.94 0 186 0 

GESCOM 358 343 71.82 422 391 64.42 470 395 68.56 

HESCOM 496 445 73.82 681 521 82.97 828 581 93.91 

MESCOM 163 102 16.25 237 174 18.87 271 238 19.73 

Total 1,333 1,240 43.8 1,529 1,172 43.05 1,569 1,400 45.45 

TRANSMISSION AND DISTRIBUTION LOSSES 

It may be of interest to trace the record of T&D losses in Karnataka during the past, 

since this was one of the major factors responsible for the poor performance of the 

Board, and continues to be an unsustainable burden for the restructured utilities. As 

mentioned by Shri S.L. Rao, former Chairman, Central Electricity Regulatory 

4 From the famous statement of Sh.Tata Rao, former Chairman, of Andhra Pradesh State Electricity Board. 

3.9



Commission (CERC) in his recent publication, Governing Power, the T&D losses 

were as follow: 

1994-95 1995-96 1996-97 1997-98 1998-1999 1999-2000 2000-01 

18.9% 18.5% 18.9% 18.6% 29.9% 5 38.0% 36.5% 

The sudden jump in the percentage of the losses from the year 1998-99 onwards 

stands clarified in the words of Shri S.L. Rao, quoted below: 

“T&D losses of SEBs have not declined to any significant extent (in spite of ERCs 

coming into being). In cases where the numbers appear to be rising, it is more of a 

reflection of better information, since the T&D losses (mainly theft) that were hidden 

by SEBs under subsidised sales to agriculturists has now been properly restored to 

T&D losses.” 6 

Power Finance Corporation (PFC), which has been a major source of development 

loans to the utilities, and has shaped its lending policy as an instrument to reform the 

power sector has provided the following data regarding the past performance of the 

KEB and its successor companies, which is revealing: 

Table: T&D Losses (%) 

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

Karnataka 37.31 34.93 33.83 24.57 23.29 26.08 

All-India 30.93 32.86 33.98 32.54 32.53 31.25 

Source: CEA (General review). 

However, it must be borne in mind that the AT&C losses in Karnataka continue to be 

heavy and unabated. The following data will indicate the position: 

Table: AT&C Losses of DISCOMs (%) 

DISCOM 2002-03 2003-04 2004-05 

BESCOM 35.70 43.86 42.99 

GESCOM 43.54 43.86 42.99 

HESCOM 47.73 31.66 41.64 

MESCOM 35.68 25.82 26.62 

Karnataka 45.68 35.82 34.72 7 

Source: PFC. 

5 As per the annual report of KEB, the T&D loss during the year was even more at 30.2 per cent. 

6 S.L.Rao: Governing Power, TERI; Page 230. 

7 The restructuring has, however, helped in bringing down the AT&C losses from 40.50 per cent in 2001-02 to 

34.02 per cent in 2004-05, thanks to strengthening of the system, energy audit, closer supervision and control. 

3.10

Karnataka 

AGRICULTURAL LOAD 

Karnataka is basically an agro-based economy, though in the recent years it is known 

for the high level of industrialisation achieved through the mushrooming of several 

large and medium Information and Telecommunication Technology (ITT) industries, 

which are centered in and around its capital city, Bangalore. Naturally, a large share of 

the energy distributed by the erstwhile KEB as well as the present-day DISCOMs 

constitute supplies to farmers for agricultural purposes. KEB’s records 8 show that 

about 44 per cent of its sale was consumed by the agricultural sector. In that year 

(1998-99), the energy utilised for irrigation pumpsets came to 7,008 MU as against 

9,117 MU in the previous year. As on 31March 1999, some 11,25,933 irrigation 

pumps were serviced by the KEB, and an additional 15,891 sets by the Hukkeri Rural 

Electric Cooperative Society Ltd. On the other hand, the revenue generation from the 

supplies to pumpsets was abysmally low at only 5.4 per cent for the year 1998-99. 

The above trend is visible, even in respect of BESCOM and MESCOM for which data 

is available as under: 

Table: Consumer Category-wise Sale of Power in MU (2004-05) 

DISCOM Domestic Coml. Industry 

(HT) 

Industry 

(LT) 

3.11 

Public 

Lighting 

BESCOM 2,551 1,331 1816 870 222 651 50 

Rs. (Cr) 867 834 872 397 117 266 45 

MESCOM 1076 313 941 221 151 444 - 

Rs. (Cr) 347 195 399 109 62 160 - 

INDEPENDENT GENERATION COMPANY (KPCL) 

Water- 

Others Agl. Total 

works 

3926 

(34%) 11,417 

192 

(5.3%) 

3589 

1558 

(33%) 

4,705 

99 

(7.2%) 1,372) 

(Source: PFC) 

A unique feature of the power sector development in Karnataka was the establishment 

of the KPCL in 1971. It must be remembered that almost all other SEBs had 

internalised the generation activity, and the practice followed by Karnataka to form a 

separate entity for generation was a bold step. KPCL has an installed capacity of 

4,640.50 MW with an annual income of Rs 2,483 crore (2004-05). It made a profit 

before tax (PBT) of Rs 239 crore in that year and declared a dividend of Rs 20 per 

share (on shares of Rs 10 each). The Raichur Thermal Power Station (RTPS) under 

the KPCL has an installed capacity of 1,470 MW and had achieved the highest PLF of 

8 KEB’s Annual Administrative Report for 1998-99.



90.39 per cent in 2002-03. It has won several awards for performance in terms of PLF, 

reduction of secondary fuel oil consumption and auxiliary consumption. KPCL’s total 

installed hydropower capacity amounts to 3,165.95 MW; it also has a small wind 

energy unit of 4.5 MW capacity. 

The importance of KPCL is in the fact that it is a pioneer in the concept of 

‘Restructuring’ of SEBs into separate functional utilities about three decades before 

the concept came into vogue in the 1990s. Government of Karnataka can rightfully 

take pride in the fact that it had shown the path for “restructuring exercise” to the rest 

of the country, and was a forerunner of the reform process! 

FACTORS LEADING TO RESTRUCTURING OF KEB 

Government of Karnataka realised as early as in 1997 the need for bringing in 

additional resources in the electricity sector, and the essential requirement of sector 

reforms, which was made amply clear in its proceedings on “Reform Policy for the 

Energy Sector”, issued in January.1997. 9 The objective of the reform included 

‘attracting private investment into generation, transmission and distribution areas, 

improve the level of customer service, and to free scarce Governmental resources for 

investment in other sectors where private investment is not forthcoming’. The policy 

highlighted the existing and potential shortfalls in energy availability and meeting the 

peak demand, and their impact on the industrial and economic development of the 

State. Since there was no possibility of the Government continuing its support to the 

power sector on the same scale as in the past, leave alone meeting the enormous funds 

requirements for building up capacity in the future, the proposed reforms were 

considered inescapable. 

According to the reform policy, the objectives of the reform of the power sector were 

aimed to achieve the following: 

i) Attracting enough private investment to the sector in generation, transmission 

and distribution, to meet the growing demand for power; 

ii) Establishing a regulatory environment which will ensure that generation costs are 

kept at a minimum through competitive bidding for setting up capacity and also 

ensure that adequate incentives are provided for improvements in operational 

efficiency, cost reduction, and enhancement in quality of customer service in the 

transmission and distribution sectors; 

9 Order No:DE 99 PFC 96 Bangalore, dated 30 th January 1997. 

3.12

Karnataka 

iii) Providing incentive for energy conservation; and 

iv) Releasing scarce Government resources, which are now deployed in power 

sector for being used in other areas of greater priority (i.e., where private 

investment may not be available). 

The policy statement identified the steps of the reform process although the details 

were to be worked out after thorough studies by experts in the field. The steps to be 

taken provided for the separation of the transmission and distribution functions, on the 

lines of KPCL, with one transmission company and several economically viable 

DISCOMs. The policy also hinted at redeployment and possible voluntary separation 

of staff through manpower planning and consultation process. Another major step was 

the establishment of a Regulatory Commission, to be manned by persons of assured 

independence, qualification and competence. The Commission, with wide overseeing 

powers over the sector, will also usher in competition, set standards, bring in tariff 

reform, and would settle certain kinds of disputes. 

A significant initiative spelt out in the policy was the resolve of the State Government 

to open the restructured distribution operations of KEB to private sector parties. This 

measure was with a view to improve operational efficiency in distribution and to 

enhance customer service quality. Similarly, the holding of the Government in KPCL 

was to be diluted by offering shares to the public. The policy also proposed to 

introduce adequate safeguards in the ownership of the transmission company so as to 

prevent manipulation by a single or a set of distributors influencing its operations to 

the detriment of the public. 

The Government further constituted a Steering Committee to be chaired by the Chief 

Secretary to provide policy guidance and to monitor the implementation of the reform 

programme. A Task force under the Secretary (Energy) was also established to 

manage the day-to-day activities of the programme. 

It must be pointed out that the energy reform policy of Government of Karnataka had 

an excellent basis, considered various possible options, and delineated the reform 

process professionally and precisely, without giving room for unnecessary doubts and 

misinterpretations. The approach was clear and definite; and except for providing a 

time line, had a fairly sound road map. 

The predicament arising from the continuing heavy subsidies to the power sector was 

highlighted by the then Chief Minister of Karnataka, Sri. S.M. Krishna, who also held 

3.13



the Finance portfolio, in his budget speech for the FY 2003-04, which is quoted 

below: 

“Power sector reform and achieving effectiveness in the power sector will doubtless 

be the single important factor that will help achieve or impede fiscal sustainability of 

the State finances. The success of the State Medium Term Expenditure Framework 

(MTEF) will depend substantially, perhaps almost entirely, on a visible improvement 

in the power sector’s performance. Despite the fact that the Government supports the 

power sector with a subsidy of Rs 2,340 crore, there is still considerable 

dissatisfaction among the consumers with regard to reliability and quality of power. 

The power sector deficit now nearly equals the entire revenue deficit of the State. 10 In 

other words, unless fiscal discipline is enforced in the power sector, there is little hope 

of medium term fiscal stabilisation.” 

With an equally heavy subsidy element of Rs 2,373 crore announced in the current 

year’s budget for the power sector, one could grasp the truism of the statement in the 

quoted budget speech. However, the current budget policy is silent on the reform 

process, except for certain provisions made therein to encourage farmers to accept 

metering of their pumpsets where it does not exist. 

10 This was in 2003-04. As mentioned earlier, the deficit in 2006-07 exceeds the capital budget deficit. 

3.14

Karnataka 

CHAPTER - 2 

A FACTSHEET OF THE REFORM EFFORTS 

INITIAL STUDY ON RESTRUCTURING OF THE ELECTRICITY BOARD 

In its policy statement, the Government of Karnataka had envisaged the appointment 

of national and international consultants to study specific issues, which need policy 

options and provide advice on the most suitable course of action. The first sector study 

concerning the reform process was accordingly entrusted to the Administrative Staff 

College of India (ASCI) in 1997. The study brought out (May, 1998) the need for 

restructuring of the KEB and recommended the creation of one transmission company 

for the whole State and four or five distribution companies, based on area-wise 

jurisdiction. ASCI 11 report also recommended that the residuary generation activities 

carried out by KEB (such as the diesel project at Yelahanka) may be entrusted to 

another generating company to be formed as part of the restructuring process, which 

could be privatised as a stand alone unit. A reform implementation plan (September, 

1998) was also submitted by the ASCI outlining the procedure to be followed in 

taking forward its recommendations. 

KARNATAKA ELECTRICITY REFORM ACT, 1999 

The recommendations of ASCI were accepted by the State Government almost 

entirely. This led to the enactment of the Karnataka Electricity Reform Act, 1999 

(KERA). The Act led to the following developments: 

i) The Karnataka Electricity Regulatory Commission (KERC) came into being. The 

Act provided, among other things, that the Commission shall be responsible to 

regulate the purchase, distribution, supply and utilisation of electricity, the 

quality of service, the tariff and charges payable keeping in view the interest of 

the consumers and that the charges for electricity supplied are adequately 

recovered for sustained operation; 

ii) Incorporation of a company with the principal objectives of purchase, 

transmission, sale, and supply of electricity. The company was named as 

KPTCL. The company was to discharge all powers, duties and functions of KEB, 

which was to be dissolved; 

11 

Since a copy of this report was not readily available, what is mentioned in this Chapter is extracted from 

parallel documents. 

3.15



iii) Simultaneously, a generation company, VVNL, was also constituted to transfer 

the generating functions performed by KEB; 

iv) Government of Karnataka was to issue a Transfer Scheme 12 to vest the function 

of power distribution and assets and liabilities (which were transitorily to be 

vested in KPTCL on the dissolution of KEB) in a further ‘licensee’, namely, 

DISCOMs to be formed separately; and 

v) The Transfer Scheme was to include provisions for the transfer of personnel to 

KPTCL or to the newly formed companies, on terms, which were not less 

favorable than those applicable to them before the transfer scheme, and in 

consonance with the tripartite agreements with the employees. 

The Act thus brought to an end the era of Electricity Board in the State. The procedure 

followed for the transfer of the functions, assets, personnel, etc, could be considered to 

be very methodical and sequentially designed. It is to be mentioned that the State 

Government also took over/wrote off the bad and doubtful receivables from 

consumers (Rs 866 crore) and past loan liabilities amounting to Rs 1,050 crore, so that 

the newly formed entities could function unburdened by the weight of past liabilities. 

The passing of the Act and the process adopted were indicative of the determination 

and resolution of the Government to make the reform a true success. 

KERC started functioning from November 1999, which made a difference to the 

working of the sector, and gave a push to the reform efforts. The first transfer scheme 

was notified in March 2000. 

CONSULTING SUPPORT 

The Government engaged a number of consultants to advise on different aspects of the 

reform process. These included the following: 

i) M/s CMS Cameron McKenna Consortium of UK as Financial and Distribution 

Privatisation (FDP) Consultants; 

ii) M/s PricewaterhouseCoopers Development Associates Limited, UK, as 

institutional strengthening of KPTCL and Power Market Development (ISP) 

Consultants; 

iii) M/S Mecon Ltd., Bangalore and Knight Piesolo, UK, as Environmental 

Assessment Consultants, and 

12 The Transfer Scheme was notified on 30 March 2000. 

3.16

Karnataka 

iv) M/s CMSR, Hyderabad, as Social Assessment Consultants. 

Mention of the recommendations of the consultants has been made in this report at 

appropriate places. 

FORMATION OF THE ELECTRICITY SUPPLY COMPANIES (ESCOMS) 

The implementation of the Second Transfer Scheme, issued by way of “Karnataka 

Electricity Reform (Transfer of Undertakings of KPTCL and Personnel to Electricity 

Distribution and Retail Supply Companies) Rules, 2002” resulted in the formation of 

four area/zone based distribution companies, effective from 1 June 2002. These were 

named as: 

i) Bangalore Electricity Supply Company (BESCOM), which took over the city of 

Bangalore Urban, Bangalore Rural, and four contiguous districts; 

ii) Mangalore Electricity Supply Company (MESCOM) by carving out the 

Mangalore Zone of the former KEB with ten districts 13 ; 

iii) Gulbarga Electricity Supply Company (GESCOM) with operational 

responsibility for five districts; and; 

iv) Hubli Electricity Supply Company (HESCOM), with seven districts falling under 

the Hubli Zone. 

Although all functions relating to distribution and retail supply of electricity were 

transferred to the DISCOMs from the notified date, the personnel were deemed to be 

on deputation from KPTCL until they were absorbed in the new undertakings on the 

basis of the options to be exercised by the staff, in accordance with a fair principle laid 

out in the KER Rules, 2002. 

An important feature of the KER Rules, 2002, which was intended to unburden the 

new companies of the terminal benefits (liabilities) of the personnel of the former 

KEB, is worth mentioning. This was made sufficiently clear in Rule 13(i) ibid to the 

effect that: ‘the State Government, and not the DISCOMs, shall be liable for, and shall 

make appropriate arrangements in regard to the funding of the pension funds, and all 

statutory and other personnel related funds for the services rendered by the specified 

personnel to Karnataka Electricity Board and KPTCL, prior to the effective (second) 

13 Originally, MESCOM was formed with 10 districts, which were under the Mangalore Zone; but in 2005-06, 

another Distribution Company, Chamundeswari Electricity Distribution Company (CESCOM) has been formed 

with Mysore and four neighbouring districts with it. 

3.17



date of transfer, to the extent they are unfunded’, etc. This was again a wise move to 

put the fledgling DISCOMs on a sound footing from the formative years onwards. 

DETAILED POLICY STATEMENT 

The State Government came out with a Detailed Policy Statement (DPS) in the year 

2001, which was a comprehensive and definitive document, and covered almost all 

major issues relating to the power sector reform process. It is considered necessary to 

refer to the DPS in some depth and quote extracts at length to provide an overview of 

the reform process in the state. The DPS acknowledged, “in spite of some impressive 

achievements, power sector has become a major bottleneck to the economic 

development of the State, and has not been able to meet the needs of the people of 

Karnataka, in particular, that of rural population and the poor. Power sector is also 

exercising a considerable drain on Karnataka’s public finances, which in turn reduces 

capacity of the State Government to address social needs, notably for the most 

vulnerable sections of the population. The indifferent status of availability, quality and 

reliability of power has reduced the competitiveness of Karnataka industry. Rapid 

increase in consumption by irrigation pumpsets has imposed high cost on KPTCL 

with regard to its agricultural and rural operations. High costs on consumers are also 

attributable to the high T&D losses. The poor quality of power, and resultant damage 

to their machinery, has left a vast number of consumers dissatisfied. Furthermore, a 

large part of the rural population still does not have access to electricity services” 

(emphasis supplied). 

The DPS aimed to achieve three main objectives by establishing a specific energy 

policy, as mentioned below: 

i) Equitable access to basic and reasonably priced electricity services to all by 

electrifying all remaining households and hamlets by the year 2010; 

ii) Providing electricity supplies that industry and commerce need to achieve 

economic growth, and; 

iii) Promoting the kind of energy use that will not damage the environment. 

The State Government affirmed in the DPS that it was determined to accelerate the 

reform process of the power sector. The objective of the reform process was to 

promote the development of an efficient, commercially viable and competitive power 

industry, which will develop over time into a net contributor to the State finances. The 

thrust of the reform will be, however, to ensure the best interest of the consumers. And 

the primary task was seen as the restoration of the financial health of the sector so that 

3.18

Karnataka 

it acquires ‘creditworthiness, which in turn, will attract private investments, and 

management skills’. In order to take forward the reform process, the DPS proposed 

the ‘reorganisation of the already formed KPTCL by establishing separate distribution 

companies (which was done soon after) and their privatisation (which is yet to take 

place). Further, the DPS also proposed to transfer the hydro stations which were 

entrusted to VVNL to KPCL (which indeed was a logical step) and to affect the 

strategic sale of the Yelahanka Thermal Power Station of VVNL through a transparent 

and competitive bidding process (which has not been done). The sale proceeds were to 

go to the Pension Fund to meet the liabilities of the former staff of KEB / KPTCL. 

It is to be mentioned that the DPS also envisaged the eventual disinvestments of the 

State Government's shares in KPCL. As an intermediate arrangement, KPTCL was to 

act as a wholesale trader, buying power from KPCL and others and selling to the 

DISCOMs. The policy also aimed at an Open Access system to be put in effect. After 

the transition period, the Government of Karnataka proposed to ensure a completely 

level-playing field for all operators and stakeholders, and in particular, ‘would not 

provide nor arrange any financing, or guarantee to lenders, which will be the policy 

applicable to all generating companies’. 

Another commitment in the DPS was the resolve to grant maximum autonomy to all 

companies (KPTCL and others) to manage their business along commercial lines. To 

what extent this has been done will be examined in the latter part of this Report. 

The policy further admitted that in order to improve and achieve better efficiency, 

mobilise additional resources, and to improve the quality of services to the consumers, 

there was a need to privatise the distribution companies at the earliest, with aid and 

advice of the consultants being appointed for the purpose. Besides, it was the intention 

that the utilities, particularly the distribution companies started their operations with 

a clean balance sheet. As mentioned earlier, this task was carried out adroitly. 

In so far as the personnel policy was concerned, the DPS assured that the service 

conditions of the staff transferred to the new utilities will be fully protected; but after 

the formation of the DISCOMs, they would have the freedom to frame their own 

service conditions and recruitment procedures, without jeopardising the interests of 

the transferred employees. (This aspect will be covered in detail in the discussion of 

the staff issues in this Report) 

It will be seen that the DPS is a systematic and well-conceived document and brings 

out the reform policy and envisaged procedures in clear and specific terms. Although 

3.19



it was mentioned that the process would be implemented in a time-bound manner 

(details of which were not included in it), for all purposes and intent, the DPS was a 

blueprint for reform. 

REGULATORY COMMISSION 

The Karnataka Electricity Regulatory Commission (KERC) has been playing a major 

role in the reform process of the power sector in the State. The KERA deals 

extensively with the duties, powers and procedures regarding the Commission. The 

Commission has so far issued three Tariff Orders. In fact, the close regulatory role 

played by the KERC has invited complaints from KPTCL; its managing director wrote 

to the KERC in 2003 that ‘the Commission held 80 meetings in the previous calendar 

year and that there was an increasing attempt to get involved in day-to-day micro 

management of transmission and distribution sectors. The frequent meetings and 

public hearings called by the KERC were affecting the normal functioning of the 

Corporation!’ 14 In turn, KERC clarified by the issue of a notice to the MD, KPTCL 

that the list furnished by the latter included several public hearings on tariff proposals 

etc., which, indeed, cannot be considered ‘unnecessary’. 

The incident highlights the involvement shown by the KERC to straighten the affairs 

of the sector to make it competitive and more self-sustaining, among others. 

It may be seen that the relations between KERC and the utilities have not always been 

smooth, in the past. Quoting from Shri S.L. Rao, “in Karnataka, the Government 

instructed the KPTCL to hold up implementation of a KERC order on tariffs, without 

any intimation to KERC, and entirely against the letter of the law. The KPTCL has 

objected to the need of its officials to appear before KERC as often as they have done. 

Clearly, they would not have done so without the encouragement of their owners- the 

State Government” 15 . 

ESTABLISHING CESCO 

As mentioned earlier, the Karnataka Electricity Reform Amendment Rules, 2002 

provided for only four DISCOMs in the State. They started functioning from June 

2002. Recently, however, in 2004-05, the Government established one more 

distribution company, named as Chamundeswari Electricity Supply Company 

(CESCO). This company has Mysore as its headquarters, and covers five 

neighbouring districts carved out from MESCOM. The working results of this 

14 S.L.Rao: Governing Power; page 184. 

15 S.L. Rao: Governing Power; page 174. 

3.20

Karnataka 

company will be known after the annual report for the year 2005-06 is finalised and 

audited. 

The rationale for forming this new company might have been that Mangalore, 

headquarters of MESCO, is at some distance, which would result in lesser customer 

support by the top management, as also in view of the growing importance of Mysore, 

which is being targeted as an alternate growth centre for the IT industry with a view to 

decongest the overstretched infrastructure of Bangalore. However, the actual motive 

appeared to be political rather than functional. 

TARIFF REFORM 

It is worth noting that the Power Sector Policy of the State Government issued on 30 

January 2000, identified the need to reform the tariff structure as an important 

objective. The policy recognised that the Regulatory Commission would introduce 

necessary modifications in the tariff structure, “which will progressively reduce 

cross subsidies and ultimately result in their elimination”. In fairness, however, the 

policy noted that to the extent the small rural consumers and the rural poor need to be 

protected, the cross subsidies may have to continue in the short to medium term. One 

would consider that the envisaged tariff reform policy was indeed a bold and highly 

desirable aim, which, though yet to fructify, was indicative of the keen resolve and the 

direction of the reform initiative. The KERC has already issued three Tariff Orders for 

the DISCOMs till now, and is in the process of developing a multi year tariff (MYT) 

policy. It has also approved the Open Access system in the State. 

The tariff reform policy also aimed at measures to introduce time-of-day (ToD) meters 

for select consumer categories, incentives for supporting load management and energy 

conservation etc. 

INDEPENDENT POWER PRODUCERS POLICY 

Another landmark policy statement issued by the Government of Karnataka was the 

IPP Policy, released in 2001. Noting that the shortage at that time to meet peak 

demand and energy requirements was to the extent of 16 per cent and 8 per cent 

respectively, and that the demand and energy requirement by year 2009-10 would 

grow to 9,100 MW and 46,000 MU respectively, the policy proposed a substantial 

reduction in T&D losses to 14 per cent by the targeted year and a minimum capacity 

addition of some 3,500-4,000 MW requiring heavy capital investments. Besides, the 

strengthening of the T&D network was expected to cost a huge sum of about Rs 

13,500 crore by the same period. It was in consideration of the need for such large 

3.21



financial and physical inputs, which could not be mobilised by the public sector alone 

that the State Government decided to issue the IPP policy, mentioned earlier. 

A High Level Committee on escrow cover to IPPs had recommended that the 

Government, as owner of KPTCL, should not provide such cover to IPPs, and that the 

process of transferring the distribution system to private ownership must be completed 

expeditiously. The Committee had also recommended that all future capacity addition 

in the thermal sector must come from the private sector. After carrying out several 

studies, the Committee’s recommendations to encourage a total capacity addition of 

about 3,500-4,000 MW from IPPs over the timeframe up to 2009-10 were approved. It 

was further decided that encouragement would also be given to non-conventional and 

environment-friendly sources of energy by as much as 10 per cent of the total 

capacity. Further, there would be no provisions for escrow covers, or other forms of 

guarantees, etc. The policy also proposed to prioritise the projects based on the given 

principles and parameters including the least tariff criterion, timing, and the extent of 

capacity requirement synchronised with the evacuation arrangements, on a year-toyear 

basis. 

The IPP policy was another major stride in the transition towards reforms in the power 

sector. 

RECOMMENDATIONS OF FDP CONSULTANTS 

As mentioned earlier, the Government of Karnataka had appointed the consortium of 

M/s CMS Cameron McKenna with Rothschild and IDFC as the Financial 

Development Plan (FDP) Consultants. The consultants submitted their report on 

privatisation strategy paper in October 2001. The report is very significant and takes 

into account the suggestions and views expressed by the top management in the 

Government, including the Steering Committee appointed to monitor the reforms. The 

consultants were of the view that the privatisation of the distribution assets and 

businesses by a ‘conventional’ sale to strategic investors would be limited to the urban 

pockets of Karnataka, at best, Bangalore Urban, Mangalore, Hubli, Dharwad and 

Belgaum, and would cover at best 33 per cent of the load and 5 per cent of the land 

area. The consultants also opined that given the position of the existing low tariff 

levels, the ability of consumers to bear risk through appropriate tariff increases was 

limited. Based on this, the consultants proposed that the Government of Karnataka 

must assume the risks, which would normally be allocated to consumers until such 

time as consumers start paying cost recovery tariffs and could bear the risks allotted to 

them. In other words, the Government of Karnataka was to assume many risks of the 

3.22

Karnataka 

distribution business until such time as the electricity industry has achieved a stable 

and sustainable financial condition. During the transition period, which will extend to 

five years, the investors will only bear the risk of managing the operating cost and 

capex of the distribution business, but will also share with Government of Karnataka 

some of the risks by subjecting their returns on investments to penalties for nonachievement 

of specified performance targets. They will also gain incentives for 

efficiency improvements such as subsidy reduction, which would benefit the State 

Government directly. 

The major risks from which the consultants proposed protection to the privatised 

distribution business included tariff risks (regulator not moving tariffs to the full cost 

recovery levels), collection risks (arising from lack of support of the law enforcement 

bodies, particularly in the rural areas), and commercial losses (especially theft 

remaining high due again to lack of support from law enforcement authorities). 

The consultants felt that by transferring the risks to the Government of Karnataka 

during the transition period, it will be pressurised to manage the risks in such a way as 

would lead the industry to financial stability. The strategy proposed by the consultants 

for achieving the above was what is termed as “distribution margin” (DM), which is 

explained below. 

DISTRIBUTION MARGIN 

Under this concept, the privatised distribution business would have the reasonable 

assurance that it would be able to earn its revenue requirement provided it meets its 

performance obligations and targets. The DM is compensation to the company for 

operating the distribution satisfactorily. The DM will have two components, namely: 

(i) Base revenue and (ii) Incentive charges. 

The base revenue is the amount the company will be allowed to retain to meet its cost 

of operating the business. It will be set taking into account the estimated total first 

year cost of distribution services, plus a reasonable minimum equity rate of return. On 

the other hand, the incentive charge will be a pre-defined proportion of the collection 

above a minimum collection requirement, which the company may be allowed to 

retain. The incentive charge will represent the investors’ return above the base return 

on the equity fixed as part of the base revenue. 

Bidding for the DISCOMs was to be on the basis of the lowest incentive charges to be 

offered by the bidders. Further, the DISCOMs were to collect a minimum gross 

revenue, what was called the ‘minimum collection requirement’ or MCR, which 

3.23



simply put, was the minimum cash collection for the sale of electricity. There would 

be a penalty for not achieving the MCR. 

While clarifying the procedure which was to be adopted, the State Government’s 

Privatisation Strategy Paper 16 also clarified that the winning bidder must buy at least 

51 per cent of the equity of the DISCOM concerned, the price of which would be 

fixed at par value, before the submission of bids. Specific service standards would be 

set during the transition period. Since it was envisaged that during the transition 

period, the privatised companies might not have enough revenues to pay for the entire 

electricity purchased, the deficit would be met by the Government of Karnataka or it 

will make alternate arrangements. The risk will be, thus, during the transition period, 

taken over by the State Government, and will not pass to the privatised DISCOM. 

Importantly, the Strategy Paper said that all four DISCOMs existing then would be 

privatised simultaneously, as recommended by the FDP consultants. 

The strategy was quite innovative and offered substantial incentives and concessions 

to the prospective bidders, by Government of Karnataka assuming a major part of the 

risks during the transition period. As expected, there were severe criticisms against the 

proposed strategy. Although the reasoning behind DM is logical, doubts could arise 

about the higher extent of risk assigned to by Government of Karnataka as for a fiveyear 

period. For instance, Shri S.L. Rao points out the following likely impact of the 

DM methodology on the power sector of the State: 

i) Private ownership is to be free for a ‘transition period’ while the public sector 

will continue to be tightly regulated; 

ii) There will be a maximum of four tariff changes in a year allowing for variations 

in input costs, procurement costs, etc. But there is no provision for scrutiny of 

these costs and their validity; 

iii) There is no transparency; 

iv) Cross pass-through are not subject to examination. This is an invitation for 

padding of costs. The risk sharing puts a heavier load on the Government; and 

v) These proposals appear to attempt incorporation of the right contractual norms of 

Chile model. They use the conceptual model framework of the World Bank 

paper titled ‘Regulation by Contract’. It must be realised that the many problems 

in distribution will take years to be resolved and to make the distribution 

16 Independent Power Producers Policy, Energy Department, Government of Karnataka, 2001. 

3.24

Karnataka 

companies commercially viable. In the interim period, the State Government will 

have to give considerable administrative and financial support to the new private 

owners. It could be asked why they (State Government) could not do these things 

when they owned the distribution companies. The main concern is that the State 

Government should build sufficient public and political opinion in support of 

restructuring so that when they decide to, they could move forward without any 

hitch. In this regard, they could learn from the experience of Delhi. 17 

FORMATION OF KTPCL AS THE SUCCESSOR TO KEB 

The Karnataka Electricity Reform act and rules made the Karnataka Transmission 

Corporation Limited (KPTCL) the successor entity for the erstwhile KEB and initially 

all functions performed by the KEB were ipso facto transferred to it. In the Second 

Transfer Scheme issued in 2002, the distribution functions and assets relating to 

distribution were transferred to the four DISCOMs created with effect from 1 June 

2002. The staff was required to opt for absorption in the DISCOMs, and subject to 

availability of slots to accommodate them, they were to be absorbed in the DISCOMs. 

The process and mechanism adopted for the restructuring of the KEB through the 

medium of KPTCL was appropriate and efficient. But in actual practice, the 

DISCOMs continue to look up to KPTCL as to a big brother to solve their problems. 

They have not yet attained the expected and required freedom from the linkage. Partly 

this may be because of the common work culture and history. But more so, because 

the personnel are still borne on the cadre of KPTCL, though they work in different 

DISCOMs. Moreover, the managing director of KPTCL functions as the chairperson 

of all DISCOMs, which though intended to ensure overall coordination, would go to 

retain the pre-eminent role of KPTCL over the DISCOMs. 

Till recently, DISCOMs were reportedly relying on KPTCL for many functions such 

as power purchase, raising finances, etc. This trend has been partly reversed; but needs 

to be reversed further, and efforts must be made to make the DISCOMs totally 

independent and autonomous entities, as was envisaged in the restructuring proposals. 

Merely clothing them with corporate veil will be of no avail, unless they are 

encouraged to function as corporate bodies in letter and spirit. 

17 S.L. Rao: Governing Power; page 178 -179. 

3.25

STATUS OF PERSONNEL DISPERSAL 

Establishment of Pension Trust 



The KER Rules, 2002 stated that the State Government and not the DISCOMs would 

be responsible for the funding of the pension funds and all statutory and other 

personnel related funds for the services rendered in KEB and KPTCL prior to the 

effective date of the second transfer scheme of the specified personnel. Accordingly, a 

separate Pension Trust has been established to manage the past liabilities, effective 

from 1 June 2002. The Pension Trust also receives pension contribution of the staff 

for the period after the restructuring from the companies at actuarially determined 

rates in order to discharge the current and future liabilities. This system has absolved 

the companies from an enormous past liability and also has given the employees the 

required assurance. The Pension Trust has approximately, 26,000 pensioners and 

family pensioners on its rolls. 

3.26

Karnataka 

GENERAL ISSUES 

Organisational Pattern 

CHAPTER - 3 

PROGRESS OF RESTRUCTURING 

Like all Electricity Boards, KEB was a huge multi-disciplined, multi-functional 

organisation, internalising practically all activities related to generation, transmission 

and supply of power. It had become unwieldy and typically bureaucratic, with 

statewide jurisdiction, and employing over forty five thousand employees. As a result, 

the most important attribute of a public utility, namely customer care, did not get the 

required attention. Although Karnataka had the unique distinction of establishing a 

separate generating company (KPCL) to cater to most of the production aspects, still, 

KEB had a few generating stations of its own to supplement the power purchase from 

the KPCL. Though the plan for restructuring of KEB does not refer to the requirement 

of core competency and management efficiency as causative factors for the 

restructuring exercise, the division of the Board into more viable corporate entities has 

indeed helped to achieve such an objective. 

KEB has now been restructured into seven separate companies, one to deal with 

transmission, another to manage the separated generation units (VVNL), and five 

DISCOMs for distribution. The idea of creating VVNL as a separate unit and not to 

merge the related generation units with KPCL 18 was to undertake the privatisation of 

the units concerned as stand-alone units. Besides, the original decision was to create 

only four distribution companies; but recently, one more DISCOM, viz., CESCOM 

was carved out from MESCOM, as stated elsewhere. 

The organisational pattern that exists after the restructuring is competent and 

conforms to the principle of core competency. Each new company has only one major 

function to perform, which would allow for professionalisation. The geographical 

areas attached to each DISCOM can be considered to be more viable and manageable 

units, and susceptible to close supervisory control. The new organisation of the power 

companies in Karnataka would undoubtedly offer scope for better load management, 

better quality power supply, universal metering, enhancement of revenue, reduction of 

commercial losses, and above all, improved customer care and customer relations. 

18 Detailed Policy Statement. 

3.27



The present organisational pattern of the restructured companies is as given below: 

KPCL VVNL 

KPTCL 

BESCOM MESCOM HESCOM GESCOM CESCOM 

Bangalorebased 

distribution 

company. 

Mangalorebased 

distribution 

company. 

Hubli-based 

distribution 

company. 

3.28 

Gulbargabased 

distribution 

company. 

VISHWESHWARAIAH VIDYUT NIGAM LIMITED (VVNL) 

Mysore-based 

distribution 

company. 

The ASCI Report on reform of the power sector had recommended that the residuary 

generation activities of the former KEB may be entrusted to another generating 

company, which could be privatised as a stand-alone unit. This was the genesis of 

VVNL. However, in 2003, Government of Karnataka decided to merge VVNL with 

KPCL ‘in the interest of better hydrological interdependence among State owned 

hydel stations and integrated approach towards state-owned generation 19 ’. This is yet 

to be completed, and must be expedited. Presently, KPCL manages the affairs of 

VVNL, pending the formal merger. It is hoped that the required formalities would be 

completed soon. 

CHAMUNDESWARI ELECTRICITY SUPPLY COMPANY (CESCO) 

CESCO is a recent addition to the DISCOMs in the State, carved out by separating 

five districts from the jurisdiction of MESCOM. As mentioned earlier, the formation 

of CESCO could find justification in the need to strengthen the infrastructure of 

Mysore, which is registering considerable growth as a tier-two city for the 

development of the Information Technology industry. However, the fact that it was 

not formed as a part of the restructuring strategy, nor was it mentioned in the scheme 

of things, indicates that it was an afterthought. A more coordinated planning for 

19 Circular No. DE 19 PSR 2003 dated 20 February 2003.

Karnataka 

restructuring would indeed yield better results with lesser implementation 

uncertainties. 

AUTONOMY OF RESTRUCTURED COMPANIES 

An important objective of the reform process of the power sector was not only to 

invest the utilities with the corporate status, but also to grant them adequate 

organisational and functional autonomy to enable them to work independently, with 

adequate powers to manage their affairs on a sustainable basis. At the cost of 

repetition, the DPS specifically proposed the grant of maximum autonomy to the 

restructured companies to manage their business along commercial lines. However, 

this has not yet been provided, which is obviously a major impediment to the reform 

process. According to the Chairman of the Karnataka Electricity Regulatory 

Commission (KERC), ‘the restructuring of the power sector is a failure since 

electricity companies are not functioning independently’ 20 . The extent to which the 

restructured companies have achieved functional autonomy could be ascertained from 

the following developments. 

COMPOSITION OF THE BOARD OF DIRECTORS 

(i) Karnataka Power Corporation Limited (KPCL) 

The Chief Minister of the State has traditionally held the position of the Chairman of 

KPCL, which was established in 1971. The Board has the Minister for Energy and the 

Adviser to the Minister for Energy as members. Six senior bureaucrats, including the 

Secretary to the Chief Minister, Principal Secretary (Energy Department) and the 

Managing Director of KPTCL are also on the Board. There are also four functional 

directors. 

The composition of the Board is indicative of the limited autonomy that the 

management will have on policy matters, without being hampered by political 

interference. The presence of the CM and the Minister for Energy on the Board of the 

Company will not only inhibit free and fair discussions in the Board meetings, but will 

also affect its autonomy. Hence, it would be appropriate that the CM and the Minister 

must voluntarily step down from Board positions, even if these appointments are 

declared as non- profit positions under the relevant law. 

The Board must further be reconstituted by including only up to three Government 

(nominee) directors in addition to the functional directors. Government of Karnataka 

20 Shri K.P. Pande, Chairman, KERC, quoted in The Hindu, dated 26 May, 2006. 

3.29



must also induct up to 50 per cent of the total strength of the Board of KPCL, with 

independent directors, to be drawn from a panel of experts in field of technical, 

financial and management functions. 

(ii) Boards of Restructured Companies (KPTCL and DISCOMs) 

KPTCL has the Minister for Energy as Chairman, while managing director of KPTCL 

functions as the chairman of all the DISCOMs. The Boards have a few functional 

directors from each company as members, as required. They also have Principal 

Secretaries/Secretaries of departments concerned (Energy, Water Resources etc.) as 

members. In the DISCOMs, the local area police and forest officials have been 

nominated for coordination. There are also representatives of staff associations on the 

Boards, as outside members. 

In order to professionalise the Boards and to make them independent and autonomous, 

it will be appropriate to reduce the number of Government nominees and to induct in 

their place professionals and experts from the fields of management, technology and 

other related areas. 

Further, it would be appropriate to merge the posts of chairman and managing director 

into one, as obtaining in Central Public Sector Undertakings (CPSUs). 

FINANCIAL AUTONOMY 

Till recently, KPTCL used to undertake several financial functions and activities on 

behalf of the DISCOMs. The Company Secretary of KPCL acts in that capacity for 

some of them on Company Law matters. This was understandable in the initial period 

of the formation of DISCOMs, since they may have been inexperienced and 

understaffed. But DISCOMs have been operational for almost four years by now, and 

must have built up the required capability and competency to function as full-fledged 

corporate bodies. One serious problem facing them all is the non-availability of 

competent professionals to take over the senior level financial assignments. Till 

recently, even for crucial matters like power purchases, DISCOMs used to depend on 

KPTCL; but this practice has since been changed. However, a common purchase 

committee is reportedly taking the power purchase decisions, and the DISCOMs 

simply implement them. As pointed out by the chairman, KERC, the DISCOMs do 

not have the discretion to manage their commercial decisions on innovative basis 

since they lack the autonomy. From this angle, it is imperative for the State 

Government to install an appropriate scheme to define the extent of management and 

3.30

Karnataka 

financial autonomy to be granted to the restructured companies and empower them by 

appropriate measures. 

HUMAN RESOURCES DEVELOPMENT 

A tripartite agreement was entered among Government of Karnataka, KPTCL and 

representatives of the staff of the former KEB regarding the transfer of the staff to the 

restructured undertakings. Under the First Transfer Scheme, all former employees of 

KEB became employees of KPTCL. In the subsequent Second Transfer Scheme, all 

the personnel of KPTCL and those working in the DISCOMs were required to 

exercise their option, within eight months, to get absorbed in DISCOMs or to remain 

with KPTCL. Later, the Second Transfer Scheme was amended to give extension of 

time up to 31 October, 2003 to the staff to exercise their option. It is learnt that some 

of the staff members have since obtained a stay order against the directive to exercise 

options to get absorbed in the DISCOMs. The staff is apprehensive that in the event of 

their absorption in the DISCOMs, their current inter-se seniority would get adversely 

affected, with impact on the prospects for career advancement. It is likely that they 

also do not opt for the BESCOM so as to avoid relocation from their preferred places 

of postings. Pending a final decision by the Court, the staff continues to be borne on 

the KPTCL cadre, and work on deputation in the DISCOMs. 

The Transfer Scheme provided that the transfer of the staff to the restructured 

undertakings will assure them positions and compensations not less favourable than 

what they were enjoying in KEB/KPTCL. However, no additional incentives were 

provided to encourage the staff to opt for the absorption in the restructured companies. 

The continued retention of the personnel on the rolls of KPTCL is a major impediment 

against taking forward the reform exercise. For one thing, the morale of the staff gets 

affected. Further, the managements of the companies have no incentive to evolve 

innovative personnel policies to motivate the staff to perform better. The officials 

working for the restructured companies continue to retain the work culture and habits 

of the erstwhile KEB with hardly any commitment to their present employers. The 

newly formed companies also do not “own up” their staff, and are not able to motivate 

them. 

It is apparent that unless the integration of the human resources of each restructured 

company with its own management is achieved soon, the reform process would not 

get the required impetus. The State Government must expedite the process by moving 

the judicial authorities to approve the transfers and put in place a strong and well- 

3.31



structured human resources network for each restructured company, at the earliest. 

This must be a matter of priority. 

It may be a wise investment to offer adequate and sufficiently attractive incentives to 

the transferred personnel to encourage them to opt for the revised corporate entities. 

This must be supplemented with an appropriate communication strategy to educate the 

staff members on their career prospects so that they shed their misapprehensions and 

volunteer to get absorbed in the DISCOMs. 

CONTINUATION OF THE SUBSIDY PAYMENTS 

Power sector reforms aim at substantial reduction and the gradual elimination of the 

government subsidy to the sector. It is no one’s case that the subsidy that the sector 

has been enjoying for decades could be wished away overnight by merely 

restructuring the Electricity Boards. But the entire restructuring exercise was initiated 

with the objective of reducing and eliminating the continuing subsidy and to make the 

sector self-supporting and sustainable in the shortest possible time frame. 

As mentioned earlier, the State Government has been giving considerable subsidy 

support to the power utilities in the State. . Even after almost a decade of the reform 

efforts, there is no let up in the provision of subsidy to the sector. The ten-year 

Financial Restructuring Plan (FRP) for the power sector approved by the State 

Government envisaged that the government support to the sector would be Rs 8,999 

crore till 2005, including a direct subsidy of Rs 6,750 crore, debt service on trade 

bonds to CPSUs of Rs 555.30 crore, cash subsidy for past power purchase dues of Rs. 

200.40 crore and pension contribution of Rs. 785 crore. Additionally, the liability for 

the past pension obligations till the restructuring of the KEB would continue. At the 

same time, a turnaround of the finances of the sector was expected in the five-year 

period to follow (i.e., by 2006-07). The FRP assumed annual revision of tariffs, annual 

reduction of losses, 100 per cent collection efficiency, and adequate capital 

investments supported by external funding. Following this, Government of Karnataka 

also published the Medium Term Fiscal Plan (MTFP) for the State for the period up to 

2004-05 during the budget session 2001-02, which announced drastic reduction of 

implicit and explicit subsidies to the power sector “through economic pricing, 

improving productivity in generation, transmission and distribution and metering the 

consumption of electricity by the agricultural sector and privatisation of distribution”. 

The MTFP, among other things, sought to link the power sector subsidy to reduction 

in T&D losses (from the then existing level of 37.5 per cent to 25 per cent in 2005-06, 

through gradual annual reductions), and regular tariff increases. The first Balance 

3.32

Karnataka 

Sheet Restructuring Plan provided a total financial support of Rs 1,800 crore to the 

restructured company (KPTCL) and the second such exercise included the write off of 

KPTCL’s receivables of Rs 866 crore. This also aimed to restrict the total subsidy 

payable to the sector for the subsequent ten year period to Rs 12,140 crore, exclusive 

of Rs 1,050 crore taken over towards the long-term debt servicing of KPTCL 

(erstwhile KEB). 

In actual practice, however, the large amount of subsidies to the sector continues to 

persist, with no respite visible in the near future. The following Table provides the 

details of profit, loss, and subsidies to the distribution sector in the recent years: 

Year 

Table: Details of Profit and Loss 

Profit after 

tax 

(Accrual 

basis) 

Cash profit 

(accrual basis 

excluding 

depreciation 

and write-offs) 

3.33 


(subsidy 

received 

basis) 


(Revenue and 

subsidy on 

realised basis) 

(Rs crore) 

Loss 

without 

Subsidy 

2002-03 340 943 849 103 (1,599) 

2003-04 310 1,034 689 412 (1,315) 

2004-05 462 1,259 1,092 621 (1,107) 

Total 1,112 3,236 3,630 1,136 (4,021) 

(Source: PFC) 

Thankfully, the extent of losses without subsidy has come down from Rs 1,599 crore 

in 2002-03 to Rs 1,107 crore in 2004-05, that is by as much as 31 per cent over the 

three-year period, which shows significant improvement. However, the gap between 

the average cost of supply and the average revenue realised continues to vary between 

Rs1.30 per unit for HESCOM and Rs 0.06 for BESCOM. Efforts must be continued to 

reduce the gap and to gradually eliminate the subsidy by efficient planning, and 

measures aimed at increasing revenue and reducing costs. 

METERING PROGRESS 

Government of Karnataka had initiated a three-year programme in 2002-03 for 100 

per cent metering of all service connections; but this has not succeeded due to severe 

resistance from the farmers. According to MESCOM’s Business Plan, the Universal 

Metering Plan is a limited success. The Plan states that the metering of IP sets in three 

districts were completed. Due to resistance of farmers, the progress in one division 

(Sagar) was only 50 per cent. BESCOM’s metered consumption comes to only 49 per 

cent of the total sales in 2004-05, though there is marginal increase from the previous 

years. HESCOM claims that it has achieved some 87 per cent overall efficiency in



metering, with only 30 per cent metering for IP sets. The ESCOM was continuing 

with its Bhagya Jyothi installations metering, while the metering of street lighting was 

completely outsourced. The Business Plan of BESCOM aimed at 100 per cent 

metering by 2004, except for IP segment, where there is resistance from the 

customers. In the current year’s budget, the State Government has allocated a subsidy 

of Rs 127 crore to encourage the farmers to agree to install meters for IP sets. The 

individual subsidy amount will be Rs 16,450 per IP set, for regularisation, with the 

farmers bearing the first Rs 10,000 per set. 

3.34

Karnataka 

CHAPTER - 4 

ANALYSIS OF THE RESTRUCTURING PROCESS 

RESTRUCTURED ORGANISATIONAL PATTERN AND FUNCTIONAL 

AUTONOMY 

The organisational pattern adopted for the restructuring of the KEB was, by all 

accounts, unexceptional. The decision to form one transmission company for the 

whole State and four distribution companies on the basis of zonal jurisdiction, with a 

mix of urban and rural contiguous zones, was logical and based on detailed studies 

carried out by well-known consultants. The alternative of segregating them into urban 

and rural distribution companies would have not only affected the financial viability 

of the latter, but also would have been unacceptable from the point of their future 

privatisation, which was the declared policy. 

Given the appropriate organisational pattern, the restructured companies must be 

functioning with efficiency and autonomy by now, after four years of the 

restructuring. However, this has not happened, as mentioned before. The reasons are 

following: 

• Non-integration of the staff with the restructured companies even after four years 

of their formation has stalled the progress of reform. The efforts taken by the 

management to have the judicial orders regarding the transfers rescinded are 

neither adequate nor significant. In the absence of separate cadres for each 

DISCOM, the employees consider themselves as part of one entity, KPTCL, or 

even perhaps, of KEB in a different name. 

• The attitude of the staff and the work culture continue to be as before the 

restructuring exercise. The formation of the DISCOMs has not made any 

difference to the majority of the staff. There are no incentives to the staff to 

move over to the new companies, and there is hardly any motivation. A revised 

and more attractive personnel policy would undeniably lead to better efficiency 

and autonomy. The CEOs of the DISCOMs are drawn either from the civil 

service (IAS/KAS) or from the technical cadres of the former KEB. Many of 

them do not have the aptitude, expertise and experience to manage complex 

electricity sector. There are also frequent transfers of these personnel. 

• The CEO of KPTCL is, by virtue of his position, appointed as the chairman of all 

DISCOMs. This does not help the DISCOMs to function as independent entities, 

but might encourage them to work more as subordinate units of KPTCL. This is 

3.35



particularly so when the CEOs of the DISCOMs are officers drawn from the 

KPTCL /KAS. 

• Till last year, KPTCL was the designated agency to purchase power and supply it 

in bulk to the DISCOMs. Though this practice has recently been modified, a 

centralised power purchase committee now carries out the task. In order to 

permit the DISCOMs to function with autonomy, it is necessary to encourage 

them to take all major decisions, including on power purchases, for which they 

must be endowed with adequate management capability. 

• The DISCOMs do not have competent finance directors, finance professionals, 

company secretaries, etc., which is a major handicap. The present wage pattern 

will hardly enable them to attract suitable talents. Unless this problem is solved 

by appropriate measures, the DISCOMs would not be able to function efficiently 

and independently. 

• DISCOMs have prepared their detailed business plans with external assistance, 

which is appreciable. The effective and close implementation of these plans will 

help to achieve the targets set in the power sector reform regarding improved 

physical and financial performance of the sector as a whole. 

3.36

Karnataka 

ACHIEVEMENTS IN FINANCIAL OPERATIONS BY DISCOMs 

The following Table indicates the financial performance of DISCOMs: 

DISCOM 

Table: Financial Performance of DISCOMs 

Income 

excluding 

subsidy 

Total 

expenditure 

PBT PAT Cash 

profit 

3.37 

Cash 

profit 

without 

subsidy 

(Rs crore) 

Cash Profit 

on Revenue 

and Subsidy 

Received basis 

2002-03 

BESCOM 2,375 2,670 20 18 89 123 (225) 

GESCOM 502 850 9 8 35 20 (43) 

HESCOM 713 1,198 10 10 44 (7) (174) 

MESCOM 1,053 1,204 12 11 59 (3) (172) 

Total 4,643 5,922 51 47 227 133 (614) 

2003-04 

BESCOM 3,265 3,432 21 13 107 5 (104) 

GESCOM 666 1,081 7 (14) 41 11 (45) 

HESCOM 1,324 1,540 21 19 69 (91) (65) 

MESCOM 889 1,554 17 15 81 18 (122) 

Total 6,144 4,607 66 33 298 (57) (336) 

2004-05 

BESCOM 3,656 3,567 88 81 180 366 238 

GESCOM 693 1,158 4 (4) 37 (38) (103) 

HESCOM 948 1,755 21 9 102 (146) (329) 

MESCOM 1,446 1,698 19 18 90 58 (36) 

Total 6,743 8,088 132 104 409 240 (528) 

(Source: PFC) 

The above Table shows that there has been general improvement in the overall 

financial performance of DISCOMs, which indicates the merits of the restructuring 

relating to PBT, PAT, Cash Profit, etc. However, the companies have to redouble their 

efforts to recover revenue and subsidy on time. Moreover, there is need to focus on 

the financial performance of HESCOM and GESCOM in particular. These companies 

have large agricultural segments compared to BESCOM and MESCOM, and would 

benefit from a sound policy for universal metering and improved billing and 

collection. These two companies were also recipients of heavy subsidy as a percentage 

of sales revenue ranging from 68.56 per cent to 93.51 per cent, which are 

unsustainable, and need early remedial action to improve their performances. 

Another area where some improvement was noticed from year-to-year relates to 

collection efficiency. This factor ranged from 80.55 per cent in the case of HESCOM 

to 96.42 per cent in the case of BESCOM (2004-05). However, the debtors to sale 

ratio have gone up. This aspect needs to be examined.



PERFORMANCE OF TRANSMISSION COMPANY (KPTCL) 

The following Table summarises the performance level of KPTCL: 

Table: Performance of KPTCL 

Particulars 2002-03 2003-04 2004-05 

Energy available (MU) 29,279 31,217 33,110 

Energy delivered (MU) 27,266 29,676 31,711 

Transmission loss (MU) 1,988 1,527 1,383 

Transmission loss (%) 6.55 4.89 4.18 

PBT (Rs crore) 536.73 597.8 1,171.8 

PAT (Rs crore) 494.5 523.9 1,088.2 

Sundry Debtors, (Rs crore)/(% of 7,095.5 16,831.6 16,025.7 

debt to sale) 

(12.5) (26.10) (24.20) 


It may be observed that the company has been turning out appreciable performance 

over the years by reducing the transmission loss, which is reportedly one of the lowest 

in the country. Even though the profit levels have been on the increase, the sundry 

debtors’ position would cause serious concern. However, since the practice of power 

trading was discontinued from 2005-06, it is hoped that there would be improvement 

in the Company’s accounts in regard to this aspect for the subsequent year onwards. 

KPTCL has also embarked on an ambitious capex programme of Rs.1,700 crore in the 

current year, for which approval has been issued by the KERC. 

PERFORMANCE OF THE GENERATING COMPANY (KPCL) 

Since KPCL has been in existence for about 35 years, its performance has to be seen 

in the overall context of the reform process, and not as a part of the review of the 

success of restructuring exercise. As mentioned earlier, KPCL has a 55.5 per cent (60 

per cent along with VVNL) share of the total installed capacity in the State, with 

predominant hydel mix. The Vision Statement of KPCL estimates that the load 

demand will continue to outstrip generation, and the shortage is expected to grow to 

2,492 MW by 2010. KPCL’s ambitious vision is to become a 25,000 MW company 

by 2025. 

3.38

Karnataka 

The generation and PLF performance of KPCL can be seen from the following Table: 

Table Generation and PLF Performance 

2002-03 2003-04 2004-05 

Generation (MU) 10,292 11,393 10,730 

PLF (%) 79.92 88.47 83.33 

Auxiliary consumption (MU) 957 1,069 1,041 

Auxiliary Consumption as a 

percentage of generation 

5.58 5.80 5.48 

The achievements of KPCL compare well with the best in most other States. The 

company had made PAT of Rs 240.70 crore, Rs 223.23 crore and Rs 239.45 crore 

respectively during the last three years. 

3.39



CHAPTER - 5 

LESSONS LEARNT 

The lessons learnt from a review of the power sector reform efforts in Karnataka are 

very revealing and educative. The procedure followed by Government of Karnataka to 

conceptualise, plan and initiate the reform process was by all accounts efficient, 

meticulous and well structured. This is evident from the various steps and measures 

adopted by it from the beginning; whether it be in the formulation of the policy for 

reform, the planning which went into the process, the appointment of competent 

external consultants, the establishment of the monitoring and implementation 

mechanism, etc, followed by the FRP, institutional strengthening plan, and the mode 

of the restructuring exercise itself. The pace of implementation was also quite 

appropriate. However, the main intended and planned process does not seem to have 

yielded the full-intended outcomes, and the DISCOMs suffer from adverse financial 

results attributable to inadequate management systems and external pressures. On the 

other hand, the State Government has not been able to reduce the subsidy to the sector 

significantly for redeployment in the more deserving social and development sectors, 

as expected. This is not to say that the restructuring was a failure; quite the contrary. 

In fact, the new companies have been successful in many respects, including metering 

programmes, improved billing and collection, energy audit, reduction in AT&C 

losses, etc. More importantly, the restructured companies are able to devote more 

attention to customer care, which can be regarded as one of the most desired results of 

the reform process. But there is no gainsaying that more needs to be done to make the 

reform a real success. 

The principal lesson that emerges from the study is that it is not enough to put in 

place a textbook model for reforms; but all reforms need one or more powerful 

and totally committed champions to put them through. It is always convenient to 

let things drift; but if the reform is to succeed, it needs bold initiatives, which are 

unlikely to come from within the organisation itself. 

The most important tool for achieving any task is human resources. Inadequate 

attention to develop this valuable resource will have deleterious effects on the reform 

efforts. It would appear that in Karnataka, the State Government did not pay 

adequate attention to encourage the staff of the KEB to become members of the 

restructured companies, also it did not develop a competent cadre of managers 

who could take over and function effectively at the top rung of the restructured 

companies. 

3.40

Karnataka 

The political will to successfully implement the reform efforts, which was visible 

in the initial period of the reform, does not appear to been sustained thereafter. 

Power sector reforms can succeed to a considerable degree only when there is a 

strong political will. 

However, there are several positive gains arising from the restructuring of KEB. These 

include the following: 

(i) Viable Enterprises: The functionally oriented, smaller companies formed out 

of KEB are more viable to manage and offer scope for better management 

control and efficiency. 

(ii) Reduction in losses: There has been gradual and steady reduction in the 

AT&C losses of the new companies. 

(iii) Financial sustainability: 

• Two of the five distribution companies are comparatively sustainable in 

terms of financial viability. The new companies are paying more attention 

to billing and collection, which will have direct impact on their financial 

results. 

• The system of engaging Grama Vidyut Pratinidhis for collecting the dues 

in rural areas, and the practice being adopted to outsource the billing and 

collection process will go to improve the revenue base. Increasing 

computerisation of billing and collection tasks by DISCOMs, especially 

by BESCOM, is also paying dividends. The short point is that after 

restructuring, the smaller entities are able to devote more time and 

attention to revenue realisation. 

(iv) Metering Progress: There has been significant progress in metering all 

installations, except for the IP sets. In their case also, despite the political 

overtones, there have been appreciable efforts to extend the metering exercise, 

though with limited success. 

v) Customer satisfaction: The customer satisfaction level has surely gone up. 

The CEOs of the DISCOMs, especially in Bangalore, has shown considerable 

interest to receive complainants personally, and to solve their problems. They 

have also established appropriate grievance redressal mechanisms, to look into 

customers’ complaints. The independent studies carried out by a Civil Society 

3.41



Organisation 21 in Bangalore and Hubli have shown that the level of customer 

satisfaction has increased in the recent years. 

vi) Additional Investments: Significant investments are being made to improve 

upon the facilities and services offered by the newly-formed companies. The 

investment requirements envisaged in the document Vision 2020 for the period 

from 2005-06 to 2009-10 comes to about Rs 6,400 crore for KPTCL and Rs 

16,032 crore for the DISCOMs. The fact that KPTCL has KERC’s approval to 

incur Rs 1,700 crore for capital works in 2006-07 indicates the progress being 

made towards inviting additional investments. 

21 

Public Affairs Centre: Third Citizens Report Card; Bangalore; Citizens Report Card for Hubli Municipal 

Area. 

3.42

Karnataka 

CHAPTER - 6 

WAY FORWARD 

(A) POLITICAL COMMITMENT: A MUST 

Unless there is Central intervention to activate the reform efforts and to put it 

back on even keel by securing political commitment of the State Government, 

the trend is unlikely to change. Ministry of Power must consider the ways and 

means to accelerate the reform process by innovative measures, albeit the EA, 

2003 establishes the framework for restructuring. It is important to pursue the 

objectives of the Act in letter and spirit, since a mere restructuring in form, as 

carried out in Karnataka, will not yield the full desired results. With all 

restructured companies continuing as 100 per cent Government owned and 

controlled entities, the impact of restructuring is limited. The feasibility of 

linking central assistance (including those from REC and PFC) with the 

progress of effective implementation of the reform will be one such possible 

measure. 

(B) IMPROVING RECOVERY FROM AGRICULTURAL SECTOR 

The main reason for the continued poor financial performance of the 

restructured companies is the resistance of the agricultural lobby to install 

meters on IP sets and refusal to pay for the electricity consumed, which is taken 

by them as a matter of right. This is an all-India issue and has to be sorted out 

at the national level. The objective must be to define the ‘creamy layer’ of 

farmers, to identify them, and to make them pay through coercion. Linking the 

support price and procurement operations to those who have paid for the 

electricity drawn by them could be explored. Until a reasonable solution is 

found for this daunting problem, the sector reform will only be partly 

successful. 

(C) PLANNING AND MONITORING AGENCY 

During the initial stages of the power sector reform in Karnataka, there was a 

ministerial committee to oversee the reform implementation. It is necessary to 

reactivate such a high level committee, but with clear and specific objectives 

and tasks. This must be supplemented with a Steering Committee under the 

Chief Secretary, as before, with clearly defined tasks and commitments. 

3.43



(D) ADVISORY GROUP TO ASSIST IN REFORM EFFORTS 

An advisory group of experts and professionals with wide experience and 

expertise in the field must be established to assist the Steering Committee in its 

tasks. The Advisory Group must be selected carefully, and not confined to 

former bureaucrats/technocrats. The Group may however include 

representatives of CEA/PFC. 

(E) STRENGTHENING THE REFORM CELL OF THE SECRETARIAT 

It would appear that though the Reform Cell of the Department of Energy is 

still in existence, they are engaged in routine activities. The Cell requires to be 

strengthened substantially. There is need to induct committed senior officials 

with wide experience and the right temperament into the Reform Cell so that it 

becomes proactive and plays a major role in pursuing the reform efforts. 

(F) REINVENTING THE COMMUNICATION STRATEGY 

The external consultants had advocated a communication strategy, which was 

not put into effect efficiently. All reform efforts and change managements need 

to be supported by strong communication strategies. The target groups should 

include all stakeholders, namely, the public at large, consumers and consumer 

groups, staff of the undertakings, politicians, administrators and all concerned. 

One reason for the less than envisaged success of the reform efforts in 

Karnataka, whether it be the reluctance of the staff members to opt for the 

restructured companies, or whether the refusal of the agricultural lobby to 

allow installation of meters on IP sets, or whatever, was the apparent failure of 

the communication strategy. It is strongly recommended that a competent, 

practical and target-oriented communication strategy be developed with the 

help of experts in the field, and be put into practice as the next stage of the 

reform process. 

(G) RECONSTITUTING THE BOARDS OF DIRECTORS OF 

RESTRUCTURED COMPANIES 

The present constitution of the Boards of the utilities in the State leaves much 

to be desired. The boards now mostly comprise of serving and former officials 

of different departments and agencies. Even where there are outside members, 

they are mostly retired senior officials of the same entity. There is need for 

Government of Karnataka to establish a policy to reconstitute the BOD of the 

power sector companies; the recommended procedure is to restrict functional 

3.44

Karnataka 

and government directors to 50 per cent of the total strength of the boards, and 

to fill the rest with professionals and experts drawn from a panel of experts in 

management, technology, finance and related professions. This will go a long 

way to transform the restructured companies to function more professionally, 

and with more autonomy. 

Traditionally, the Chief Minister acts as the chairman of KPCL; Minister in 

charge of Energy becomes the vice-chairman. The management is of the view 

that this arrangement helps the company in decision-making; but the demerits 

of a political executive acting as the chairman of a public corporation are 

apparent. This needs consideration at the highest level. 

(H) PROVIDING AUTONOMY TO DISCOMS 

The practice of appointing the CEO of KPTCL as the chairperson of DISCOMs 

must be discontinued. Until competent CEOs, who could function as CMDs, 

are available for appointment internally in DISCOMs, suitable outside 

personnel could be appointed to those posts. Meanwhile, the Government of 

Karnataka must define the extent of powers that needs to be granted to 

DISCOMs through a corporate analysis and delegate them. Further, the 

management of the DISCOMs must be strengthened by inducting competent 

and experienced middle and top level functionaries who will be able to work 

more independently and professionally. 

(I) DEVELOPING A COMPETENT CADRE OF MANAGERS 

It would be a tough assignment; but efforts should be in place to develop a 

competent cadre of professionals to man the senior positions in the power 

companies, including those of CMDs. Since CEOs require multi-disciplinary 

skills, it is necessary to train the senior personnel of KPTCL and DISCOMs as 

part of capacity development. This might take a long time; but must be initiated 

early. Meanwhile, the availability of competent executives with the necessary 

expertise to function as CEOs, from CPSUs like NTPC, NHPC, etc., could be 

explored. It may also be necessary to provide adequate and attractive 

compensation packages to such candidates, without being hamstrung by the 

State civil service pay structures. 

3.45



(J) ESTABLISHING A DETAILED FINANCIAL ACTION PLAN 

The entire plan for continuing the reform efforts, with clear objectives, process, 

etc., must be presented, as a White Paper and a medium term plan to make the 

sector sustainable, without subsidy, must be evolved. This will, as mentioned 

above, indeed call for an aggressive and conscious policy to tackle the 

agricultural sector; but the Common Minimum National Action Plan 

established by the Chief Ministers’ Conference in 1996 would show the way 

forward. Under this Plan, agricultural sector was to pay not less than 50 paise 

per kWh, to be brought to 50 per cent of the average cost gradually. The 

financial action plan must be firmly established, after getting the approval of 

KERC. 

(K) ENFORCEMENT OF PERFORMANCE CONTRACT WITH 

COMPANIES 

The Vision, 2020 Statement prepared by KPTCL for both the transmission and 

distribution areas envisages significant capacity additions and capex during the 

coming years, as also establishes ambitious management goals. The business 

Plans of BESCOM and MESCOM provide useful year-wise targets and goals 

for various activities. In order to ensure sustained and efficient performance by 

all restructured companies over the years, it would be advantageous to 

encourage them to sign annual Performance Contracts with the Department of 

Energy. The mechanism of Performance Contracts will also cast corresponding 

duties and obligations on Government of Karnataka (Government support to 

undertake universal metering, payment of subsidy on time, etc.) as also will go 

to enhance the autonomy of the companies. 

(L) PARTIAL DISINVESTMENTS OF GOVERNMENT HOLDINGS IN 

THE RESTRUCTURED COMPANIES 

The DPS indeed announced the firm resolve of Government of Karnataka to 

privatise the restructured companies, as also disinvestments in KPCL over 

time. It may be recalled that the State Government had also accepted in 

principle the recommendations of the consultants to adopt the DM route as a 

means to attract prospective investors to bid for all DISCOMs. Subsequently, 

as brought out in this Report, the reform process got retarded, and there has 

been no development on that front. 

3.46

Karnataka 

Different approaches may be possible in respect of the issue of disinvestments 

in the power sector companies. One cannot however pre-empt the route that 

policy makers must adopt in this regard. Further, even the extent of dilution of 

equity in a concern will be a matter of major policy issue. However, there is no 

denying that public participation in the equity base would accentuate the 

autonomy and accountability of public corporate bodies, and will make the 

managements more responsive to the corporate objectives. Viewed from this 

angle, there is a strong case for offering part of the shareholdings of KPCL and 

DISCOMs to the public, including the employees of the companies themselves. 

It would be advisable therefore to revisit the recommendations of the FDP 

consultants regarding the issue of privatisation. Meanwhile, a pre-determined 

portion of the shareholdings of KPCL and DISCOMs, say 26 per cent, could be 

offered to the public. Similarly, without prejudice to the option of finding 

strategic partners, the Government of Karnataka must examine the ways and 

means of a further financial restructuring of the DISCOMs to make them 

sufficiently attractive so that a percentage of the shareholdings could be offered 

to the public. These measures will have to be considered in depth with the help 

of consultants and experts in the field; but a step in that direction would take 

the restructuring process to logical conclusions. 

(M) HUMAN RESOURCES DEVELOPMENT 

Integration of Staff with DISCOMs 

The reluctance of the staff to opt for the restructured companies, though they 

had signed the tripartite agreement, may be due to their apprehensions of 

adverse career prospects, as also to avoid possible relocations, among other 

things. The need to educate the staff concerned suitably at all levels, and also to 

provide adequate and just incentives to motivate them to opt for the transfers 

cannot be gainsaid. The management and the State Government must jointly 

therefore evolve an appropriate and efficient communication strategy to 

implement the transfer scheme and work for it according to the roadmap 

established. 

Shortage of Technical and Commercial Staff 

Against the sanctioned staff strength of all companies, the number of staff in 

position is considerably less. The shortages seem to be more in the technical 

and commercial areas, especially in the field, which impacts the functioning of 

3.47



the companies. The staff norms were established during the KEB days, and 

based on the liberal standards existing under the Board regime. There is need to 

have them revised as per commercial norms and O&M studies; perhaps by 

engaging outside experts. Once this is done, the managements of the companies 

must have the freedom to fill up the required number of staff, as their own 

employees on respective cadres, which will strengthen the working of the 

companies. 

The restructured companies also must have powers to evolve their own 

performance-linked wage structures, which are most suited to their 

environments, subject to the overall policy guidance of the State Government. 

The model could be patterned on the basis of the procedures followed by the 

CPSUs. 

(N) OUTSOURCING OF FUNCTIONS 

A related issue is the advantages of outsourcing services and functions. 

Already, BESCOM has resorted to outsourcing of its billing and collection in a 

number of its sub-divisions, with apparent benefits. Apart from reducing the 

cost to the companies, outsourcing will also help in better collection efficiency, 

provided there is a competent data collection and monitoring system in 

position. 

DISCOMs must be encouraged to adopt the practice of outsourcing 

increasingly, but subject to installing appropriate security and monitoring 

controls. 

(O) PUBLIC PARTICIPATION IN OPERATIONS 

The need to secure a ‘buy-in’ of the public to the reform efforts in the power 

sector through the communication strategy has already been discussed. This 

needs to be supplemented with public participation in areas such as elimination 

of thefts, 100 per cent metering, and such relevant areas. The project launched 

in Maharashtra (Akshay Prakash Yojana) to involve the rural population in the 

activities of the utility could be adopted as a model. 

Karnataka has a large number of effective and successful Non-Governmental 

Organisations (NGOs) operating in different parts of the state. It might be 

possible to involve them in mobilising public cooperation to improve the 

commercial aspects of the working of the DISCOMs through concerted efforts. 

3.48

Karnataka 

The recently announced scheme of franchisees in rural areas, sponsored by the 

Rural Electrification Corporation (REC) might throw open fresh avenues in 

rural management of the operations. Another option will be to involve the 

Panchayati Raj Institutions (PRIs) actively in billing and collection; perhaps as 

bulk purchasers of power. They must also be incentivised to pay for the 

electricity consumed by their local offices and facilities, by close interaction. 

3.49


EXECUTIVE SUMMARY ............................................................................................4.1 

1. GENERAL OVERVIEW.........................................................................................4.13 

1.1 Background of Power Sector Reforms ................................................................4.13 

1.4 Milestones ...............................................................................................................4.14 

1.4.5 Functions and Undertakings Retained in MPSEB ...........................................4.15 

1.4.6 Taking over of Liabilities by Government of MP.............................................4.16 

1.5 Financial Restructuring Plan.................................................................................4.16 

1.6 Role of MPSEB in the Reform Process.................................................................4.20 

1.7 Formation of TRADECO.......................................................................................4.20 

1.7.1 Functions of Board Transferred to TRADECO ...............................................4.21 

1.8 Cash flow Mechanism of MPSEB .........................................................................4.22 

1.9 The Reform Expectations.......................................................................................4.24 

2. GENERATION.........................................................................................................4.25 

2.2 Generating Capacity in the State ..........................................................................4.25 

2.3 Projects Identified for Eleventh Plan....................................................................4.26 

2.4 Renovation and Modernisation of Existing Plants ..............................................4.26 

2.5 Performance of the State Generation Units .........................................................4.27 

2.6 Observations/Comments ........................................................................................4.30 

3. TRANSMISSION .....................................................................................................4.31 

3.1 Transmission Network ...........................................................................................4.32 

3.2 Operational Parameters.........................................................................................4.33 

3.3. Transmission System Availability........................................................................4.33 

3.4. Capital investment in Transmission Sector.........................................................4.34 

3.5 Power Supply Position in the State .......................................................................4.35 

3.6 Power Purchase.......................................................................................................4.36 

3.7 Commercial Parameters ........................................................................................4.36 


4. DISTRIBUTION SYSTEM .....................................................................................4.38 

4.1 Performance Parameters .......................................................................................4.39 


5. REGULATORY FRAMEWORK………………………………………………....4.49 

5.1 Tariff Revision ........................................................................................................4.49 

6. ROLE OF THE STATE GOVERNMENT ............................................................4.50 

7. ELECTRICITY ACT 2003 AND THE REFORM PROCESS.............................4.51 

7.1 Establishment of SLDC..........................................................................................4.51 

7.2 Adequacy of the Provisions of the Central Act....................................................4.51 

7.3 Suggestions from State Govt. and the Support Expected ...................................4.52 

8. LESSONS LEARNT AND WAY FORWARD ......................................................4.53 

8.5 Regulatory Process .................................................................................................4.54 

8.6 Generation Sector ...................................................................................................4.55 

8.7 Transmission System..............................................................................................4.56

8.8 Distribution............................................................................................................. 4.56 

8.8.1 Transition Support by Government of MP ...................................................... 4.56 

8.9 Sustainability of State Power Sector .................................................................... 4.56 

9. CONCLUSIONS ...................................................................................................... 4.61 

List of Officials with whom Discussions were Held:................................................. 4.62

GENERAL 

MADHYA PRADESH 


Madhya Pradesh had the distinction of being one of the few States, which had an 

efficient State Electricity Board (SEB). MPSEB has been ranked high amongst the 

SEBs, in terms of creating good generation capacity in the State sector, well-organised 

network of transmission and sub-transmission system and relatively low level of 

Transmission and Distribution (T&D) losses among the SEBs. However, the working 

of MPSEB started deteriorating on account of inefficiencies from its monolithic 

structure, distortions in tariffs, defaults in payment to Central Public Sector 

Undertakings (CPSUs) and other suppliers, increasing gap between demand and 

supply and high level of receivables. The State Government was forced to heavily 

subsidise MPSEB, which aggravated the fiscal condition of the State Government. 

Government of Madhya Pradesh had little option but to go in for the comprehensive 


REFORM ACT, 2000 

The Reform Act, “Madhya Pradesh Vidyut Sudhar Adhiniyam, 2000” was enacted on 

20 February 2001, but in the meanwhile in November, 2000, the erstwhile State of 

Madhya Pradesh was bifurcated into two separate States, i.e., the now existing 

Madhya Pradesh and the newly created State of Chhattisgarh. After reorganisation of 

the State, 33 per cent of the installed generating capacity was transferred to the State 

of Chhattisgarh, whereas the level of consumption was only 21 per cent of the total 

consumption of undivided Madhya Pradesh. With limited generation capacity and 

large number of agricultural consumers, this division led to an inverted structure of 

power sector. 

Restructuring of MPSEB 

The State Government adopted a reform model for restructuring of MPSEB on 

functional basis and it restructured the vertically integrated electricity sector into 

separate Utilities. Accordingly, one generation, one transmission and three distribution 

companies (DISCOMs) were incorporated in July 2002. In the reform model, a certain 

role has been assigned to MPSEB. The new Utilities initially started functioning under 

O&M agreement with MPSEB from 1 July 2002. Even when all the five companies 

have been made independent companies to conduct their respective business with 

effect from 31 May 2005, in this mode, MPSEB will exercise control over the



revenues from business of these companies, which shall be utilised through a special 

cash flow mechanism. It has been indicated that this arrangement is intended to last 

during the transition period. 

State Government Role and Structural Financial Support 

The Financial Restructuring Plan (FRP) was prepared by MPSEB and updated in 

November 2005, which, however, has not been formally approved by the State 

Cabinet. The important assumptions used in Financial Projections were that the 

AT&C losses will be reduced from 51.6 per cent in 2004-05 to 32.5 per cent in 2011- 

12, collection efficiency would increase from 85 to 96 per cent and capital 

investments to the tune of Rs 18,825 crore would be made into the sector. Also, there 

shall be a regular year on year increase in the retail tariff. Implementation of the 

proposed FRP is expected to turn around the MPSEB by 2011-12. The State 

Government's commitment to a total cash outflow would be approximately Rs 6,881 

crore during the seven-year period of FRP. However, there would be an inflow of 

around Rs 8,623 crore to the State Government from MPSEB, resulting in a net 

outflow of around Rs 1,741 crore to the State Government. 

Role of MPSEB 

The reform model provides for a unique functional role of MPSEB after the 

restructuring. MPSEB has transferred all functions including assets of the erstwhile 

Board vide Madhya Pradesh Electricity Reforms Transfer Scheme Rules, 2006 to the 

respective Utilities. It has retained two principal functions, viz., the first, relating to 

cash management during the transition period and the second, to act as principal 

employer till the staff gets allocated amongst the Utilities. Although, MPSEB will be 

the principal employer, full powers relating to punishments, dismissal, etc., has been 

vested in the CMDs of the respective utilities. The State Government officials feel that 

this arrangement was also necessary because of the dispute over the assets and 

liabilities pertaining to the erstwhile Board of the undivided Madhya Pradesh and the 

newly created State of Chhattisgarh. 

REORGANISATION OF THE STATE 

After bifurcation of the composite State of Madhya Pradesh, 12 per cent of the generic 

and project related liabilities were transferred to Chhattisgarh, 88 per cent of this 

burden was put on MPSEB. 

4.2


Liabilities Taken Over by the Government of Madhya Pradesh 

Based on the recommendation of Montek Singh Ahluwalia Committee, the State 

Government has already issued bonds worth Rs 2,663.89 crore for one-time settlement 

(OTS) of dues of NTPC, PGCIL, NPCIL, WCL and SECL. Also, during FY 2005-06, 

the State Government took over liabilities of MPSEB to the tune of Rs 4,431 crore. 

However, this additional liability taken over by the State Government does not appear 

to be part of the transfer scheme for transferring assets and taking over of liabilities. 

Government Subsidy 

MPSEB is heavily dependent on subsidy support from the State Government. The 

amount of subsidy was around Rs 794 crore in 2004-05 which is around 15 per cent of 

the revenue earned by the DISCOMs from sale of power. This dependence is expected 

to increase as, Government of MP would provide subsidy to the agricultural 

consumers of the State as well as for meeting the revenue deficit of the DISCOMs 

under the FRP. However, the additional subsidy burden could be a constraint on the 

State’s finances. 

REGULATORY PROCESS 

The State Electricity Regulatory Commission has been quite effective in 

rationalisation of tariff in the State. The gap between ARR and ACS prevails primarily 

for agricultural pumpsets consumers and is nearing the cost to supply for the domestic 

category. The realisation attained for the domestic consumers is at 86 per cent of the 

average cost to serve and for the rest of the categories, the average revenue realised is 

more than the ACS. 

MULTI YEAR TARIFF AND OPEN ACCESS 

MPERC has notified Open Access regulations in the State and has introduced the 

MYT framework. Following the directives of MPERC, only GENCO and TRANSCO 

have submitted their ARR in accordance with the MYT in 2006-07. The MYT 

framework is envisaged for a control period of three years up to 2009. 

Reforms have been in progress in the State for almost five years. So far as the 

generation and transmission Utilities are concerned, it can be stated that these two 

Utilities have been functioning as separate entities in their respective areas. The 

4.3



picture about the DISCOMs is, however, different. Therefore, the levels of 

performance also have to be considered in this background. 

GENERATION 

Key Positives 

On the technical side, MPPGCL has been able to improve the PLF of its generating 

stations from 46-66 per cent during 1992-93 to 1997-98 to a level of 70-73 per cent, 

from 1998-99 onwards. Similarly, the availability of generating stations has increased 

from 75 per cent in 1995-96 to 87 per cent during 2004-05. There is also a reduction 

in specific oil consumption in thermal stations and the same has come down from 4.57 

ml/kWh in 2001-02 to 2.44 ml/kWh in 2004-05. The auxiliary consumption has also 

reduced from 10.8 per cent in 1998-99 to around 9.9 per cent in 2004-05 

Key Concerns 

Power Shortages 

The deficit has been as high as 28 per cent for peak demand and 23 per cent for energy 

in April 2006. The State is highly dependent on the allocation from Central sector 

power projects and sources around 35 per cent of its requirements from them. The 

Madhya Pradesh Electricity Board (MPEB) had a capacity of about 4260 MW in 

1999-2000. After reorganisation of the State, installed generating capacity left in the 

State was about 2,940 MW. There was only a marginal increase of about 50 MW 

hydro capacity since 2002-03. As regards thermal capacity, there has been no further 

addition in the corresponding period. A total capacity of 770 MW is under 

construction and is likely to be commissioned by the end of Tenth Plan. Government 

of MP has set-up an ambitious target to eliminate power shortages by 2008-09. The 

State is likely to get the benefit of capacity addition of 2,890 MW during the Eleventh 

Plan. This would involve investments to the tune of Rs 13,000 crore. It is, however, 

not clear as to how these resources would be raised by the Utilities or the State 

Government. 

LOANS FROM FINANCIAL INSTITUTIONS 

MPGENCO is finding it difficult to get loans from FIs and PFC. The future loans have 

been linked with the performance of the DISCOMs. Also, the State Pollution Control 

Board (SPCB) has imposed restrictions on o running of some of the existing units due 

4.4


to high level of emissions; which the GENCO feels was attributable to poor quality of 

coal and limitation of space for extension of electrostatic precipitator (ESP) fields. 

RENOVATION AND MODERNISATION PROGRAMME 

More than 60 per cent of the generating stations in the State have served for a period 

of 25 years or more. The generating stations need overhaul and urgent measures for 

renovation and modernisation. In case of joint venture projects like Satpura Power 

House, the requirement of obtaining consent of the partner State has delayed the 

taking up of R&M activities. This and similar other issues relating to pollution control 

would require intervention and coordination of the concerned Central Ministries. 

MPERC has taken serious note of under-utilisation of the approved funds allowed in 

the ARR. The Commission has refrained from clawing back the amount retained and 

not utilised for R&M purposes in the previous years. It is observed that, in the past, 

the GENCO had spent a very little amount on R&M activities as compared to the 

amount approved by the Commission under this head. The Commission in its tariff 

order dated 10 December 2004 had allowed Rs 140.31 crore under R&M of 

generating stations, but the GENCO failed to utilise the approved amount. For 2005- 

06, the Commission had approved Rs 131.91 crore under this head. But the repeated 

failure to utilise the funds approved for the much-needed R&M activities is baffling 

when it is urgently needed to increase the generation and PLF. 

TRANSMISSION NETWORK 

Key Positives 

Transmission Loss Reduction 

It is pertinent to note that while there was an increase in the quantum of energy handled 

by MPTRANSCO by about seven per cent in the year 2004-05 over 2003-04, the 

overall losses in the transmission system for the year 2004-05 have come down to 5.62 

per cent from 6.12 per cent in the year 2003-04. This shows significant efficiency gains 

after restructuring. 

The State Government has constituted the existing Load Despatch Centre as State Load 

Despatch Centre (SLDC) vide Order No. 2489/13/04, dated 17 May 2004. The SLDC is 

well connected to the Western Region Load Despatch Centre for efficient and 

4.5



integrated operation of the grid. There has been no failure of power transformers during 

the years 2003-04 and 2004-05. MPPTCL has also claimed that there were no grid 

disturbances or major breakdowns during the year 2004-05. Also, there has been an 

increase in the transmission system availability from 97.59 per cent in 2000-01 to 99.53 

per cent in 2003-04. 

From 1998-99 to 2001-02, the level of investments made towards new capacity addition 

and strengthening of transmission system has been very low. The investment 

significantly increased to Rs 130 crore in 2003-04 and to Rs 264 crore in 2004-05 from 

Rs 46.35 crore in 2000-01 and Rs 27 crore in 2001-02. 

Distribution 

Under Operation and Management (O&M) Agreement with MPSEB, the three 

DISCOMs were to manage the distribution assets, planning and maintenance 

operation within their respective areas. The DISCOMs have started their independent 

operations from 1 June 2005. Hence, for the purpose of analysis of distribution sector 

in Madhya Pradesh, consolidated data for MPSEB has been considered up to 2004-05 

and thereafter individual DISCOM wise data has been analysed. 

Key Concerns 

Distribution Transformer Failures 

The failure rate of distribution transformer (DTs) in MPSEB system has increased by 

4.75 percentage points (from about 18.13 per cent in 2001-02 to 22.88 per cent in 

2004-05). The failure rate of DTs for the individual DISCOMs also reveals a similar 

trend with the failure rate being as high as 22 per cent in Poorv Kshetra and 16 per 

cent in Paschim Kshetra. 

Consumer Metering 

There is a significant increase in percentage of metered agricultural connections from 

less than 1 per cent in 2000-01 to 30 per cent in 2004-05. However, the percentage of 

metered domestic connections has come down from 84 per cent in 2000-01 to 81 per 

cent in 2004-05. A huge backlog of unmetered domestic and agricultural service 

connections in the system is indicative of high quantum of losses being suffered by the 

Utilities and warrants serious attention. 

4.6


Collection Efficiency 

The collection efficiency in respect of agricultural and domestic consumer categories 

has suffered after restructuring. In the case of agricultural consumers, the collection 

efficiency has deteriorated progressively from 88 per cent in 2000-01 to as low as 21 

per cent in 2004-05. It is equally poor for the domestic consumers and has come down 

from as high as 95 per cent in 2000-01 to 79 per cent in 2004-05. Even, the collection 

efficiency for industrial and commercial categories of consumers is declining. 

Transmission and Distribution/Aggregate Technical and Commercial Losses 

The percentage T&D losses from 1995-96 to 1998-99 were shown to be in the range 

of 19-21 per cent. After restructuring, the losses rose to 31.94 per cent in 1999-2000 

and 47.18 per cent in 2000-01. The reduction in the loss levels, after restructuring, has 

been slow and dropped only by less than 3 per cent in four years (43.48% in 2004-05). 

MPERC has fixed higher targets for loss reduction in its tariff order dated 31March 

2006, in respect of the three DISCOMs for 2006-07, spread over a control period as 


DISCOM 

Prescribed By the Commission 

Indicated by the 

DISCOMs 

2005-06 2006-07 2007-08 2008-09 2005-06 2006-07 

Poorv Kshetra 35.5 32.5 29.5 26.5 38.73 35.88 

Paschim Kshetra 31.7 30 27.5 25 31.5 30 

Madhya Kshetra 41.6 37 32 27.5 41.6 38 

(Source: MPERC) 

AT&C losses reduction target for 2005-06, as prescribed by the Commission, has been 

achieved by Paschim Kshetra and Madhya Kshetra DISCOMs, whereas the same has 

not been achieved by the Poorv Kshetra DISCOM, there it is 3.23 per cent above the 

target. It appears that after restructuring and proactive role of MPERC, more realistic 

loss levels are being indicated. 

The targets of AT&C losses given in the FRP are not in conformity with those 

prescribed by the MPERC. The targets prescribed by the Commission are aimed at 

bringing these losses closer to the level of 15 per cent (as mandated in the NTP). In 

view of the above, there is a fresh need to look at the targets set for AT&C losses in 

FRP, so that these are in conformity with those fixed by the Commission. 

4.7

Anti-Theft Measures 



For prevention of electricity theft, the State Government notified the Madhya Pradesh 

Urja Adhiniyam on 17 April, 2001. Several administrative measures undertaken by 

the companies to check power theft include: strengthening of the Vigilance Squads, 

replacing bare low tension (LT) conductors by armored cables/HT lines and setting up 

of special courts (92 Nos.) for speedy trial of electricity theft cases. Work of energy 

audit up to division level and also in some big cities and towns has been started to 

identify theft prone areas. 

Enforcement measures for elimination of cases of theft of electricity have slowed 

down in the State. During 2002-03, 3,700 FIRs were lodged and an amount of Rs 

61.33 crore was realised. These preventive measures seem to have created an impact, 

but subsequently the number of FIRs lodged has come down. 1,607 FIRs were lodged 

in 2003-04 and 522, in 2004-05 and the recoveries from such cases declined from 78 

to 75.8 per cent of the demand raised. 

Recovery of Cost of supply 

The Average Cost of Supply (ACS) and Average Revenue Realised (ARR) across 

various categories of consumers in the State depict that the ACS is increasing at an 

annual rate of around 10 per cent taking 1998-99 as the base year. While MPERC, in 

its tariff order for FY 2006-07, has projected a marginal gap of around Rs 9.51 crore 

(for the three DISCOMs combined), the ARR-ACS analysis for MPSEB for the year 

2003-04 indicates a revenue gap of around 96 paise per unit. This would call for 

further rebalancing of the tariffs and/or greater thrust on preventing of electricity theft 

and AT&C loss reduction efforts by the DISCOMs. 

Information Technology Initiatives 

Information Technology (IT) initiatives in the DISCOMs have remained limited 

which has been attributed to financial crunch and shortage of technical staff and 

modern office equipment to manage the IT applications. It is imperative that Utilities 

encourage the adoption of IT in the field of Geographical Information System (GIS) 

and Consumer Indexing, metering, data acquisition and management, assets 

management and customer services. It has developed in-house IT enabled revenue 

management system (RMS), which is being introduced in phases and, in the first 

instance, Information Technology (IT) enabled RMS package has been implemented 

4.8


in 27 divisions of seven regional headquarter cities (called priority divisions). The 

progress made in this direction is slow as compared to the States like Andhra Pradesh, 

Karnataka and Maharashtra. 

Structural Issues 

The State support for the reform process has been positive. But in the interest of the 

reform process moving forward, there are some structural issues and the role of the 

MPSEB for cash management of utilities that would need to be addressed. 

Considering the changing market scenario of Open Access, intra-State ABT and 

competitive power procurement, the Utilities would require functional as well as 

financial autonomy. 

FRP and CFM 

The State Government ownership for the reform is demonstrated by the FRP, which 

stipulates the total transition cost involved for the power sector in the State. For the 

DISCOMs, the State financial support is provided to the tune of Rs 6,881 crore. The 

role of the MPSEB has some advantages. However, in actual practice it amounts to 

concentration of decision-making with MPSEB in several areas, which are normally in 

the jurisdiction of the DISCOMs. Since MPSEB is not a licensee now and therefore 

not answerable to the MPERC, there is a likelihood of conflict with the objectives and 

spirit of the EA, 2003. The objectives of the cash flow mechanism (CFM) and the 

Financial Restructuring Plan (FRP) could be achieved through a holistic approach, 

which guarantees prior consultation with the MPERC and control and responsibilities 

on the DISCOMs for implementation of the FRP targets. 

The FRP has been revised to cover the period from 2006-07 to 2012-13. The FRP 

provides for the reduction of AT&C losses from 50 to 32.5 per cent in a seven-year 

period, i.e., around 2 per cent on a yearly basis, which appears to be low. It also 

provides financial support to the utilities for the revenue foregone for concessional 

tariffs and also for meeting the operational deficit to the Utilities. 

Key Areas for Support by State Government 

Functional autonomy for the restructured Utilities may have to be defined within the 

framework of the reform model adopted by the State Government to make the Utilities 

more accountable. Equally important is the effectiveness of the Commission by giving 

4.9

it support for financial autonomy and capacity building. 



The encouragement to civil society and close involvement of advocacy groups in the 

reform process will help in understanding the issues and problems specific to the 

power sector of the State. An effective communication strategy will be crucial for 

creating a positive atmosphere for reform process and to bring about wider public 

support for the reform process. 

OUTSTANDING ISSUES 

Generic Loans 

The DISCOMs are carrying a sizeable component of generic loan liabilities of the prereform 

period. Amounts of Rs 252 crore, Rs 494 crore and Rs 316 crore have been 

shown against the DISCOMs of Poorv Kshetra, Paschim Kshetra and Madhya Kshetra 

respectively. 

In regard to these generic loans shown in the opening balance sheet of DISCOMs, 

MPERC has said that unless full details are provided to it and it is proved that these 

loans have been utilised towards creating assets, MPERC will consider these as 

working capital loans and will allow interest to the extent of normative working 

capital requirements. Unless there is clear understanding about the rationale for these 

loan liabilities, the legitimate claim for expenses, etc., of the DISCOMs may defy a 

practical solution. 

FINALISATION OF THE ASSETS AND LIABILITIES 

There are outstanding issues relating to transfer of assets, liabilities and staff, which 

have not been resolved as yet. It is not easy for the State Government to come to a 

settlement unless there is an equally positive response from the State Government of 

Chhattisgarh. Since these are post-reorganisation matters between the two States, it 

would require intervention by the Central Government to bring about an amicable 

settlement of the outstanding issues. 

Interim Support 

As a result of reorganisation, the available generation capacity in the State has been 

adversely affected. Out of total capacity of 4,260 MW of the undivided State, only 

4.10


2,940 MW of generation assets were left with Madhya Pradesh. The State has also not 

been able to take up effective steps to increase generation through R&M activities. In 

view of these uncertain circumstances, the State Government may have to be given 

some weightage in the allocation of unallocated power from Central Generating 

Stations on an ad-hoc basis for an interim period. 

Promoting New Initiatives 

1. The aim of the Reform could be achieved by improving the technical and 

commercial performance of the distribution sector. More of APDRP funding 

provided by MoP shall be harnessed for strengthening and improvement of subtransmission 

and distribution (ST&D) systems and its commercial health. Similar 

other funding arrangements can also be considered to accelerate the process. 

2. Involving the public at large in controlling electricity thefts through social 

awareness can further strengthen the reform process. The same can be 

implemented by providing discounts in the electricity bills of the consumers 

either on an area or feeder basis that helps the utilities in controlling/eliminating 

thefts. It would help in creating a better public consciousness about the need for 

cultivating social responsibility. Such a cultural change is extremely important 

for effectively addressing the menace of electricity thefts, which is the single 

largest factor responsible for overwhelming losses suffered by the Utilities, and 

thereby depriving the consumers of benefits of lower tariffs. This may be done 

by the Utilities in consultation with the Regulatory Commission or by suitable 

amendment in the NTP. 

Imperatives of the reforms demand focused attention on keeping the reforms on 

course with positive support by the State Government. The gradualism in the approach 

to reforms has given space to those who are opposed to reforms or those who perceive 

threat to their vested interests. An effective strategy should be designed to counter the 

opposition to reforms and accelerate the pace of reforms in the distribution sector. 

The most significant lesson from the instant study is that power sector reform needs 

continued support from the Government both in terms of financial and institutional 

support and development of an independent regulatory mechanism. The State 

Government has committed itself financially for restructuring the power sector during 

the transition period to enable the Utilities to achieve a turnaround. The State should 

commit on the reform choices as regard competition, privatisation, etc. Discussions 

4.11



with the various State Governments indicate that private sector participation is not a 

closed option but the more immediate concern is about the existing DISCOMs which 

in their present condition may not appear to be ideal for private sector participation. 

Private sector participation The States/Utilities need to consider alternative models for 

improving the financial and operational efficiencies, private-public partnership in 

network management activities, SCADA, DMS application, Customer Relation 

Management (CRM), etc. 

For the distribution reforms to lead to appreciable/demonstrable impact on delivery of 

quality power supply, road map for network upgradation and reliability of subtransmission 

and distribution system will have to be accorded high priority. This 

should be preceded by a detailed study of the condition and problems of the network. 

Promotion of energy conservation measures, both from the Utility side as well as at 

the utilisation end and promoting the use of energy-efficient pumpsets in the 

agricultural sector and introducing tradable incentives such as interest subsidy on 

purchase of energy efficient pumpsets are some of the other measures that need to 

considered. 

To avoid the cascading effect of the power systems fault, measures to enhance grid 

security must be devised and separate funds should be earmarked for implementing 

the appropriate islanding schemes for DISCOMs. 

Although this may not be right time to introduce the MOU mechanism for making 

them achieve the predetermined productivity and other efficiency targets, some steps 

are needed to promote competition between the distribution Utilities. Unless some 

inter-DISCOM competition or incentives are built, there would be no pressure on 

them for under or poor performance. There would be no tangible benefits to 

consumers in terms of low prices or benefits. Utilities which are ready to introduce 

better pricing for certain categories of consumers such as industrial, commercial, etc, 

should be encouraged to do so. In this direction, a good move by the MPERC to 

consider Differential Retail Supply Tariff (DRST) for DISCOMs was dropped as the 

State Government conveyed to the Commission its intention in its letter dated 7 March 

2006 “to have similar tariffs for various consumer categories in the foreseeable 

future”. It is felt that the intention to protect tariffs for domestic and agriculture 

consumers on socio-political grounds should not prevent the Commissions to attempt 

“rebalancing” of tariffs to translate efficiency gains in better pricing for industrial and 

commercial categories of consumers. 

4.12


1. GENERAL OVERVIEW 

1.1 BACKGROUND OF POWER SECTOR REFORMS 

The process of reform and restructuring was initiated in the State in 1996 with the 

constitution of a High Level Committee under the chairmanship of Dr. N. Tata Rao, 

The Committee recommended the restructuring of Madhya Pradesh Electricity Board 

(MPEB) on functional basis, i.e., formation of separate generation, transmission and 

distribution companies and setting up of an Electricity Regulatory Commission in the 

State. 

1.2 THE REFORM ACT 

The Reform Act, “Madhya Pradesh Vidyut Sudhar Adhiniyam, 2000” for the State 

was enacted on 20-02-2001 and made effective from 03 July 2001 provides for the 

following: 

(a) Establishing State Electricity Regulatory Commission (SERC); 

(b) Restructuring of the electricity industry; 

(c) Rationalisation of generation, transmission, sub-transmission, distribution and 

supply of electricity in the State; 

(d) Regulating the licensing of transmission and supply of electricity; 

(e) Regulating the purchase, transmission, distribution, supply and utilisation of 

electricity; 

(f) Providing quality of service and the tariff and other charges considering the 

interest of consumers and Utilities; and 

(g) Taking measures conducive to the development and management of the 

electricity industry in the State in an efficient, economic and competitive manner. 

Besides other provisions, the Reform Act provides for restructuring MPSEB and 

limiting the role of the State Government to policy making. It has a unique provision 

to eliminate cross-subsidisation in the tariff. It stipulates that the tariff to any class of 

consumer should reflect a level at least 75 per cent cost of supply to that particular 

class of consumer with in next five years. 

4.13

1.3 REORGANISATION OF THE STATE 



In November 2000, the erstwhile State of Madhya Pradesh was bifurcated into two 

separate States, i.e., the now existing Madhya Pradesh and the newly created State of 

Chhattisgarh. In place of MPEB, MPSEB and CSEB came in to existence. After 

reorganisation of the State, 33 per cent of the installed generating capacity went to the 

State of Chhattisgarh, whereas the level of consumption was only 21 per cent of the 

total consumption of undivided Madhya Pradesh. 

1.4 MILESTONES IN THE RESTRUCTURING AND REFORM PROCESS 

1.4.1 Memorandum of Understanding 

Memorandum of Understanding (MOU) was signed between the Government of 

Madhya Pradesh and Government of India on 16 May 2000, wherein Government of 

MP committed to a time-bound reform and restructuring of power sector in the State 

to promote and develop an efficient, commercially viable and competitive power 

supply industry which will provide reliable and quality power at competitive price to 

all consumers in the State and which will support industrial development in the State. 

1.4.2 Two Stage Restructuring of MPSEB 

In the first stage, in November 2001, MPSEB was split into two Companies, viz., 

Madhya Pradesh Power Generation Company Limited (MPPGCL) and Madhya 

Pradesh Power Transmission Company Limited (MPPTCL), which were incorporated 

under the Companies Act, 1956. 

1.4.3 Formation of DISCOMs 

Further, in May 2002, the following DISCOMs were incorporated under the 

Companies’ Act, 1956, 


MP Poorva Kshetra Vidyut Vitaran Company Limited 

(DISCOM, East Zone) 

MP Madhya Kshetra Vidyut Vitaran Company Limited 

(DISCOM-Central Zone)- 

MP Paschim Kshetra Vidyut Vitaran Company Limited 

(DISCOM, West Zone) 

4.14 

Jabalpur 

Bhopal 

Indore 

These DISCOMs were wholly owned Corporations of the Government of Madhya


Pradesh, but functioned as agents of MPSEB under the Operation and Management 

(O&M) agreement with MPSEB from July 2002. 

1.4.4 Transfer of Assets to the Restructured Utilities 

MP Electricity Reforms First Transfer Scheme Rules notified on 30 September 2003 

laid down the principles for transfer of assets, employees, etc., for the restructured 

Utilities in the State. Assets were held notionally by the new companies. In 2005, by a 

Notification dated 31 May 2005, balance sheet and transfer of assets were made 

effective for the respective Utilities. The O&M agreement between MPSEB and all 

the five companies, ceased to exist on 1 June-2005. 

1.4.5 Functions and Undertakings Retained With MPSEB 

As per MP Electricity Reforms First Transfer Scheme Rules, notified on 30 

September 2003, the following functions were retained with MPSEB: 

i) The bulk purchase and bulk supply function, namely, purchase of electricity in 

bulk from the generating companies including GENCO and supply of electricity 

in bulk to the DISCOMs. MPSEB will not, however, undertake the activities of 

supply of electricity to any consumer in the State from such date as the State 

Government may direct in this behalf; 

ii) The liabilities to the extent to be retained as per the directions the State 

Government may issue in this behalf; 

iii) The assets in the form of amounts, which the State Government may direct as 

payable by the transferee to MPSEB to the extent and in the manner as the State 

Government may consider appropriate to compensate the MPSEB for the 

liabilities retained as per clause (ii) above; 

iv) Cash and bank balance to be retained and shall be given to the transferees to the 

extent they are associated with or related to them, or as per the direction the State 

Government may issue in this behalf; and 

v) Fixed deposit lying with the State Bank of India (SBI) being the amount taken as 

security deposit from independent power producers (IPPs). 

4.15



1.4.6 Taking Over of Liabilities by Government of Madhya Pradesh 

The State Government took over outstanding power purchase and fuel liabilities of 

MPSEB by issue of MSA bonds, REC loan restructuring and adjustment against free 

electricity claims, PFC loan restructuring, LIC loan restructuring and part payment of 

liability related to SLR bonds, etc. The liabilities to the tune of Rs 4,431 crore were 

taken over by Government of MP. The details are shown below: 

Liabilities of MPSEB Taken Over by Government of MP 

(Rs crore) 

2005-06 Amount) 

Dues to Central Power Sector Undertakings (CPSUs) 2,663 

Dues to Rural Electrification Limited (REC) 1,414 

SLR bonds liabilities 354 

Total 4,431 

4.16 

(Source: Government of MP schedule) 

However, this additional liability of the State Government does not appear to be part 

of the transfer scheme regarding assets and taking over of liabilities. 

1.4.7 Inter-se Agreement 

Inter-se agreements were executed on 17 June 2005 by MPSEB with the respective 

power utilities in the State for the: 

i) Power purchase agreement between MPSEB and MPPGCL; 

ii) Transmission service agreement between MPSEB and MPPTCL and three 

DISCOMs; and 

iii) Bulk Supply agreement between MPSEB and all the three DISCOMs. 

1.5 FINANCIAL RESTRUCTURING PLAN 

In order to support and achieve the objective of power sector reforms , to attain 

financial viability of power sector and to provide reliable and quality power supply to 

consumers in the State, the Financial Restructuring Plan (FRP) has been formulated 

on the recommendation of the Asian Development Bank (ADB). The FRP has not 

been formally approved by the State Cabinet as yet. However, the State Government 

has committed to the implementation of FRP.


1.5.1 Key Features of FRP 

(a) Balance liability related to SLR bonds to be paid by Government of MP; 

(b) The power purchase and fuel related liability already taken over by 

Government of MP by issue of MSA bond and cash payment to be treated 

as equity in books of MPSEB; 

(c) Conversion of overdue liability of Government of Madhya Pradesh as 

equity in books of MPSEB; 

(d) Energy input to the system to increase at a cumulative annual growth rate 

(CAGR) of 8.1 per cent; 

(e) Sales to increase at CAGR of 12 per cent; 

(f) To reduce AT&C losses from 51.6 per cent in 2004-05 to 30.1 per cent in 

2011-12, which includes that “collection efficiency” to increase from 85 

per cent at present to 96 per cent by 2011-12; 

(g) Capital investments [including interest during construction (IDC) and 

other expenses capitalised] of around Rs 18,825 crore assumed in the 

system as per details below: 

• Generation – Rs 8,451 crore 

• Transmission – Rs 3,805 crore 

• Distribution – Rs 6,496 crore (including investment to the extent of 

Rs 2,700 crore for 100 per cent rural electrification as per National 

Electricity Policy). 

The year-wise average tariff hike projected is as under: 

Year-wise 

overall tariff 

hike needed (%) 

March 

2007 

March 

2008 

March 

2009 

4.17 

March 

2010 

March 

2011 

March 

2012 

9.3 3.4 5.9 5.6 3.5 3.0 

1.5.2 Support from Government of Madhya Pradesh 

The FRP has assumed cash and financial support from the State Government over a

medium term. The impacts of implementation of FRP are: 



(a) Provide cash support of approximately. Rs 2,180 crore (2006-12) for the planned 

future capital expenditure of MPSEB in the form of equity; 

(b) Provide a cash support of approx. Rs 2,763 crore (2006-12) to bridge the 

operational deficit (tariffs being less than cost of supply); 

(c) Provide loan assistance to an extent of approx. Rs 871 crore (2006-12) to meet 

the deficit in cash flows; 

(d) Take over of the contingent liabilities of MPSEB (estimated to be around Rs 

848.37 crore as on 31 March 2004) and consider them as equity in the books of 

MPSEB as and when they devolve; 

(e) Pay bills of Government of MP departments/local bodies in cash on monthly 

basis on time; and 

(f) Provide guarantee for payment of terminal benefits to employees in case the 

same is not considered passed through in tariffs by MPERC for recovery from 

consumers. 

4.18


Details of FRP for the period 2005-06 to 2011-12 are as under: 

FY 

Particulars 

Payments by Govt of 

MP to MPSEB 

Support for operational 

deficit due to tariff 

being less than cost of 

supply 

Impact on Government of MP Finances (2006-12) 

March 

2006 

March 

2007 

March 

2008 

4.19 

March 

2009 

March 

2010 

March 

2011 

March 

2012 

(Rs crore) 

Amount 

1,345 1,440 1,128 1,141 1,102 453 273 6,881 

7,608 777 463 409 354 0 0 2,763 

Subsidy towards 

subsidised domestic, 

powerloom and 

agriculture consumers 

51 122 133 201 216 155 191 10,689 

Support for capex 360 360 360 360 360 298 82 2,180 

Loan from Govt of MP 174 182 172 171 172 0 0 871 

Payments to Govt of 

MP 

744 866 1077 1247 1376 1486 1827 8,623 

Electricity duty & 

other levies 

566 679 898 1069 1197 1327 1444 7,180 

Loan interest 108 111 99 92 81 71 51 614 

Loan repayment 66 71 73 78 91 82 195 656 

Water charges 5 5 7 7 6 7 8 45 

Gross cash outflow for 

Govt of MP 

1345 1440 1128 1141 1102 453 273 6,881 

Gross cash inflow for 


744 866 7107 1247 1376 1486 1827 8,623 

Net cash outflow for 


601 575 51 -106 -274 -1034 -1554 -1,741 

(Source: FRP document) 

It is evident that the State Government would be committing to a total cash outflow of 

approximately Rs 6,881 crore during the seven-year period of FRP. However, there 

would be an inflow of around Rs 8,623 crore to the Government of Madhya Pradesh 

from MPSEB, resulting in net inflow of around Rs 1,741 crore to Government of MP. 

The implementation of FRP proposals would lead to turn around of MPSEB by 2011- 

12, subject to various assumptions on which the financial projections are based. The 

State Government believes that although the FRP sets out goals but, in a dynamic 

situation, changes may be necessitated by factors that may arise during the transitional 

period. From the discussions with the State officials, it also transpires that there have 

been a few updations to this plan in the past and the present FRP as mentioned above 

was adopted in November 2005.

1.6 ROLE OF MPSEB IN THE REFORM PROCESS 



The reform model provides for a unique functional role of the MPSEB after 

restructuring of the State power sector. MPSEB has transferred all functions including 

assets of the erstwhile Board vide Madhya Pradesh Electricity Reforms Transfer 

Scheme Rules, 2006 to the respective Utilities. It has retained two principal functions, 

viz., one relating to the cash management during the transition period and the second 

function to act as the principal employer till the staff gets allocated amongst the 

Utilities. It was explained during the discussions that this was necessitated due to the 

compulsions of the outstanding issues relating to the division of staff, assets and 

liabilities between the States of Chhattisgarh and Madhya Pradesh. It was also 

mentioned that for all practical purposes the staff as on 1 November 2000 has been 

allocated to almost 99 per cent but the actual effect to this division will be given after 

the guidelines/recommendations are received from the R.P. Kapoor Committee which 

is going into the issues of allocation and division of staff, etc., between the two States. 

It was also clarified that the MPSEB continues to be the principal employer but full 

powers related to punishments, dismissal, etc., have been vested in the CMDs of the 

respective Utilities. The State Governments officials feel that this arrangement was 

necessary also because of the dispute over the assets and liabilities pertaining to the 

erstwhile Board of the undivided Madhya Pradesh. The State Government believes 

that while 12 per cent of the generic and project related liabilities were transferred to 

Chhattisgarh, 88 per cent of this burden was put on MPSEB, which according to them 

was grossly unfair. 

1.7 FORMATION OF TRADECO 

With the restructuring of MPSEB on functional basis into separate generation, 

transmission and distribution companies, the bulk purchase and bulk supply function, 

namely, purchase of electricity in bulk from the generating companies including 

MPPGCL and supply of electricity in bulk to the DISCOMs were retained with 

MPSEB. The Board became the sole buyer of all energy produced by MPGENCO and 

continued as a trading licensee till 9 June 2006. 

The State Government notified the “Madhya Pradesh Electricity Reforms Transfer 

Scheme Rules, 2006” on 3 June 2006. Under these rules a new company called MP 

Power Trading Company (TRADECO) came into existence. The related functions of 

the MPSEB were transferred to TRADECO. 

4.20


1.7.1 Functions of the MPSEB Transferred to TRADECO 

Functions of the MPSEB transferred to the TRADECO are as under: 

(a) The bulk purchase and bulk supply functions, namely, purchase of electricity in 

bulk from the generating companies and supply of electricity in bulk to the 

DISCOMs in the State; 

(b) The power purchase agreement (PPA)or arrangement existing between the board 

and the generating companies including inter-State joint venture projects and the 

bulk supply agreements with the DISCOMs in the State and all arrangements in 

relation to trading of electricity, inter state and intra-State; 

(c) All short, medium and long-term bulk power purchase agreements (BPAs) or 

arrangements between the Board and the power traders existing as on the 

effective date; 

(d) The bulk power transmission agreement existing between the Board and Power 

Grid Corporation of India Limited (PGCIL) as well as other transmission 

licensees for transmission and wheeling of power, inter-State or intra-State; and 

(e) Any future agreements that are presently being contemplated/ processed by the 

Board in respect of any of the above and any activities in regard to electricity 

trading in the State. 

1.7.2 Arrangements among Different Companies with the TRADECO 

The salient features are as under: 

(a) TRADECO shall have first charge over entire generation of the GENCO from 

the stations and projects listed in the agreement, and shall purchase the entire 

power from the GENCO at a tariff to be determined/approved by the MPERC; 

(b) TRADECO shall receive power from all other suppliers, viz., Central sector 

stations, joint ventures (JVs), inter-State projects, etc., in accordance with the 

existing/ongoing power purchase agreements (PPAs) with MPSEB, now stood 

transferred to TRADECO; 

(c) All the three DISCOMs shall buy power of their requirement from the single 

source, i.e., from TRADECO, as per the inter-se bulk supply agreement (BSA) 

and at the tariff as determined/approved by the MPERC plus “trading margin”; 

4.21



(d) DISCOMs may advise TRADECO to buy short-term power for their immediate 

need. The cost of such power shall be a pass through to the respective DISCOM. 

(e) Transco shall transmit the power to the DISCOMs at the interface points, 

received through TRADECO, as supplied by GENCO and from other sources as 

defined in the Para (b) above as per the bulk power transmission agreement to be 

entered between TRADECO, TRANSCO and the DISCOMs. 

In addition to meeting the demand of the three DISCOMs, TRADECO will also trade 

the power to other Utilities within or outside the State; in that case the cash flow 

arrangement shall be as under: 

i) Any surplus power of the State power sector can be sold by TRADECO to other 

buyers and proceeds from the sale of power shall be deposited in a separate bank 

account (trading account) maintained by TRADECO. However, the cost of 

energy at the rate being billed to the DISCOMs (pooled rate) shall be transferred 

in MPSEB account for making payments to the power suppliers. 

ii) The transactions from any other trading of power, i.e., purchase and sale of 

power other than the pooled power of the sector shall be made from the 

TRADECO’s Trading account, which shall not be part of the cash flow 

mechanism (CFM). 

1.8 Cash Flow Mechanism of MPSEB 

The reform model embodies a special mechanism for managing the cash flow for the 

restructured Utilities till the cash deficit in the revenue earnings and expenditure 

requirements are resolved to the satisfaction of all the companies. 

The CFM adopted by MPSEB has been defined in the “Madhya Pradesh Electricity 

Reforms Transfer Scheme Rules, 2006”. The salient features of the scheme are as 

under: 

(a) All the six companies, namely TRANSCO, GENCO, DISCOM EAST (Poorv 

Kshetra), DISCOM WEST (Paschim Kshetra), DISCOM CENTRAL (Madhya 

Kshetra) and TRADECO shall issue a Power of Attorney or authorisation in 

favour of MPSEB, inter-alia, authorising it to “own, collect and distribute” cash 

on behalf of the companies; 

4.22


(b) All the cash collected by DISCOMs through Regional Accounting Offices 

(RAOs) shall be transferred to MPSEB account as per the existing arrangement; 

(c) All letter of credits, escrow comforts and working capital shall continue to be 

maintained by MPSEB on behalf of the companies as MPSEB has first charge 

over entire revenue of DISCOMs from sale of power, subject to escrow 

agreements, as per the existing arrangements enforced duly supported by the 

authorisation from the companies; 

(d) MPSEB shall allocate cash among companies based on a predetermined priority 

for payment of expenses as detailed below: 

i) Statutory payments including those arising out of various Court orders; 

ii) Employee cost which includes salary, contribution towards provident fund, 

terminal benefits, etc.; 

iii) Coal/oil supply payments of GENCO including freight charges; 

iv) Payment towards purchase of power including unscheduled interchange 

(UI) and wheeling charges and debt servicing to Power Finance 

Corporation (PFC); 

v) Essential Administrative & General (A&G) expenses of the companies; 

vi) Essential Operation & Maintenance (O&M) expenses of the companies; 

vii) Essential capital expenses; 

viii) Debt servicing other than PFC; 

ix) Any other payments; 

(e) The companies shall authorise MPSEB to decide priority of payments as per 

availability of cash; 

(f) MPSEB shall continue to service the debt liabilities, including generic loans on 

behalf of all companies. 

The CFM as devised above involves transfer of a part of the responsibility of the 

distribution licensees to MPSEB. There is an apparent conflict with the spirit of 

4.23



section 17(3) and (4) of the EA, 2003, which says that any such assignment of revenue 

of the DISCOMs to MPSEB shall require prior approval of the MPERC. This aspect 

needs to be examined by the Ministry of Power. 

1.8.1 Validity of the Cash Flow Mechanism 

The CFM will be valid till the cash deficit in the revenue earnings and expenditure 

requirements is resolved to the satisfaction of all the companies, or issue of further 

directives from the State Government. 

Once the DISCOMs are in a position to meet all their expenses including power 

purchase, pooling of the revenue earnings with MPSEB will not be required and the 

State Government, by an order, will terminate this mechanism. 

1.9 THE REFORM EXPECTATIONS 

The process of reforms and restructuring has been initiated with an aim to make the 

Madhya Pradesh power sector self-sustainable and meet consumer expectations of 

quality and reliable power at an affordable rate. The MPSEB, a large entity, has been 

restructured with a view that the smaller entities would be easy to manage by 

providing them autonomy and also to work as a responsible corporate structure. 

4.24


2. GENERATION 

2.1 MADHYA PRADESH POWER GENERATING COMPANY LIMITED 

(MPPGCL) 

MPPGCL is a public sector company wholly owned by Government of Madhya 

Pradesh with a current authorised capital of Rs 2,500 crore. The issued, subscribed 

and paid up capital is Rs 1,278 crore. Prior to 01June 2005, MPPGCL had been 

working under O&M agreement under MPSEB. However after the implementation of 

the “Transfer Scheme Rules, 2003”, MPPGCL started working as an independent 

entity. 

2.2 GENERATING CAPACITY IN THE STATE 

2.2.1 Capacity before Restructuring 

The Madhya Pradesh Electricity Board (MPEB) had a capacity of about 4,260 MW in 

1999-2000. During the period 1995-96 to 1999-2000, the capacity addition was about 

447 MW. 

Total Generating Capacity (in MW) prior to Restructuring - State Sector 

Particulars 1995-96 1996-97 1997-98 1998-99 1999-2000 

Hydel 846.5 843.3 848.3 848.3 873.2 

Thermal 2967.5 2967.5 2967.5 3177.5 3387.5 

(Source: MPGENCO Schedule) 

After carving out the State of Chhattisgarh from the erstwhile Madhya Pradesh, 

MPSEB was formed, which has an installed generating capacity of about 2,940 MW 

only (2001-02). 

2.2.2 Generating Capacity after Restructuring 

Generating capacity in post-restructuring period up to 2004-05 in the State sector is 

given as under: 

Total Generating Capacity (in MW) Post-Restructuring--State Sector 

Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 

Hydel 753 793 843 843 843 

Thermal 2,147.5 2,147.5 2,147.5 2,147.5 2,147.5 

Total 2,900.5 2,940.5 2,990.5 2,990.5 2,990.5 

(Source: MPGENCO Schedule) 

4.25



2.3 PROJECTS IDENTIFIED FOR THE ELEVENTH PLAN 

As per the following table the State is likely to get the benefit of capacity addition of 

2,890 MW during the Eleventh Plan period and the following projects have been 

identified: 

State Sector Capacity (MW) 

4.26 

Commissioning 

Schedule 

Malwa (T) 

1000 

U-1 : 2009-10 

U-2 : 2010-11 

Chanderi CCGT 1300 2010-11 

Kanhan HEP 90 --- 

Sone HEP 100 --- 

Maheshwar (H) 400 2011-12 

(Source: CEA) 

2.3.1 Capacity Addition through IPPs 

In order to attract capital investment in generation sector, around 22 Memoranda of 

Understandings (MOUs) were signed with the independent power producers (IPPs). 

However, the capacity addition could not materialise on account of perceived poor 

paying capacity of the SEB. 

2.4 RENOVATION AND MODERNISATION OF THE EXISTING PLANTS 

More than 60 per cent of the generating stations in the State have served for a period 

of 25 years or more. The generating stations need frequent overhaul and are in urgent 

need of Renovation and Modernisation (R&M). MPPGCL has not been adequately 

spending on repairs and maintenance. The position is as under: 

Amount spent 

on R&M 

1995 

-96 

1996 

97 

Table: Investment on R&M 

1997 

-98 

1998 

-99 

1999 

-2000 

2000 

-01 

2001 

-02 

2002 

-03 

(Rs crore) 

2003 

-04 

29.60 15.13 11.19 23.04 20.61 13.18 2.93 1.64 0.71 

(Source: MPGENCO) 

MPERC in its tariff order dated 10 December 2004 allowed Rs 140.31 crore under 

R&M of generating stations, but the GENCO once again failed to utilise the approved 

amount. Vide its tariff order dated 25 January 2006, MPERC approved Rs 131.91 

crore under this head. It is desirable that the GENCO should spend adequate amount


on R&M activities to ensure the higher availability of plants. 

2.5 PERFORMANCE OF THE STATE GENERATION UNITS 

2.5.1 Technical Parameters 

2.5.1.1 Plant Load Factor) 

From the year 2002-03 onwards the Plant Load Factor (PLF) has been in the range of 

70 to 73 per cent, showing a considerable improvement over the previous years (46 to 

66%). However, during 2005-06, the PLF shown as 68 per cent is a cause of concern 

and must be analysed. 

75% 

70% 

65% 

60% 

55% 

50% 

45% 

40% 

1992- 

93 

1993- 

94 

OVERALL PLF of Generating Stations of MPPGCL (%) 

1994- 

95 

2.5.1.2 Plant Availability 

1995- 

96 

1996- 

97 

1997- 

98 

1998- 

99 

4.27 

1999- 

00 

2000- 

01 

2001- 

02 

2002- 

03 

2003- 

04 

2004- 

05 

2005- 

06 


The plant availability has increased significantly from the level of 75 per cent in 1995- 

96 to 87 per cent during 2004-05. The yearly plant availability has been provided as 

under: 

Plant Availability of MPPGCL Stations (%) 

1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

75.3 74.9 74.5 79.8 77.8 78.32 76.75 87.34 86.73 86.62 


2.5.1.3 Fuel and Auxiliary Consumption 

There has been a reduction in specific oil consumption in thermal stations and the 

same has come down from 4.57 ml/kWh in 2001-02 to 2.44 ml/kWh in 2004-05. The 

graph below depicts the performance of thermal power stations, based on secondary 

oil consumption.

10 

8 

6 

4 

2 

0 

9.35 

5.8 



Oil Consumption (ml/kWh) 

4.025 3.1 

2.2 

4.28 

3.8 

95-96 96-97 97-98 98-99 99-00 00-01 2001- 

02 

4.57 

2002- 

03 

2.87 3.04 2.44 

2003- 

04 

2004- 

05 


The auxiliary consumption has reduced from 10.8 per cent in 1998-99 to around 9.9 

per cent in 2004-05. The graph shows the performance of the thermal power stations, 

based on auxiliary consumption, and indicates ample scope for improvement. 

Heat Rate 

11.0 0 

10 .8 0 

10 .6 0 

10 .4 0 

10 .2 0 

10 .0 0 

9.80 

9.60 

9.40 

9.20 

9.00 

10 .3 

9.8 

Auxiliary Cons um pt ion in MPPGCL plants 

9.9 

10 .8 

9. 7 

9.5 

9.8 

9.6 

9.9 9.9 

95-96 96-97 97-98 98- 99 99- 00 00-01 2001- 02 2002-03 2003-04 2004-05 


Quality of coal used for generation might have an impact on the deteriorating heat 

rate.


3200 

3150 

3100 

3050 

3000 

2950 

2900 

2850 

2800 

3005 

3015 

2.5.1.4 Overall Performance 

2909 

Heat Rate (kCal/kWh) 

2919 

2855 

4.29 

3013 

3160 

3018 

3102 

3118 

95-96 96-97 97-98 98-99 99-00 00-01 2001-02 2002-03 2003-04 2004-05 


Data for the year 2004-05 pertaining to MPPGCL indicates that it has met the targets 

set by MPERC in respect of major performance parameters such as PLF and specific 

oil consumption except the Station Heat Rate (SHR) and auxiliary consumption, 

which could not be achieved as per the targets set. The details are as under: 

Generation Targets vs. Performance - (2004-05) –MPPGCL 

Particulars Targets proposed Achievement 

Thermal generation (MU) 14225 14351.1 

PLF (%) 71.50 72.09 

Hydel generation (MU) 2058 2218.2 

Heat rate (kCal/kWh) 2972 3124 

Specific oil consumption (ml/kWh) 2.84 2.44 

Auxiliary consumption (%) 9.5 9.86 

(Source: MPGENCO Website)

2.5.2 Financial Parameters 

2.5.2.1 Energy Sold (MUs) 



Improved thermal generation during 2004-05 as compared to 2003-04 could be 

credited to the improved availability of the plants. However, the increase is not 

remarkable as a still higher level of generation was achieved during 2002-03. 

Energy sold (MU) 

25000 

Energy Sold from generating stations 

20000 

16820.5 17743.4 18628.4 

19922.8 

15000 16009 

17426 

13770 14556 15428 15787 

12868.2 12851.9 

14099 14493.1 14420 

10000 

11300 12366 

10575 

11866 12169 

5000 

2239 2264.5 2315.4 2841.4 2496.8 1568.2 2276.9 1733 2627.1 2251 

0 

95-96 96-97 97-98 98-99 99-00 00-01 2001-02 2002-03 2003-04 2004-05 

Hydel Years Thermal Total 

2.5.2.2 Cost of Generation 

4.30 


From 2005-06, the Commission has approved the two-part tariff for State generating 

stations. Accordingly it is now possible to distinctly identify the fixed and variable 

components of power for the MPPGCL. 

Fixed and variable Costs of MPGENCO Thermal Stations (paise/unit) 

2.6 OBSERVATIONS/COMMENTS 

Thermal Stations Fixed cost Variable cost 

Amarkantak TPS 59.8 113 

Satpura TPS 27.9 123 

Sanjay Gandhi TPS 69 97 

( Source: MPGENCO) 

• After reorganisation of the erstwhile Madhya Pradesh into Chhattisgarh and the 

present Madhya Pradesh, an inverted situation emerged with regard to the 

available generation resources and the consumer mix. 33 per cent of the installed 

generating capacity went to the State of Chhattisgarh, whereas the level of 

consumption was only 21 per cent of the total consumption of undivided Madhya 

Pradesh. This has been described by Government of Madhya Pradesh as 

irrational and unequal treatment of the power generating assets.


• A number of MOUs were signed with the Independent Power Producers (IPPs, 

22 Nos.). The same, however, could not materialise probably due to poor paying 

capacity and payment security issues with the State. 

• Under the new arrangements for power procurement the MPPGCL is required to 

sell power to MP Power Trading Company Limited (TRADECO) as a single 

buyer model. TRADECO will supply bulk power to DISCOMs. 

• Though, during the year 2004-05, the targets set by MPERC have almost been 

achieved by GENCO, the shortage of peak and energy continues in the State. In 

order to meet the demand efforts should be made to create additional generating 

capacity in the State. 

• More than 60 per cent of the generating stations in the State have served for a 

period of 25 years or more. The generating stations need frequent overhaul and 

are in urgent need of renovation and modernisation. The R&M activities have not 

received adequate priority and the funds allocated for R&M actually got reduced 

gradually from Rs 13.18 crore during 2000-01, Rs 2.93 crore during 2001-02, 

and Rs 1.64 crore during 2002-03 to Rs 0.71 crore during 2003-04. 

• The Commission in its tariff order dated 10 December, 2004 has accorded due 

priority and allowed Rs 140.31 crore under R&M of generating stations, but the 

GENCO once again failed to utilise the approved amount. Vide its tariff order 

dated 25 January 2006 the Commission has approved Rs 131.91 crore under this 

head. MPGENCO should spent adequate amount as approved by the 

Commission, on R&M activities to ensure the higher availability of plants. 

• MPGENCO has recorded better performance in respect of technical parameters 

such as PLF, specific oil consumption and auxiliary consumption except the 

station heat rate. 

3. TRANSMISSION 

MP Power Transmission Company Ltd (MPTRANSCO) is a Government owned 

Company, and was also notified as State Transmission Utility (STU) on 17 May 2004. 

Under MPSEB, the company had been continuing to perform the electricity bulk 

purchase and bulk supply function till 9 June 2006 as per notification of Government 

of MP. From 03 June 2006 a new power trading company, TRADECO has come into 

existence in the State and all the existing power purchase agreements (PPAs) of 

4.31



MPSEB/MPPTCL shall be taken care of by the newly established power trading 

company. The MP Tradeco has been established on 03 June 2006 with its 

Headquarters at Jabalpur. 

3.1 TRANSMISSION NETWORK 

Following is an overall snapshot of the transmission network of MPSEB: 

Growth of Transmission Sector in Madhya Pradesh 

Particulars 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 

Length of Lines (ckt km) 

400 kV 1,751 1,982 1,706 1,706 1,706 1,723 

220 kV 8,079 8,086 6,296 6,496 6,496 6,594 

Sub-stations/Transformers 

400 kV 

Sub-stations (No.) 5 5 4 4 4 4 

Transformers (No.) 22 22 14 14 14 14 

Capacity (MVA) 3,990 3,990 2,940 2,940 2,940 2,940 

220 kV 

Sub-stations (No.) 29 29 26 26 26 28 

Transformers (No.) 86 87 75 74 75 78 

Capacity (MVA) 7,580 7,740 6,650 6,610 6,770 7,250 

(Source: MPSEB Compendium) 

MPPTCL has accorded priority to strengthening of the T&D system in order to reduce 

T&D losses and to provide quality and reliable power to consumers and hence, post- 

2002, works of more than Rs 1,200 crore have been implemented and other proposals 

are being put up for financial assistance. 

Particulars 

Growth of Transmission System in MPPTCL 

As on 1.07.02 

(beginning of 

company) 

4.32 

As on 

March 2005 

As on 

April 2006 

% Increase in 

TR Capacity 

over 1-7-2002 

Length of lines (ckt km) 17,432 19,310 19,871 10.77 

Sub-stations (No)* 141 177 185 25.53 

Transformers (No)* 364 430 443 18.13 

Capacity (MVA)* 16,680 21,812 23,175 30.77 

* includes 132 and 66 kV assets (Source: M TRANSCO)


3.2 OPERATIONAL PARAMETERS 

3.2.1 System Losses 

While there has been an increase in the quantum of energy handled by MPTRANSCO 

by about seven per cent in the year 2004-05 over the year 2003-04, there is a significant 

achievement in terms of reduction of transmission losses. The overall losses in 

transmission system corresponding to 2004-05 have come down to 5.62 per cent from 

6.12 per cent in the year 2003-04. Cumulatively, the losses have been brought down 

from 8.25 per cent in 1999-2000 to 5.62 per cent in 2004-05. 

Loss Levels in Transmission Network (%) 

1997 

-98 

1998 

-99 

1999 

-2000 

Energy available for 

transmission (MUs) 

30510 33233 34549 26601 26513 27082 27554 29531 

Energy delivered (MUs) 28373 30585 31700 24428 24338 24935 25869 27871 

Losses (MUs) 2137 2648 2848 2172 2174 2147 1685 1659 

Loss (%) 7.01 7.97 8.25 8.17 8.20 7.93 6.12 5.62 

(Source: MPTRANSCO) 

3.2.2 Establishment of State Load Despatch Centre and interconnection with 

MPTRANSCO system 

The State Government has constituted the existing Load Despatch Centre as State 

Load Despatch Centre (SDLC) vide its Order dated 17 May 2004. The SDLC is the 

apex body responsible for the operation, planning, monitoring and control of the 

power systems in the State. The SLDC is well connected with the Western Regional 

Load Despatch Centre (WRLDC) for efficient and integrated operation of the Grid. 

4.33 

2000 

-01 

3.3. TRANSMISSION SYSTEM AVAILABILITY 

3.3.1 Transformer Failure Rate 

The data provided by MPTRANSCO suggests that there has been no failure of power 

transformers during the years 2003-04 and 2004-05. 

2001 

-02 

2002 

-03 

Failure of Power Transformers in MPTRANSCO 

Particulars 1996-97 1997- 

98 

1998- 

99 

1999- 

2000 

2000- 

01 

2001- 

02 

2002- 

03 

2003 

-04 

2003- 

04 

2004 

-05 

2004- 

05 

Failure rate (%) 3.16 3.04 3.58 2.89 3.28 3.78 3.00 0.00 0.00 

(Source: MPTRANSCO)

3.3.2 Availability of Transmission Network 



There has been an increase in the transmission system availability from 97.59 per cent 

in 2000-01 to 99.53 per cent in 2003-04. The transmission system availability 

remained at 99.18 per cent in 2004-05. Appreciable level of transmission availability 

is also on account of very low failure rate of power transformers (about 3% during the 

period 1996-97 to 2002-03 and no failure was observed during the years 2003-04 and 

2004-05). 

100.0 

99.5 

99.0 

98.5 

98.0 

97.5 

97.0 

96.5 

97.59 

Availability of the Transmission Systems (%) 

98.2 

4.34 

98.75 

99.53 

99.18 

2000-01 2001-02 2002-03 2003-04 2004-05 


3.4. CAPITAL INVESTMENTS IN THE TRANSMISSION SECTOR 

The investments in the transmission sector had picked up in 2003-04. The investment 

grew by almost 300 per cent to Rs 130 crore in 2003-04 from Rs 46.35 crore in 2000- 

01 for new transmission works and ten-fold for strengthening of transmission system 

from Rs 27 crore in 2001-02 to Rs 264 crore in 2004-05. 

Particulars 

New 

transmission 

works 

Investments in Transmission Sector: Post Restructuring 

1997 

-98 

1998 

-99 

1999- 

2000 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

04 

(Rs crore) 

2004 

-05 

74.16 24.90 28.66 46.35 25.78 60.67 130.20 95.95 

Strengthening of 

transmission 

system 

43.74 18.02 16.27 8.52 27.19 76.59 264.64 93.44 

Total 117.90 42.92 44.93 54.87 52.97 137.26 394.84 189.39 


From the year 1998-99 to 2001-02 the level of investment made towards new capacity


addition and strengthening of transmission system has been very low as compared to 

the investment made in the sector from 2002-03 to 2004-05. Correspondingly, 

percentage transmission losses are also showing a downward trend. 

3.4.1 Future Investments 

Interaction with the MPTRANSCO authorities reveals that a large number of 

transmission projects/schemes have been planned. These are proposed to be funded 

through the Asian Development Bank (ADB) or other financial institutions (FIs). 

3.5 POWER SUPPLY POSITION IN THE STATE 

The State has been facing acute peak demand as well as energy shortages. The deficit 

has been as high as 28 per cent for power and 23 per cent for the energy in April 2006. 

Demand- supply position of the State is as under: 

Demand Supply Gap in MP 

April-December, 2005 

Power Supply (MU) Peak (MW) 

Requirement Availability Deficit Demand Availability Deficit 

26,432 23,322 3,110 (11.8%) 6,558 5,136 1,422 (21.7%) 

April – 2006 

3,099 2,364 735 (23.70%) 5,581 4,008 1,573 (28.2%) 

(Source: CEA) 

NEEDS TO BE CONTINUED FROM THIS POINT ONWARDS 

3.5.1 Future Demand Projections 

The anticipated power supply position in the State for the end of Tenth Plan as also for 

the Eleventh Plan is provided below. The scenario indicates that the State is likely to 

face a shortfall of around 20 per cent for peak demand and energy requirements by the 

end of Tenth Plan. The situation is, however, expected to improve by the end of the 

Eleventh Plan wherein the shortfall for energy has been projected at less than 3 per 

cent. 

Anticipated Demand Supply Position 

Power supply (MU) Peak(MW) 

Requirement Availability Surplus/Deficit Demand Availability Surplus/Deficit 

Tenth PLAN ending 

42354 33967 -8387(-19.8%) 7052 5668 -1384 (-19.6%) 

Eleventh PLAN ending 

55914 56005 +91 (0.2%) 9310 9084 -226 (-2.4%) 

(Source: CEA) 

4.35

3.6 POWER PURCHASE 

3.6.1 Energy Balance 



As is evident from the table below, the State is highly dependent on the allocation 

from Central sector projects and sources around 35 per cent of its requirements from 

them. The share of MPGENCO is around 47 per cent while short-term and UI 

purchases together contribute around 4 per cent in the total power requirement in the 

State. 

Table: Energy Requirement of the State in 2006-07 (MU) 

Particulars 

Estimated by 

Commission 

Share 

% 

Central sector (WR) 11410 34 

Central sector (ER) 

Bilateral purchases 

390 1 

NHDC (INDIRA SAGAR) 2700 8 

Sardar Sarovar 1590 5 

CPP/Wind 12 0 

Short-term purchases 1124 3 

UI 500 1 

MPGENCO 15633 47 

Total 33359 100 


3.7 COMMERCIAL PARAMETERS 

3.7.1 Price Build up of Transmission Operations 

The estimated price build-up for 2005-06 as provided below suggests that around 23 

per cent of the price build up of operations of MPTRANSCO is towards provision for 

unfunded liabilities of pension and terminal benefits. As per transfer scheme these 

liabilities are for all existing pensioners of MPSEB, whose pension terminal benefit 

liabilities are chargeable on ARR of MPTRANSCO. 

Estimated Price Build Up for: 2005-06 

Particulars Rs crore (%) 

Employee cost 80.01 12.39 

A&G expenses 15.36 2.38 

Repairs & maintenance 24.17 3.74 

Depreciation 83.09 12.87 

Interest on loans 184.39 28.55 

Interest on working capital 12.78 1.98 

Return of equity 92.82 14.37 

Provision for unfunded liabilities 

of pension and terminal benefits. 153.19 23.72 

Total 645.81 100 

4.36 

(Source: MPERC)


3.7.2 Transmission Cost 

The cost of transmission of energy over the transmission network has been indicated as 

13.22 paise per unit in 2002-03 and 17.82 paise per unit in 2005-06. MPERC has 

expressed its disagreement with the transmission charges as stated above. The 

Commission has viewed that the principle of recovery of transmission expenses from 

the long-term users of transmission system should be expressed in terms of Rs per 

MW. 

In view of the above the Commission had directed that rates provisionally agreed 

between MPPTCL and MPSEB may be treated as payment on ad-hoc basis. The 

Commission in its order dated 7 February 2006 for 2006 has decided that the long-term 

users of the transmission system of the licensee shall be required to pay Rs 2,276.34 

per MW per day. The long-term open access customer shall be in accordance with 

MPERC (Terms and Conditions for Open Access in MP), Regulations, 2005. 

Transmission Cost of Energy in Madhya Pradesh 

(Paise/unit) 

2002-03 2003-04 2004-05 2005-06 

13.22 14.88 18.89 17.82 


After restructuring, for the first to third years, the tariff formulation was done for the 

Board (MPSEB) as a whole. The above cost does not include weightage for 

transmission losses, as they are settled in kind, separately. The transmission prices fully 

cover the cost of transmission. Being an integrated Utility (MPSEB), this was in-built in 

retail tariff for recovery from consumers. 

3.7.3 Exploitation of UI Charges 

There should be cap on UI charges and heavy penalties should be imposed on the 

constituent States for violating the grid discipline and endangering the grid. 

3.8 OBSERVATIONS/COMMENTS 

From the years 1998-99 to 2001-02 the level of investment made towards strengthening 

of transmission system has been very low. This picked up after the restructuring. 

With a vast transmission network in the State, the level of loses have come down from 

8.25 per cent in 1999-2000 to 5.62 per cent in 2004-05. This is a commendable 

4.37



achievement. A 0.5 per cent reduction of transmission losses is targeted during the year 

2005-06 and transmission losses are expected to come down to 5.10 per cent. 

TRANSCO’s performance has improved after restructuring and it is continuing its 

efforts to improve the transmission system in terms of higher system availability, low 

breakdowns and low failures, reduction in transmission losses and capacity to attract 

new capital investment to strengthen the transmission system. 

4. DISTRIBUTION SYSTEM 

Under O&M agreement with MPSEB, the three DISCOMs in the State started their 

operations from July 2002 as franchisees under the MPSEB. The DISCOMs were to 

manage the distribution assets, planning and maintenance operation within their 

respective areas. The DISCOMs have started their independent operation from 1 June 

2005. Hence for the purpose of analysis of distribution sector in Madhya Pradesh, 

consolidated data for MPSEB has been taken up to 2004-05. Thereafter individual 

DISCOMs wise data has been analysed from their respective ARR filings before 

MPERC. 

The overall snapshot of the distribution assets as also their individual energy 

requirement is as under: 

DISCOM wise details of HT and LT Lines (ckt km) in sub-T&D Network 

(ckt km) 

1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

Poorv Kshetra 

HT Lines 64290 64888 65181 66179 68615 69957 69494 

LT Lines 97162 98890 99965 101338 104105 107101 107532 

Ratio LT/HT 1.51 1.52 1.53 1.53 1.52 1.53 1.55 

Madhya Kshetra 

HT Lines 57425 57941 58503 57736 61021 61465 62833 

LT Lines 91287 92201 93249 92417 96697 97221 98178 

Ratio LT/HT 1.59 1.591 1.594 1.601 1.585 1.582 1.56 

Paschim Kshetra 

HT Lines 56568 57415 57785 58300 59595 60476 61544 

LT Lines 123995 125514 126208 126651 130265 130740 131311 

Ratio LT/HT 2.19 2.186 2.184 2.172 2.186 2.162 2.134 

(Source: MPSEB Compendium) 

4.38


DISCOM wise Energy Requirement for 2006-07 

Particulars 

Poorv 

Kshetra 

Paschim 

Kshetra 

Madhya 

Kshetra 

Total 

Total energy sales (MU) 6017 7860 6232 20109 

Distribution loss (%) 32.5 30 37 33.05 

At T-D interface (MU) 8914 11229 9892 30036 

Transmission loss of MPPTCL (%) 5 5 5 5 

At G-T interfaceof MPPTCL (MU) 9383 11820 10413 31617 

External losses (PGCIL %) 5.35 5.35 5.35 5.35 

External losses (MU) 188 236 207 631 

Net energy requirement (MU) 9571 12056 10620 32247 


4.1 PERFORMANCE PARAMETERS 

4.1.1 Failure of Distribution Transformers 

The failure rate of distribution transformers (DTs) in MPSEB system has increased by 

4.75 percentage point (from about 18.13 per cent in 2001-02 to 22.88 per cent in 

2004-05). The significant increase in failure rate of DTs is indicative of poor 

maintenance of distribution system and resultant low level of reliability and quality of 

power supply in the State and is a matter of concern. 

25 

20 

15 

10 

Failure Rate of Distribution Transformer (%)- MPSEB 

95-96 96-97 97-98 98-99 99-00 00-01 2001- 

02 

4.39 

2002- 

03 

Distribution Transformer failure rate (in %age) 

2003- 

04 

2004- 

05 

(Source: MPSEB) 

The failure rate of DTs for the individual DISCOMs also reveals a similar trend with 

the failure rate as high as 22 per cent for East DISCOM (Poorv Kshetra) and 16 per 

cent for West DISCOMs (Paschim Kshetra) at present.

DISCOMs 

Distribution 

transformers in service 

(No.) 



Failure Rate of DTs for DISCOMs 

Total failure 

as on 13-02-2006 

(No.) 

4.40 

Failure (%) during 

2005-06 

up to 13-02-2006 

Failure 

(%) 

during 2004-05 

Poorv Kshetra 73799 8592 11.64 22.27 

Paschim Kshetra 46262 7133 15.42 16.6 

Madhya Kshetra 55591 10730 19.30 21.24 


4.1.2 Losses in the Distribution System 

4.1.2.1 Extent of Metering 

There is a significant increase in percentage of metered agricultural consumers, i.e., 

from less than 1 per cent in 2000-01 to 30 per cent in 2004-05. However, the 

percentage of metered domestic consumers have come down from 84 per cent in 

2000-01 to 81 per cent in 2004-05. The cumulative progress of metering is shown in 

the following table: 

Metering Progress as a Proportion of Total Connections 

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 

-96 -97 -98 -99 -00 -01 -02 -03 -04 -05 

Agriculture 0.98 0.56 0.44 0.37 0.31 0.20 1.34 6.81 19.34 30.70 

Domestic 65.98 64.90 64.71 62.77 44.48 84.34 85.36 84.42 83.36 81.33 

Industrial 100 100 100 100 100 100 100 100 100 100 

Commercial 100 100 100 100 100 100 100 100 100 100 


The status of metering in the DISCOMs is also depicted below. A large number of 

unmetered domestic and agricultural consumers in the system is indicative of high 

quantum of losses being suffered by the utilities and is a matter of concern. 

Unmetered Consumers in DISCOMs 

DISCOM 

Total Unmetered Consumers Reported 

by the Licensee as in June 2005 

Domestic Agriculture 

Poorv Kshetra 366406 1783157 

Madhya Kshetra 210088 214453 

Paschim Kshetra 96716 303374 


4.1.2.2 Billing and Collection Efficiency 

The collection efficiency in respect of DISCOMs is also showing a poor performance. 

While the revenue collection efficiency towards sale of power to the agricultural 

consumers deteriorated progressively from 88 per cent in 2000-01 to as low as 21 per 

cent in 2004-05, it was equally bad for the domestic consumers, i.e., 95 per cent in


2000-01 to 79 per cent in 2004-05. The collection efficiency from different sectors 

has fallen below the level achieved before restructuring as can be seen in the 

following table: 


Particulars 

1995 

-96 

1996 

-97 

1997 

-98 

1998 

-99 

1999 

-00 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

2004 

-05 

Domestic 95.36 96.14 95.28 95.45 92.47 95.15 83.40 77.07 78.41 78.95 

Industrial 98.72 99.34 99.05 98.08 99.01 97.39 97.46 95.00 94.43 96.38 

Agricultural 95.81 98.08 96.07 96.33 94.42 88.20 50.83 24.79 13.10 21.01 

Commercial 97.78 97.91 98.24 96.84 97.52 100.20 95.91 94.90 94.24 95.86 


Incidentally, it is worth mentioning that the prevailing electricity tariff for the 

agricultural category in the State is the highest when compared with other large 

States.. This is a cause of concern and dissatisfaction among the farmers especially 

when they compare the tariffs with other States. The State has limitation of resources. 

Hence, it cannot subsidise beyond a point and has stressed on a national consensus on 

minimal agricultural tariff. 

4.1.2.3 Transmission and Distribution Losses 

The transmission and distribution (T&D) losses in MPSEB system from 1995-96 to 

1998-99 have been shown to be in the range of 19-21 per cent and thereafter as 31.94 

per cent in 1999-2000, 47.18 per cent in 2000-01 and further showing a very slow 

declining trend (43.48% in 2004-05). The trend of T&D losses is depicted in the 

following graph: 

50 

40 

30 

20 

10 

19.48 19.26 19.08 20.98 

Percentage T&D losses - MPSEB 

31.94 

4.41 

47.18 44.63 43.59 43.99 43.48 

95-96 96-97 97-98 98-99 99-00 00-01 201-02 2002- 

03 

4.1.2.3.1 AT&C Losses in DISCOMs 

2003- 

04 

2004- 

05 

It is only recently that the DISCOMs in Madhya Pradesh have started functioning



independently. Therefore the actual performance evaluation of the DISCOMs in 

respect of their operation as independent corporate entities can be done only after 

certain period of time. MPERC in its tariff order dated 31 March 2006, which is the 

first Annual Revenue Requirement (ARR) for determination of tariff in respect of 

these DISCOMs for 2006-07 has stipulated the following programme for AT&C loss 

reduction: 

DISCOM 

Prescribed by the Commission 

Indicated by the 

respective DISCOM 

2005-06 2006-07 2007-08 2008-09 2005-06 2006-07 

Poorv Kshetra 35.5 32.5 29.5 26.5 38.73 35.88 



Source: MPERC 

The target level regarding AT&C losses for 2005-06, as prescribed by MPERC, has 

been achieved by Paschim Kshetra and Madhya Kshetra DISCOMs, whereas the same 

has not been achieved by the Poorv Kshetra DISCOM (the gap of 3.23 per cent is yet 

to be met). 

For checking and prevention of theft of electricity, Madhya Pradesh Urja Adhiniyam 

was notified by the State Government on 17 April, 2001. Several administrative 

measures have been undertaken by the DISCOMs to check electricity theft These 

include strengthening of the Vigilance Squads, replacing bare low tension (LT) 

conductors by armored cables/HT lines, setting up of special courts for speedy trial of 

electricity theft cases (92 special courts have been set up so far). 

4.1.2.4 Multi Year Tariff Framework 

MPERC has introduced Multi Year Tariff (MYT) framework under which a loss 

reduction trajectory and other targets of expenditure, etc., are fixed for the control 

period. 

MPERC directed that the first control period for MYT will run for a period of three 

years, i.e., up to 2008-09 for all the five companies. The tariff determined under its 

tariff order for 2006-07, under the present order, shall be the tariff and charges 

recoverable from various consumer categories during the control period. MPERC will 

review the actual performance of the targets of efficiency and conduct truing up of 

cost through Annual Revenue Requirement (ARR) for each year. The distribution 

licensees are required to file their ARR application before the Commission every year 

by 31 October. 

4.42


4.1.3 Subsidy Support by the State Government 

4.1.3.1 Agricultural Consumption 

About 73 per cent of the population in MP resides in villages and at present out of 

about 65 lakh consumers in the State about 17 per cent belong to the agricultural 

category. As compared to 2000-01, the power consumption by the agricultural sector 

has gone up by 40 per cent in the year 2003-04 (3795 MU in 2000-01 to 5342 MU in 

2003-04). 

Government of MP Decision to Supply Free Power 

The decision to provide free power to select categories of consumers by the State 

Government in 1994 led to a situation of excessive consumption and misuse of 

electricity. Thereafter the Government reviewed the situation and from January, 2001, 

this facility was extended only to SC/ST consumer categories living below the poverty 

line BPL). 

4.1.3.2 Subsidy Support 

In order to avoid tariff shock to agricultural consumers and to the weaker sections of 

society, the State Government is providing subsidy support in cash to MPSEB on 

regular basis. The Government is providing subsidy support to the sector not only for 

the agricultural sector but also to meet the revenue deficit arising out of poor billing 

and collection efficiency. The revenue collected by the Utilities is barely 70 per cent 

of the cost of supply, which does not include the non-cash expenses. Details of 

support in the form of subsidy made available to MPSEB by Government of Madhya 

Pradesh are as under: 

Rs. Crores 

1500 

1000 

500 

0 

568 

Subsidy Support to MPSEB by GoMP 

4.43 

1045 

814 

2002-03 2003-04 2004-05 

Years 

(Source: Government of MP)

4.1.4 Commercial Viability 

4.1.4.1 Receivables 



Extent of arrears and debt year-wise, including the dues outstanding that were 

securitised or waived or rescheduled is shown in graph below. While the same has 

been shown as around Rs 906 crore, for 2004-05, there has been a progressively 

increasing trend during the past years wherein the arrears have increased by 1.75 times 

from Rs 1,637 crore in 2001-02 to Rs 2,819 crore in 2003-04. The reduction in the 

amount of arrears is due to enforcement of the provisions of Dues Recovery Act 

(DRA) recently. 

30 0 0 

25 0 0 

20 0 0 

15 0 0 

10 0 0 

500 

1814 

Arrears Position-MPSEB (Rs Crs) 

1637 

2000-01 2001-02 2002-03 2003-04 2004-05 

4.1.4.2 Financial Gap in Distribution Sector 

4.44 

2140 

2819 

906 


The average annual cost to supply (ACS) and ARR across various categories of 

consumers in the State depict that the ACS is increasing at an annual rate of around 10 

per cent taking 1998-99 as the base year. Similarly the ARR from the agricultural 

consumers has dipped by around 9 per cent since 1998-99. The following table 

indicates the comparative figures of ACS and ARR in the State. On actual realisation 

basis in respect of agricultural category, the ARR expressed as a percentage of ACS 

has gone down from 19.6 per cent in 2000-01 to 5.4 per cent in 2004-05. In respect of 

domestic sector, the same has increased from 43 to 59 per cent. 

Cost of Power and Recovery (Rs/unit) 

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 

-96 -97 -98 -99 -2000 01 -02 -03 -04 -05 

Average cost of Supply 1.74 2.15 2.23 2.41 3.03 3.81 4.30 3.68 3.97 3.66 

Recovery from Different Categories (ARR) 

Agriculture 0.15 0.25 0.25 0.21 0.31 0.73 0.43 0.20 0.13 0.20 

Domestic 0.60 0.69 0.70 0.72 1.47 1.63 1.54 1.81 2.32 2.17 

Industrial 2.33 2.76 2.86 2.93 3.87 3.77 3.94 4.26 4.94 4.99 

Commercial 2.53 3.18 3.50 3.60 4.14 4.93 4.98 5.31 5.80 5.57 

(Source: MPSEB)


While MPERC, in the tariff order for 2006-07, has projected a marginal gap of around 

Rs 9.51 crore, however, the ARR-ACS analysis for the year 2003-04 indicates a 

revenue gap of around 96 paise per unit. The ARR-ACS trend and revenue gap up to 

2003-04 is as shown below: 

410 

310 

210 

110 

10 

Trend of Average Cost of Energy (ACS) and Average Rate of realisation (ARR)- 

Paise/Unit 

215.15 

222.55 

182.33 176.95 

32.82 

4.1.5 Capital Expenditure 

45.6 

241.14 

164.31 

76.83 

4.45 

303.02 

207.51 

95.51 

380.68 

258.73 

121.95 

430.44 

242.74 

187.7 

368.41 

279.42 

88.99 

1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 

Cost of Power ARR Gap (ACS-ARR) 

397.33 

300.63 

96.7 


The investments in the distribution sector have picked up since 2001-02. The 

investments had more than doubled from Rs 124 crore in 2001-02 to Rs 302 crore in 

2004-05. 

350 

300 

250 

200 

150 

100 

4.1.5.1 Equity and Loans 

Investment (Rs. Crores) to Improve Distribtion system (MPSEB) 

171.79 

155.41 163.77 166.53 159.24 

141.01 

127.67 

124.28 

218.2 

302.56 

95-96 96-97 97-98 98-99 99-00 00-01 01-02 02-03 03-04 04-05 


As per the notification, dated 31 May 2005 of the State Government, the provisional 

opening balance sheets were issued in respect of the five companies. As per opening 

balance sheet, equity and loans, as allocated to the DISCOMs, is given as under:



EQUITY AND LOANS ALLOCATED TO THE DISCOMS 

Particulars 

Poorva 

Kshetra 

4.46 

Paschim 

Kshetra 

(Rs. crore) 

Madhya 

Kshetra 

Equity 317 533 316 

PFC Loan 96 133 74 

ADB Loan 45 45 45 

REC Loan 154 80 101 

Generic Loan (MPSEB) 252 494 316 

In regard to generic loans of MPSEB, shown in the opening balance sheet of the 

DISCOMs, MPERC has viewed that the nature of these loans and assets associated 

with it have neither been disclosed nor identified. The Commission has also observed 

that these loans of the MPSEB transferred to the DISCOMs will get adjusted with the 

assets retained with MPSEB after the latter ceases its operations in the future. 

4.1.5.2 Status of APDRP Funding 

The APDRP financial status from 2002-03 shows that, for 48 projects, an outlay of Rs 

663.20 crore has been approved. An amount of Rs 129.87 crore has been released by 

the Central Government and Rs 184.90 crore has been utilised (including the counter 

part funding). During the interaction, MPSEB brought out that their proposal for claim 

of about Rs 200 crore for incentive component under APDRP in lieu of cash loss 

reduction from the base year of 2000-01 has been shuttling between the Ministry of 

Power and Ministry of Finance (Government of India) and the matter is yet to be 

resolved. The intervention of Ministry of Power will be necessary for early release of 

the amount due to the State. 

Another apprehension mentioned is that RGGVY and APDRP do not cover the works 

at voltage level of 132 kV and above, and extending the supply lines to remote 

villages, especially under RGGVY will put additional burden on transmission system. 

4.1.5.3 Rural Electrification 

As per the earlier definition of village or rural electrification, the level of village 

electrification in the State was 97 per cent. As per the new definition of village 

electrification, the figure is 74 per cent. Household coverage in rural areas is about 37 

per cent. The State Government is committed to electrify 100 per cent villages and to 

cover all households by 2012. Under RGGVY, schemes for 48 districts, at an 

estimated cost of Rs 3,100 crore, has been submitted to Rural Electrification 

Corporation Limited (REC). Sanction has been received for 9 districts.


The State Government feels that the extension of electricity facilities to all the villages 

will lead to extensive revenue subsidy as compensatory tariff will not be feasible. 

Therefore, the State would need additional financial devolution. 

4.1.6 Consumer Services 

4.1.6.1 Standards of Performance and Customer Related Measures 

Enhancement of consumer services through: 

• Computerised call centres have been established at various places; 

• Collection facility round the clock by cheque at call centres; and 

• Mobile phone facility to line staff for quick response to consumers’ complaints. 

One window type facility to: 

• Accept consumers’ complaints; 

• Process applications for new connections, load enhancement and reduction 

applications, billing complaints, meter reading complaints, etc.: 

• Bill data made available on SMS/email; and 

• Facilitate Acceptance of advance payment and payment of interest thereon. 

Steps taken to improve billing efficiency 

All the high value consumers have been provided with Data Logger type of meters 

and all are being shifted very shortly on Automatic Meter Reading (AMR) system. 

The electro-mechanical meters of urban area have been replaced by static meters. 

Unmetered domestic connections have been provided with proper meters and sample 

metering has been done on agricultural consumers to assess their consumption. 

Revenue Management System 

Revenue management system is a software solution for revenue functions of 

DISCOMs. The software has been developed in-house by the Capacity Building 

Group of MPSEB. It can handle various issues of power distribution business and has 

the flexibility/features of upgrading and updating the software by way of developing 

4.47



the additional modules. The software is capable of handling metering, billing and 

other consumer’s service related issues. This is being introduced in phases and in the 

first instance, Information Technology (IT) enabled RMS package has been 

implemented in 27 divisions of 7 regional headquarter cities (called priority divisions). 

The implementation of RMS on decentralised architecture in offline mode has been 

initiated for all divisions under Poorv Kshetra DISCOM. 

4.2 OBSERVATIONS / COMMENTS 

The three DISCOMs were wholly-owned Government of Madhya Pradesh 

Corporations, functioned as agents of MPSEB under O&M agreement with the 

MPSEB from July 2002 till 31-05-2005. 

Only recently, the DISCOMs in Madhya Pradesh have started functioning 

independently. Therefore the actual performance evaluation of the DISCOMs in 

respect of their operation as independent corporate entities can be done only after a 

certain period of time. So far, their operational performance represents a mixed 

picture. 

The failure rate of DTs in MPSEB system has increased by 4.75 percentage points 

(from about 18.13% in 2001-02 to 22.88 per cent in 2004-05). The failure rate of 

distribution transformers for the individual DISCOMs also reveals a similar trend with 

the DT failure rate as high as 22 per cent for Poorv Kshetra and 16 per cent for 

Paschim Kshetra DISCOM during 2005-06. Causes of high failure rate of DTs should 

be analysed. Though very important, but other than quality aspects, overloading and 

ageing of transformers have to be addressed to avoid high failure rate of DTs. Better 

quality materials, maintenance schedule/maintenance practices also contribute to 

better performance of the transformers, thus existing O&M practices should be 

reviewed. 

Metering in respect of agricultural consumers is quite low and in respect of the 

domestic sector, it is about 81 per cent. In view of this, it is clear that the figures of 

consumption and consequently loss figures are not realistic. Correct and adequate 

instrumentation is a must to address the above issue. Energy Audit should be 

introduced on feeder/distribution transformer-wise and accountability of energy 

handled and corresponding revenues fixed at all levels of the organisation, which has 

not yet has not started. 

4.48


Due intelligence and vigilance should be exercised well in time so that the legal 

disputes get minimised and consumers have full faith in the working of the power 

utility. It is understood that a lot of manpower and resources are employed to prepare, 

present and defend cases in courts of law from the Utility side also. Thus along with 

the technological innovation, human resources to tackle the consumer and commercial 

affairs should be developed. Measures such as Meter Reading Instrument (MRI) based 

billing for high value consumers, introduction of spot billing, collection of bills by 

cheque, introduction of mobile vans for collection of bills, periodic inspection of 

feeders to identify the feeders having high T&D losses, etc., initiated by the 

DISCOMs should be speeded up. 

5. Regulatory Framework 

MPERC was established in August 1998 and started functioning from January 1999. 

Since its inception, MPERC has issued five tariff orders with a view to gradually 

reduce the cross subsidy. Besides, the Commission has also issued the Supply Code 

for ensuring better and quality service to consumers. 

5.1 TARIFF REVISION 

MPERC has been quite effective in rationalisation of tariff in the State and in meeting 

the stipulations of MP Vidyut Sudhar Adhiniyam, i.e., to eliminate cross-subsidisation 

in the tariff. The provision stipulates that the tariff to any class of consumer should 

reflect a level at least 75 per cent the cost of supply to that particular class of 

consumer with in the next five years. It has been seen that a gap exists between ACS 

and ARR. This gap prevails primarily for agricultural pumpset consumers and is 

nearing the cost to supply for the domestic category. The realisation attained for the 

domestic consumers is at 86 per cent of the average cost to serve and for the rest of the 

categories the revenue realised is more than the ACS. 

5.2 IMPLEMENTATION OF CURRENT ISSUES UNDER THE EA, 2003 

5.2.1 Open Access 

Open Access regulation has been notified by MPERC on 24 June 2005. Open Access 

to users of non-conventional energy sources and captive generating plants of 

conventional energy was provided with immediate effect. Accordingly, Open Access 

to users other than non-conventional energy source and captive generating plants of 

4.49



conventional energy has been provided as per the load profile of consumers effective 

from October 2005. For non-discriminatory Open Access applicable surcharge has not 

been fixed as yet. The framework for competition in the choice and Open Access is in 

place but the principles for determination of surcharge payable by the Open Access 

consumers has not yet been formulated. 

5.2.2 Directives Issued by MPERC 

MPERC has so far issued about 25 final/draft regulations on several issues. The 

Commission from time to time is also issuing concept papers and relevant directives. 

The Commission has played a proactive role in making the process of reform a 

success. However, the DISCOMs have not been able to comply fully with the 

directives issued by the Commission. It is apparent that non-compliance with the 

Commission’s directives is affecting the DISCOMs itself. The Commission in its 

recent tariff order for distribution and retail supply for the three DISCOMs for 2006- 

07 has disapproved the cost on capital expenditure and interest cost. This is on 

account of the fact that the DISCOMs could not submit the business plans as also the 

capex plans for the expenditure proposed to be incurred by them in the ensuing year. 

6. Role of the State Government 

The State Government expects the outcome of reforms as to attain the financial 

viability of the power sector, better service quality for consumers, more affordable 

access to electricity for consumers, improvement in Government fiscal position and 

redefining the role of public sector. The State Government has shown commitment for 

the reforms and is getting assistance form ADB to implement the reforms. Financial 

support for the DISCOMs to meet the revenue deficit as well as subsidy for 

agricultural consumers does indicate its commitment to facilitate the reform process 

during the transition period. 

4.50


7. Electricity Act 2003 and the Reform Process 

The status of implementation of certain key provisions of the EA, 2003 in Madhya 

Pradesh is as under: 

Section 172 

Section 42(5) 

Section 55 

Section 135 

Separation of 

transmission 

Utility 

Forum for 

redressal of 

consumer 

grievance 

Supply of 

electricity 

through 

metering 

Implementation 

of anti-theft 

measures 

MP Power Transmission Co. Ltd. (MPTRANSCO) was notified as 

State Transmission Utility (STU) on 17-05-2004. Vide Notification 

No. 3474/FRS/17/XIII/2002, dated 03-06-2006 the MP Power Trading 

Company Limited (TRADECo) has come in existence in the State and 

all the existing PPAs of MPSEB/MPPTCL shall be taken care of by 

the newly established TRADECO. 

As per directives of MPERC Electricity Consumer Grievances 

Redressal Forum has been formed in all three DISCOMs. Electricity 

Ombudsman has also been established 

MPERC under second proviso of Section 55(i) of EA, 2003 through 

Notification, dated 28.10.2005 has directed all the three DISCOMs to 

complete the work of metering of all the balance unmetered 

connection within the time limit. 

Officers nominated in all the three DISCOMs as Assessing Officers 

with powers to search and confiscate in cases of electricity theft under 

sections 126 and 135(2) of the EA, 2003. 

7.1 ESTABLISHMENT OF SLDC AND INTERCONNECTION WITH 

MPTRANSCO SYSTEM 

4.51 

(Source: MP Govt.) 

The State Government has constituted the existing load despatch centre as State Load 

Despatch Centre vide its Order dated 17 May 2004. The SLDC is the apex body 

responsible for the operation, planning, monitoring and control of the power system in 

the State. The SLDC is well connected with the western regional load despatch centre 

for efficient and integrated operation of the grid. 

7.2 ADEQUACY OF THE PROVISIONS OF THE CENTRAL ACT 

The State Government has stated that the Act seeks to create liberal framework for 

development of the power sector and strike a balance, which takes into account the 

complex ground realities of the power sector in the State. Timely and committed 

support from the Government and the established regulatory framework in the State 

are paving the way for the reforms to succeed.



7.3 SUGGESTIONS FROM THE STATE GOVERNMENT AND SUPPORT 

EXPECTED BY THEM 

7.3.1 Setting up of a Mechanism for Price Regulation of Fuel 

Absence of regulator for the fuel is impacting the cost of fuels, which lead to 

increased cost of power generation. Need of regulator and transparent public 

participation in fuel sector pricing has been emphasised by the State Government. 

7.3.2 Green Power 

At present cost of generating non-conventional energy is high. The capital subsidy and 

the tariff related issues need a fresh look in order to incentivise the use of small hydel 

power in the portfolio of power purchase. 

7.3.3 Regulatory Understanding 

There appears to be a mindset issue with regard to the role, which the MPERC is 

required to perform. The State Government feels that MPERC should not interfere in 

day-to-day affairs of the power companies beyond a point. The State Government 

expressed that in order to protect the interest of companies, the ground realities should 

also be looked in to by MPRC. There is a need for greater communication between the 

stakeholders to overcome the same. 

MPGENCO is finding it difficult to get loans from FIs and PFC. The State Pollution 

Control Board (SPCB) is also imposing restrictions on running of some of the power 

units because of high level of emissions from them. Such emissions are attributable to 

poor quality of coal and limitation of space for extension of Electrostatic Precipitator 

(ESP) fields. In case of joint venture projects like Satpura Power House, consent of 

the partner State has delayed the taking up of R&M activities. This and similar other 

issues relating to pollution control would require intervention and coordination of the 

concerned Central ministries. 

The State Government feels that the coal and fuel linkages mechanism should also be 

strengthened in respect of the State power sector project also. Government of Madhya 

Pradesh expects a proactive role by the Ministry of Power (Government of India) in 

extending more support to the State by way of better coordination with other Central 

ministries/departments in quick redressal of some of the pending issues with the 

concerned ministries. 

4.52


In regard with the RGGVY scheme, the State Government feels that it should cover 

the works at voltage level of 132 kV and above for extending the supply lines to 

remote villages to reduce T&D losses. 

8. Lessons Learnt and Way Forward 

8.1 REORGANISATION OF THE STATE 

There are outstanding issues relating to transfer of assets, liabilities and staff, which 

have not been resolved as yet. It is not easy for the State Government to come to a 

settlement unless there is equally a positive response from State Government of 

Chhattisgarh. Since these are post-reorganisation matters between the two States it 

would require intervention by the Central Government to bring about amicable 


As a result of reorganisation, the availability of power has been adversely affected. 

Out of a total capacity of 4,260 MW of the undivided State, 2,940 MW of generation 

assets were only left with Madhya Pradesh. The State has also not taken suitable 

measures to improve the condition of its generation facilities through R&M 

interventions. 

8.2 OPENING BALANCE SHEET OF THE UTILITIES 

The Government of Madhya Pradesh has notified the provisional opening balance 

sheets and cash flow mechanism to be followed by the generation, transmission, 

distribution, and trading companies. Further, the companies have not finalised their 

balance sheets, as the State Government has reserved the right to modify values in the 

opening balance sheets. The State Government is yet to finalise the opening balance 

sheets of the new generating, transmission, distribution, and trading entities. This 

obviously, leads to insufficient filing of the ARRs by the Utilities with their 

provisional figures of “gross block” of fixed assets and liabilities for the purpose of 

determination of return on equity (ROE), depreciation and revenue gap. 

8.3 LICENSE FOR TRADECO 

The trading function had been retained by MPSEB until recently and has now been 

transferred to MPTRADECO, which has been set-up in June 2006. This arrangement 

was agreed to by the Ministry of Power as per the proviso to Section 172 (a) of the 

4.53



EA, 2003. However, the TRADECO has not applied for “bulk supply” license under 

the EA, 2003. This is a grey area as to whether distribution of power purchased by the 

TRADECO is permissible without license under section 14 of the EA, 2003. 

8.4 FINANCIAL RESTRUCTURING PLAN AND CASH FLOW MECHANISM 

The State Government ownership for the reform is demonstrated by the FRP, which 

stipulates the total transition cost involved for the power sector in the State. The State 

Government is providing financial support is provided to the tune of Rs 6,881 crore to 

the DISCOMs. The role of the MPSEB has some advantages. However, in actual 

practice, it amounts to concentration of decision-making with MPSEB in several 

areas, which are normally in the jurisdiction of the DISCOMs. Since MPSEB is no 

longer a licensee now and, therefore, not answerable to the MPERC, there is a 

likelihood of conflict with the objectives and spirit of the EA, 2003. The objectives of 

the CFM and the FRP could be achieved through a holistic approach, which 

guarantees prior consultation with the MPERC and control and responsibilities on the 

DISCOMs for implementation of the FRP and targets. 

The FRP has been revised to cover the period from 2006 to 2012. The FRP provides 

for the reduction of AT&C losses from 50 to 32.5 per cent in a seven years period, i.e., 

around 2 per cent on a yearly basis, which appears to be low. The targets of AT&C 

losses given in the FRP and those prescribed by the MPERC do not tally. In fact, the 

targets prescribed by MPERC are aimed at bringing down the targets so as to come 

closer to the target of 15 per cent as prescribed in the NTP. In view of the above, there 

is a fresh need to look for the targets set for AT&C losses in FRP and also those fixed 

by MPERC. 

8.5 REGULATORY PROCESS 

8.5.1 MYT Framework 

MPERC is one of the few Electricity Regulatory Commissions in the country to issue 

MYT order providing a control period with specific efficiency and loss reduction 

targets. The AT&C loss reduction roadmap has been fixed for the three DISCOMs, 

which gives differential loss reduction trajectory for these DISCOMs. The rationale 

appears to be: the geography, past legacy and the extent and nature of the problems in 

each of the DISCOMs. 

4.54


8.5.2 Directives Issued by MPERC 

MPERC has taken significant steps for directing the DISCOMs to initiate action in the 

critical areas, such as, intra-State ABT, MYT framework, franchisee model for rural 

areas, SCADA implementation, installation of high voltage distribution system 

(HVDS), implementation of pre-paid meters, re-conciliation of asset registers, etc. 

However, MPERC does not set any time frame to achieve the directives issued in this 

regard. It is apparent that given the appropriate support in terms of financial 

independence and capacity building, MPERC can play an important role in creating a 

credible regulatory framework for the success of the reforms. 

There was a noticeable tendency on the part of the MPSEB/DISCOMs not to comply 

with the directives issued by the Commission. Since these are Government owned 

companies, the MPERC finds it difficult to obtain compliance. However, it has taken 

some strong position on non-compliance of its directive regarding submission of 

Capex Plans for scrutiny and not obtaining its prior approval. 

8.6 GENERATION SECTOR 

8.6.1 Inadequate Capacity Addition 

Generating capacity addition in the State sector had been lagging. A number of MoUs 

were signed with the independent power producers (IPPs, 22 Nos.). However, like 

other States owing to the poor paying capacity of the power Utilities, the same could 

not materialise. Only 50 MW capacity additions could be achieved since 2002-03 in 

the Hydro sector and thermal capacity stands at 2,147.50 MW from 2000-01 onwards. 

The State must vigorously explore other avenues to bridge the demand-supply gap if 

adequate power by way of capacity addition is not made available in the State. 

8.6.2 Low Investment on R&M of Generating Stations 

Most of the generating stations in the State are 25 years or older and require frequent 

shutdown for maintenance. The generating stations need frequent overhaul and are in 

urgent need of R&M interventions. However, the level of investment in R&M 

activities had been at a very low level. The SERC has taken a serious note of underutilisation 

of the approved funds allowed in the ARRs. The Commission has refrained 

from clawing back the amount retained and not utilised for R&M purposes. R&M 

activities should be given due priority so as to increase the generation as also the PLF 

of the stations. 

4.55

8.7 TRANSMISSION SYSTEM 

8.7.1 Loss Reduction and System Availability 



While there has been an increase in the quantum of energy handled by MPTRANSCO 

by about 7 per cent in the year 2004-05 from year 2003-04, the overall losses in the 

transmission system for the year 2004-05 have come down to 5.62 per cent from 6.12 

per cent in the year 2003-04. Also, there has been no failure of power transformers 

during the years 2003-04 and 2004-05. MPPTCL has also claimed that there were no 

grid disturbances or major breakdowns during the year 2004-05. 

There has been an increase in the transmission system availability from 97.59 per cent 

in 2000-01 to 99.53 per cent in 2003-04. In a positive development for providing 

incentive for high level of transmission availability, MPERC has devised a formula for 

incentive to promote high standards of performance by the transmission Utility. 

8.8 DISTRIBUTION 

8.8.1 Transition Support by Government of MP 

The reform model in Madhya Pradesh has provided for independent companies 

inheriting the functions and assets of the erstwhile MPSEB, but the latter continues to 

be exercising control over the Utilities. MPSEB will exercise powers for revenue and 

cash management till such time each of the Utilities becomes capable of managing 

their revenue and expenditure requirements and become self-sustainable. In the 

present scheme of the reforms the control of the MPSEB is justified by the State 

Government on the ground that during the transition period the State is providing 

transition support for the implementation of the reforms and therefore close 

monitoring and management of revenue and expenditure was necessary in the interim 

period. 

8.9 SUSTAINABILITY OF THE STATE POWER SECTOR 

8.9.1 Dependence on Government Subsidy 

MPSEB is heavily dependent on subsidy support from the State Government. The 

amount of subsidy is around Rs 794 crore in 2004-05 and around 15 per cent of the 

revenue earned by the DISCOMs from sale of power. This dependence is expected to 

increase as Government of Madhya Pradesh has committed to continue to subsidise 

4.56


agricultural consumers and also to meet the cash deficit of the distribution Utilities. 

The burden as projected in the FRP is approximately around Rs 5,000 crore. However, 

the additional subsidy burden could be a constraint on the State’s finances. The 

financial position of the Utilities in 2004-05 shows cash losses to the tune of Rs 296 

crore even after receiving the subsidy. 

8.9.2 High Failure Rate of Distribution Transformers 

The failure rate of DTs in the MPSEB system has increased by 4.75 percentage points 

(from about 18.13 per cent in 2001-02 to 22.88% in 2004-05). The failure rate for the 

individual DISCOMs also reveals a similar trend with the failure rate as high as 22 per 

cent for Poorv Kshetra and 16 per cent for Paschim Kshetra. 

It is desirable that maintenance schedule and maintenance practices under the existing 

O&M practices should be reviewed. MPERC must rigorously monitor the standards 

of performance of DISCOMs to ensure requisite reliability and quality of power to the 

consumers. 

8.9.3 Efforts Needed to Improve Metering 

The DISCOMs must enhance action on the metering front. Besides poor metering 

status in the agricultural segment, the extent of metering in the domestic segment is 

merely around 81 per cent. As the consumer base is quite large, significant efforts 

would be required to install meters for all the service connections consumers. Further, 

checking/verifying the accuracy of the already installed meters of all categories of 

consumers must be ensured. 

Energy audit should be introduced on feeder/distribution transformer wise and 

accountability for energy handled and the corresponding revenues be fixed at all levels 

of the organisation. 

8.9.4 Need to Improve Collection Efficiency 

The collection efficiency in respect of DISCOMs is not up to the mark. While the 

revenue collection efficiency from sale of power to the agricultural consumers has 

decreased from 88 per cent in 2000-01 to as low as 21 per cent in 2004-05, it is 

equally bad for the domestic consumers, i.e., 95 per cent in 2000-01 to 79 per cent in 

2004-05. Besides these, the collection efficiencies for industrial and commercial 

categories are also declining. 

4.57



The DISCOMs must therefore enhance their enforcement initiatives by forming strong 

a legal task force to expedite such efforts. Adequate protection and empowerment 

should be provided to employees involved in detection of cases of malpractices, 

electricity theft, verification of consumer connections, etc. Adequate authority and 

responsibility should be assigned to employees to perform their task. 

8.9.5 AT&C Losses Reduction Targets 

The percentage of T&D losses from 1995-96 to 1998-99 have been shown to be in the 

range of 19 to 21 per cent and thereafter as 31.94 per cent in 1999-2000, 47.18 per 

cent in 2000-01 and further showing a very slow reducing trend (43.48 per cent in 

2004-05). The Commission, under the MYT framework, has set a loss reduction 

trajectory for the individual DISCOMs. While the target for 2005-06, as prescribed by 

the Commission, has been achieved by the Western and Central DISCOMs, the same 

has not been achieved by the Eastern DISCOM (a gap of 3.23 % is yet to be met). 

8.9.6 Generic Loans 

The DISCOMs are carrying a sizeable component of generic loan liabilities of the prereform 

period. Amounts of Rs 252 crore, Rs 494 crore and Rs 316 crore has been 

shown against the DISCOMs of Poorv Kshetra, Paschim Kshetra and Madhya Kshetra 

respectively. 

In regard to these generic loans shown in the opening balance sheet of DISCOMs, 

MPERC has said that unless full details are provided to it and it is proved that these 

loans have been utilised towards creating assets, the Commission will consider these 

as working capital loans and will allow interest to the extent of normative working 

capital requirements. Unless there is clear understanding about the rationale for these 

loan liabilities the legitimate claim for expenses, etc., of the DISCOMs may defy a 

practical solution. 

8.9.7 Promoting New Initiatives 

i) Distribution is the ultimate link in the power system and is nearest to the 

consumers. The security, reliability and quality of power supplied to consumers 

eminently rests with the state of the distribution system and its performance. One 

of the main important aims of the power sector reforms is to bring about visible 

improvements in terms of commercial viability, improved availability of power 

4.58


and rationalisation of tariff in the power sector. This has been aimed at by 

mobilising additional resources in the sector, promoting competition, adoption 

of IT in the power sector and harnessing its benefits by bringing transparency in 

the system, creating consumer-friendly atmosphere and making the sector 

consumer-oriented. The aim of the reform could be achieved by improving the 

technical and commercial performance of the distribution sector. Recently, 

efforts have been initiated by the Ministry of Power to improve the distribution 

sector that was neglected in the past and was exhibiting a poor performance. 

APDRP was launched which focussed attention specifically on strengthening and 

improvement of sub-transmission and distribution (ST&D) systems and its 

commercial health. There is a need to consider other strategies to achieve the 

above objective. 

ii) Involving the public at large in controlling electricity thefts through social 

awareness can further strengthen the reform process. The same can be 

implemented by providing discounts in the electricity bills of the consumers 

either on an area or feeder basis that helps the Utilities in controlling/eliminating 

electricity thefts. It would help in creating a better public consciousness about the 

need for cultivating social responsibility. Such a cultural change is extremely 

important for effectively addressing the menace of electricity thefts, which is the 

single largest factor responsible for overwhelming losses suffered by the 

Utilities, and thereby depriving the consumers of the benefits of lower tariffs. 

This may be done by the Utilities in consultation with the Electricity Regulatory 

Commissions or by suitable amendment to the National Tariff Policy. 

iii) Imperatives of gradualism in the approach as seen in some of the States should 

be reviewed. The consequences of gradualism have given a space to those who 

are opposed to reforms Effective strategy should be designed to counter the 

opposition to reforms. 

iv) The most significant lesson from the reform study is that power sector reform 

needs continued support from the Government both in terms of financial support 

and institutional and independent regulatory development. States like, Madhya 

Pradesh have committed financially for restructuring the power sector during the 

transition period to enable the Utilities to achieve a turnaround. The State should 

commit on the reform choices as regard competition, privatisation, etc. 

Discussion with the State Governments indicate that private sector participation 

is not a closed option but the more immediate concern is about the existing 

4.59



DISCOMs which in their present condition may not appear to be ideal for private 

sector participation. Alternative models for improving the financial and 

operational efficiencies, public-private partnership in network management 

activities, SCADA, DMS application, customer relation management (CRM), 

etc., may require consideration by the State Utilities. 

v) For distribution reforms to lead to appreciable/demonstrable impact in delivery 

of quality power supply, a road map for network upgradation and reliability of 

sub-transmission and distribution will have to be accorded high priority. This 

should be preceded by detailed study of the condition and problems of the 

network. 

vi) Meetings of the MDs and the key personnel’s of the distribution Utilities should 

be considered as an annual feature by the Ministry of Power. This may provide 

useful inputs from the different programmes undertaken by the Utilities for 

system improvement and improving the financial health of the Utilities and 

create an competitive environment. 

vii) Promotion of energy conservation measures, both from the Utility side as well as 

at utilisation end and promoting the use of energy efficient pumpsets in the 

agricultural sector and introducing tradable incentives such as interest subsidy on 

purchase of energy efficient pumpsets should also be considered. 

viii) To avoid the cascading effect of the power systems fault, measures to enhance 

grid security must be devised and separate funds should be earmarked for 

devising and implementing the appropriate islanding schemes for DISCOMs. 

Although this may not be right time to introduce the MoU mechanism for making 

them achieve the predetermined productivity and other efficiency targets, yet some 

steps are needed to promote competition among the DISCOMs. Unless some inter- 

DISCOM competition or incentives are built, there would be no pressure on them for 

under or poor performance. There would be no tangible benefits to consumers in terms 

of low prices or benefits. Utilities which are ready to introduce better pricing for 

certain categories of consumers such as industrial, commercial, etc., should be 

encouraged to do so. In this direction, a positive move by the MPERC to consider 

Differential Retail Supply Tariff (DRST) for DISCOMs was dropped as the State 

Government conveyed to the Commission its intention in its letter dated 7 March 2006 

“to have similar tariffs for various consumer categories in the foreseeable future”. It 

4.60


is felt that the intention to provide lower tariffs for domestic and agricultural 

consumers on socio-political grounds should not prevent the Commission to attempt 

“rebalancing” of tariffs to translate efficiency gains into better pricing for industrial 

and, commercial categories of consumers. 

9. Conclusions 

9.1 ESTABLISHED REGULATORY FRAMEWORK 

The above analysis and evaluation shows that the enabling environment for the power 

sector reform in the State is positive. The regulatory framework is fairly well 

developed and a number of initiatives of the Commission have ensured better cost of 

service recovery and prudent investments, Open Access, MYT, etc., are aimed at 

creating a predictable regulatory regime. 

9.2 SUPPORT FROM THE STATE GOVERNMENT 

There is a strong commitment of the State to continue the reforms and for that purpose 

the measures like financial support to the sector through FRP and setting up of the 

special courts for speedy trial of cases of electricity theft would contribute to the 

implementation of the reforms in the State. Proper Government and legislative support 

is in place to make the reforms a success. Relatively, the involvement of the 

DISCOMs which earlier functioned as franchisees of MPSEB will under go 

qualitative change with the full assumption of their responsibility and control as 

independent corporate entities under the direct over sight of MPERC. 

9.3 STRUCTURAL ISSUES 

There are structural issues relating to the role of MPSEB and TRADECO, which may 

create conflict of interests and impact on the autonomy of the Utilities. This needs to 

be addressed. Better understanding of the respective roles and responsibilities by the 

various organisations will provide conditions for the reforms to move in the positive 

direction. 

4.61



LIST OF OFFICIALS WITH WHOM DISCUSSIONS WERE HELD 

Shri Rakesh Sahni Chief Secretary (Government of MP) 

Shri Sanjay Bandopadhyaya Secretary Energy (Government of MP) 

Shri Mukul Dhariwal Dy. Secretary (Government of MP) 

Shri P.K. Mehrotra Chairman (MPERC) 

Shri Vivek Mishra Director (MPERC) 

Shri P.K. Vaishya Secretary (MPSEB) 

Shri R.K. Verma CMD, MPTransco 

Shri D.N. Prasad CMD, MPGenco 

Shri Ajit Kesari CMD, DISCOM Madhya Kshetra 

Shri Pramod Agarwal CMD, DISCOM Poorv Kshetra 

Shri Pankaj Agarwal CMD, DISCOM Paschim Kshetra 

Officers and Staff of 

DISCOM Madhya Kshetra 

4.62


Background ................................................................................................................5.1 

Imperatives of Reforms.............................................................................................5.1 

First Phase of Reforms ..............................................................................................5.2 

Second Phase of Reforms ..........................................................................................5.3 

Private Sector Participation in the Distribution Segment .....................................5.3 

Objectives of Reforms ...............................................................................................5.3 

Private Sector Participation in Generation.............................................................5.5 

Restructuring of GRIDCO........................................................................................5.6 

Chronology of Events of Power Sector Reforms in Orissa....................................5.7 

Assumptions That Went Wrong...............................................................................5.9 

Transfer of Assets ....................................................................................................5.11 

Central Electricity Supply Company of Orissa Limited (CESCO) ....................5.13 

Impact of Reforms on NESCO, WESCO and SOUTHCO..................................5.14 

Impact of Reform Approaches ...............................................................................5.16 

Performance of DISCOMs......................................................................................5.16 

Contributions and Achievements of DISCOMs....................................................5.17 

BST Bill, Collection And Payment To GRIDCO..................................................5.18 

Improvement in Performance of DISCOMs .........................................................5.19 

Surplus To GRIDCO/NTPC...................................................................................5.20 

Improvements in Technical Performance .............................................................5.21 

Feeder, Distribution Transformer and Consumer Metering ..............................5.21 

Quality of Service.....................................................................................................5.21 

Process Improvements.............................................................................................5.21 

Consumer Care Centres..........................................................................................5.22 

Recruitment..............................................................................................................5.22 

Views Of The State Government on IIPA Questionnaire....................................5.23 

Benefits of Power Sector Reforms..........................................................................5.24 

Stabilisation of GRIDCO ........................................................................................5.25 

Issues and Concerns Regarding Privatisation .....................................................5.27 

Action Taken on The Kanungo Committee Report..............................................5.29 

Reforms Process In Two States – Comparison between Delhi and Orissa ........5.31 

OERC and the DISCOMs .......................................................................................5.32 

Conclusions...............................................................................................................5.33 

Financial Performance of the Utilities ...................................................................5.36 

OERC’s Assessment ................................................................................................5.42

BACKGROUND 

ORISSA 

Orissa was the first State in the country to initiate reform in its electricity sector in a 

big way. For this purpose, the State received encouragement from the Government of 

India. The Orissa Electricity Reform Act, came into force on 1 April 1996. The 

principal objectives of the reform, were as under: 

(a) Restructuring of the electricity industry by bringing in improvements in 

generation, transmission, distribution and supply functions of electricity; 

(b) Development of the industry in an efficient, economical and competitive manner; 

(c) To provide avenues for participation of private parties and reduce dependence on 

Government funding in the electricity sector; 

(d) To improve the quality of service to the consumer; 

(e) To enhance operational efficiency and reduce losses; 

(f) To provide for a transparent mechanism for development and regulation of the 

industry, including tariff fixation and settlement of disputes, through an 

independent statutory body, the Orissa Electricity Regulatory Commission 

(OERC); 

(g) To contribute to economic growth of the State by ensuring better quality of 

electricity supply; and 

(h) To create opportunities for increasingly rewarding employment for technical 

personnel and provide a stable environment for career development in the 

electricity sector. 

The reform process was conceptualized and the road map for its implementation was 

drawn up after an elaborate exercise by taking support of reputed National and 

International consulting firms. 

IMPERATIVES OF REFORMS 

Reforms became imperative since the power sector in the State had become 

unsustainable due to various factors as mentioned below: 

(a) Vertically integrated monolithic structure of Orissa State Electricity Board 

(OSEB), which did not engender either efficiency or effectiveness; 

(b) Lack of commercial orientation; 

(c) Adverse capital structure;



(d) High transmission and distribution losses - both technical and commercial; 

(e) Non-remunerative tariffs; 

(f) Downward trend in industrial consumption and increase in domestic and 

agricultural consumption which entailed a high level of cross-subsidy; 

(g) Inadequate investment in generation, transmission and distribution sectors; 

(h) Widening demand-supply gap; 

(i) Inadequate maintenance of the existing generating stations and transmission and 

distribution network resulting in low plant load factor (PLF) of generating 

stations and poor reliability of transmission and distribution network; 

(j) Poor billing and collection; 

(k) Poor quality of service to the consumers; 

(l) Manpower related problems; and 

(m) Misuse of Section 78A of the Electricity (Supply) Act, 1948 which stipulated 

that the Government should provide policy directives to the State Electricity 

Boards (SEBs). 

Under the provisions of the Electricity (Supply) Act, 1948, the State Government had 

to ensure three per cent rate of return (ROR) on net fixed assets. OSEB was not able to 

achieve the same. The subsidy burden on the State Government increased from Rs 

14.00 crore in 1989-90 to Rs 257.62 crore in 1995-96, (the last year of OSEB). 

Although OSEB was incurring heavy losses, huge investments were necessary for 

creation of additional generating capacity to bridge the demand-supply gap. The State 

Government was not in a position to provide the requisite resources to meet the 

current as well as future demands of the power sector in the State. 

FIRST PHASE OF REFORMS 

In November 1993, a decision was taken by the State Government to reform and 

restructure the power sector in the State. The restructuring process contemplated the 

following actions on an emergent and time-bound basis: 

Restructuring By separation of generation, transmission and distribution functions of OSEB. 

Private sector Through private sector participation in electricity generation and distribution 

participation sectors 

Competition Through competitive bidding for new generation projects. 

5.2

Orissa 

Regulation By establishment of an independent State regulatory body, which would 

address the problems of the power sector. The State Government decided to 

distance itself from the power sector and confine itself only to broad policy 

issues. 

Tariff By tariff reforms at various levels 

The following steps, as envisaged under the reform and restructuring process, were 

taken: 

(1) OSEB was restructured and corporatised into Grid Corporation of Orissa 

(GRIDCO) and Orissa Hydro Power Corporation (OHPC) w.e.f. April 1996. 

(2) Orissa Electricity Regulatory Commission (OERC) was established in April 

1996 and became functional from 1 August 1996. 

(3) Orissa Power Generation Corporation (OPGC) was privatised with disinvestment 

of 49 per cent stake and the management control was transferred to a private 

sector company, M/s AES, in January 1999. 

SECOND PHASE OF REFORMS 

Private Sector Participation in the Distribution Segment 

Pursuant to the Orissa Electricity Reform (Transfer of Assets, Liabilities, Proceedings 

and Personnel of GRIDCO to Distribution Companies) Rules, 1998, the Government 

of Orissa transferred the distribution assets and properties along with personnel of 

GRIDCO to four DISCOMs w.e.f. 26 November 1998. These distribution companies 

namely CESCO, NESCO, WESCO and SOUTHCO continued to function as affiliates 

of GRIDCO up to 31 March 1999 and thereafter functioned under the distribution and 

retail supply license granted by OERC. 

OBJECTIVES OF REFORMS 

A. Operational Improvements 

(i) Improve the quality of service to the consumers; and 

(ii) Improve operational efficiencies and reduce losses. 

B. Financial Benefits Envisaged 

(i) Attract private investment in the distribution business; 

(ii) Reduce dependence on Government funding in the electricity sector; and 

(iii) Contribute to increased economic development of the State. 

5.3

C. Employees Considerations 



(i) Create secure, conducive and rewarding employment opportunities for 

qualified personnel; and 

(ii) Provide a better working environment for the employees. 

D. Private Sector Participation to Promote Competition in the Distribution 

Sector 

One of the alternatives considered towards achieving the objectives of power sector 

reforms was private sector participation in the electricity distribution segment. After 

considering various options available for private sector participation, GRIDCO 

decided to adopt the joint sector/joint venture route, which was considered to be the 

most suitable model. The following sequence was approved: 

• The four distribution zones, which were functioning under GRIDCO, would be 

converted into four distribution companies as its wholly owned subsidiaries at the 

first stage before the private sector participation is invited; 

• Private sector participation was accomplished in three stages: 

o Qualification of companies/consortia (November 1997 to June 1998); 

o RFP and lodgement of bids (July 1998 to November 1998); and 

o Negotiation and completion (Dec 1998 to September 1999). 

51 companies/consortia initially participated in the International Competitive Bidding 

(ICB). Of these, only 13 furnished their Statements of Qualification (SOQ). 11 

companies were pre-qualified by the GRIDCO Board, out of which four companies 

did not participate in the bidding process because of reasons like Asian Economic 

Crisis, Pokharan-II blast and perceived unviable business and regulatory risks. Four 

more companies also did not participate in the bidding process. Out of the remaining 

bidders, the following three were found to be technically qualified: 

• BSES (Now Reliance Energy Limited); 

• Singapore Power-Grasim Industries; and 

• TEC-Viridian. 

BSES was selected for the areas coming under WESCO, NESCO and SOUTHCO and 

the management was handed over to it w.e.f. 1 April 1999. As TEC-Viridian failed to 

honour its offer, the earnest money guarantee clause of Rs 5 crore was invoked by 

5.4

Orissa 

GRIDCO. Dispute raised by TEC-Viridian is pending in arbitration. AES-Jyoti 

Structure, the pre-qualified bidder was selected to manage CESCO through a process 

of negotiation and the management was handed over to the company w.e.f. 1 

September 1999. Thus, through a process of ICB, GRIDCO offered 51 per cent stake 

to private sector investors, retaining 39 per cent shareholding with it and 10 per cent 

share for the Employees Welfare Trust. 

It may be mentioned here that no sale of assets had actually taken place, and the assets 

have only been assigned to the respective companies. 51 per cent of the share capital 

of the distribution business has been sold at a premium to the private investors. As a 

result the following scenario emerged: 

(i) Thus four DISCOMs, initially incorporated as wholly owned subsidiaries of 

GRIDCO, came under the management control of private companies and 51 per 

cent stake was transferred of to them. Three of these, namely, NESCO, WESCO 

and SOUTHCO were acquired by BSES in April 1999 and the fourth, viz., 

CESCO by M/s AES in September 1999. 

(ii) Trading and transmission functions of GRIDCO have been separated w.e.f. 1 

April 2005, with GRIDCO looking after trading and Orissa Power Transmission 

Corporation Limited (OPTCL) looking after transmission functions. 

The new structure of the electricity sector that emerged in Orissa was as follows: 

(i) There are independent players like NTPC, OHPC, OPGC, IPPs and CPPs in the 

generation sector; 

(ii) GRIDCO purchased power under PPAs from the independent generators and 

supplied bulk-power to privatised DISCOMs at a bulk-supply price called BST, 

fixed by the OERC; and 

(iii) DISCOMs, viz., WESCO, NESCO, SOUTHCO and CESCO, under the 

management of private sector companies, came into existence. 

Private Sector Participation in Generation 

In January 1999, 49 per cent share capital of OPGC with 420 MW thermal generation 

capacity, having face value of Rs 240.21 crore (approximately), was sold to AES 

Trans Power along with management control at a cost of Rs 603.2 crore. Another 

State sector power generation concern, Talchar Thermal Power Station (TTPS), with 

an installed capacity of 460 MW was sold to NTPC in 1995. 

5.5



The entire generation of TTPS and OPGC is dedicated to the State of Orissa. After 

sale of 49 per cent shares of OPGC and sale of TTPS to NTPC, more power is 

available at a reasonable price to the electricity consumers in the State. 

The table below shows the profit levels of all three major constituents of the Orissa 

Power Sector: 

Accounting Profit/Loss 

Utility 

1996 

-97 

1997 

-98 

1998 

-99 

1999 

-00 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

(Rs crore) 

2004 

-05 

OPGC 104.6 66.15 112.8 124.39 109.88 132.22 181.70 136.23 143.39 

OHPC 69.85 77.79 55.21 50.38 -27.44 -.3.89 -41.92 6.17 64.08 

GRIDCO -294.99 -319.11 -578.61 13.73 -85.24 74.50 -598.08 417.77 357.38 

TOTAL -120.55 -175.17 -410.6 188.5 -6.53 202.83 -458.3 560.17 564.85 

Cash Profit/Loss 

Utility 

1996 

-97 

1997 

-98 

1998 

-99 

1999 

-00 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

(Rs crore) 

2004 

-05 

OPGC 144.96 147.31 195.68 208.97 194.68 215.91 264.93 194.95 202.28 

OHPC 114.26 122.06 99.93 100.19 65.92 92.69 -59.11 118.50 174.93 

GRIDCO -162.03 -177.45 -428.7 86.85 -4.91 112.44 -504.25 523.34 462.92 

TOTAL 97.18 91.92 -133.09 396.01 255.69 421.04 -298.43 836.79 840.13 

RESTRUCTURING OF GRIDCO 

Till 31 March 2005, GRIDCO continued to undertake: 

(i) Transmission and bulk supply activities in the State; 

(ii) Sale of energy outside the State; and 

(iii) State Load Despatch functions. 

Prior to enactment of the EA, 2003, GRIDCO was undertaking the unified business of 

transmission and bulk supply of electricity in the State based on the license granted by 

the OERC. GRIDCO was also undertaking the functions of State Load Despatch 

Centre (SLDC) and was notified as the STU under the provisions of the EA, 2003. 

The EA, 2003 has recognised trading in electricity as a distinct licensed activity that 

can only be undertaken by a licensee to be granted by the appropriate Commission. 

The Act specifically prohibits the STU/transmission licensees from engaging in 

trading of electricity. GRIDCO, being an STU, was not permitted to engage itself in 

the trading in electricity, i.e., purchase of electricity for resale and was required to 

segregate its activities in a manner that the entity (which will undertake transmission, 

5.6

Orissa 

STU and SLDC functions) will not undertake the activities of trading and bulk supply 

of electricity. 

Keeping in view the statutory requirement of the EA, 2003 for separation of trading 

and transmission functions into two separate entities, the State Government, on 27 

March 2004, incorporated the OPTCL as a wholly owned undertaking of the State 

Government to take over the transmission, STU and SLDC functions of GRIDCO. 

Subsequently, the State Government in exercising the power conferred under Sections 

39, 131, 133 and 134 of the EA, 2003, read with Sections 23 and 24 of Orissa 

Electricity Reform Act, 1995, issued the Notification on 9 June 2005 “The Orissa 

Electricity Reforms (Transfer of Transmission and Related Activities) Scheme, 2005” 

for the purpose of transfer and vesting of the transmission undertakings of GRIDCO 

with OPTCL. By virtue of this Notification, the transmission undertaking, assets, 

liabilities, properties, personnel including the assets of SLDC and sub-LDCs were 

transferred and vested in the OPTCL. OPTCL has also been declared as the STU and 

is also discharging the functions of SLDC. GRIDCO continues to undertake bulk 

supply and trading functions. 

CHRONOLOGY OF EVENTS OF POWER SECTOR REFORMS IN ORISSA 

April 1992 Government of Orissa, OSEB and the World Bank discussed the problems 

of Orissa Power Sector and their possible solutions. 

November 1993 Government of Orissa and OSEB agreed upon a Power Sector Reform 

programme. The programme envisaged substantial private sector 

participation and separation of the power utilities from Government 

control. 

January 1994 M/s ECC engaged for a review of the reform proposals put forth for 

Orissa’s power sector. 

March 1994 The Steering Committee (chaired by the Chief Secretary) and Task Force 

(chaired by the Secretary Energy) for Power Sector Reform are constituted 

through a Government of Orissa Resolution. 

May 1994 KPMG begins Financial and Management consulting work on the reform 

project. 

July 1994 Nine Working Groups constituted for implementation of the reform 

programme. 

June 1995 The Working Group Reports finalised. The nine Working Groups merged 

and seven Working Groups created. The work is internalised in OSEB. 

5.7

Nov. 1995 The Orissa Electricity Reform Act, 1995 passed. 



3 January 1996 The Orissa Electricity Reform Act, 1995 assented by the President of 

India. 

March 1996 The State Government notified 1 April 1996 as the date on which the 

Orissa Electricity Reform Act, 1995 shall come into force. 

1 April 1996 OSEB split into GRIDCO and OHPC. GRIDCO takes over the 

transmission and distribution and OHPC takes over the hydel generation 

business of OSEB. 

July 1996 Orissa Electricity Regulatory Commission constituted. 

19 November 1997 GRIDCO divided its distribution functions into four geographical zones, 

namely, Western Zone, Northern Zone, Southern Zone and Central Zone. 

GRIDCO incorporated four wholly-owned subsidiaries namely, WESCO, 

NESCO, SOUTHCO and CESCO under the Companies Act, 1956. 

28 November 1997 The process of private sector participation in distribution segment initiated 

with the issue of press advertisements inviting Request for Qualification 

(RFQ) regarding disinvestment of 51 per cent equity share capital held by 

GRIDCO in the distribution companies. 

February to 

November 1998 

• 54 companies purchased RFQ from GRIDCO 

• 13 companies/consortium submitted Statements of Qualification 

• 11 companies/consortium qualified to participate in the privatisation 

process 

• Due diligence process completed. 

26 November 1998 Section 23 of the Orissa Electricity Reform Act amended, empowering the 

State Government to notify the Transfer Scheme to transfer and vest in a 

subsidiary company of GRIDCO, any undertaking or part thereof 

comprising property, interest in property, rights and liabilities and 

personnel, etc., on such terms and conditions as may be specified in the 

Transfer Scheme. Pursuant to the above, Orissa Electricity Reform 

(Transfer of Assets, Liabilities, Proceedings and Personnel of GRIDCO to 

Distribution Companies) Rules, 1998 notified by the State Government. 

14 January 1999 Three companies/Consortium submitted their Technical and Financial bids 

namely BSES Ltd., TEC-Viridian Consortium and Singapore-Grasim 

Industries Consortium. 

27 March 1999 State Government accepted the recommendation of the Board of GRIDCO 

and conveyed its approval for the disinvestments of equity in distribution 

companies. 

5.8

Orissa 

31 March 1999 BSES signed Shareholders Agreement and Share Acquisition Agreement. 

1 April 1999 The management of the three companies was handed over to BSES. 

1 September 1999 GRIDCO disinvested 51 per cent of its equity held in CESCO in favour of 

the consortium led by M/s AES Corporation, USA, after obtaining 

approval of the State Government. The management of CESCO handed 

over to AES. 

29 March 2004 A new public Limited company under the name and style “Orissa Power 

Transmission Corporation Limited” (OPTCL) was incorporated to carry 

on the business of transmission, STU and SLDC functions of GRIDCO. 

31 March 2004 The new company obtained the Certificate for Commencement of 

business, which entitles the company to carry on any business. 

1 April 2005 OPTCL became functional. GRIDCO continue to carry on the bulk supply 

and trading functions. 

ASSUMPTIONS THAT WENT WRONG: HOW THESE AFFECTED GRIDCO 

ADVERSELY 

The Staff Appraisal Report (SAR) of April 1996 estimated the T&D losses in the State 

at 39.5 per cent, which was to be brought down to 24.3 per cent by 1998-99. 

Accordingly, the financial projection was made which estimated that GRIDCO would 

break even during the financial year 1997-98. The real magnitude of the distribution 

losses, which were about 50 per cent was not known at that time. Based on the SAR 

and in the absence of reliable data based on the detailed studies, OERC in its First 

Tariff Order (effective from 1 April 1997) directed that the losses be brought down to 

35 per cent at the end of the year 1997-98. This was a very difficult target. 

During November 1994, the final executive project summary prepared by the World 

Bank had anticipated that while the assets and liabilities of OSEB would have to be 

transferred to the new entities, not all liabilities could be transferred, as it would 

burden the newly established Corporation with the same kind of liquidity crunch that 

OSEB had faced. At that point of time, it was hoped that a restructuring loan on soft 

terms would be available to GRIDCO to meet the urgent overdue liabilities to 

suppliers and contractors, which did not materialise. 

The SAR had assumed load growth of 11.4 per cent in 1997-98, 16.7 per cent in 1998- 

99 and 9.2 per cent in 1999-2000 but in actual practice, it turned out to be 

substantially less. The SAR did not anticipate the industrial recession in the last few 

years, which led to a lower industrial load than, was projected. The preference for 

5.9



captive generation on the part of EHT consumers in the context of rising tariff was 

also not anticipated in the SAR. 

The SAR had not anticipated that in order to make the DISCOMs attractive to the 

private investors, GRIDCO would have to retain in its own books about three times 

the quantum of liabilities passed on to the four DISCOMs. In order to make the 

distribution business attractive to private investors, only around Rs 650 crore of total 

liabilities were passed on to the four DISCOMs while GRIDCO, the transmission 

company, retained Rs 1,950 crore of liability in its own books as all the DISCOMs 

were loss-making undertakings. 

The SAR had assumed a 16 per cent Return on Equity (ROE), OERC in two of its 

tariff orders, issued in respect of GRIDCO, had indicated that unless the losses are 

brought down to 35 per cent, there would not be any question of ROE. OERC allowed 

T&D loss at 35 per cent, which resulted in a tariff lower than the requirement, in view 

of the higher T&D losses prevailing during the same period as mentioned above. 

The SAR had assumed an average increase in tariff of 16 per cent in 1996-97 and 18 

per cent in 1997-98. This also did not materialise. Inadequate cost recovery, because 

of lower tariff than the one projected, has affected the financial performance of 

GRIDCO from its inception. 

The increasing cost of power did not match the retail tariff realised. The cost of power 

purchased from OHPC was much more compared to its cost during the OSEB period. 

The power purchase cost accounts for nearly 70 per cent of the total expenditure of 

GRIDCO. 

There has been a heavy industrial recession in Orissa due to which industrial 

consumption has gone down, leading to increase in financial loss levels which has 

been responsible for higher cash deficits of DISCOMs and in turn of GRIDCO, 

although there is substantial improvement in collection of revenue in the LT sector. 

The drop in HT and EHT consumption, coupled with an increase in LT consumption 

(the segment which pays less than the cost of supply), has also aggravated the losses 

in GRIDCO. On the collection front, the assumption in the SAR was that 100 per cent 

of the amount billed would be collected from the year 1997-98 onwards but even by 

end of 1998-99, the collection was only about 83 per cent of the amount billed. 

With the disinvestments of Government shareholding in OPGC, the private sector 

company M/s AES insisted on the liquidation of GRIDCO's entire dues to OPGC as a 

5.10

Orissa 

pre-condition for the deal. GRIDCO had to liquidate the entire loan and also make an 

escrow arrangement for payment of the current dues in full. 

Adjustment of Rs 343 crore by Government of Orissa while vesting the transmission 

and distribution assets in GRIDCO severely affected its liquidity position. This 

amount was payable by the State Government to OSEB/GRIDCO as subsidy (Rs 301 

crore) and energy charges (Rs 42 crore) due from Government Departments. 

GRIDCO continued to carry out un-remunerative activities such as rural electrification 

work on behalf of the Government of Orissa without any subsidy support from the 

Government, either capital or revenue. 

DISCOMs did not agree to take over the dues receivable from State PSUs and State 

Government Departments towards power supply and the same were retained with 

GRIDCO. GRIDCO is yet to receive the dues. 

TRANSFER OF ASSETS 

Restructuring was done in two steps through the instrumentality of Transfer Schemes 

framed under the Orissa Electricity Reform Act, 1995. Under the first Transfer 

Scheme (effective from 1 April 1996) the assets, liabilities, proceedings and personnel 

of the erstwhile OSEB were transferred to OHPC (for hydel generation), and 

GRIDCO (transmission and distribution). The second Transfer Scheme (effective 

from November, 1998) further transferred the distribution related assets, liabilities, 

proceedings and personnel of GRIDCO to four wholly owned companies of GRIDCO. 

Details of Revaluation done in Transfer Scheme dated 1 April 1996 

(Rs crore) 

Book value of T&D assets 1103.2 

Interest and expense capitalised 97.5 

Total 1200.7 

Uplift in value of assets 1120.0 

Total 2320.7 

Depreciation 363.0 

Net fixed assets of GRIDCO as on 1 April 1996 1957.7 

Total Revaluation 

Uplift in assets 1120.0 

Further adjustment 74.0 

Total 1194.0 

Adjustment 

Subsidy due to OSEB 301.2 

Electricity charges receivable from Government 39.2 

Reduction in O&M stock 50.6 

Total (A) 391.0 

5.11



Fresh equity to State Government 253.0 

Zero coupon bond to State Government 400.0 

Bonds issued to Pension Fund 150.0 

Total (B) 803.0 

Total (A+B) 1194.0 

Restructuring exercise involved certain measures, which cast a heavy strain on the 

finances of GRIDCO. 

Under the Transfer Scheme of April 1996, the State Government took over the 

transmission and distribution assets of OSEB (book value plus capitalised expenses 

and interest at Rs 1,200 crore) and re-vested them in GRIDCO after up-valuing by an 

additional Rs 1,194 crore, the State Government “adjusted” the subsidies and 

electricity charges payable to OSEB/GRIDCO totaling Rs 340 crore. In addition, 

GRIDCO issued Rs 253 crore worth of shares and Rs 400 crore worth zero coupon 

bonds to the State Government. This left GRIDCO with a serious cash shortage right 

from day one and compelled it to default to the generating companies and other 

suppliers. In addition, Rs 1,146 crore of loan and liabilities were also assigned to 

GRIDCO. 

The up-valuation exercise was prompted by considerations including the need to have 

a capital base capable of absorbing substantial debt funds needed for the upgradation 

of the T&D system and the requirement of having a self-financing ratio of 20 per cent 

and an adequate debt-equity ratio as per the conditions of FIs. It was also felt that the 

assets should be valued on the basis of their business potential and replacement value, 

not their book value. The revaluation exercise also enabled the cash strapped State 

Government to "adjust" dues totaling Rs 340 crore payable to OSEB/GRIDCO against 

the up-valued amount. 

The impact of revaluation of assets on the DISCOMs has been lower than that on 

GRIDCO as they were allocated only project specific liabilities totaling Rs 630 crore 

for all four DISCOMs put together, while GRIDCO retained in its books liabilities 

(including accumulated losses) totaling about Rs 1,950 crore. While the assets were 

up-valued, there was no such up-valuation of the liabilities. Besides, as stated earlier, 

the DISCOMs were assigned only project related liabilities. The only component of 

the assets up-valuation, which has a bearing on tariff is depreciation, which stood at 

Rs 81.69 crore in 1996-97 on the eve of the up-valuation and was pegged at Rs 128.02 

crore for 1998-99 by OERC in their tariff order effective from 1 April 1997. 

5.12

Orissa 

The difference of Rs 46.33 crore (Rs 128.02 crore - Rs 81.69 crore) in the depreciation 

(which also included depreciation of assets created during 1997-98) formed only 3.2 

per cent of GRIDCO's total revenue requirement of Rs 1,451 crore allowed by OERC. 

Hence the impact of up-valuation on distribution tariff has been estimated to be only 

about 2.5 per cent. Further, it must be emphasised that it is not the up-valuation 

exercise per-se that resulted in GRIDCO's cash crunch, the cause is rather the 

‘adjustment’ of the totality of its receivables from the State Government (about Rs 

340 crore) right from the inception. 

CENTRAL ELECTRICITY SUPPLY COMPANY OF ORISSA LIMITED 

While AES was acquiring CESCO, it was assured that GRIDCO would allow CESCO 

cash accommodation up to Rs 174 crore. This amount, along with interest, was to be 

repaid after 1 September 2002. There was a dispute between M/s AES and the State 

Government over financing the required working capital over and above this amount. 

AES provided Letter of Comfort to GRIDCO promising assistance to the CESCO 

management in raising funds for working capital, which never happened. GRIDCO 

took CESCO to court for violation of escrow arrangements as, instead of paying fully 

for the bulk supply bill, CESCO was diverting part of the money for payment of 

salaries. OERC intervened and directed CESCO to do its job of distribution properly. 

In July 2001, AES sought GRIDCO's permission to sell its stake in CESCO to a third 

party or to GRIDCO. However, this was against the shareholders’ agreement, which 

provided for a lock-in-period of five years ending on 31 March 2004. CESCO's overdues 

to GRIDCO have reached Rs 577 crore including the initial cash accommodation 

of Rs 174 crore. AES management abandoned its responsibility from CESCO and 

disappeared. OERC appointed an Administrator to run CESCO. Similar arrangement 

continues till date. OERC is trying to induct a new management and is hopeful of 

succeeding. 

CESCO’s peak load is of the order of 676.22 MW. There is no power shortage. 

Therefore, no load shedding is resorted to. Energy requirement is around 4000 MU on 

an average per year. There were 20 cases of power failure in 2004-05 with an average 

restoration time of 12 hours. Average number of interruptions per month was five. 

There were 182 cases of distribution transformer failure with an average restoration 

time of four hours in the urban areas and 24 hours in the rural areas. 

Distribution loss was of the order of 41.49 per cent in 2004-05. The progress of 

metering till the end of 2004-05 was as under: 

• 100 per cent in respect of industrial consumers and commercial HT consumers; 

5.13



• 95 per cent in case of commercial LT consumers; 86 per cent in case of domestic 

consumers; and 

• 38 per cent in case of agricultural consumers. 

The company has not made any estimate of the revenue loss on account of theft or 

commercial and technical losses. However, in 2004-05, 3,721 raids were conducted 

and penalty amount of Rs 4.353 crore was collected. 

IMPACT OF REFORMS ON NESCO, WESCO AND SOUTHCO 

The three DISCOMs, i.e., NECSO, WESCO and SOUTHCO, are owned by Reliance 

Energy Limited (REL) 

Brief Profile of DISCOMs 

Particulars NESCO WESCO SOUTHCO 

Area covered (sq. km) 28,000 48,000 47,000 

Population (Lakh) 91.8 94 87.1 

Consumer (Lakh) 4.44 4.66 4.4 

Primary sub-station (No.) 104 108 115 

Distribution sub-station (No.) 10,678 10,744 9,046 

33 kV line (ckt km) 1,833 2,673.5 2,822.32 

11 kV line (ckt km) 11,256 15,560 12,330.87 

No. of employees 3,918 5,014 3,959 

Management of DISCOMs 

• Three DISCOMs commenced operations from 1 April 1999 with the requisite 

distribution Licenses from OERC. 

• 51 per cent of equity share capital of each DISCOM is held by REL (formerly 

BSES Limited) and its associate companies. 

• Each DISCOM is managed by a Board of Directors as per the following 

compositions: 

Nominees of REL and its associates 5 

Nominees of GRIDCO 3 

Total 8 

• Chairman (non-executive) of each DISCOM is nominated by GRIDCO. CMD, 

GRIDCO, is the Chairman of all the three DISCOMs. 

• CEO/MDs are nominated by REL, Mumbai. 

Power Sector Scenario Prior to Reform 

• Weak technical/network system; 

5.14

Orissa 

• Very high T&D losses: 44 per cent as against declared value of 32 per cent; 

• Commercial inefficiency: which resulted in accumulating unrealistic receivables 

on the books; 

• AT&C losses: around 55 per cent; 

• Lack of commercial orientation; 

• Manual accounting system and lack of control and checks on billing hardware 

and software; and 

• Unreliable power supply and lack of consumer services support. 

• Subsidy/grant from Government of Orissa amounting to Rs 250 crore (in 1996). 

All these resulted in huge revenue losses to OSEB. 

Post-Reform Difficulties Faced 

• Up-valuation of assets by over Rs 2,000 crore (128 per cent) resulted in increase 

in BST by 24 paise per unit (cumulative financial impact Rs 590 crore); 

• Unrealistic determination of distribution loss level targets in retail tariff 

structuring. Retail tariff set at 32 per cent distribution loss level against actual 

loss level of 42 per cent (cumulative financial impact Rs 358 crore); 

• Non-recognition of collection efficiency. Retail tariff set at conventional 

distribution loss level target without considering collection efficiency component 

(i.e., the AT&C Loss concept); 

• Retail tariff set with negative clear profit for consecutive seven years, which 

resulted in financial sickness of DISCOMs; 

• Billing to ghost consumers and bogus receivables; 

• Excess manpower and inadequate qualified staff; 

• The State Government withdrew subsidy support to the DISCOMs.The support 

was to the tune of Rs 250 crore per annum; 

• Non-payment of outstanding dues (amounting to over Rs 170 crore) by 

Government departments/PSUs; 

• Delay in receipt of the World Bank fund aggregating Rs 326 crore. This led to 

non-achievement of desired result for reduction in technical losses; 

• Delay in receipt of funds under Accelerated Power Development and Reforms 

Programme (APDRP) for capex; 

5.15



• Stringent escrow mechanism, which resulted in poor maintenance of network. As 

a result, quality of power supplied to consumers was adversely affected; 

• Non-existence of special courts as envisaged in the EA, 2003; 

• No retail tariff hike for the last six years, which resulted in absorbing the 

inflation and other rise in the costs of DISCOMs. There is always paucity of 

funds with the DISCOMs for expenditure on O&M of the distribution system; 

and 

• DISCOMs are operating in an extremely negative business environment. 

IMPACT OF REFORM APPROACHES 

Performance of DISCOMs 

Performance of WESCO 

Parameters 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

Energy input (MU) 2,688 2,868 2,979 3,354 3,789 4,003 

Energy billed (MU) 1,501 1,639 1,596 2,069 2,408 2,530 

Billing (Rs crore) 417 467 509 620 674 712 

Collection (Rs crore) 348 364 400 527 582 679 

Collection efficiency (%) 83 78 9 85 86 95 

T&D loss (%) 44 43 46 38 36 37 

AT&C loss (%) 53 55 58 48 45 40 

Performance of NESCO 

Parameters 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 


Energy billed (MU) 1,270 1,357 1,128 1,405 1,491 1,874 




T&D loss (%) 44 44 51 41 44 37 

AT&C loss (%) 61 55 64 52 47 39 

Performance of SOUTHCO 

Parameters 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 


Energy billed (MU) 833 875 906 947 925 960 




T&D loss (%) 42 43 40 39 42 40 

AT&C loss (%) 55 54 53 50 50 45 

5.16

Orissa 

Savings of Government of Orissa after Restructuring of OSEB 

Description Rs crore 

Sale proceeds from sale of: 1,118 

(a) TTPS to NTPC (includes benefits of revaluation) 356 

(b) 49 per cent equity divestment in OPGC to AES 603 

(c) 51 per cent equity divestment in four DISCOMs to the 159 

private sector 

Savings in subsidy support 4,430 

Electricity Duty/Inspection Fees 927 

Dividend from OPGC 441 

Total 6,916 

Besides the above, Government of Orissa has been benefited by Rs 2,000 crore by upvaluation 

of GRIDCO and OHPC assets, thereby resulting in total saving of around Rs 

8,916 crore after privatisation of DISCOMs. 

Assessment of performance of DISCOMs by OERC is at Annexures-I to III. 

CONTRIBUTIONS AND ACHIEVEMENTS OF DISCOMS 

• Streamlined billing function; 

• Installed more than 6.5 lakh consumer meters; 

• Appointed franchisee for collection of revenue from rural areas; 

• Formation of squads for collection of outstanding dues from consumers and for 

de-hooking the unauthorised connections; 

• Re-structuring and re-organisation of circles, divisions, sub-divisions for 

effective monitoring and enhancing efficiency; 

• Introduced spot billing; 

• Enhanced vigilance activities; 

• Installation of meter cubicles, XLPE cables and check meters to curb theft in HT 

category and appointment of security guards for vigilance; 

• Full payment of BST bills since April 2002 and payment through letter of credit 

(L/C) since January 2004; 

• Payment of salaries, O&M expenses and ad-hoc instalment payment of Rs 110 

crore to NTPC by WESCO, NESCO and SOUTHCO. Besides, three DISCOMs 

made ad-hoc payment of Rs 130 crore to GRIDCO against the past outstanding 

dues; 

• Meter reading through meter reading instrument (MRI); 

5.17



• Strengthened manpower by inducting personnel in technical, finance, 

commercial and HR disciplines; 

• Better consumer services through creation of Bijli Adalats/Grievance Redressal 

Forum; and 

• Collection of three DISCOMs has increased from Rs 760 crore in 1999-2000 to 

Rs 1,560 crore in 2005-06. 

BST Bill, Collection and Payment to GRIDCO 

5.18 

(Rs crore) 

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

COLLECTION 

WESCO 348 364 400 526 582 679 

NESCO 244 276 228 310 356 451 

SOUTHCO 168 190 206 227 242 268 

Total 760 830 833 

BST BILL 

1,064 1,180 1,398 

WESCO 346 402 424 453 509 543 

NESCO 286 295 320 298 330 363 

SOUTHCO 182 189 198 194 201 202 

Total 814 886 942 945 1,040 1,108 

BST payment 

Payments 576 808 710 932 1036 1137 

Payment as % 

of BST bill 

71 91 75 99 100 103 

FEEDER AND DISTRIBUTION TRANSFORMER METERING 

Particulars To be 

installed 

Installed till 

March 2005 

No. of Meters 

Balance to 

be installed 

Installed 

during 

2005-06 

Balance to 

be 

installed 

WESCO 

33 kV feeders 87 87 

11 kV feeders 417 417 - - 

Distribution transformers 12,975 11,631 1,344 537 807 

NESCO 

33 kV feeders 52 50 2 2 - 

11 kV feeders 393 380 13 13 - 

Distribution transformers 12,199 11,225 974 226 748 

SOUTHCO 

33 kV feeders 159 55 104 84 20 

11 kV feeders 416 404 12 12 - 

Distribution transformers 9,302 8,662 444 331 113

Orissa 

ISSUES 

• In the interest of consumers of the State, the Government of Orissa should come 

forward to accept the one time settlement (OTS) scheme of Government of India 

as recommended by Ahluwalia Committee for conversion of Rs 400 crore bonds 

issued in favour of NTPC. The interest rate will be reduced from 12.5 to 8.5 per 

cent and incentive of Rs 83 crore could be received from NTPC. Apart from the 

above, there will be a longer period of repayment of the said loan, which will 

improve the present financial liquidity. OERC is also recommending time and 

again for the same. As DISCOMs are ready to pay upfront the equivalent amount 

in cash by availing loan from banks, Government of Orissa as well as GRIDCO 

should agree on the terms and conditions put by the bank. If it will not be 

accepted, there will be requirement of tariff hike of 21 paise per unit, which can 

be avoided without any burden to the consumers of the State. 

• APDRP Cash Incentive component to the tune of Rs 52 crore to be passed on to 

DISCOMs. 

• Securitisation of outstanding dues of GRIDCO (BST and outstanding loan), 

which is already reconciled with GRIDCO with practicable moratorium and 

repayment period. 

• Continuation of 30 per cent grant under World Bank Loan in line with the 

Government of Orissa notification and the interest to be charged on the loan 

portion at the rate at which the State Government received from Government of 

India. 

• Establishment of special courts for speedy disposal of the electricity theft cases. 

As law and order are the duties of the State, Government of Orissa should bear 

the cost of establishment and operation of such courts and police stations. 

IMPROVEMENT IN PERFORMANCE OF DISCOMS 

Reduction in AT&C Losses 

The DISCOMs have substantially reduced AT&C losses through various measures. a. 

Details of reduction of AT&C losses achieved by the three DISCOMs are as follows: 

5.19



DISCOM 2002-03 2003-04 2004-05 2005-06 

2006-07 

(Estimated) 

Reduction 

(%age points) 

WESCO 57 47 46 41 40 17 

NESCO 64 51 49 41 38 26 

SOUTHCO 54 50 50 46 45 11 

Improvement in Cash Collection vis-à-vis BST Bill 

The three DISCOMs substantially improved the cash collection from Rs 760 crore in 

FY 1999-2000 to Rs 1,410 crore in 2004-05. The details of cash collection vis-à-vis 

BST bills of last six years are given below: 

(Rs crore) 

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 

2006-07 

(Estimated) 

COLLECTIONS 

Total 760 830 834 

BST BILLS 

1,063 1,180 1,410 1,560 

TOTAL 814 886 942 945 1,040 1,100 1,180 

BST payment 576 808 710 932 1,040 1,137 1,277 

Payment as % 

71 91 75 99 100 103 108 

of BST bill 

Surplus over 

BST 

Establishment of Letter of Credit 

5.20 

131 140 273 283 

Since January 2004, three DISCOMs are making payment of bulk supply energy bills 

to GRIDCO through LC. These DISCOMs have established irrevocable LC of Rs 

98.50 crore for payment of full bulk supply energy bills to GRIDCO. 

Surplus to GRIDCO/NTPC 

(a) The three DISCOMs together made a payment of Rs 111 crore to 

GRIDCO/NTPC against the Bonds in the last 20 months. 

(b) In addition to the above, the three DISCOMs made ad-hoc payment of Rs 130 

crore to GRIDCO against the past outstanding dues. 

(c) After meeting all the escrowed commitments, DISCOMs are incurring necessary 

operation and maintenance expenses for maintenance of distribution network 

besides paying salary to more than 12,000 employees on time. 

This speaks of a substantial improvement in quality and supply of power.

Orissa 

Improvements in Technical Performance 

Feeder, Distribution Transformer and Consumer Metering 

In order to reduce distribution losses and to control theft of electricity, the three 

DISCOMs together installed over 1,400 feeder meters and over 31,000 distribution 

transformer meters. This has enabled the DISCOMs to take up energy audit. 

Consumer metering 

Prior to 1999, i.e., before privatisation of the distribution sector in Orissa, more than 

70 per cent of the households were either having defective meters or no meters at all. 

The billing was done based on the load factor basis. Immediately after taking over the 

distribution function, the three DISCOMs introduced a meter installation drive and 

installed over 6.5 lakh consumer meters. 

This has helped DISCOMs to improve billing and collection and bring about a 

reduction in AT&C losses. 

Quality of Service 

The quality of service and customer care has considerably improved since power 

sector reforms were initiated. This is clear from the table given below: 

5.21 

Pre-reform Post-reform 

Distribution transformer failure rate (%) 24 9 

Consumer redressal rate (%) 75 95 

Time taken for release of new service 

connection 

60 days 7 days 

Centre for Multi Disciplinary Research (CMDR) has also confirmed the above 

findings. 

Process Improvements 

The DISCOMs have initiated several business process improvement initiatives 

covering all aspects of the revenue cycle. 

Organisational Restructuring: The DISCOMs have reorganised circles, divisions and 

sub-divisions for effective monitoring and enhancing efficiency. A pilot project on 

feeder management concept is being carried out in one division having predominantly 

LT consumers.



Meter Reading and Spot Billing: The DISCOMs have introduced reading of 

consumer meters through meter reading instrument (MRI) and initiated spot billing in 

some of the divisions. On account of this initiative, billing errors have been 

substantially reduced and consumer reach has also been increased. 

Installation of Metering Cubicles, Check Meters and XPLE Cables: The three 

DISCOMs together installed over 500 metering cubicles at the premises of the 

industrial consumers along with check meter, XLPE cables and automatic meter 

reading (AMR) to arrest theft of power. Large scale meter checking, installation of 

metering cubicles, AMRs and audit metering have helped to reduce the losses 

significantly. To control and deter theft of electricity, the DISCOMs are providing 

watch and ward services at metering installations in theft prone areas. 

Consumer Care Centres 

For speedy redressal of consumer grievances, DISCOMs have taken several 

initiatives.. WESCO and SOUTHCO have established consumer care centres while 

NESCO has set up mobile fuse call centres in four divisions. Three DISCOMs have 

created Grievance Redressal Forums for quick redressal of consumer grievances. 

Recruitment 

Perhaps in the whole of Orissa, the three DISCOMs were the largest recruiters in 

2005-06. The DISCOMs have strengthened manpower by inducting personnel in 

technical, finance, commercial and HR disciplines. Around 1,550 personnel including 

1,400 GET/DET/ITIs have been recruited for revenue improvement initiatives and 

maintenance of the network system. In addition, the three DISCOMs together 

outsourced various activities for performance improvement. Besides these measures, 

employees are also sponsored on a regular basis to in-house training institute at 

Mumbai and ASCI, Hyderabad. 

5.22

Orissa 

VIEWS OF THE STATE GOVERNMENT ON IIPA QUESTIONNAIRE 

1. The main drivers of power sector reforms in order of priority are as follows: 

(i) Inability of State sector to finance needed expansion/modernisation. 

(ii) Poor performance of SEB in terms of high cost, inappropriate pricing, 

inadequate expansion, unreliable power supply, etc. 

(iii) Need to remove subsidies to the sector in order to release the State’s 

resources for other priorities. 

(iv) Attract private sector participation in the sector. 

2. The desired outcomes and deliverables of the reforms (in order of priority) are as 

follows: 

(i) Better service quality for consumers. 

(ii) More affordable access to electricity for consumers. 

(iii) Improvement in the Government’s fiscal position. 

(iv) Redefining the role of public sector. 

3. The financial restructuring implemented through valuation of assets and their 

transfer to new entities like GRIDCO and OHPC through enactment made by the 

State Government. However, in case of privatisation of distribution system it was 

transferred through transfer scheme, to bidders selected through competitive 

bidding. 

4. The existing liabilities of OSEB were settled through transfer of the same to the 

books of the new entities. 

5. Details of Government support 

(a) Equity - Rs 793 crore (GRIDCO Rs 493 crore + OHPC Rs 300 crore) 

(b) Guarantee - About Rs 1,700 crore to GRIDCO and OPTCL. 

(c) Subsidy - Nil 

(d) Loans - Rs 704 crore (GRIDCO, Rs 180 crore - OHPC, Rs 524 crore) 

(e) APDRP incentive component - Nil 

(f) Any other firm support - State Government have issued bonds to the extent 

of Rs 1,102.87 crore to NTPC towards power purchase cost of GRIDCO. 

5.23



6. The State is surplus in power and there is no statutory power cut in the State 

since 1993. 

There has been no tariff hike since 2001. 

BENEFITS OF POWER SECTOR REFORMS 

(Comments of the Member of the ‘Group of Experts’ are given in bold letters 

within brackets) 

(i) Consequent to power sector reforms, T&D losses have been brought down from 

50.6 per cent in 1995-96 to about 41.4 per cent in 2004-05. 

(ii) Tariff is determined by an independent agency, namely Orissa Electricity 

Regulatory Commission after a process of public hearing. Although there was 

some increase in retail tariff in the initial years of reform, this was much less 

compared to the tariff hike in pre-reform period. There has been no revision in 

retail tariff since 1 February 2001. The tariff in Orissa is one of the lowest in the 

country. 

(iii) The power deficit scenario in the State has been transformed to a power surplus 

one during the post reform period. Orissa is now selling power to States like 

Haryana, Rajasthan, Gujarat, Maharashtra, Chhattisgarh, Punjab, etc., through 

PTC and NTPC Vidyut Vyapar Nigam. 

(iv) Each year, the State Government was providing huge subsidy to OSEB prior to 

Reform. This has been stopped since 1 April 1996. 

(v) As a result of reform, the State power Utilities could mobilise resources from 

financial institutions for investment in power sector. Upper Indravati Hydro 

Electric Project with a capacity of 600 MW was commissioned in 1999-2000 

after the reform was undertaken with loan assistance from PFC. 

(vi) The three DISCOMs, namely WESCO, NESCO and SOUTHCO are able to pay 

monthly BST in full for the last three years. The fourth DISCOM, namely 

CESCO, is paying the monthly BST in full from April 2005 onwards. 

(But the first three companies are taking escrow relaxation from GRIDCO 

for payment of salaries. In other words, GRIDCO has been paying salaries 

to 75,000 employees.) 

(vii) Disinvestment of 49 per cent of Government share in OPGC has unlocked a 

substantial amount of funds, which could be utilised for development in other 

sectors. 

5.24

Orissa 

(This amount should have been invested in the power sector.) 

(viii) OPGC, being exclusively in charge of thermal generation, has been consistently 

maintaining high PLF above 80 per cent (a performance level comparable to that 

of NTPC). It had paid dividends amounting to Rs 467.76 crore from 1999-2000 

till 2004-05 to the State Government after privatisation. 

(ix) OHPC, being exclusively in charge of hydro power stations, could give 

undivided attention and bring back the two units at Burla to operation after 

renovation. 

(They are not allowed to charge extra for picking power by the OERC.) 

(x) OHPC and OPGC, which are exclusively looking after hydro and thermal 

generation of power respectively, are now profit-making Corporations of the 

State. 

(GRIDCO has cleared its dues to OPGC.) 

(xi) TTPS, after being taken over by NTPC in 1995, is now operating at a PLF of 

75.1 per cent, whereas, prior to restructuring, it never operated beyond 30 per 

cent PLF. 

(xii) Outsourcing of meter reading and disconnection of services of defaulters were 

possible due to privatisation. 

(This is more true in case of CESCO than the other three DISCOMs.) 

(xiii) Orissa is one of the few States where 24 hours power supply has been 

maintained. 

Stabilisation of GRIDCO 

The transmission business, which is under GRIDCO, a State PSU, has turned around: 

(xiv) GRIDCO has earned a profit of Rs 411 crore in 2003-04 and Rs 182 crore during 

2004-05. 

(xv) GRIDCO has traded power worth Rs 638 crore and Rs 1130 crore during 2003- 

04 and 2004-05 respectively. 

(xvi) GRIDCO has paid the current dues to the generating companies and financial 

institutions in full from October 2003 till date. It has saved interest to the tune of 

Rs 80 crore per annum through swapping of high cost borrowings. 

(xvii) GRIDCO has prepaid to Government of Orissa during 2004-05 towards IBRD 

Loan (Principal). 

5.25



(xviii) GRIDCO has completed Meramundali-Chandaka-Bidanasi line, ensuring an 

alternative source of power supply to Bhubaneswar and Cuttack areas. 

It has commissioned 100 ckt km of 400 kV D/C line, 91 ckt km of 220 kV D/C line, 64 

ckt km of 132 kV D/C lines and three No. of 220/132 kV sub-stations, four No. of 

132/33 kV sub-stations improving the quality of power supply in the State during the 

last two years. 

The above has been achieved in spite of no increase in bulk supply tariff from 2001- 

02 except for 15 per cent upward revision in the current year and without any subsidy 

or budgetary support from the Government of Orissa. 

Stabilisation of Distribution Companies. 

The distribution companies (DISCOMs) have stabilised and the following features are 

worth mentioning: 

(xix) The DISCOMs have streamlined billing function, installed more than 6.5 lakh 

consumer meters, metering cubicles, XLPE cables and check meters have been 

installed to arrest theft in HT category consumers. Security guards for vigilance 

have been appointed. 

(But the DISCOMs are not collecting the old dues. Further, arrears are 

mounting. They have defaulted to GRIDCO in loan repayment.) 

(xx) 33 kV and 11 kV feeder metering has been completed. Metering of 33/11 kV 

transformers and distribution transformers is under progress. 

(The DT metering needs to be expedited.) 

(xxi) DISCOMs have formed squads for collection of outstanding dues from 

consumers and for de-hooking. They have introduced spot billing, enhanced 

vigilance activities and are conducting meter reading through hand held meter 

reading instruments. Energy audit is being implemented. 

(This is more true of CESCO than the other three DISCOMs.) 

(xxii) Better consumer services through establishment of consumer grievance 

redressal forum/consumer care centres have been provided. 

Stabilisation of Thermal Power Generation 

(xxiii) OPGC is a successful company in the thermal power generation sector and has 

been performing consistently at high PLF (about 85 per cent during 2004-05). It 

has paid a dividend of Rs 467.76 crore to the State Government from 1999-2000 

to 2004-05. 

5.26

Orissa 

(xxiv) Substantial progress has been achieved in conceptualisation and formulation of 

strategic business plan for capacity addition through setting up of two more units 

of 250 MW each. 

(Disputes between OPGC and the State Government about the sale of power 

are holding up further developments.) 

Stabilisation of Hydro power generation 

(xxv) As part of creating additional generation capacity and also to increase its 

profitability the following measures have been taken up by OHPC: 

• Completion of Upper Indravati Hydro Electric Project (Capacity 600 MW); 

• Renovation and Modernisation of Units-I and II, III and IV of Burla (40 

MW); and 

• Started construction of Balimela Extension Project (which would provide 

peak capacity of 150 MW). 

(In drought years OHPC is allowed to charge fixed costs in spite of 

generation shortfalls. Therefore the OERC does not allow peaking tariff in 

surplus years.) 

(xxvi) OHPC has recorded highest generation 6868 MU during 2004-05. 

(OHPC continues to remain dependent on the monsoon, particularly in 

respect of the hydro-stations located in south Orissa.) 

(xxvii) OHPC has made a profit of Rs 64.08 crore during 2004-05. 

Lastly, some of the issues emanating from privatisation experience, which are areas of 

concern, are mentioned below: 

Issues and Concerns Regarding Privatisation 

(i) The Shareholders’ Agreement between the BSES limited (now taken over by 

Reliance Energy Limited) and GRIDCO expired in March 2004. Despite 

persistent reminders by GRIDCO and the State Government, Reliance Energy 

Ltd has not come forward to extend the Shareholders’ Agreement beyond March 

2004. One of the clauses in the Shareholders’ Agreement provided that the 

investor should endeavour to obtain further finances to meet the financial 

requirements of the DISCOMs. Due to non-signing of the Shareholders’ 

Agreement, there is no obligation on the part of the shareholders namely 

Reliance Energy Ltd. to bring in additional finance to support the distribution 

companies under its management. 

5.27



(ii) The repair and maintenance activities undertaken by the DISCOMs leave much 

to be desired. Although the Regulatory Commission allows 5.4 per cent of the 

gross fixed assets (at the beginning of the year) to be recovered through tariff, 

towards R&M expenses, the distribution companies do not spend the required 

sum. This has resulted in inadequate maintenance of lines and substations. 

(iii) In the business plan, the Regulatory Commission has fixed a benchmark for 

reduction of distribution loss by three per cent each year till 2007-08. The 

DISCOMs are required to achieve this loss reduction. In the event of failure by 

the DISCOMs to achieve this loss reduction, the investor should come forward to 

provide necessary fall-back arrangement/arrange necessary funds to pay to 

GRIDCO towards BST dues and other loan repayments. This has not happened 

because the investor is unwilling to invest any fresh capital in the sector. 

(iv) As on 31 March 2005, the liabilities of the DISCOMs were as follows: 

• Rs 1,291.99 crore to GRIDCO as outstanding BST dues; and 

• Rs 1,535.63 crore towards loan repayment of PFC/REC and World Bank 

relating to distribution assets transferred to the distribution companies. 

GRIDCO being a commercial entity is unable to find ways and means for 

payment to the generating companies like NTPC, OHPC and repayment of its 

loan to financial institutions. The investor should have arranged funds to ensure 

liquidation of arrear liabilities of the DISCOMs to GRIDCO, as the DISCOMs 

are unable to repay the dues to GRIDCO from their own income. 

(v) During the super cyclone in 1999 there was substantial damage to the 

distribution system in the State, specifically in the coastal areas. There was 

inordinate delay in rehabilitation of the distribution system in the affected 

villages. Even today, there are 75 villages in the coastal areas of the State, where 

electricity distribution network has not yet been restored. This has created 

adverse criticism from all concerned about the working of DISCOMs as well as 

the reform process. 

(Bulk of the arrear dues in these areas needs to be written off.) 

(vi) There is reduction of only 10.16 per cent in AT&C losses during 2000-01 to 

2004-05 by the distribution companies, which is not up to the mark. 

(vii) The entire funding of distribution business has been financed through default in 

payment of monthly BST bills/instalment of interest and principal payable to 

GRIDCO. In the process, GRIDCO’s financial position has deteriorated 

substantially. 

5.28

Orissa 

(Injection of capital to strengthen the distribution system launching a special 

drive to collect arrear dues and introducing energy audit at all levels are the 

urgent needs.) 

Action taken on the Kanungo Committee’s Report 

Government of Orissa had constituted a Committee of Independent Experts to review 

Power Sector Reforms in Orissa on 30 May 2001. This Committee, known as the 

Kanungo Committee, had submitted its report to the State Government on 2 

November 2001. 

After taking into consideration the recommendations of the Committee of independent 

experts and the correctives suggested by OERC, the State Government issued orders 

on 29 January 2003. The salient points are as follows: 

(i) The effect of up-valuation of assets of OHPC and GRIDCO indicated in 

Notification No. 5210 dated 1 April 1996 and No. 5207 dated 1 April 1996 

would be kept in abeyance from 2001-02 prospectively till 2005-06 or the sector 

achieves a turnaround, whichever is earlier, to avoid re-determination of tariff for 

past years and also re-determination of assets of various DISCOMs. For this 

purpose, depreciation would be calculated at pre-1992 norms, notified by 


(ii) Moratorium on debt servicing by GRIDCO and OHPC to the State Government 

would be allowed from 2001-02 till 2005-06 except the amount in respect of loan 

from the World Bank to the extent the State Government is required to pay to the 


(iii) The outstanding dues payable to OHPC by GRIDCO till 31 March 2001 on 

account of power purchase would be securitised through issue of Power Bonds 

by GRIDCO to OHPC. 

(iv) GRIDCO and OHPC shall not be entitled to any Return on Equity till the sector 

become viable on cash basis, or 2005-06, whichever is earlier. 

(v) Under conditions of normal hydro availability and the State becoming surplus in 

power, GRIDCO may take steps for export of power to other States. GRIDCO 

would take steps to procure cheap power from CPPs like NALCO and ICCL. 

OHPC and OPGC may be allowed to undertake third party sale outside the State, 

subject to permission from appropriate authorities. 

5.29



(vi) OERC would consider implementation of multi-year tariff (MYT) framework, 

which would help the utilities like GENCO, GRIDCO and DISCOMs to embark 

upon long-term business plans. 

(vii) The World Bank loan would be passed on by the State Government to GRIDCO 

and DISCOMs as 70 per cent loan (@ 13 per cent interest per annum). The 

balance 30 per cent would be as a grant. 

(viii) Tax-free bonds @ 8.5 per cent interest would be guaranteed by the State 

Government for PFC and REC loans. 

(ix) There shall be five per cent overall reduction of distribution losses every year 

from 2002-03 to 2005-06 bench-marking the starting distribution loss of 42.21 

per cent in 2001-02. 

(x) Collection efficiency of revenue to be calculated as 85 per cent for the financial 

year 2001-02 reaching 95 per cent in 2005-06. 

(xi) Aggressive feeder metering in LV side of distribution transformers should be 

made within 12-18 months to identify loss prone areas. OERC would be 

requested for compliance of the same by the DISCOMs. 

(xii) Swapping of Government dues from GRIDCO against dues to GRIDCO from 

Government and balance receivables, if any, be settled. 

(xiii) Suitable budgetary provisions be made after actual verification for payment in 

full of the electricity dues to GRIDCO/DISCOMs against various Departments 

of the State Government. Such dues could be paid directly to the OHPC Ltd and 

the books of accounts of the concerned DISCOMs and GRIDCO adjusted as paid 

and received. 

(xiv) Government would exempt water cess on the volume of water used by OHPC for 

generation of electricity. 

(xv) GRIDCO is also advised not to initiate new contracts unless the position is 

reviewed by its board of directors and approved by the Energy Department. 

(xvi) GRIDCO should take prompt and effective action for payment of interest 

towards World Bank loan. In case of default, this should be adjusted out of any 

release to GRIDCO. 

(xvii) A year-wise target of reduction of cash losses should be fixed and monitored. 

5.30

Orissa 

REFORMS PROCESS IN TWO STATES – COMPARISON BETWEEN 

DELHI AND ORISSA 

Delhi could avoid the pitfalls as it had taken note of the Orissa experience. 

Government stopped supporting the power sector as soon privatisation took place in 

Orissa. In Delhi, the Government remained committed to the success of reforms with 

a five year committed support of Rs 3,450 crore. 

In Orissa, the loss levels were not realistically assessed. In Delhi, the concept of 

AT&C losses reduced the scope of base line data errors. Realistic loss figures, duly 

approved by the Commission, provided comfort to the investors. 

In Orissa, there was absolutely no support from the commercial lenders. The promoter 

companies namely M/s AES and Reliance Energy Ltd refused to pump in even the 

working capital into the sector. In the case of Delhi, there is fund assurance under 

APDRP and from the PFC. The bidding structure assures guaranteed returns, which 

facilitates commercial loan availability. 

In Delhi, the non-serviceable liabilities were retained in the holding company. Only 

the serviceable liabilities were transferred to the DISCOMs. 

In Orissa, the receivables were very high. In the absence of audited data, bad debts 

were not allowed by the Commission. In Delhi, the past receivables were to the 

account of the holding company. In Delhi, DISCOMs were given an incentive of 20 

per cent for collecting the past dues. (In Orissa it is 50 per cent but DISCOMs have 

not shown desired interest in collecting the past dues.) 

There was no Regulatory involvement in Orissa, whereas in Delhi there was full 

involvement leading to greater practical orientation in decision-making. 

There have been problems with audited accounts not being available both for Orissa 

as well as Delhi. But in Delhi, clear balance sheets were assured to the DISCOMs. 

The business valuation approach mitigated the risk of asset valuation. 

In Orissa, the assets were revalued at high levels prior to the bidding process. This 

created serious problems, which the Kanungo Committee report sought to remedy. 

The State Government agreed to keep the revaluation in abeyance till 2005-06. 

5.31



In Delhi, the assets were valued through a business valuation process, based on 

revenue earning potential. This ensured a sustainable level of liabilities. 

OERC AND THE DISCOMS 

Orissa has four DISCOMs. Of these, CESCO, abandoned by M/s AES, is going to be 

handed over to a new investor company. 

As regards the other three DISCOMs, viz. NESCO, WESCO and SOUTHCO, which 

are with Reliance Energy Ltd, the OERC has asked them to show cause as to why 

their distribution licenses should not be suspended. This is because of the refusal of 

the promoter company, Reliance Energy Ltd, to bring in investment required for 

system improvements in distribution segment. The three DISCOMs have also been 

resisting renewal of the Shareholders' Agreement. It is understood that the DISCOMs 

have gone on appeal to the Appellate Authority in Delhi. Thus, the entire distribution 

business in Orissa is mired in uncertainty. All the DISCOMs have shown some 

progress in metering, billing and collection. They are paying the BST bill of GRIDCO 

and are also able to pay salaries. But they are yet to clear Rs 1,000 crore of loans and 

about Rs 1,200 crore of old electricity dues. 

There has been no retail tariff revision during the last five years. Only recently, BST 

has been revised upwards by 15 per cent but no increase has been allowed by the 

OERC in retail tariff. The OERC apparently thinks that the DISCOMs should collect 

old arrears to the tune of Rs 2,000 crore and also reduce the losses (one per cent 

improvement in T&D loss indicates additional collection of about Rs 43 crore). It is 

interesting to note that the State Government has not opposed the revision of tariff. 

The law enforcement machinery seems to think that it should not get involved in the 

matter of collection of dues of the private companies although even now 49 per cent 

of stake in the DISCOMs is held by a para-statal entity. It is one thing to have a 

dispensation in place, it is yet another thing to ensure that it works. The neighbouring 

States of West Bengal and Andhra Pradesh seem to have fared much better in this 

regard. 

A special collection drive needs to be undertaken throughout the State in order to 

recover the past dues. One time settlement of the long pending dues of consumers 

could be taken up through holding of Bijli Adalats. Penal dues could be waived off for 

those who pay their arrears at one go. 

5.32

Orissa 

Although T&D loss has come down from more than 50 per cent to around 40 per cent, 

this is still above the permissible limit. Significant T&D loss reduction could be 

achieved if fresh investments are made by the DISCOMs. 

CONCLUSIONS 

• Orissa was the first State in the country to go in for reforms in the electricity 

sector in a big way. OERC was the first Electricity Regulatory Commission. 

Restructuring of the sector was taken up in right earnest. 

• Separating hydro and thermal generation was a good idea, leading to the setting 

up of the OHPC. Selling TTPS to NTPC, partially privatising OPGC and 

creating the transmission company called GRIDCO were right steps. The only 

problem was the absence of transmission sector management and overall 

planning for the power sector. 

• Privatisation of the distribution segment into four DISCOMs was done in a hasty 

manner, without proper assessment of the parameters. Government should not 

have withdrawn from the scene at one go. 

• Assets were over-valued. This was corrected by the Kanungo Committee by 

postponing the revaluation of assets by five years, which is just over. Such 

revaluation should be postponed by another five years, as recommended by the 

OERC. 

• DISCOMs have project related liabilities to the extent of Rs 660 crore. They are 

not making any payment to GRIDCO in this regard. They will have to do it by 

increasing their collection efficiency. Arrear receivables Rs 1,500 crore including 

delayed payment surcharge (DPS) remains payable by the DISCOMs. If the 

DISCOMs collect old dues, 50 per cent can be retained by them and the other 50 

per cent will have to be paid to GRIDCO. If each bill is scrutinised it will be 

found that there are lot of bogus and un-collectable dues. This can be written off. 

• The super cyclone of 1999 caused severe damage to the distribution 

infrastructure in the coastal areas. In the absence of privatisation the bill for 

restoration works would have been paid by the Government. But nothing was 

paid from the Calamities Relief Fund. Many of the consumers have disappeared. 

In quite a few villages, even restoration work has not been done. A lot of dues 

relating to the coastal districts will have to be written off after proper scrutiny. 

5.33



• The four DISCOMs should arrange funds from the banks duly guaranteed by the 

respective promoter companies in order to take up capital improvement works. 

With this they can avail of APDRP benefits. Only CESCO is doing it. 

• Dues of the State Government as well as PSUs amount to Rs 250 crore. A special 

reconciliation drive should be undertaken with the initiative of the State 

Government and prompt payment made. 

• For the last five years, there has been no revision in retail tariff because the cost 

of electricity came down as a result of the postponement of asset revaluation and 

because of the CERC's tariff orders relating to NTPC. It is high time to go in for 

revised tariff particularly when bulk supply tariff of GRIDCO has been revised 

upward by 15 per cent recently. 

• Depreciation calculations should be on the basis of the life of the asset, which 

will have a favourable impact on the tariff. This should be done in preference to 

calculating depreciation for recovery of 90 per cent of the total investment in 12 

years. 

• Government of India should ease the norms for raising loans from PFC and REC 

by the privatised distribution companies. Second mortgage of assets should be 

permitted. 

• Special courts are yet to be set-up for trying cases of electricity theft. Only three 

out of 30 police stations have come up. The State Government should undertake 

both the responsibilities immediately. Even the OERC has permitted the cost of 

setting up of special courts estimated at Rs 8 crore to be paid from the system 

and to be passed on to the tariff. 

• In case of low hydro availability, GRIDCO is required to purchase high cost 

power from other sources. This should be subsidised from the Calamities Relief 

Fund. The problem arose in 2002-03 when GRIDCO had to spend additional Rs 

600 crore for purchase of alternative power. 

• The Government of Orissa has decided to pass on the World Bank loans to 

GRIDCO and DISCOMs as 70 per cent loan (@ 13 per cent interest) and 30 per 

cent as a grant, but this decision is yet to be implemented. This should be done 

immediately. 

• The Deepak Parekh Committee had recommended setting up of a Power Sector 

Reforms Fund (PSRF). The OERC has recommended setting up of such a fund. 

Last year, the State had a record collection of Rs 320 crore of electricity duty. 

5.34

Orissa 

Over a period of time, such a fund can be created by crediting all the duty 

collected. Money raised through divestment of the State’s share should also be 

credited to this fund. 

• The equity of NTPC stations is being computed as 50 per cent of the total 

investment where as the actual equity comes to below 30 per cent. This should be 

realistically calculated so as to have a favourable impact on the tariff. 

• The DISCOMs have neglected the task of rural electrification. 

• OHPC should be encouraged to take up new projects like Sindhol I, II and III as 

run-of-the river schemes on the Mahanadi. A pump storage project should be set 

up below the Indravati dam. NHPC could collaborate with OHPC. 

• OHPC’s dues should be cleared by GRIDCO. With an improved balance sheet, 

OHPC can be partially privatised, which could generate substantial funds for 

further investment. 

• The State Government’s share in the OPGC should be brought down from 51 to 

26 per cent. Even now the OPGC is not under the management control of the 

State Government. 

• Consumer grievance redressal mechanism should be strengthened in all the four 

DISCOMs. 

• There is an acute shortage of technical manpower at all levels. This should be 

promptly remedied by GRIDCO, OHPC and all the DISCOMs. 

5.35



FINANCIAL PERFORMANCE OF UTILITIES 

Financial Performance of CESCO 

(Rs in million) 

Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 

I Revenue from sale of power 4,326 5,844 6,381 6,669 6,849 6,910 

Non-operational/other income 232` 208 227 250 89 58 

Total revenue 4,855 6,051 6,608 6,919 6,938 6,968 

Purchase of power 

Repairs and maintenance 

4,536 5,109 5,748 5,306 5,189 5,164 

Salaries and wages 

Administrative and general 

expenses 

1,544 1,076 1,328 1,371 1,477 1,433 

Net prior period 

credit/charges 

134 10 86 1,227 143 3 

II Total cash operating 

expenditure 

6,214 6,194 7,162 7,904 6,809 6,600 

III Surplus after cash operating 

exp. (EBITDA)(I-II) 

(1,359) (143) (554) (985) 129 368 

IV Provision for bad and 

doubtful debt 

195 221 278 317 

V Depreciation 261 329 365 395 404 467 

VI Interest and financial charges 0 360 336 357 

VII Less: interest and financial 

charges capitalised 

0 0 (39) (48) 

353 308 

VIII Taxation 0 0 0 0 0 0 

IX Profit/(Loss) after tax (1,815) (1,052) (1,493) (2,006) (629) (409) 

5.36

Orissa 

Financial Position of NESCO 


Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 


Non-operational/other income 55 165 162 183 178 192 

Total revenue 3,100 3,447 3,173 3,852 4,050 4,806 



2,865 2,950 3,196 2,982 3,297 3,643 



expenses 

1,081 1,273 1,606 1,979 1,464 1,160 



(9) (9) 33 1 (5) 3 

II Total Cash Operating 

Expenditure 

3,937 4,214 4,836 4,962 4,756 4,806 

III Surplus after cash operating 

exp. (EBITDA)(I-II) 

(837) (767) (1662) (1111) (706) 0 

IV Provision for bad and doubtful 

debt 

757 

V Depreciation 173 301 301 276 83 145 

VI Interest and financial charges (70) (41) (42) (54) 

VII Less: Interest and financial 


(14) (9) 


IX Profit/(Loss) after tax (939) (1,027) (,1403) (,1331) (775) (893) 

Revenue subsidies and grants 0 0 0 0 0 0 

Statutory Appropriations 9 11 12 13 14 15 

5.37



Financial Performance of SOUTHCO 

Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 


Non-operational/other income 33 91 134 118 114 

Total revenue 2,108 2,308 2,623 2,786 2,731 2,725 



1,827 1,891 1,983 1,935 2,015 2,023 



expenses 

727 1082 1189 1410 1201 916 

Net prior period credit/charges (71) (15) (30) (38) (21) (129) 


Expenditure 

2,483 2,958 3,142 3,307 3,195 2,810 

III Surplus after cash operating exp. 

(375) (329) (519) (521) (464) (85) 

(EBITDA)(I-II) 

IV Provision for bad and doubtful 

debt 

V Depreciation 134 650 

VI Interest and financial charges 295 279 253 

VII Less: Interest and financial 190 

(42) (69) (55) 

240(41) 117(42) 



IX Profit/(Loss) after tax (770) (903) (729) (719) (663) (810) 

Revenue subsidies and grants 0 0 0 0 0 0 

Statutory appropriations 8 10 10 11 11 12 

5.38

Orissa 

Particulars 

Financial Performance of OHPC 

1997 

-98 

1998 

-99 

1999 

-2000 

5.39 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 


I Revenue from sale of 

power 

1,378 1,734 1,600 2,198 2,338 2,153 1,714 2,303 2,749 

Non-operational/other 

income 

76 21 43 128 118 55 78 69 268 

Total revenue 1,454 1,755 1,643 2,325 2,456 2,208 1,792 2,372 3,018 

Operational expenses 65 80 77 82 79 77 78 79 83 



Administrative and 

general expenses 

63 

280 

18 

73 

540 

33 

129 

424 

50 

126 

555 

53 

127 

521 

59 

171 

552 

51 

119 

544 

69 

145 

553 

58 

166 

675 

59 



0 12 87 (9) (3) 7 1 27 (25) 


Expenditure 

254 494 509 680 763 850 795 845 

III Surplus after cash 

operating exp. 

(EBITDA)(I-II) 

1,200 1,260 1,134` 1,645 1,693 1,358 963 1,527 

IV Provision for bad and 

doubtful debt 

V Depreciation 444 443 447 498 934 966 1,010 1,123 1,108 

VI Interest and financial 

charges 

294 1,685 1,059 1,211 1,142 476 423 

368 

VII Less: Interest and 

343 

financial charges 

capitalised 

(237) (1645) (924) (568) (108) (45) (51) (56) 

VIII Taxation 0 0 0 0 0 0 0 5 5 

IX Profit/(Loss) after tax 699 778 552 504 (274) (39) (419) 57 590 

Revenue subsidies and 

grants 

0 0 0 0 0 0 0 0 0 

2004 

-05 

2005 

-06

Particulars 



Financial Performance of OPGC 

1997 

-98 

1998 

-99 

1999 

-2000 

5.40 

2000 

-01 

2001 

-02 

2002 

-03 

(Rs in Million) 

I Revenue from sale of 

power 

3,253 3,767 4,057 4,154 4,010 3,866 4,515 4,100 

Non-operational/other 

income 

52 43 247 411 170 250 218 131 

Total revenue 3,05 3,810 4,304 4,565 4,180 4,116 4,733 4,231 

Raw materials 

consumption 

784 950 1,153 1,307 1,253 11,551 1,196 1,449 

Production expenses 95 107 159 154 149` 146 92 163 

Power and electricity 

duty 

28 34 23 40 84 59 66 72 

Rebate to GRIDCO 0 35 41 78 40 0 0 0 

Salaries and wages 54 64 77 109 136 111 124 142 



45 42 45 78 59 73 67 122 



(17.3) 111 (5) 84 30 1 14 (11) 

Less: expenses 

capitalised 

(98) 7 (2) (4) (1) 0 0 0 

II Total cash operating 

expenditure 

890 1,351 1,490 1,846 1,750 1,545 1,559 1,937 

III Surplus cash operating 

expenditure (EBITDA) 

(I-II) 

2,415 2,459 2,814 2,719 2,430 2,571 3,174 2,294 

IV Depreciation 404 812 829 846 848 837 832 587 

V Interest and financial 

charges 

965 986 857 631 485 412 369 231 

VI Less: Interest and 

finance charges 

capitalised 

0 0 0 (2) (1) 0 0 0 

VII Taxation 0 0 0 0 116 101 155 113 

VIII Profit/(loss) after tax 1,046 661 1,128 1,244 983 1,221 1,817 1,362 

Dividend 338 0 1,471 735 1,471 1,716 1,471 1,128 

2003 

-04 

Total proceeds of disinvestment of 51% of equity shares of the four DISCOMs. 

Name of the 

Company 

Name of the 

preferred 

purchaser 

51% Equity 

offered for sale 

(Rs in lakhs) 

Amount 

offered. 

(Rs in lakhs 

WESCO + NESCO BSES 5,842.56 8,819.94 

SOUTHCO BSES 1,920.66 2,880.99 

2004 

-05 

Offered price 

per 10/- Face 

value share in 

Rs 

15.10 

15.00 

TOTAL 11,471.94 15,900.93 13.86

Orissa 

Performance of Orissa State Electricity Board/GRIDCO 

(Pre-privatisation period) 

Area of achievement 1974-75 1984-85 1994-95 1995-96 1999-00 

Installed capacity (MW) 547.675 1,134 1,731.93 1,731.93 2,498.88 

Transmission and distribution lines 

(ckt km) 

33,945.21 83,414 116,715 118,286 120,625 

Total energy input (MU) 2,335.07 4,348 7,851 9,244.93 11,130 

Energy sold (MU) 1,995.12 3,566 6,471.14 4,560.36 6,286.49 

Percentage loss to energy sold 14.5 17.9 17.6 50.4 43.52 

Energy billed (MU) 4,536.33 4,560.36 6,286.49 

Percentage loss to energy billed 42.22 50.4 43.52 

Revenue earned (Rs in crore) 23.31 116.09 725.11 912.14 1547 

Consumers served (Nos.) 2,34,977 7,16,706 12,30,354 12,73,844 16,00,551 

Villages electrified (Nos.) 11,525 23,762 33,131 32,088 35,190 

Assets in use (Rs in crore) 133 498.3 1,073.14 1,022.85 

Employees (Nos.) 18,224 33,000 34,450 34,732 28,309 

Per capita consumption (kWh/Yr.) 73.3 137 248 292.5 352 

Sales Over the Years 

1974-75 1984-85 1994-95 1999-2000 

Category MU % MU % MU % MU % 

DOMESTIC 48.8 2.4 355 111.1 2,024 32.53 2,053 32.43 

COMMERCIAL 44 2.2 94 2.9 305.5 4.909 405 6.4 

INDUSTRIAL 1,426.6 71.5 2,420 75.5 2,940.2 47.25 2372 37.47 

RAILWAY 

54 2.7 157.4 4.9 167 2.684 175 2.76 

TRACTION 

MISC. 56.8 2.8 177,3 5.5` 681 10.92 674 10.65 

OUTSIDE STATE 364.9 18.3 105.2 1.691 651 10.28 

TOTAL 1995.1 100.0 3203.7 100.0 6222.9 100 6330 100 

Revenue Over the Years 

1974-75 1984-85 1994-95 1999-2000 

CATEGORY 

Rs in 

Lakh 

% 

Rs in 

Lakh 

% 

Rs in 

Lakh 

% 

Rs in 

Lakh 

% 

DOMESTIC 127 6.9 1,241 7.5 8,264 11.45 32,700 21.14 

COMMERCIAL 124 6.7 686 4.1 4,194 5.811 14,400 9.32 

INDUSTRIAL 1,119 60.4 12,125 73.0 47941 66.42 72000 46.54 

RAILWAY 

TRACTION 

66 3.6 1,266 7.6 3,371 4.67 6600 4.25 

MISC. 71 3.8 1289 7.8 6,809 9.434 16100 10.42 

OUTSIDE STATE 345 18.6 1,599 2.215 12,900 8.33 

TOTAL 1,852 100.0 16,607 100.0 72,178 100 1,54,700 100 

5.41



OERC’S ASSESSMENT 

5.42 

ANNEXURE-1 

OERC’S ASSESSMENT OF PERFORMANCE OF DISCOMs 

BST BILL PAYMENT (%) 

2000-01 2001-02 2002-03 2003-04 2004-05 

2005-06 

(up to 

9/05) 

CESCO 73.64 64.82 83.09 86.11 86.84 100.18 

NESCO 74.17 620.28 88.63 100.01 100 107.97 

WESCO 72.71 80.29 104.53 101.36 106.03 108.61 

SOUTHCO 75.51 91.65 100.76 99.66 100 100 

ALL ORISSA 73.73 71.68 93.10 96.44 97.83 104.79 

DISTRIBUTION LOSS (%) 

CESCO 44.89 48.81 43.03 39.76 41.49 41.14 

NESCO 44.44 51.00 41.36 43.66 39.40 37.16 

WESCO 43.20 46.44 38.30 39.02 36.38 37.34 

SOUTHCO 42.51 40.47 39.14 42.44 40.50 39.79 

ALL ORISSA 44.01 47.47 40.75 40.75 39.21 38.82 

COLLECTION EFFICIENCY (%) 

CESCO 74.93 71.04 78.91 81.18 83.66 85.11 

NESCO 82.12 74.34 81.46 88.11 90.90 90.79 

WESCO 79.32 79.95 85.40 88.26 91.96 93.32 

SOUTHCO 83.32 79.29 82.55 84.15 91.14 89.04 

ALL ORISSA 78.47 75.24 81.69 84.87 89.00 89.65 

AT & C LOSS (%) 

CESCO 58.70 63.64 55.04 51.10 51.05 49.89 

NESCO 54.37 63.57 52.25 50.36 44.92 42.95 

WESCO 54.94 57.18 47.31 46.17 41.49 41.53 

SOUTHCO 52.10 52.80 49.76 41.56 45.78 46.39 

ALL ORISSA 56.06 60.48 51.60 49.71 45.89 45.15

Orissa 

5.43 

ANNEXURE-II 

OERC’S ASSESSMENT OF THE INFRASTRUCTURE OF THE DISCOMs 

(AS ON 30 SEPTEMBER 2005) 

CESCO NESCO WESCO SOUTHCO TOTAL 

No. of circles 5 4 3 8 20 

No. of divisions 19 14 15 26 74 

No. of sub-divisions 61 39 55 54 209 

No. of sections 249 129 202 133 713 

Executive (tech.) 454 667 443 231 1,495 

Executive (non-tech) 38 66 65 65 234 

Non-executives (tech.) 5,149` 3,064 3,671 2,719 14,603 

Non-executives (non-tech) 

No. of consumers 

1,358 675 835 690 3,558 

EHT 12 11 16 11 50 

HT 591 626 430 114 1,761 

LT 8,97,488 4,81,012 4,43,742 4,65,097 22,87,339 

TOTAL 

FEEDER METERING 

8,98,091 4,81,649 4,44188 4,65,222 22,89,150 

No. of 33 kV feeders 

(excluding GRIDCO interface) 

125 52 87 159 423 

No. of 33 kV feeder metering 122 52 87 135 396 

No. of 11 kV feeders 584 393 417 416 1,810 

No. of 11 kV feeder metering 579 389 417 416 1,801 

No. of 33 / 11 kV transformers 347 234 237 208 1,026 

No. 33/11 kV transformer 

metering position 

No. of distribution 

81 30 111 

transformers (11/0.4 and 

33/0.4 kV) 

16,915 12,199 12,975 9,302 51,391 

No. of distribution transformer 

metering position 

4,274 11,451 12,168 8,993 36,886 

Length of 33 kV line (ckt km) 2,741.80 2,052.00 3,294.15 2,649.09 10,737.04 

Length of 11 kV line (ckt km) 15,215.62 13,331.00 18,736.29 18,840.27 60,123.18 

Length of LT kV line (ckt km) 18,735.21 15,501.00 15,610.50 9,637.59 59,484.30



5.44 

ANNEXURE-III 

OERC’S ASSESSMENT OF TECHNICAL AND COMMERCIAL 

PERFORMANCE OF THE DISCOMs 

(AS ON 30 SEPTEMBER 2005) 

CESCO NESCO WESCO SOUTHCO TOTAL 

METERING POSITION 

No. of meters 8,98,091 4,39,071 4,39,548 4,57,232 22,33,942 

No. of working meters 7,99,431 3,37,306 4,25,549 4,41,772 20,04,058 

Percentage of working 

89 77 97 97 90 

meters (%) 

No. of defective meters 98,660 96,797 13,999 15,460 2,24,916 

No. of disconnection made 870 61,159 41,083 1,03,112 

Revenue realised 

3.95 1.92 5.87 

(Rs crore) 

New meters installed (3PH) 189 127 570 886 

No. of meters installed (1 Ph) 22,299 15,274 5,011 18,078 60,662 

No. of EHT meters tested 29 6 1 32 68 

No. of HT meters tested 523 320 246 548 1637 

Interruptions of 33 kV 

feeders (from grid S/S) 

1,009 8,872 8,352 8,787 27,020 

Interrupts of 11 kV feeders 

(from 33 /11 kV S/S) 

1,787 22,862 47,377 70,733 1,42,759 

No. of power transformers 

20 19 15 7 61 

failed 

No. of distribution burnt 1,171 1,058 230 378 2837 

Cost involved (crore) 2.46 1.17 0.21 0.25 4.79 

Length of conductors stolen 

43.00 51.82 34.75 48.15 177.72 

(ckt km) 

Cost involved (crore) 0.047 0.051 0.050 0.050 0.198 

No. of grievances received 630 765 11,979 8,745 22,119 

Disposed through CHP 

including Bijli Adalat 

630 711 10,801 6,775 18,917 

No. of hooks detected 20,524 11,920 3,294 35,738 

No. of hooks repeated out of 

hooks detected 

3658 932 4,590 

No. of connections 

1,618 1,554 11,814 1,853 16,839 

regularised 

Amount billed (crore) 2.14 0.56 0.57 3.27 

Amount collected (crore) 1.19 0.41 0.20 1.80 

No. of FIRs lodged 65 65


1 Introduction……………………………………………………………..8.1 

2 Background...............................................................................................8.1 

3 Progress of Restructuring........................................................................8.4 

4 Electricity Regulatory Commission........................................................8.8 

4.1 Memorandum of Uunderstanding...................................................8.9 

5 Present Status ...........................................................................................8.9 

6 Consultant’s Recommendations ...........................................................8.10 

7 Impact of Restructuring ........................................................................8.11 

8 Targets.....................................................................................................8.12 

9 Financial ..................................................................................................8.12 

10 Customer Services..................................................................................8.14 

11 Specific Issues .........................................................................................8.14 

12 Findings and Recommendations...........................................................8.18

1 INTRODUCTION 

ASSAM 


The Assam State Electricity Board (ASEB) was established in the year 1958 in 

the composite State of Assam under the Electricity (Supply) Act, 1948. The 

ASEB has been restructured in September 2003 into five companies by 

separating the generation, transmission and distribution functions. Assam has 

an area of 78,438 sq km and a population of 26.6 million. The State is divided 

into 28 districts comprising of 87 towns and 26,247 villages, as per the 2001 

Census. The State is largely agrarian with 87 per cent of the population being 

rural. About 63 per cent of its population is engaged in agriculture and tea 

plantation. The ASEB and its restructured utilities serve about one million 

consumers of whom more than half are in rural areas. The population is spread 

over a large geographical area and the power sector has grown on the State’s 

natural resources of oil, natural gas and hydropower in the northeast. The 

generation, transmission and distribution sectors have been facing problems of 

inadequate capacity, inadequate investments and also operational problems due 

to poor maintenance and lack of fuel. The combination of various factors has 

adversely impacted electricity supply in the State. 

2 BACKGROUND 

(a) Generating Capacity 

The installed capacity of ASEB stands at 575 MW out of which 2 MW is 

hydel, 300 MW, thermal and 273 MW, gas based. There has been no 

augmentation of the installed capacity for many years. The present effective 

capacity is only 150 MW. Chandrapur Thermal Power Station (60 MW) and 

Bongaigaon (240 MW) have been shut down since March 2002 and June 1999 

respectively due to non-availability of fuel and other operational constraints. 

The total energy generated in 2005-06 was 808 million units. Assam has, 

however, a share of 546 MW in the Central power stations owned by NEEPCO 

and NHPC. The State has also committed to purchase the entire power 

generation of DLF’s two combined cycle plants of 24.5 MW capacity. The 

availability of power from these sources currently is less in the four months 

from November to February. This shortfall is being met by purchasing power 

from traders like PTC, etc. The plant load factor (PLF) of ASEB owned plants



has been around 34.36 per cent. The details of capacity and energy generated 

and technical parameters are as under: 

Table: Total Generating Capacity (MW) 

Category 2000 2001 2002 2003 2004 

-01 -02 -03 -04 05 

Hydel 2.0 2.0 2.0 2.0 2.0 

Thermal 300.0 300.0 300.0 300.0 300.0 

Gas 272.9 272.9 272.9 272.9 272.9 

Total 574.9 574.9 574.9 574.9 574.9 

Total Energy Generated (in MUs) 

Category 2000 2001 2002 2003 2004 

-01 -02 -03 -04 -05 

Hydel 0.0 0.0 0.0 0.0 0.0 

Thermal 96.7 46.2 0.0 0.0 0.0 

Gas 838.2 794.2 746.1 710.7 756.4 

Total 935.0 840.4 746.1 710.7 756.4 

Table: Improvement in the Technical Parameters 

Particulars 

2000 2001 2002 2003 2004 

-01 -02 -03 -04 -05 

PLF (%) 21.6 19.4 33.5 31.9 34.0 

Heat rate 

4145 4145 3956 3736 3322 

Sp. oil consumption (ml/kWh) 

56.1 64.5 ---- ---- ---- 

Sp. gas consumption (M 3 /kWh) 

0.4216 0.4479 0.4563 0.4301 0.3876 

Auxiliary consumption (%) 7.1 6.3 5.3 4.7 4.7 

Plant availability (%) 30.6 33.2 49.9 47.7 49.3 

ABT Incentive 

Unscheduled breakdowns 

In terms of MWH 435694 421701 448986 540694 447519 

Total manpower employed 1547 1497 

(b) Transmission System 

The length of the transmission system (220 kV, 132 kV and 66 kV) is 4129 ckt 

km. The transmission loss is about 9 per cent. The system does not have 

sufficient capability to meet the entire demand of Assam. Vital strategic 

transmission links need to be developed to enable the State to fully avail the 

energy from the Central sector generation projects coming up in the region. 

The lack of investment in the transmission sector has contributed to power 

8.2

Assam 

supply bottlenecks and low quality of supply. For efficient and dependable 

transmission system, the transmission network must have adequate capacity 

and be maintained in a good condition. Only a healthy network can deliver 

dependable and quality power to the consumers. Details of energy available, 

delivered, losses, and investments on new transmission lines are as under: 

Table: Performance Parameters: Transmission 

Particulars 

1999 

-00 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

2004 

-05 

Energy Available for Transmission (MUs) 2811 3215 3294 3298 3389 3431 

Energy Delivered (MUs) 2513 2942 3010 3020 3099 3137 

Transmission Losses (MUs) 247 273 283 277 289 293 

Wheeling cost of Energy (Paise/Unit) 35 35 35 35 35 35 

Transmission Losses (%) 8.5 8.5 8.5 8.5 8.5 8.5 

Availability of the transmission systems (%) 95.3 95.4 95.3 95.5 95.5 95.6 

Investments made to improve transmission capacities and efficiency of the 

transmission system are as under. 

Table: Investment on Transmission Lines 

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 

(Rs lakh) 

2007-08 

545 883 305 2264 1370 3648 7038.72 7038.72 3519.36 

(c) Distribution 

The present distribution system of 11 kV and 33 kV lines are of 28,190 ckt km 

and 4,766 ckt km respectively. The system has 42,693 ckt km LT lines and 291 

sub-stations of 33/11 kV. Setting up of a number of new sub-stations and 

distribution transformers and augmentation of the distribution system has been 

taken up under the APDRP. About 278 ckt km of 33 kV line and 40 MVA of 

33/11 kV new sub-stations are under implementation under the Non-Lapsable 

Central Pool Resources (NLCPR). There are other schemes under ADB finance 

and APDRP. The greatest challenge lies in interface with the consumers in the 

distribution of electricity. In 2004-05, the AT&C losses in the sector were of 

the order of 45 per cent. The level of loss is unacceptably high and has also led 

to poor quality of service to the consumers. It is also partly responsible for the 

poor financial health of the State utilities. The amount of energy sold is 3,302 

MU. Details of energy sold from the State power utilities is as under: 

8.3



Table : Amount of Energy Sold (MUs) 

Category 2000-01 2001-02 2002-03 2003-04 2004-05 

Hydel 

0.0 0.0 0.0 0.0 0.0 

Thermal 

74.8 35.4 0.0 0.0 0.0 

Gas 

793.8 752.1 706.5 677.2 720.9 

Total 

868.6 787.5 706.5 677.2 720.9 

(d) Financial 

The Board had been in the red as the net losses were in the range of Rs 500-600 

crore each year up to 2003-04. The net worth of the utilities had been eroded 

and the old structure could not cope with the increasing power demand, both in 

terms of quality and affordability to the consumers. The operational and 

financial conditions of the utilities were such that the system could not be 

carried on without heavily eating into resources of the State Government, 

which it could hardly afford. The State Government realised that the process of 

reform and restructuring of the whole power sector had become inevitable. The 

data is as under: 

Table: Financial Condition of ASEB/Utility 

Particulars 1999-00 2000-01 2001-02 2002-03 2003-04 

(Rs crore) 

2004-05 

Turnover 537.06 631.34 648.51 754.77 887.54 1013.08 

PBT (-)577.82 (-)607.21 (-)631.98 (-)394.00 (-)522.73 (-)1088.05 

PAT (-)577.82 (-)607.21 (-)631.98 (-)394.00 (-)522.73 (-)1088.05 

Interest paid 25.27 28.58 3.79 9.83 0.47 181.02 

Wages & Salaries 252.04 298.41 285.3 260.99 276.36 300.14 

Equity 1350 1350 1350 1350 1350 1350 

Debt outstanding 1677.32 1735.56 1719.24 1809.39 1892.49 1832.74 

Net worth (-)1526.81 (-)2152.53 (-)2688.87 (-)2166.45 (-)2627.15 (-)3584.34 

Govt. subsidy 52.33 52.65 52.33 80.06 0.04 69.69 

3 PROGRESS OF RESTRUCTURING 

3.1 ASEB is the first SEB, to be restructured after the enactment of the EA, 2003. 

In some ways, it is a unique model, which has been evolved under the new 

legislation, as concrete steps for reform and restructuring had been taken before 

the new Act came into force. A power sector policy was announced in January 

2003 for reform and restructuring. The main objectives of this comprehensive 

policy, inter-alia, were: 

8.4

Assam 

(i) To supply adequate quantity of electricity, in an efficient manner and at a 

reasonable cost to all consumers in the State; 

(ii) To restore the financial viability of the power sector so that it is no longer 

a burden on the State exchequer; 

(iii) To provide for accountability and responsibility for all power utilities by 

restructuring and corporatising them; 

(iv) To provide an environment wherein tariff could be fixed in a transparent 

manner through an independent Regulator; and 

(v) To provide a suitable environment in which private sector investment 

could be attracted in the power sector. 

3.2 The policy also broadly indicated the general strategy as to how the objectives 

outlined in the policy were to be achieved. The policy indicated that generation, 

transmission and distribution functions of electricity would be separated and 

the resultant entities corporatised to bring in more accountability and 

efficiency. It was visualised that the new entities would be incorporated under 

the Companies Act, 1956. The policy also visualised that financial restructuring 

would be done so that the new entities become financially viable. The new 

companies were to have managerial and operational autonomy. As the 

Regulatory Commission had already been set up under ERC Act, 1998, it was 

mentioned that this would be converted into a full-fledged multi-member 

Commission. The policy went into some important details of financial 

restructuring through a transfer scheme under which accumulated losses of 

SEB would be set-off against the Government equity and loans and provision 

will be made for the unfunded liabilities relating to pensionary and other 

retirement dues of staff. The Assam Legislative Assembly passed the Assam 

Electricity Bill to provide for restructuring and rationalisation of the power 

industry The Bill was, however, not enacted since the EA, 2003 came into 

effect in June 2003. 

3.3 An Appraisal Mission from the Asian Development Bank (ADB) came for 

discussions in August/September 2003 for the loan appraisal of Assam Power 

Sector Development Programme. Under the conditions agreed to by the 

Government of Assam, the Mission recommended a loan of US$ 250 million, 

out of which US$ 150 million were to be utilised in the programme component 

for independence and corporatisation of ASEB and US$ 100 million was the 

8.5



project component mainly for transmission and distribution system 

strengthening and revamping. The Mission also agreed to provide technical 

assistance of US$ 1.5 million for funding the cost of consultants in the 

reorganisation of SEB. M/s P.A. Consultancy International were appointed to 

work out the viable structures for the restructured entities. The ADB loan was 

sanctioned on 11 December 2003; first Tranche of US$ 90 million was released 

on 12 December 2003 and the second Tranche of US$ 60 million on 28 June 

2005. 

3.4 The Government of Assam approved the following power sector structure for 

the State vide its letter dated 30 September 2003 as under: 

(a) Generation: Assam Power Generation Corporation Limited (APGCL); 

(b) Transmission and Transformation: Assam Electricity Grid 

Corporation Limited (AEGCL); and 

(c) Distribution: 

(i) Upper Assam Electricity Distribution Company Limited; 

(ii) Lower Assam Electricity Distribution Company Limited; and 

(iii) Central Assam Electricity Distribution Company Limited. 

3.5 These companies were incorporated under the Companies Act, 1956 on 23 

October 2003. The Government of Assam had accepted the recommendations 

of the ADB Appraisal Mission that there should be a complete settlement of 

cross-liabilities between Government of Assam and ASEB under the Financial 

Restructuring Plan (FRP). An MoU was signed between the Government of 

Assam and ASEB in November 2003. The summarised position, as on 31 

March 2003, is as under: 

Amount owed to ASEB by Govt. of Assam Rs 5,389 crore 

Amount owed by ASEB to Govt. of Assam Rs 4,560 crore 

3.6 The Government of Assam also agreed to provide for the cash deficit (of the 

order of Rs 338 crore) of ASEB and its successor companies during the 

transition period The FRP order was issued by the Government of Assam on 28 

October 2003. This spelt out how the outstanding dues and other claims of 

ASEB would be settled. The Government also committed to make on-going 

8.6

Assam 

payment to the existing pensioners and those who will retire up to 2008-09. An 

important event in the restructuring process of ASEB was the launching of 

Assam Electricity Reforms, First Transfer Scheme, 2004 on 10 December 

2004. The Scheme provided for the transfer and vesting of functions, 

properties, obligations and liabilities of the ASEB in the State Government and 

re-vesting of the same by the State Government in the new corporate entities. 

The Scheme also covered the transfer of personnel of ASEB to the new entities. 

The opening balance sheets of the five successor companies were attached to 

the Transfer Scheme. The Scheme explicitly mentioned that the personnel who 

would be transferred under this Scheme would be governed by the new 

Regulations, which would not be in any way be inferior to those applicable to 

them immediately before the transfer. 

3.7 As it was necessary to carry along the unions and the staff representatives of 

ASEB while implementing the policy of restructuring ASEB, a tripartite 

agreement between the Government of Assam, ASEB and the recognised 

associations/unions of ASEB was negotiated and signed on 9 December 2004. 

It was agreed that there would be no retrenchment of the existing employees on 

account of restructuring and rationalisation. Moreover, the terms and service 

conditions upon transfer to the new entities would not be in any way less 

favourable than the present terms and conditions under the ASEB. It was also 

mentioned that there would be no lateral entry from outside in case qualified 

and experienced persons were available in the cadre. It was also agreed that the 

State Government, the Board and the successor entities would be jointly and 

severally responsible to make payments in respect of pension, gratuity and 

other retirement benefits. The Government of Assam took a policy decision for 

taking over the unfunded liabilities relating to terminal benefits and General 

Provident Fund (GPF). The same was notified on 4 February 2005. As regards 

the unfunded terminal liabilities for which the undertaking had been given, the 

Government of Assam agreed to provide for the development of a plan for 

meeting those obligations. An actuarial valuation of ASEB as on 9 December 

2004 was done for the unfunded liabilities. To estimate the current value of the 

liabilities, the exercise covered the period of service put in by the employees up 

to the date of valuation and the annual future rate of contribution to pay for the 

gratuity and pensionary benefits. The net present value of the ASEB’s past 

unfunded terminal benefits on account of pension came to Rs 1,470 crore and, 

including gratuity and GPF, to Rs 2,169 crore. The plan envisaged that it would 

8.7



be funded, among other things, by electricity duty @ 5 paise per unit and a 

special charge on the bulk supply tariff/transmission tariff subject to approval 

of the Regulatory Commission. If there was any shortfall, it would be made 

good by the Government of Assam. The Scheme, therefore, assured the 

employees that their future pensionary and other benefits would not be affected 

by their employment with the new entities. The Government of Assam 

constituted an independent Selection Committee for appointment of managing 

directors and part-time directors of APGCL, AEGCL and DISCOMs. As per 

the recommendations of the Selection Committee, the names of managing 

directors of the company were notified in February 2005 and those of part-time 

directors in May 2005. On 31 May 2005, ASEB transferred the existing 

employees who had opted for the five new companies. 

3.8 A novel feature of the restructuring of the power sector in Assam is that the 

ASEB has been retained to carry out the function of bulk purchase of electricity 

from the generating companies including APGCL and supplying electricity in 

bulk to the DISCOMs. The implementation and coordination of the projects 

supported by ADB and through APDRP also continue to be with ASEB. The 

investments made in the new entities also vest with ASEB. It functions like a 

holding company and Chairman of ASEB is also the chairman of the new 

entities. Under Section 172(a) of the EA, 2003, the Government of Assam 

authorised ASEB to continue as a trading licensee for a further period of six 

months from 9 December 2005 to 9 June 2006 to enable the Board to continue 

with the bulk purchase and bulk supply of electricity. The Government of 

Assam, vide Order dated 16 August 2005, also issued formal orders to give 

effect to the reorganisation of ASEB and the finalisation of the provisional 

transfer. 

4 ELECTRICITY REGULATORY COMMISSION 

The Assam Electricity Regulatory Commission was established in September 

2001 with a single Member. The State Government constituted the AERC as a 

multi-member Commission with a Chairperson and two Members in February 

2005. The Commission has issued tariff orders for the periods 2002-03, 2003- 

04, 2004-05 and 2005-06. The Commission has notified 16 Regulations as per 

the EA, 2003. Utilities have already filed Tariff Petitions before the 

Commission for 2006-07. 

8.8

Assam 

About 1.61 lakh below poverty line (BPL) category of consumers have been 

provided subsidy towards their electricity consumption. Cross-subsidy still 

exists in ASEB. In the tariff petition for the year 2005-06, tariff increase 

demanded was 26 per cent, the Commission granted only 3 per cent. For the 

year 2006-07, the increase asked for is 21 per cent for which tariff order is yet 

to be issued. 

AERC has come out with regulations regarding ‘Open Access’ in transmission 

and distribution of power. Open Access for customers with connected load 

above one MW will be completed in a phased manner by December 2008. 

Companies will have to pay transmission charges, wheeling charges, crosssubsidy 

surcharge (CSS) and additional surcharge payable to the DISCOMs for 

their fixed costs. CSS will not be payable by the captive consumers. 

ABT is, however, yet to be introduced. 

4.1 Memorandum of Understanding 

Commitment made by the State Government in the MoU signed with Ministry 

of Power, Government of India and the status is as under: 

Table: Commitment Made by the State Government in the MoU 

Commitment as Per MoU 

Reduction of transmission & 

distribution losses 

Targeted Completion 

Schedule 

To reduce T&D losses to 

20% by 31 March 2002 

100% electrification of all villages 31 March 2007 

100% metering of all Distribution 

feeder 

100% metering of all consumers 31 December 2001 

Securitise outstanding dues of Central 

public sector undertaking 

On line computerised billing in all 

major towns 

To bring down the level of ASEB’s 

receivables to 60 days billing 

5 PRESENT STATUS 

31 July 2001 Completed 

30 September 2001 

8.9 

Status as on 31 March 

2005 

T&D losses are 37.63% 

62.3% villages electrified (as 

on 31.3.06) 

120942 un-metered 

connections yet to be 

converted to metered status. 

Power bond issued by Govt. of 

Assam 

31March 2002 Not yet achieved 

March 2002 

Not yet achieved. 

Receivable (revenue) 114 days 

billing 

The new entities are in a period of transition. 2004-05 was the first year of the 

independent operation of the newly created utilities. The commercial and



financial functions have not become independent due to shortage of personnel. 

The utilities are dependent on data and guidance from the ASEB. Maintenance 

of accounts is under a common financial head and full compliance as per the 

requirements of the Companies Act regarding maintenance, submission, 

auditing of accounts, independently, by each company has not been achieved. 

Similarly, the data and expertise on tariff filing is in the stage of development. 

The submission of tariff petitions to the Regulatory Commission has been 

largely made with the help of consultants. 

The utilities have to pay more attention to commercial orientation and 

consumer care. In the initial stages, help of consultants may be obtained in 

important activities like preparation and submission of data for tariff proposals, 

etc. However, gradually expertise in these areas should be built up in the 

organisation itself. There has been a strong political commitment to the reform 

and restructuring process. The support given by key personnel in the 

Government and at the helm of SEB, mainly its chairman, have been positive 

factors in implementation of the reform process. The requirement of qualified 

professional staff will be difficult to achieve unless suitable remuneration is 

given. It is understood that only two chartered accountants have joined in the 

last one year. There are three DISCOMs namely upper, lower and central 

Assam. The scope of their activities like the quantum of energy, supply to 

various consumers and the revenue involved does not appear to justify three 

separate DISCOMs. The Government of Assam may like to consider the 

merger of the same with a reasonable size so that control and manning of the 

organisation can be done more efficiently. 

6 CONSULTANTS’ RECOMMENDATIONS 

The restructuring exercise was preceded by the groundwork done by ASEB and 

the ADB and the broad profile was discussed during the visit of the Appraisal 

Mission in September 2003. 

Financial provision and distribution configuration into independent DISCOM 

was made by M/s P.A. Consulting International, Jakarta under Technical 

Assistance Programme from ADB. Transfer Scheme and preparation of 

opening balance sheets of the new entities has been done by M/s 

PricewaterhouseCoopers (PwC) under technical assistance programme from 

ADB. M/s SMEC, Australia, were entrusted with the human resources 

assessment and final transfer of personnel to the new entities. They have 

8.10

Assam 

associated TCS on this assignment. Training and support for loss estimation 

and loss reduction in distribution, accounting and financial transfer programme 

was awarded under a separate contract to M/s PwC. The work assignments 

given to M/s PwC were comprehensive, requiring them to develop a strategy, 

plan and a vision for each company including business strategy and the 

commercial principles for operation, financial analysis support to each of the 

new companies, assess values of the assets and also identify the financial assets 

to be acquired by each company including identification of liabilities. They 

were also to provide regulatory support to the new companies in filing tariff 

petitions and licensing applications. M/s SMEC were mostly involved in the 

HR areas, HR Management Policy for the new companies covering 

recruitment, training, job descriptions, evaluation, promotion, compensation, IT 

and functional specifications for financial and accounting management 

reporting. The consultant was also required to assist in the appointment process 

for senior managerial positions and transfer of personnel to the new companies. 

The experience of restructuring in Assam highlights the critical role played by 

the well-known management and financial consultants in designing the 

structure, helping in the financial areas for starting the work on commercial 

basis and holding the hands of the involved utility personnel. The support in the 

implementation of the reform programme gives confidence to the managers and 

others who have to work under a different system. It is also important that there 

should be continuity in the position of the chief executives whose responsibility 

in the final analysis is to accomplish change over smoothly. In the case of 

ASEB, however, there were three changes. 

7 IMPACT OF RESTRUCTURING 

ASEB has been restructured recently into five new companies, which are 

functioning as its subsidiaries. These companies were corporatised in October 

2003. The chairman of ASEB currently is the chairman of all the new 

companies. The organisational pattern is: three Directors, comprising of the 

MD, Director (Finance) and a Director (Technical). The organisational 

structure proposed was: five positions of General Managers looking after 

commercial, finance, accounts, Human Resources, projects and operations. 

There is, however, an acute shortage of technical and managerial personnel. 

The staff has been transferred from the ASEB but they have to be absorbed in 

the respective companies. Because of the geographical location of Assam and 

8.11



the low remuneration package, companies are facing difficulty in recruiting the 

right type of qualified persons. 

8 TARGETS 

The installed capacity of APGCL of 575 MW has not been augmented for more 

than a decade. The present effective capacity is only 150 MW and operational 

capacity is around 100 MW only. In view of the focussed attention on restoring 

the units which are under break down and augmenting the supply of gas from 

Oil India Limited, the operational capacity was likely to increase by the R&M 

scheme (financed by PFC) by 20 MW and Namrup TPC capacity by 36 MW by 

June 2006. The generation of 808 MU is better compared to that obtaining in 

the last three years prior to restructuring. 3,431 MU of energy available for 

transmission in 2004 (the first year of restructuring) was more than the energy 

available during any of the last five years. Similarly, the energy of 3,137 MU 

delivered by the transmission company in 2004 was higher compared to any of 

the previous five years. The target for reduction in the transmission loss has 

been kept so as to achieve a level of 6 per cent by 2007-08 from the current 

level of 8.55 per cent. This is likely to be achieved as substantial investment is 

being made under APDRP, NLCPR, ADB and other schemes. The target for 

reduction in the technical losses by 2007 is from 18 per cent to 14 per cent and 

in commercial losses, from 14 per cent to 5 per cent. In the first year of 

restructuring, there had not been any noteworthy reduction by the DISCOMs. 

9 FINANCIAL 

In the restructuring of ASEB and as a part of the US$ 250 million assistance 

from ADB, US$ 150 million was meant for restructuring and corporatisation of 

ASEB. The cash deficit was envisaged up to 2005-06. Non-cash settlements 

were required to be made. The targets and the actuals are as under: 

8.12

Assam 

Table: Financial Settlement at the Time of Restructuring 

Particulars 

8.13 

2003 

-04 

2004 

-05 

2005 

-06 

2006 

-07 

(Rs crore) 

2007 

-08 

2008 

-09 

1.FRP: Cross-Settlement 

a. Non-cash settlement 

b. Dues to CPSUs, post 30 September 2001 96 0 0 0 0 0 

c. REC loans 0 20 20 20 20 34 

d. Dues to MeSEB, WBSEB, GRIDCO 0 75 75 75 75 75 

e. Receivables from municipal bodies 0 11 11 10 10 9 

f. Defaulted LIC loans 0 45 0 0 0 0 

g. Defaulted bonds 174 148 0 0 0 0 

Sub-Total 270 299 106 105 105 118 

2. Cash deficits 

a. Current/future cash deficits 110 76 49 0 0 0 

b. Past cash deficit (for 2002-03) 103 0 0 0 0 0 

c. One time settlement of municipal dues 0 67 0 0 0 0 

Sub-Total 213 9 49 0 0 0 

Total 483 308 155 105 105 118 

Sources of funds 

Government of Assam 60 26 155 105 105 118 

ADB Policy Loan 423 282 0 0 0 0 

(Exchange rate US$1=Rs 47) 

Total 483 308 155 105 105 118 

Payments made by Government of Assam against FRP are given below: 

Payments Made by State Government (Rs crore) 

Particulars 

2004-05 

2005-06* 

(partial figures) 

Municipal dues 28.00 14.00 

LIC 38.95 06.05 

Defaulted bond 156.57 23.89 

CPSU 95.00 01.00 

Non-CPSU 50.00 106.39 

Cash deficit 160.82 58.03 

REC 38.60 

Total 529.34 247.96 

*In the year 2005-06 (Budget provision Rs 372.60 crore) 

The State Government has taken over the unfunded liability relating to 

employees’ terminal benefits amounting to Rs 2,169 crore determined through 

actuarial analysis in December 2004.

10 CUSTOMER SERVICES 



In order to evaluate the performance of the suppliers of electricity and the 

related satisfaction level among the consumers, the Advisory Cell of AERC has 

carried out a survey. Questionnaires were distributed among the consumer 

groups for obtaining their responses and the period of survey was from August 

to October 2005. 

On the question of availability of power, the situation is somewhat better in 

Guwahati. The power supply and the quality of supply are poor in areas outside 

Guwahati. A massive programme of upgradation of sub-transmission and 

distribution network is an urgent requirement. Generation capacity needs to be 

increased. There is unauthorised use of power and utilities lose substantial 

revenue due to commercial losses. The survey indicated that only very few 

number of connections are disconnected due to unauthorised use of power. 

There is also a low billing efficiency across the State. The scheme of 

computerisation of billing has been introduced at some of the locations in 

Guwahati but has not yet been introduced at other places. The replacement of 

defective meters also takes a lot of time. If done promptly, it will enhance the 

satisfaction level of consumers. The utilities have to take concerted action in 

various areas after interaction with their customers. 

11 SPECIFIC ISSUES 

11.1 Generation 

The present installed generating capacity in the State is 575 MW and the 

effective capacity is only 150 MW. It has allocated share of 546 MW in the 

Central sector projects located in the north-eastern region. The State is facing 

power shortage. The State has made a two-fold strategy to have more available 

capacity. The capacity addition programme in the Tenth and Eleventh Plans is 

619 MW for thermal projects at an estimated cost of Rs 3,100 crore and 347 

MW for hydro projects at an estimated cost of Rs 2,800 crore. The projected 

peak demand in the year 2006-07 and 2011-12 is 991 MW (restricted demand 

700 MW) and 1,423 MW against the present peak demand of 690 MW. There 

are also a number of hydro and gas projects in the north-eastern region which 

may be implemented by NHPC and NEEPCO. Assam will have a share in these 

projects. The significant event has been for 500 MW Bongaigaon Project, 

which will be set up by NTPC with Assam’s share of 300 MW. 

8.14

Assam 

The Strategy is also to have the repair and restoration work of the units at 

Lakwa and Namrup thermal power stations, which are under break down, to be 

completed between April 2006 and September 2007. This will restore a 

capacity of 93.5 MW. Currently APGCL imports around 465 MW power from 

outside agencies, which still leaves a shortfall of about 135 MW during peak 

hours. The new capacity addition of 966 MW by the end of Eleventh Plan will 

have a thermal-hydro mix of 64:36, which will ensure a better supply to the 

State of Assam. 

Most of the power stations are operating much below their rated capacity. 

There is also a shortage of fuel. Fixed cost and the variable cost of fuel had to 

be recovered on the sale price of 716 MU fixed by AERC at Rs 1.63 per unit 

for 2005-06 against Rs 1.80 per unit fixed for 2004-05. The cost of energy for 

the year 2004-05 was Rs 2.37. The accounts for the year 2005-06 are still under 

finalisation. 

It is a transition period and it is too early to make a comparison of the technical 

and efficiency levels as well as financial turn-around in the aftermath of 

restructuring. 

11.2 Transmission 

Assam has a transmission network of 4,129 ckt km. ADB has sanctioned US$ 

100 million for transmission and distribution system as a project loan mainly 

for the improvement in the transmission and distribution system. It included 44 

ckt km of 220 kV lines and 505 ckt km of 132 kV lines. 12 new sub-stations of 

132/33 kV were also included. The project covered augmentation of existing 

sub-stations, grid communication system and expansion of SCADA system. 

The projects are under implementation and investments in the transmission 

sector for the various years are under: 

2003-04 2004-05 2005-06 

(Rs crore) 

2006-07 

13.70 36.48 70.38 70.39 

The transmission loss is about 9 per cent and it is estimated by AERC that the 

loss cannot be reduced suddenly. With investments now being made towards 

improvement of the transmission system, the transmission loss should come 

down to about 6 per cent by 2006-07. 

8.15

11.3 Distribution 



AT&C losses have been around 41 per cent. The final appraisal carried out by 

the ADB states that with the efficiency improvements and investments in the 

transmission and distribution sectors for upgrading the network, the target is to 

bring them to 25 per cent in the year 2007-08 which includes reduction in the 

technical loss from 18 per cent to 14 per cent and commercial loss from 14 per 

cent to 5 per cent. There is no perceptible reduction in the AT&C losses yet. 

M/s PricewaterhouseCoopers have been given a project assignment for training 

and support for loss estimation and loss reduction in the distribution system. 

The consultant will determine the total losses in the feeders and also identify 

the areas where higher losses are occurring. Consultants were also to carry out 

studies to segregate the technical and commercial losses and also train the 

DISCOMs field staff in the estimation methodology and techniques. The 

causes and estimation of the commercial losses due to various reasons like 

tampered meters, under-billing, under-recorded loads, etc., is also to be done. 

Pilot studies for reduction in commercial losses on the basis of the monitoring 

of consumer installation; on the job training to the DISCOMs staff is also in the 

scope of the study. This consultancy assignment is still under way. For 

handling of cases of electricity theft, exclusive courts have not been set up but 

the senior-most Sessions Judge has been asked to handle such cases. The 

billing is partially computerised and the plan is for fully computerised billing in 

the current year. The frequency of meter reading and billing is monthly. 

However, 100 per cent metering at the 11 kV feeder level has been achieved. 

Information Systems will improve after computerised billing is implemented 

on a large scale. 

The DISCOMs have not prepared separate unit cost for various categories of 

consumers like, agricultural, domestic and industrial. About 46 per cent of 

energy is supplied to domestic category, 15 per cent to industrial, 10 per cent to 

commercial and about 29 per cent to tea gardens and agricultural consumers, 

etc. Being in the transition period, commercial and financial capacity building 

is taking place. The schemes covered under APDRP are being implemented 

actively in various circles. Out of an amount of Rs 174 crore received under 

APDRP, Rs 171 crore has been utilised so far. 

Single Point Power Supply through Franchisee Scheme has been introduced to 

provide better electricity service to the rural population. Targets have been set 

8.16

Assam 

to achieve 100 per cent electrification of villages in Assam by 2007. The Single 

Point Power Supply Scheme (Franchisee Model) has been a success in the 

State. The Scheme has received good response from the consumers and has 

contributed to increase in the revenue of the companies. About 1,000 DTs have 

been handed over to the Franchisees; the average revenue collection, as on 31 

August 2005, has gone up from Rs 1.2 lakh to Rs 2.72 lakh. It has also 

generated employment for 492 persons in various circles. The Rural 

Electrification Policy, 2005 of the State is very comprehensive. At present, 

only 17 per cent of rural household are electrified, while 86 per cent of the 

population lives in rural areas. The IT applications and expansion of its 

SCADA system is under the scope of consultants’ assignment. Regulatory 

Commission is demanding efficiency improvements and the DISCOMs are 

accountable for their performance. The distribution sector could be turned 

around particularly with the availability of substantial funds. 

So far, High Voltage Distribution System (HVDS) has not been introduced in 

Assam. Introduction of HVDS will help in curtailing the theft of electricity and 

reducing losses. 

11.4 Regulators 

A legal framework exists under the EA, 2003, which provides a wide mandate 

and independence to the SERC. The Commission was established in 2001 as a 

single Member body. It was reconstituted as a multi-Member Commission, i.e., 

with a Chairperson and two more members in February 2005. The Commission 

is functioning independently with grants from the State Government and 

receipts on account of petitions filed before it. The Commission has issued 

Tariff Orders for the years 2002-03, 2003-04, 2004-05, and 2005-06. The 

utilities have filed Tariff Petition for 2006-07. The Commission is considering 

issue of MYT to be reviewed annually. Time of the day (TOD) meters have 

been introduced in three blocks in HT category only. The commission may 

introduce it for the commercial power supply also. 

For the year 2005-06, subsidy of Rs 49 crore was provided by way of direct 

Government grant. The amount actually released was Rs 24 crore. Regarding 

the surcharge, the Commission has carried out a study and proposes to notify 

the surcharge in the tariff for 2006-07. One order of the Commission was 

challenged before the Tribunal but no stay order was granted to the applicant. 

8.17



The Commission has notified 16 regulations as per the EA, 2003. The 

regulations covered areas like procedure, terms and conditions for distribution 

license, intra-state trading license, intra-State transmission license, terms and 

conditions for Open Access, licensees standard of performance, grid code 

regulations, meter code, etc. 

At present, the staff strength of the Commission is 22 (including officers). Most 

of these officers are on deputation from ASEB and other offices of the State 

Government. Some have been appointed on contractual basis. 

The Commission should have its own cadre and well-defined 

organisational structure if it has to function effectively. 

12 FINDINGS AND RECOMMENDATIONS 

12.1 Post-Reform Performance 

The power utilities in Assam after restructuring of ASEB were incorporated 

under the Companies Act, 1956 in October 2003. The appointment of 

managing directors was notified in February 2005 as per recommendations of 

the Selection Committee. The First Transfer Scheme under the Assam 

Electricity Reforms was notified in December 2004. The orders for the terminal 

benefits as well as the tripartite agreement with the unions and the associations 

of engineers was issued in February 2005. It is evident from these steps that 

2005-06 was the first year of transition. The bulk purchase of power from the 

generators and supplying it to the DISCOMs is still being carried on by ASEB. 

Similarly, the AEGCL is carrying on transmission of electricity within and 

from outside the State as was being done by the transmission wing of the 

erstwhile ASEB. The main difference is in their working as a corporate entity 

and identified accountability. There is an awareness that the managements are 

responsible and have to show improvement in their working as compared to the 

pre-reform period. The filing of tariff petitions for approval of rates for their 

specific activities is a key area for judging the performance. The speed in 

decision-making in the post-reform period is better. The marginal improvement 

in the energy sold and turnover has also increased. The management of 

separate cadres for each of the restructured entities will pose a challenge with 

limited opportunities for growth. The induction of qualified personnel from the 

market is a key issue to be resolved. 

8.18

Assam 

12.2 State Government Policy 

The drivers for the reform and restructuring of the power sector have been a 

strong political commitment for introducing efficiency and financial viability 

of the power utilities. The power policy announced in January 2003 on the 

reform and restructuring of power sector laid the road map for various 

initiatives to be taken. The Government was taking positive steps by clearing 

up the financial liabilities of ASEB and ensuring that the new utilities start on a 

clean slate. The note-worthy step was to take over all the pensionary and 

retirement benefits dues of the employees and involving through dialogue the 

staff, the workers and the engineers in the process of restructuring. The 

Principal Secretary (Power) and the Chairman of ASEB played a crucial role in 

introducing the reforms and restructuring process smoothly. 

12.3 Recommendations 

A study of the reforms and the restructuring gone through by Assam brings out 

the following key points: 

(a) A strong political commitment to carry through the process of reforms is 

the primary driver for starting and completing the process. 

(b) A road map of the reform and restructuring in the form of policy, 

objectives, strategy and proposed steps including financial restructuring is 

necessary to give a clear vision how the various reforms processes have to 

be taken; 

(c) If the new entities have to be financially viable, they should be enabled to 

start on a clean slate; 

(d) Funding needs to be provided for the cross-liabilities between SEB and 

the Government with a clear provision of how the shortfall in the initial 

years of operation will be met; 

(e) Dialogue and agreements with the workers’ unions and staff and 

engineers’ associations needs to be done carefully so that the employees 

become willing partners in the reform process; 

(f) The expertise, experience and advice of competent consultants, 

particularly in the areas of corporatisation, organisational setup, training 

of staff and financial and accounting activities can be of great help in 

setting up the new processes; 

8.19



(g) Funding from international institutions like World Bank, ADB, etc., can 

assist the State utilities in meeting the needed investments in the areas of 

transmission and distribution. The rigorous examination and laying down 

the series of steps to be taken would also bind the utilities in concrete 

terms to the targets to be achieved; 

(h) The number of consumers in Assam is about one million and there are 

over 17,000 employees. Employees consumers ratio is very high at 1:57. 

The number of DISCOMs and other restructured entities is five against 

the single integrated SEB in pre-reform period. There is a shortage of 

technical and qualified staff for many new positions to be manned 

particularly in finance, commercial and HR functions. The justification for 

creating three DISCOMs may be reviewed and these may be combined 

into one or two DISCOMs. This will reduce the administrative difficulties 

in manning the new companies; 

(i) Loss estimation and loss reduction is a key area for the DISCOMs. As a 

pilot study is being conducted by the consultants M/s 

PricewaterhouseCoopers, the staff of the DISCOMs could be extensively 

involved in the above exercise and imparted training in segregating 

technical and commercial losses as well as investigating causes for 

commercial losses; 

(j) The top personnel in the Government as well as at the utilities level 

should not be shifted too frequently. They must be retained for a 

reasonable period so that there is stability in the process. The 

independence in their functioning is to be respected. Also, mechanisms 

need to be designed to hold the hands of those who are venturing on the 

new path of accountability and result-oriented performance. 

(k) The experience of Assam has shown that the schemes of franchisees in 

rural electrification can take off creating more revenues and employment 

opportunities. 

8.20

Assam 

The Report is based on the information provided by State Government, 

the ASEB and the restructured entities, ASERC, consultants and 

questionnaire discussed with the following officers during the meeting held 

on 17 and 18 April 2006 at Guwahati: 

1 Sh. S.K. Srivastava Principal Secretary (Power) 

2 Sh.A.K.Bora MD (Assam Power Generation Company) 

3 Sh. N.C. Deka MD (Assam Grid Corporation) 

4 Sh.U.K. Goswami MD (Central Assam Electricity Co. Ltd) 

5 Sh. P.K. Bor Thakur MD (Lower Assam Distribution Co. Ltd) 

6 Sh. U.C. Sarma Member (T) ASEB 

7 Sh.B.K. Duari Director Personnel 

8 Sh. P. Basumatary Member (Finance) ASEB 

9 Sh. T.K. Bose CE (D), LAEDCL 

10 Sh. R.K. Sinha SE, CAEDCL 

11 Sh. S.N. Saha SE, UAEDCL 

12 Sh. D.K. Donitts CE, UAEDCL 

13 Sh. A.K. Goswami Senior Manager, PMU Office 

14 Sh. S.K.Saha Chief General Manager (CF) 

15 Sh. A. Debnath Deputy Manager 

16 Sh. B.K. Sarma Addl. CE (Revenue) 

Regulatory Commission 

1 Sh.J.P. Saikia Member 

2 Sh. H.Datta Member 

3 Sh. M.K. Adhikary Joint Director (Tariff) 

Consultants 

1 Sh. A.K. Ganguly SMEC 

2 Sh. D. Ghosh TCS 

3 Sh. B. Mehta PWHC 

8.21


EXECUTIVE SUMMARY............................................................................................2.1 

GENERAL OVERVIEW...............................................................................................2.8 

Haryana State Profile.....................................................................................................2.8 

Background of Power Sector Reforms in Haryana.....................................................2.8 

The Reform Expectations ..............................................................................................2.9 

GENERATION.............................................................................................................2.10 

Haryana Power Generation Corporation Limited (HPGCL)..................................2.10 

Generating Capacity in the State................................................................................2.10 

Capacity Before Restructuring ...................................................................................2.10 

Capacity Addition After Restructuring .....................................................................2.10 

Capacity Addition Initiatives in the State ..................................................................2.10 

Capacity Addition.........................................................................................................2.10 

Investment Plan of HPGCL.........................................................................................2.11 

Capacity Addition through IPPs.................................................................................2.11 

Renovation and Modernisation of Existing Plants....................................................2.12 

Performance of the State Generation Units ...............................................................2.12 

Technical Parameters...................................................................................................2.12 

Plant Load Factor (PLF) .............................................................................................2.12 

Fuel and Auxiliary Consumption................................................................................2.13 

Plant Availability..........................................................................................................2.14 

Financial Parameters ...................................................................................................2.15 

Overall Performance....................................................................................................2.15 

Fixed Cost......................................................................................................................2.15 

Variable Cost ................................................................................................................2.16 

Observations/Comments..............................................................................................2.17 

TRANSMISSION .........................................................................................................2.18 

Operational Parameters...............................................................................................2.19 

System Losses................................................................................................................2.19 

Establishment and SLDC and Interconnection With HVPNL System...................2.19 

Reactive Energy............................................................................................................2.20 

Transmission System Availability...............................................................................2.20 

Planned Maintenance...................................................................................................2.21 

Capital Investment in Transmission Sector...............................................................2.22 

Power Supply Position in the State.............................................................................2.22 

Future Demand Projections ........................................................................................2.24 

Future Strategy to Bridge the GAP ............................................................................2.24 

Power Purchase HVPNL .............................................................................................2.24 

Energy Balance.............................................................................................................2.24 

Short Term/Unscheduled Interchange Purchases.....................................................2.26 

Load Shedding ..............................................................................................................2.27 

Open Access in Transmission......................................................................................2.27 

Commercial Health of HVPNL ...................................................................................2.27 

Payment of Outstanding Dues to CPSUs ...................................................................2.27 

Observations/Comments..............................................................................................2.29

DISTRIBUTION SYSTEM......................................................................................... 2.30 

Parameters to Measure the Effectiveness of Reforms.............................................. 2.32 

Reliability and Quality of Power ................................................................................ 2.32 

Extent of Load Shedding............................................................................................. 2.32 

Number of Interruptions and Quality of Supply ...................................................... 2.32 

Failure of Distribution Transformers (DTs) ............................................................. 2.33 

Losses in the Distribution System............................................................................... 2.34 

Theft Reduction Measures .......................................................................................... 2.36 

Subsidy Support by the State Government ............................................................... 2.36 

Agricultural Consumption.......................................................................................... 2.36 

Subsidy Support........................................................................................................... 2.37 

Commercial Viability .................................................................................................. 2.38 

Receivables ................................................................................................................... 2.38 

Financial Gap in Distribution Sector......................................................................... 2.39 

Capital Expenditure .................................................................................................... 2.42 

Status of APDRP Funding .......................................................................................... 2.42 

Standards of Performance (SoP) and Customer Related Measures ....................... 2.43 

Metering........................................................................................................................ 2.43 

Billing ............................................................................................................................ 2.43 

Collection ...................................................................................................................... 2.44 

Redressal of Consumer Grievances............................................................................ 2.44 

REGULATORY FRAMEWORK.............................................................................. 2.45 

Tariff Revision ............................................................................................................. 2.46 

Implementation of Present Issues under the EA, 2003............................................. 2.47 

Open Access.................................................................................................................. 2.47 

Multi Year Tariffs........................................................................................................ 2.47 

Power Trading.............................................................................................................. 2.47 

Directives issued by the Commission ......................................................................... 2.48 

MoU and the Achievements ........................................................................................ 2.49 

ELECTRICITY ACT, 2003 AND THE REFORM PROCESS............................... 2.50 

State Government and Governance Issues................................................................ 2.51 

Regulatory Issues ......................................................................................................... 2.52 

Generation .................................................................................................................... 2.53 

Distribution................................................................................................................... 2.53 

WAY FORWARD........................................................................................................ 2.55 

State Government and Governance Issues................................................................ 2.55 

Regulatory Issues ......................................................................................................... 2.56 

Generation .................................................................................................................... 2.57 

Transmission ................................................................................................................ 2.57 

Distribution................................................................................................................... 2.58 

CONCLUSIONS .......................................................................................................... 2.60

GENERAL 

HARYANA 


Haryana was one of the pioneering States in power sector reforms and restructuring. 

The study has been undertaken with the object of taking stock of the progress made by 

the State on the power front after restructuring of its SEB in 1998 and also to assess 

the extent to which the targets and goals set at the time of the implementation of the 

reform have been achieved. The role played by the State and efforts of the Regulatory 

Commission to steer the reforms in the early stages of the reforms has also been 

analysed. The study has analysed the data as furnished and information collected 

during discussions with the officials of the State Government and the Utilities. The 

total capital investments in the power sector in the State prior to the reforms were of 

order of Rs 1,053 crore during the period 1991-92 to 1997-98. The investments picked 

up considerable pace after restructuring of the sector into separate generation, 

transmission and distribution Utilities. The investments have grown fourfold after 

restructuring of the State SEB, compared to the corresponding period prior to 

restructuring. 

Haryana had been facing peak power demand shortage of 11 per cent and energy 

deficit of around 25 per cent at the time of restructuring of HSEB in 1998. The 

demand in Haryana has been rising consistently at an annual rate of around 8 per cent. 

This demand is likely to be higher with greater economic development on account of 

new industries including Information Technology (IT) and accelerated real estate and 

urban development in the National Capital Region (NCR), a large part of which falls 

in the State of Haryana. 

The State’s own power generation capacity is limited and has been heavily dependent 

on power imported from outside sources. An aggregate capacity of 724 MW has been 

added during the post-reforms period till date, comprising of 710 MW in thermal and 

14.4 MW in hydel. A bulk of this capacity addition, has, however, occurred during the 

period 2003 to 2005. 

The power sector reforms process in the State has failed to involve the public at large 

with regard to the reform objectives, transitional problems and interplay of all the 

stakeholders in the entire process. Communication strategy, which was part of the 

power sector reforms, when the restructuring exercise of HSEB was initiated in 1998-



99, has not been sustained to the desired level. This has resulted in lack of 

understanding and poor response from the public to the crucial issues relating to the 

reforms process. 

GENERATION 

Key Concerns 

The 16 th Electric Power Survey (EPS) projections by CEA forecasted a demand of 

around 7,000 MW for Haryana in 2011-12. Considering the fact that Haryana has 

currently a capacity of around 4,033 MW, the State has taken some concrete steps for 

capacity addition of 3,000 MW during the next five years. The State has formulated an 

ambitious plan for capacity addition in the State sector during the Eleventh Plan with 

an outlay of around Rs 11,596 crore. Deenbandhu Chhotu Ram Thermal Power 

Project-II, (DCRTPP) Yamuna Nagar with a capacity of 600 MW (2x300 MW), is 

expected to be commissioned by February 2008, HPGCL has taken up 1,000 MW 

thermal project at Hissar and plans have been finalised for another 1,000 MW plant in 

Jhajjar district through the competitive bidding route. The State is taking initiatives for 

timely completion of the projects planned to be executed during the Eleventh Plan 

period. However, the investments would depend on the availability of the State’s 

budgetary resources and the degree of success in obtaining financial support from the 

Financial Institutions (FIs). 

The State has also received Expression of Interest from many Independent Power 

Producers (IPPs) for setting up gas-based projects within the State. However, owing to 

the uncertainty in availability of gas, it is unlikely that any of these would fructify in 

the foreseeable future. 

The power sector reforms in the State have not attracted private investments. But now 

the State Government is creating an enabling environment and making renewed 

efforts for attracting private investments in the generation segment and also to 

supplement its own plants for increasing the State’s share in generation capacity by 

2011-12. 

The variable cost of generation is increasing rapidly for HPGCL plants. From 67 per 

cent of total cost of generation in 1999-2000, the same stands high at 72 per cent of 

the cost of generation in 2004-05. HPGCL has improved operating performance levels 

of the existing generating stations during the post-reform period. Apart from the 

addition in generating capacity, there is a substantial improvement in the Plant Load 

2.2

Haryana 

Factor (PLF) of the thermal power stations. The average plant availability has 

improved up to a level of 78.11 per cent in 2004-05. HPGCL has reduced coal 

consumption and secondary oil consumption by about 8 per cent and 6.7 per cent 

respectively. Thermal power plants of HPGCL have attained improvement in respect 

of auxiliary consumption, which has been consistently coming down since 2000-01. 

TRANSMISSION 

Positive outcome 

A total of around Rs 1,453 crore had been spent on network augmentation and 

expansion of the transmission system since 1998-99, resulting in an increase in the 

number of 220 kV sub-stations by around 50 per cent and 56 per cent in 132 kV substations 

after restructuring. HPVNL has set an optimistic investment plan of about Rs 

684 crore for 2006-07 and Rs 5,194 crore for the Eleventh Plan. The sources of funds 

to be deployed in the investment plan are, however, subject to prudence check and 

approval by HERC. 

HVPNL’s achievement of 98 to 99 per cent availability of most of its transmission 

network in the State is commendable. There has been a reduction in the overall losses 

in the transmission system in the State. The inter-State losses are around 1.45 per cent; 

even the intra-State losses have come down to 3-4 per cent. There was a significant 

saving in outages to the extent of about 466 hrs on 220 kV lines on account of hotline 

maintenance carried out by the Utility staff. Around 9,000 hrs of planned maintenance 

was carried out, which enhanced the reliability of power supply in the State. 

Key Concerns 

It is desirable that the concerned State Utilities conduct requisite load flow studies to 

further improve the reliability and quality of power supply in the network. The 

network augmentation should be based on reliability principles and studies. This 

would ensure that the power system expansion is in line with the future demands. 

While State Load Despatch Centre (SLDC) has been set up as a separate entity 

presently working under the STU, however Area Load Despatch Centres (ALDCs) for 

the DISCOMs have not been established. Also, the interface metering consequent to 

network expansion has also not been completed. This is likely to lead to delay in the 

introduction of intra-State availability based tariff (ABT). 

2.3

DISTRIBUTION 

Key Concerns 



The investment in the distribution sector during the entire post-restructuring period 

has been around 21 per cent of the total investments made in the State power sector. 

Even after increase in investments into the distribution sector, the distribution losses 

still remain a major area of concern. The data with HERC shows that T&D losses 

have remained around 32 per cent and if the reduction in collection efficiency is taken 

into account, the losses would be still higher. It is obvious that the DISCOMs have 

negated the benefits of efficiency improvements achieved in generation and 

transmission to percolate down to consumers in the form of lower tariffs. 

The main objectives of the power sector reforms are to rationalise tariffs, remove 

inefficiencies and provide quality and reliable power supply to the consumers. On 

these counts the outcome does not appear to be encouraging. It is pertinent to note 

that: 

(a) AT&C losses have shown an increasing trend, with loss levels as high as 38.26 

per cent and 42.59 per cent for DHBVNL and UHBVNL respectively; 

(b) The amount of receivables has almost doubled for both the DISCOMs taken 

together. While it was pegged at around Rs 1,119 crore for the two DISCOMs as 

on March 31, 2000, it has shot up to Rs 2,852 crore by 31 March, 2005; and 

(c) The average duration of interruption hrs/line has almost doubled, showing the 

negative trend and poor reliability of power supply to the consumers by the 

DISCOMs. 

Pumpset irrigation constitutes the major share towards agricultural consumption of 

electricity. At the time of restructuring, nearly 80 per cent of the agricultural pumpsets 

were unmetered. Not much progress has been made on this front and the unmetered 

agricultural pumpset connections are still as high as 67 per cent. The flat rate system 

and extremely low agricultural tariffs in the State can lead to misuse of electricity. 

This is also responsible for the excess drawl of underground water. Inefficiency in the 

use of water needs to be addressed by reviewing the existing flat rate system of tariff. 

Hence, the Government or the Regulatory Commission needs to address this issue. 

There is a progressive increase in the amount of of subsidy provided by the 

Government on account of agricultural consumption. The State has a consistent record 

2.4

Haryana 

of providing timely subsidy to the sector. From Rs 532 1 crore in 1999-2000, the 

subsidy support has grown three fold and has reached a level of Rs 1,686 crore for 

2006-07. Increased level of subsidies provided to the DISCOMs by the State seems to 

have salvaged the financial performance of the DISCOMs. The Government’s 

inability in the future to provide subsidy may seriously jeopardise the commercial 

viability of the sector. This may call for rethinking about the existing low tariffs for 

agricultural consumers, which continues to distort the financial health of the 

DISCOMs. 

Involving the public at large (through social awareness) in controlling electricity thefts 

can further strengthen the reform process. The same can be implemented by providing 

discounts in the electricity bills of the consumers either on an area or feeder basis that 

helps the Utilities in controlling/eliminating thefts of electricity. It would help in 

creating a better public consciousness about the need for greater social responsibility. 

Such a cultural change is extremely important for effectively addressing the menace of 

electricity thefts, which is one of the factors responsible for overwhelming losses 

suffered by the Utilities. This aspect may be addressed by the Utilities in consultation 

with the Regulatory Commission. 

While the ARR is met through revenue from the projected sale of power and subsidy 

available from the Government, in real terms, there is an increasing gap on account of 

underperformance by the DISCOMs to recover the amount billed. This leaves a huge 

gap in the revenue realised by the DISCOMs. A reversal of trend has been observed, 

with DISCOMs reporting a profit of Rs 70 crore in 2003-04 against a loss of Rs 414 

crore in 1999-2000. In 2004-05, the DISCOMs again reported a loss of around Rs 397 

crore, which reflects that the DISCOMs could not sustain the efforts of enforcement 

and other loss reduction initiatives. 

The consumers in the State are subjected to massive load shedding of about 4 to 5 hrs 

for various categories of consumers. 

The performance of DHBVNL has been deteriorating since 2001-02. The failure rate 

of distribution transformers (DTs) in DHBVNL increased to 19.4 per cent in 2004-05 

from 17.9 per cent during 2001-02. 

There were a large number of complaints pertaining to meters, around 70,000 in 2002- 

03, which are high when compared to the initial number of complaints prior to 

1 Source: HERC Tariff Order 1999-2000 

2.5



restructuring. More than one lakh consumer complaints related to billing issues in 

2002-03 in respect of both the DISCOMs are still pending. 

REGULATORY PROCESS 

Haryana Electricity Regulatory Commission has revised the distribution and retail 

supply tariff only thrice in the last seven years. This is in spite of the increase in power 

purchase expenses of the DISCOMs. In the tariff setting philosophy of the 

Commission, it was envisaged that the tariff shall move towards cost to serve and 

cross-subsidy shall be gradually removed. Since tariff setting process has virtually 

come to a standstill, it has denied opportunities for bringing differential tariffs, e.g. 

Time of Use/Time of Day for certain categories to flatten the load curve and reducing 

the cross-subsidy. 

The regulatory oversight and monitoring, which is a necessary requirement for the 

sector, has been less effective, partly due to the attitude of the utilities towards the 

directives issued by the Commission and inability of the Commission to enforce 

compliance by the Government owned Utilities. This inherent dichotomy can be 

addressed by mutual understanding of regulatory process and cooperation with the 

Commission in achieving its objectives. 

The Commission has not undertaken periodic assessment on the performance 

standards set for the operations and service deliverable of the DISCOMs. This has 

been partly responsible for the poor public responsiveness in the State towards the 

mechanisms and regulatory oversight for bringing efficiencies in the sector. 

There is a need for capacity building for the Commission since its present capacity in 

terms of manpower is far too adequate to translate the objective of the EA, 2003. 

Separate regulatory fund as required under the EA, 2003 has not been constituted by 

the State. 

ROLE OF THE STATE GOVERNMENT 

The study reveals that the reforms critically depend on the continued support and 

strong commitment of the State Government. The Government is committed to 

providing subsidy support to meet the cost of supply of power to the agricultural 

consumers. The State has fulfilled this commitment by providing increased subsidy. 

2.6

Haryana 

The State has yet to formulate a clear policy as to how it proposes to turn around the 

two DISCOMs and improve their performance. There is no Financial Restructuring 

Plan (FRP) for support to the DISCOMs whose losses have increased even after seven 

years of existence. The ad-hoc approach of assistance to consumers in the form of 

waiver scheme, as announced recently, may provide one-time infusion of funds to the 

Utilities but it would not serve the objective of holding the Utilities accountable for 

their performance. 

Key Concerns 

f.1 The State does not seem to have formulated a clear policy and strategy for the 

future direction for the reform process in the State, especially regarding 

competition in the generation and distribution segments. Institutional 

mechanisms would be necessary to monitor the performance of the DISCOMs, 

particularly towards achievement of critical targets on a yearly basis through 

MoU/MoA route or any other arrangement of a binding nature. 

f.2 There is a need to consider FRP of the Utilities, which should provide specific 

flow of any additional revenue support to the utilities and corresponding 

obligations of the utilities for bringing down the AT&C losses to acceptable 

levels. This would obviate the occasional ad-hoc support that the State has been 

providing in the form of waiver scheme, etc. 

f.3 The frequent transfers of the senior management, particularly the MDs, 

adversely affect the much-needed commitment and focussed attention for 

bringing improvement in the functioning of the Utilities. The State may, 

therefore, ensure a fixed tenure for the MDs and senior management personnel. 

f.4 The State Government’s role was to provide the broad policy framework and 

allow the Regulatory Commission to bring about efficiencies through annual 

approval of the revenue requirement and expenditure of the Utilities. However, 

the study reveals that the Government has not refrained from micro-managing 

the Utilities. Also, the Commission’s authority to strictly monitor the 

performance has been rendered ineffective by non-compliance of the directives 

issued by it. 

2.7

HARYANA STATE PROFILE 2 



GENERAL OVERVIEW 

Haryana has a total area of 44,212 sq km with a population of around 225 lakh in 

2004-05. The per capita income in the State at current prices is around Rs 32,712, next 

only to Punjab. The contributory factor towards the accelerated development of the 

State is on account of rapid growth in the services sector and economic advancementtaking 

place in the districts coming under the National Capital Region. 

The State had a total cropped area of around 64 lakh hectares in 2003-04 and has 

around six lakh agricultural pumpsets. About 80 per cent population of the State is 

engaged in agricultural activities, directly or indirectly. Apart from meeting its own 

requirement of foodgrains, Haryana also contributes about 45 lakh tonnes of 

foodgrains to the Central Pool annually. There is a network of canals and an effective 

lift irrigation system for the arid areas of the State and electricity is supplied on 

subsidised rates to the agricultural sector. The State achieved 100 per cent 

electrification of all its villages way back in November 1970. The average connected 

load of the agricultural consumers had reached 5.8 kW per pumpset in March 2000 

from 4.7 kW in 1990. Electricity consumption increased to 2,543 MU in 1989-90 and 

to 4,570 MU in 1999-00. 

BACKGROUND OF POWER SECTOR REFORMS 

Haryana adopted the reform model based on the study of the power sector undertaken 

by the World Bank in 1995-96, which had recommended comprehensive reforms of 

the electricity sector in the State. In order to undertake power sector reforms, the State 

enacted the Haryana Electricity Reforms Act, 1997. The objectives of the reforms as 

per the said Act were: 

(a) Creating financially viable electricity sector; 

(b) Creating an environment to attract private investment; 

(c) Promote competition; and 

(d) Provide over all development of the electricity sector in an efficient, economical 

and competitive manner. 

2 Source: Haryana Government website: http://haryana.gov.in/ 

2.8

Haryana 

The need for comprehensive reforms was felt as the Haryana State Electricity Board 

(HSEB) found it increasingly difficult to meet the demand for power, which witnessed 

a peak shortage of 11 per cent and energy deficit of around 25 per cent in 1997. No 

generation capacity had been added within Haryana till 1990 and the State was 

increasingly dependent on power imported from outside sources. 

Due to poor transmission and sub-transmission system in the State, supply from 

outside sources in the northern grid could not be fully availed. The situation further 

worsened due to lack of adequate funds for expansion of generation, transmission and 

distribution capacities and the State’s inability to control the cumulative effect of 

inefficiencies and mounting commercial losses. By March, 1998 the accumulated 

financial losses had reached Rs 16,079 million and continued to grow on account of 

non-compensatory tariffs, high energy losses and poor revenue collection. The 

financial health of HSEB did not improve despite huge support of Rs 42,613 million 

from the State Government during the five years preceding the reforms. 

Chronology of Restructuring 

HSEB was carved out from PSEB in 1967. Haryana Electricity Reforms Act, 1997 

was enacted in August 1998. HSEB was restructured into Haryana Power Generation 

Corporation Ltd (HPGCL) and Haryana Vidyut Prasaran Nigam Ltd (HVPNL). 

Subsequently, through the Second Transfer Scheme (notified in July 1999), two 

distribution companies viz: (i) Uttar Haryana Bijli Vitran Nigam Ltd (UHBVNL) and 

(ii) Dakhshin Haryana Bijli Vitaran Nigam Ltd (DHBVNL) were incorporated by 

transferring distribution assets, liabilities and personnel of HVPNL to them. 

THE REFORM EXPECTATIONS 

When the reforms were initiated in the sector, it was expected that these would lead to 

conditions for self-sustenance and would be able to attract private investments and 

participation, improve availability, quality and reliability of power at reasonable prices 

to the consumers in the State. The reforms in the State have been in place for nearly 

seven years now. The direction, which the reforms have taken, and the efforts made in 

the reform process during the last seven years reflect a mixed picture of the entire 

reform process as elaborated in the subsequent sections of this Report. 

2.9



GENERATION 

HARYANA POWER GENERATION CORPORATION LIMITED 

Haryana Power Generation Corporation Limited (HPGCL) was incorporated as a 

company under the Companies Act, 1956 and commenced business on 5 August 1997. 

HPGCL took over the functions of generation of power of the erstwhile HSEB on 14 

August 1998, pursuant to the implementation of power reforms in the State. 

The key responsibilities of HPGCL are: 

(a) Generation and sale of power from the existing generating stations of Haryana 

and to sell the entire power generated exclusively to the Haryana Vidyut 

Prasaran Nigam Limited (HPVNL); and 

(b) To set up new power projects in the State sector. 

GENERATING CAPACITY IN THE STATE 

Capacity Before Restructuring 

At the time of restructuring, in 1998, the capacity under HPGCL was 863 MW with 

thermal share of about 95 per cent. There were two main generating facilities, viz., at 

Panipat with a capacity of 650 MW (4x110 MW + 1x210 MW) and at Faridabad with 

five units of 55 MW each. Besides the above, the State had a small hydel capacity of 

48 MW at West Yamuna Canal. 

Capacity Addition After Restructuring 

Considering the widening demand supply gap in the State, significant capacity 

addition initiatives were introduced during the last five years after restructuring of 

HSEB. HPGCL has added around 724 MW with three units at Panipat (1x210 MW + 

2x250 MW = 710 MW) and 14.40 MW at West Yamuna Canal. The State now has a 

total generating capacity of 1,587.40 MW. 

CAPACITY ADDITION INITIATIVES IN THE STATE 

Capacity Addition 

During the Tenth Plan period, the State has been able to add around 724 MW of 

generation capacity and has formulated an ambitious plan for capacity addition during 

the Eleventh Plan. The Deenbandhu Chhotu Ram Thermal Power Project-II, Yamuna 

Nagar with a capacity of 600 MW (2x300 MW) is expected to be commissioned by 

February 2008. The estimated cost of the project is Rs 2,400.23 crore, including 

2.10

Haryana 

interest during construction (IDC). 20 per cent of the project cost, i.e., Rs 480.05 

crore, is being contributed by Government of Haryana by way of equity and the 

balance 80 per cent of the cost, i.e., Rs 1,920.18 crore is proposed to be financed from 

PFC as a loan. 

Besides the above, there are other projects under consideration by the State as 

mentioned below: 

Table: Generation Projects Under Consideration (State sector) 

Name of Project 

Capacity 

(MW) 

Coal-based plant at Hissar 1000/1200 

Coal-based plant at Matenhail 

(District Jhajjar) 

Coal-based plant in Faridabad 

District 

Pet-coke- based power plant at 

Panipat 

Investment Plan of HPGCL 

1000/1200 

1000/1200 

2.11 

Status 

M/s Desein, New Delhi have been engaged for 

preparation of DPR on 10 March 2006 

HPGCL is in the process of inviting competitive 

bids. 

This project is in a preliminary stage. The 

detailed report of CEA in this regard is awaited. 

500 Feasibility is being explored. 

(Source: HVPNL) 

HPGCL has set an optimistic investment plan for the Eleventh Plan to further enhance 

the generating capacity. There is a Plan outlay of around Rs 11,596 crore for 

generating projects, viz., DCRTPP, Yamuna Nagar, Hissar TPP, Hissar, Coal Based 

TPP, Faridabad and Gas-based Project at Faridabad. The Plan Outlay and sources of 

funds to be deployed in the investment plan as envisaged by HPGCL are, however, 

subject to prudence check and approval by HERC. 

Capacity Addition Through IPPs 

The State Government has been endeavouring to promote IPPs to bridge the demand 

supply gap in the State and has received Expression of Interest from many 

Independent Power Producers (IPPs) for setting up gas-based projects within the State, 

the details of which are provided below:



Table: List of IPPs who have given their Expression of interest 

IPP showing 

expression of interest 

M/s Jindal Stainless 

Ltd., Hissar 

M/s Weizmann Private 

Ltd., Mumbai 

M/s Tayal Energy, 

Silvassa 

M/s Tata Power 

Company / NDPL 

M/s Aban Lloyd 

Chilies Offshore Ltd., 

Chennai 

M/s Torrent Private 

Ltd., Ahmedabad 

Proposed sites 

in Haryana 

Capacity 

proposed by IPP 

(MW) 

2.12 

MOA signed 

with GAIL 

on 

Hissar 1080 06.09.2005 

Panipat 600 16.09.2005 

Panipat 400 14.10.2005 

Jhajjar 1000 17.11.2005 

Faridabad 

1065 

03.05.2005 

Panipat 370 - 

Implement- 

ation 

schedule 

Not firmed up, 

as availability 

of gas is 

uncertain. 


However, owing to the uncertainty in availability of gas, their schedule of 

implementation has not been firmed up and the State Government has not entered into 

any MoU/ PPA with the above IPPs. 

RENOVATION AND MODERNISATION OF EXISTING PLANTS 

In its submission to the Commission, HPGCL has mentioned that the R&M work of 

Unit-I of Panipat Thermal Power Station has already been awarded to M/s BHEL and 

it is likely to be completed by March 2007. The R&M of Unit–II has been completed 

and the unit is performing satisfactorily. The scope of work for R&M for Units-III and 

IV has also been finalised. 

For the Eleventh Plan period, HPGCL has kept a total outlay of around Rs 375 crore 

to be spent on renovation and modernisation of the existing plants. Further 

apportionment of the investment outlay for specific units was not provided. 

PERFORMANCE OF THE STATE GENERATION UNITS 

Technical Parameters 

Plant Load Factor 

HPGCL has made a marked improvement in its overall performance. The gross 

generation has increased from 3,783 MU at the time of restructuring in 1998-99 to 

6,784 MU in 2004-05. Apart from addition in generating capacity, there is a 

substantial improvement in the Plant Load Factor (PLF) of the stations. Prior to

Haryana 

restructuring, the average PLF was around 34 per cent, which increased to 67 per cent 

in 2004-05. The situation regarding PLF has been depicted in the chart below. The 

PLF has reduced from 74 per cent in 2003-04 to 69 per cent in 2004-05, which is a 

matter of concern and needs to be improved. 

Percentage 

80 

70 

60 

50 

40 

30 

20 

Plant Load Factor- HPGCL Stations (%) 

Pre-Reform Period 

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 

Plant Load Factor (%) 33.89 45.76 50.03 40.41 44.7 42.82 47.66 49.17 49.24 53.24 49.73 60.8 66.44 74.91 69.46 66.77 

2.13 

Year 

Prost Reform Period 


While on an individual basis the PLF of HPGCL stations shows a positive trend, 

however, in comparison with all India average, there is a wide for scope for 

improvement for HPGCL stations as is shown in the graph below: 

PLF (%) 

80 

75 

70 

65 

60 

55 

50 

69.9 

60.8 

72.2 

Fuel and Auxiliary Consumption 

Comparison of PLF- HPGCL Vs All India 

66.44 

72.7 

74.91 

74.8 

69.46 

2002 2003 2004 2005 2006 

HPGCL All India 

70.9 

66.77 


The graphs below enumerate the detailed technical performance of HPGCL stations 

on various parameters. As is evident from the graphs, HPGCL is showing a reducing 

trend in coal consumption for per unit generation of electricity. Similar has been the



reduction in the secondary oil consumption, which has been reduced by 6.7 per cent 

from the initial level of 12 ml per unit. 

However, the secondary oil consumption is still on the higher side when compared to 

the CERC norms for usage of secondary oil for power generation (2 ml per unit) for 

Central Generating Stations. 

Coal Consumption (grams/Unit) 

860 

840 

820 

800 

780 

760 

740 

720 

700 

680 

14.15 

788 

17.59 

818 

18.63 

844 843 

Performance of HPGCL Stations 

838 

12.99 12.7 

803 

6.38 

After restructuring, a 100 per cent increase in the availability of plants of HPGCL has 

been noticed. While the average plant availability was merely 31.96 per cent in 1998- 

99, it has improved up to 78.11 per cent in 2004-05. 

2.14 

816 

5.97 

789 

770 

764 

3.29 3.43 3.35 

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 

Percentage 

13 

12.5 

12 

11.5 

11 

10.5 

10 

Coal Consumption Sp. Oil Consumption 

Auxiliary Consumption HPGCL (%) 

Pre-Reform 

Period 

784 

3.97 

20 

18 

16 

14 

12 

10 

8 

747 

6 

4.11 4 

(Source : HVPNL) 

Prost Reform 

Period 

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 

Auxiliary Consumption (%) 10.89 11.87 12.61 12.24 12.04 11.7 11.8 11.11 10.56 10.47 11.04 10.15 

2 

0 

ml per unit 

(Source : HVPNL) 

Though auxiliary consumption has come down from 12.04 per cent in 1999 to 10.15 

per cent in 2005, the figure is still high and needs to be brought down further. 

Plant Availability

Haryana 

A snapshot on HPGCL stations is provided below on various parameters: 

Table: Snapshot of HPGCL’S Performance 

Particulars 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

Installed Capacity 

(MW) 

Hydro 

Thermal 

Total 

48 

815 

863 

48 

815 

863 

48 

815 

863 

48 

1025 

1073 

48 

1025 

1073 

48 

1025 

1073 

62.4 

1525 

1587.4 

PLF % 49.24 53.24 49.73 60.8 66.44 74.91 69.46 

Heat Rate kcal/kWh - 3378 3505 3432 3365 3318 3287 

Coal consumption gms/kWh 838 803 816 789 770 764 784 

Oil consumption ml/unit 12.7 6.38 5.97 3.29 3.43 3.35 3.97 

Gross generation 

(MU) 

Hydro 

Thermal 

Total 

268.13 

3515.41 

3783.54 

239.6 

3811.38 

4050.98 

241.81 

3550.6 

3792.41 

229.15 

4932 

5161.15 

246.69 246.63 

5965.4 6744.64 

6212.09 6991.27 

290.48 

6624.46 

6914.94 

Auxiliary 

consumption 

% 12.04 11.3 11.8 11.11 10.56 10.43 11.04 

Net generation 

(MU) 

Thermal + 

hydro 

3359 3604 3372 4797 5580 6283 5893 

Plant Availability % 31.96 80.23 72.37 67.71 80.83 69.31 78.11 

Financial Parameters 

Overall Performance 

2.15 


After restructuring, there has been an improvement in the performance of HPGCL. The 

company has not recorded any profit after tax; there is a marginal increase in the cash profit 

of the company during the period 2002-03 to 2004-05, as elaborated in the table below: 

Fixed Cost 

Table: Profitability of HPGCL 

Particulars 2002-03 2003-04 

(Rs crore) 

2004-05 

Total Income 1,411 1,543 1,654 

Total Expenditure 1,411 1,543 1,654 

Cash Profit 112 128 130 

(Source: PFC) 

Data has been compiled and analysed for both pre-reform and current performance of 

the generating stations. The table below enumerates the overall composition of fixed 

cost elements and their relative movements in all the years after restructuring:



Table: Financial Performance of HPGCL 

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

Fixed cost (Thermal +Hydro) 

O & M Cost Rs Crs 188.94 180.97 236.28 136.28 313.8504 300.23 

Depreciation Rs Crs 61.53 50.57 -19.41 111.64 124.10 129.8 

Interest Charges Rs Crs 81.08 55.82 110.01 165.10 150.11 125.41 

Interest on Working Capital Rs Crs 10.26 10.43 7.70 4.83 15.08 29.46 

Total Fixed Cost Rs Crs 341.81 297.79 334.58 417.85 603.14 584.9 

Variable Cost Rs Crs 547.09 566.32 762.07 993.35 1095.60 1191.62 

Total Cost Rs Crs 807.82 808.29 986.64 1411.20 1548.63 1651.11 

Net Generation Mus 3603.66 3371.76 4611.48 5580.29 6283.07 6180.00 

Variable Cost per Unit Rs/unit 1.52 1.68 1.65 1.78 1.74 1.93 

Total Cost per unit Rs/unit 2.24 2.40 2.14 2.53 2.46 2.67 


Note: Return on equity has been allowed in Tariff @ 5 per cent in 2004-05 and @ 8 per cent in 2005-06 and @ 

10 per cent in 2006-07 on capital at the beginning of the year. 

HPGCL has been able to get only operational expenses as pass through as it was 

supplying power to HVPNL. It is only after enactment of the EA, 2003 that HPGCL 

was subjected to tariff approval by the State Electricity Regulatory Commission. The 

HPGCL has substantial loan portfolio from the new projects undertaken/planned by 

the utility. As on April 2006, HPGCL loans are of the order of Rs 3,200 crore of which 

secured loans are Rs 665 crore only. As regard losses though the position has not 

deteriorated, yet HPGCL has not turned into a profit-making company. Now it is time for 

HPGCL to ask for return on equity and get the admissible return so that in course of time it 

turns into a profit-making entity. 

Variable Cost 

The variable cost of generation is increasing rapidly for HPGCL plants. While the 

variable component was 67 per cent of total cost of generation in 1999-2000, the same 

stands high at 72 per cent of the cost of generation in 2004-05. 

The return on equity provides around 10 per cent, which is lower than the returns 

approved by CERC for the central sector generating stations. The lower returns are on 

account of the high cost of generation by HPGCL plants. 

A comparative analysis of HPGCL stations with the overall performance of Rajasthan 

Rajya Vidyut Utpadan Nigam Limited (RRVUNL) is provided below. The 

performance of the stations is almost comparable, however, the fuel cost in case of 

Haryana is on the higher side which may be partly attributed to the quality and cost of 

fuel (including transit and handling charges) being used in generation. 

2.16

Haryana 

Rs per Unit 

0.5 

0.4 

0.3 

0.2 

0.1 

0 

-0.1 

0.04 

0.44 

1.39 

0.19 

RRVUNL 

0.01 

-0.03 

0.15 

0.08 

1.78 

0.3 

0.41 

0.04 

0.03 

0.01 

0 

0.01 0.01 0.01 

0 

2.17 

0.08 

0.26 

0.2 1.33 0.2 

0.21 

0.16 

HPGCL 

Comaprison of HPGCL with RRVUNL 

RRVUNL 

1.74 

0.33 

0.04 

0.03 

2002-03 2003-04 2004-05 

Employee Cost O & M Cost Interest Cost Depreciation Adm + Gen Exp Other Exp Fuel Cost 

HPGCL 

0.12 

RRVUNL 

1.47 

0.02 

-0.01 

0.17 

0.1 

0.26 

0.21 

HPGCL 

1.93 

0.01 

0 

2.5 

2 

1.5 

1 

0.5 

0 

Power Purchase Cost (Rs per Unit) 

(Source: PFC) 

OBSERVATIONS/COMMENTS 

1. There are no CERC norms for the unit size of 60 MW (derated as 55 MW) 

(Faridabad Units-I to III) and 110 MW units (Panipat Units-I to IV) and hence no 

benchmark operational data is available to measure and monitor the performance 

of such generating stations. 

2. The RoE approved by the Commission is 10 per cent against the standard CERC 

norm of 14 per cent due to the high cost of generation by the plants. 

3. In tune with the power sector reform in the State, Yamuna Nagar Thermal Power 

Project was taken up through IPP route, which for certain reasons did not 

fructify. Thus the State lost precious time and has now tried to make up by 

focusing on optimising the scope for additional capacity in the existing thermal 

power station at Panipat. 

4. The exact progress made in taking up the projects planned to be executed during 

the Eleventh Plan period is not known and, therefore, any firm conclusion as to 

how much additional capacity could become available in the State by 2012 

would be difficult to ascertain at this stage.



TRANSMISSION 

HVPNL is responsible for the transmission and bulk supply of electricity to the 

DISCOMs. In the single buyer model (SBM), the transmission company was 

entrusted with the bulk supply business and accordingly it was provided the license by 

the Commission in 1999. However, under the EA, 2003 trading of power by the 

transmission company is not permissible. The HVPNL is primarily responsible for: 

(a) Planning, designing, erection and maintenance of transmission lines, sub-stations 

and communication facilities and appurtenant works; 

(b) To maintain an integrated and efficient power transmission system network; and 

(c) Wheeling of power, purchase and sale of power in accordance with the policies 

and guidelines laid down from time to time. 

TRANSMISSION NETWORK 

HVPNL has a transmission network a total of 5,596 ckt km primarily at the 220 kV, 

132 kV and 66 kV voltage levels. Prior to restructuring, the transmission system 

comprised primarily of 66 kV and 132 kV transmission lines and sub-stations. 

HVPNL has added a significant number of sub-stations and the associated lines to 

augment and expand the transmission network within the State. The transmission 

system augmentation is being planned over 66 kV, 132 kV and 220 kV for more 

efficient operations and to increase the voltage level for transmission, which, in turn, 

reduces the losses in the network. Details regarding the number of sub-stations at 220 

kV, 132 kV and 66 kV are given below: 

Table: New Sub-stations Installed by HVPNL 

Voltage 

level (kV) 

No. of S/S# 

as on 

31.03.1998 

No. of substations added during 

1998-99 

1999- 

2000 

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06* Total 

220 24 0 2 0 0 3 4 3 0 36 

132 72 2 1 2 1 5 15 13 1 112 

66 68 1 3 0 6 3 4 7 4 96 

Total 164 3 6 2 7 11 23 23 5 244 

# S/S: Sub-stations 

* Till December 2005 

Since the beginning of the restructuring in the State (1998-99), the following increase 

in the number of substations has been noticed: 

• 220 kV sub-stations by 50 per cent; 

• 132 kV sub-stations by 56 per cent; 

• 66 kV sub-stations by 41 per cent. 

2.18

Haryana 

Voltage 

level 

(kV) 

Table: New Transmission Lines Added by HVPNL (ckt kms) 

Line 

length 

as on 

31.03.1998 

1998 

-99 

1999 

-2000 

Transmission Line length added during 

2000 

-01 

2.19 

2001 

-02 

2002 

-03 

2003 

-04 

2004 

-05 

2005 

-06* 

Total 

220 607 75 151 67 124 52 167 216 186 1645 

132 1798 45 10 24 12 54 161 232 42 2378 

66 1263 6 19 22 19 40 48 84 72 1573 

Total 3668 126 180 113 155 146 376 532 300 5596 

* Till December 2005 

OPERATIONAL PARAMETERS 

System Losses 

HVPNL transmits power to the DISCOMs through 220/33 kV, 132/33 kV, 132/11 kV, 

66/33 kV, 66/11 kV and 66/6.6 kV transformers. There are 519 inter-Utility metering 

points as enumerated below: 

Table: Inter-Utility Metering Points of HVPNL 

Particulars UHBVNL DHBVNL Total 

No. of inter-Utility points with special meters 223 169 392 

No. of inter-Utility points with meters 61 66 127 

Total 284 235 519 

Losses in the transmission system are made up of inter-State and intra-State 

transmission of electricity. While the inter-State losses are around 1.45 per cent, 

the intra-State losses are restricted between 3 to 4 per cent as seen from the table 

below: 

Year Total energy 

purchased by 

HVPNL (MU) 

Table: Losses in HVPNL Network 

Total energy received 

by HVPNL at the state 

boundary (MU) 

Loss (MU) Losses (%) 

Interstate Intrastate Total Interstate Intrastate Total 

2002-03 19171 18847 324 774 1098 1.69% 4.11% 5.73% 

2003-04 20499 20191 309 662 971 1.51% 3.28% 4.74% 

2004-05 21393 20955 438 686 1124 2.05% 3.27% 5.25% 

2005-06 (up 

to June 05) 

5795 5711 84 171 255 1.45% 2.99% 4.40% 

Establishment and SLDC and interconnection With HVPNL System 

The SLDC is the apex body to ensure integrated operation of the power system in the 

State. SLDC with state-of-the-art technology was established at Panipat along with



two Sub LDCs at Dadri and Narwana at an estimated cost of Rs 34 crore in 2002 

under the unified scheme of northern region. 

Presently, 41 sub-stations of HVPNL are covered and reporting the real time flows 

(MW, MVAR) and digital status values to the SLDC through Remote Terminal Unit 

(RTU). About 220 more sub-stations are being planned for integration with the 

existing SLDC at an investment of Rs 200 crore approximately with the consultancy 

support of Power Grid Corporation of India Ltd. 

Reactive Energy 

HVPNL is continuing to pay for the reactive energy charges to the NREB pool 

account. The trend analysis for HVPNL available with NRLDC suggests that HVPNL 

loses around Rs 4 to 5 crore per year due to reactive energy drawls. This is in spite of 

adequate capacitor banks installed by HVPNL as shown in the graph below: 

MVAR 

3750 

3250 

2750 

2250 

1750 

1250 

750 

Capacitors-Requirements Vs. Installed 

2.20 

Year 

MVAR Required 

MVAR Provided 

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 

MVAR Required 1135 1250 1275 1300 1713 2040 2520 3080 3080 2992 3111 3290 

MVAR Provided 884 937 1076 1076 1467 1467 1467 1830 2547 2880 3269 3434 

TRANSMISSION SYSTEM AVAILABILITY 

Significant availability of the transmission sub-stations has been observed from the 

data in the following table:

Haryana 

Table: Availability of Transmission Sub-stations of HVPNL (%) 

Name of Substation 

220 kV Narnaul 

220 kV Hisar 

220 kV Rewari 

132 kV S/S Dadri-II 

132 kV Hansi (Hisar end) 

132 kV Hansi (Bhiwani end) 

132 kV Karnal 

66 kV Daruhera 

66 kV Gobindpuri (Y/Nagar) 

Planned Maintenance 

2001 

94.94 

92.62 

96.64 

96.43 

96.66 

99.39 

98.90 

72.76 

78.72 

2.21 

2002 

100.00 

98.00 

91.81 

99.85 

100.00 

99.40 

100.00 

88.98 

98.80 

2003 

100.00 

84.00 

100.00 

100.00 

100.00 

99.55 

99.40 

87.35 

100.00 

2004 

100.00 

95.00 

100.00 

100.00 

100.00 

100.00 

99.70 

83.00 

100.00 

2005 

100.00 

100.00 

100.00 

100.00 

100.00 

100.00 

100.00 

77.83 

100.00 

HVPNL has saved outage hours through planned maintenance schedule and through 

hot-line maintenance to improve the reliability of power. The following table indicates 

significant saving in outages to the extent of about 466 hours on 220 kV lines on 

account of hotline maintenance carried out by the utility staff. Time period of around 

9,000 hours of planned maintenance was carried out which enhanced the reliability of 

power in the State. 

Table: Planned Maintenance and Savings due to Hotline Maintenance 

Activity 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

No. of hours of outage saved due to hotline maintenance 

· 220 KV 117 220.3 114 197 79 69 466 

· 132 KV 257 255.3 94 335 151 86 197 

· 66 KV 752 241.3 210 194 330 521 532 

Total 

Average hours taken for planned maintenance 

1126 716.9 418 726 560 676 1195 

Total time of outage (Hours) 4760 15574 4961 6015 4999 10209 9196 

The average availability of various sub-stations depicts an overall improvement as 

shown in the chart below. The average interruption time owing to faults in the 

transmission lines has reduced significantly by about 50 per cent i.e., from 3,397 

hours in 2002-03 to about 1,582 hours in 2004-05.

4000 

3500 

3000 

2500 

2000 

1500 

1000 

500 

0 

3397 



Interruptions due to Faults 

2.22 

1965 

1582 

2002-03 2003-04 2004-05 

CAPITAL INVESTMENTS IN TRANSMISSION SECTOR 

Total expenditure incurred/planned in the transmission sector in the State in the postrestructuring 

period is shown in the following table: 

Table: Yearly Investments for Network Strengthening (Rs crore) 

1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06* Total 

227.14 138.51 163.78 107.92 229.18 206.8 254.07 126.18 1453.58 

* Projected 

Future Investments 

Going forward, HPVNL has set an optimistic investment plan of about Rs 684 crore 

for 2006-07 and Rs 5,194 crore for the Eleventh Plan. The investments are planned to 

further enhance the network capacity through suitable expansion, new additions and 

augmentation of transmission capacity in the State. The sources of funds to be 

deployed in the investment plan are, however, subject to prudence check and approval 

by HERC. 

POWER SUPPLY POSITION IN THE STATE 

At the time of restructuring, the generation capacity within in the State was not 

adequate to cater to the demand. The State had been observing energy shortage of 25 

to 33 per cent prior to restructuring as provided in the following table:

Haryana 

Table: Widening Demand-Supply Gap in Haryana 

Energy Peak demand 

Year Available Demand Deficit Available Demand Deficit 

(MU) (MU) (%) (MW) (MW) (%) 

1995-96 10899 14572 25.21 1947 2025 4.01 

1997-98 12719 16990 25.14 1970 2187 11.02 

1999-00 13388 17872 33.5 2215 2416 8.3 

(Source: HERC Tariff Order 2000) 

After restructuring, HPGCL has added around 724 MW and has increased the State’s 

generation capacity to 1,587 MW. The demand supply position in the year 2004-05 

still reflects a situation of deficit. In 2004-05, Haryana had a peak demand of around 

3,931 3 MW with a peaking shortage of about 8 per cent. 

Currently, the State has a gross generating capacity of around 4,033 MW, which 

includes long-term power contracts from the various CPSUs and other bilateral shared 

projects as per details given below: 

HPGCL 

38% 

NJPC 

2% 

MAGNUM 

1% 

Power Sources for Haryana 2006 

BILATERALS 

2% 

FGPP 

11% 

2.23 

I.P. 

2% 

MALANA 

2% 

BBMB 

21% 

NTPC 

11% 

NPC 

2% 

NHPC 

8% 


Although Haryana has an installed capacity of 4,033 MW, the available capacity 

varies between 2,500 to 3,400 MW during various seasons. The availability variation 

is due to changes in inflows at hydro stations and planned/forced outages of the 

generating units. 

3 Source: NRLDC Annual Report 2004-05.

Demand Projections 



The demand of Haryana is increasing by more than 8 per cent on an annual basis. The 

demand is based on the economic and agricultural development that the State has 

witnessed as also on account of new industries, accelerated real estate and urban 

development in the NCR region most of which falls in Haryana State. 

Table: Demand Projections for Haryana 

2006-07 2011-12 2016-17 CAGR 

Peak Demand (MW) 4899 7192 10509 7.93% 

Peak Energy Requirement (MU) 25750 37807 55234 7.93% 

(Source: 16 th EPS, CEA) 

Strategy to Bridge the Gap 

Besides the initiatives to suitably augment the generation capacity within the State, the 

State has signed Power Purchase Agreement (PPAs) with upcoming CPSU projects to 

bridge the widening demand supply gap in the State. The State has taken initiatives to 

sign PPAs with upcoming projects in the Northern Region and pithead stations in the 

Eastern Region. 

POWER PURCHASE by HVPNL 

Energy Balance 

HVPNL has been the nodal agency to arrange for bulk power purchase and supply 

thereof to the DISCOMs. HVPNL has tied up with various sources to meet the 

demand within the State through long-term purchases and also from the share of the 

State in various bilateral projects. The details of energy received by HVPNL for the 

years 1999-2000 and 2004-05 respectively based on the tariff order issued by HERC 

have been compared in the table below: 

Table: Energy Receives by HVPNL from Different Sources 

Source 

1999-2000 2004-05 

MU Rs Million Rs/kWh MU Rs Million Rs/kWh 

NTPC 5,683 9,523 1.68 7,051 11,933 1.69 

NHPC 1,496 2,258 1.51 1,107 1,602 1.45 

NPC 363 711 1.96 601 1,530 2.55 

NJPC 0 0 0.00 1,100 2,585 2.35 

HPGCL 2,701 5,638 2.09 6,750 16,225 2.40 

BBMB 3,168 0 0.00 3,124 406 0.13 

IP Station 277 0 0.00 177 403 2.28 

Short term 551 1,326 2.41 1,297 3,229 2.49 

14,239 19,456 1.37 21,207 37,913 1.79 

2.24

Haryana 

Rs/kWh 

3.00 

2.50 

2.00 

1.50 

1.00 

0.50 

0.00 

% of Power Purchase (MU) 

1.69 

1.68 

1.51 

1.45 

2.55 

1.96 

Energy Balance HVPNL 

1999-00 Vs 2004-05 

2.35 

0.00 

0.13 

0.00 0.00 

NTPC NHPC NPC NJPC HPGCL BBMB IP Station Short term 

1999-00 MU 2004-05 MU 1999-00 Rs/kWh 2004-05 Rs/kWh 

45% 

40% 

35% 

30% 

25% 

20% 

15% 

10% 

5% 

0% 

Contribution of Sources to Quantum of Power Purchase and 

Total Power Purchase Cost 

NTPC NHPC NPC NJPC HPGCL BBMB IP Station Short term 

Power Purchase 1999-00 Power Purchase 2004-05 Cost of Power Purchase 1999-00 Cost of power 2004-05 

As can be observed from the graphs above, NTPC was the highest provider of power 

in the year 1999-00, HPGCL has shown substantial capacity enhancement to increase 

its share from a meagre 19 per cent to as high as 32 per cent. 

2.25 

2.40 

2.09 

2.28 

2.49 

2.41 

60% 

50% 

40% 

30% 

20% 

10% 

0% 

8,000 

7,000 

6,000 

5,000 

4,000 

3,000 

2,000 

1,000 

0 

% of total cost of power purchase 

Million Units

Short Term/ Unscheduled Interchange Purchases 



While there have been efforts to increase the in-house capacity of the generating 

infrastructure, however the quantum of power purchased from short-term has been 

increasing. As can be seen from the above graph, the contribution in cost of shortterm 

purchase is increasing from the previous level of 7 per cent in 1999-00 to 9 per 

cent in 2004-05. 

The actual power purchase cost provided for this report suggest that the cost of power 

from unscheduled interchange (UI) has been increasing both in terms of quantum as 

also the cost per unit. 

Year 

Average cost of 

UI purchases 

(Rs/kWh) 

Contribution of UI purchases in 

total power purchase cost (%) 

2003-04 2.08 10 

2004-05 3.65 9 

2005-06 5.42 -NA- 

The latest trend analysis of 2005-06 of amount payable by HVPNL into the ‘UI Pool 

Account’ of Northern Regional Power Committee (NRPC), as shown below, depicts 

that there are enough economic signals for increasing the generating capacity within 

the State both from the point of view of cost as also improving the quality and 

reliability of the power supply to the consumers. 

Fig: Amount Payable by HVPNL to UI Pool Account of NREB (2005-06) 

2.26 

(Rs Lakh) 

(Source: NRLDC Pool Accounts)

Haryana 

Load Shedding 

To maintain grid discipline, the consumers of various categories are subjected to load 

shedding of four to five hours per day. The utility has anticipated that the extent of 

load shedding is equivalent to approximately ten per cent of the total consumption of 

electricity in the State. The extent of additional demand for electricity from various 

groups of consumers as anticipated by the utility is shown below: 

Table: Un-met demand on Account of Load shedding (%) 

Consumer Extent of additional demand 

category (Anticipated by the utility) 

Domestic 8 

Industries 9 

Agriculture 22 

OPEN ACCESS IN TRANSMISSION 

HVPNL, vide its Notification dated 5 May 2006, has issued guidelines for 

implementation of short-term Open Access within the State of Haryana. This will be 

an enabler for the captive users having demand of 1 MW and above to source their 

own power through the grid by using the network of HVPNL, which shall act as the 

nodal agency for short-term Open Access transactions. No parallel operation 

charges/grid support charges are to be levied on captive generators. The Open Access 

charges set for use of transmission network have been worked out as Rs 0.14 per kWh 

plus a transmission loss of 4.5 per cent. Reactive Energy charges are placed at 5 

paise/kWh in case the Open Access consumer undertakes actual drawl of reactive 

power. For captive generators, there is no cross-subsidy surcharge. For other 

consumers, HERC will determine cross-subsidy surcharge for distribution network 

under Open Access. 

COMMERCIAL HEALTH OF HVPNL 

Payment of Outstanding Dues to CPSUs 

At the time of restructuring of HSEB, the outstanding payment towards CPSUs was 

Rs 2,671.61 crore (which included a surcharge component of Rs 649.52 crore). The 

State adopted the one time settlement scheme based on the report of the Expert Group 

headed by Shri Montek Singh Ahluwalia. As per the scheme, the dues of the CPSUs 

outstanding as on 28 February 2001 were to be securitised by issue of the tax-free 

bonds by the State Government. The other features given under the scheme were: 

2.27



(i) The power utilities were to establish Letter of Credit for 105 per cent value of the 

average monthly billing during the last 12 months; 

(ii) The power utilities were to make full payment of the energy bills to the CPSUs 

after 30 September 2001; 

(iii) For establishing Letter of Credit, the CPSUs were to provide 2 per cent incentive 

on the amount of the bonds; and 

(iv) For making the full payment of the current dues, the CPSUs were to provide 

incentive @ 6, 5, 4 and 4 per cent respectively on the amount of bonds during the 

next four years. In case of default in payment, the power utilities were to be 

deprived of the admissible incentives. 

As per the scheme, these bonds were to be issued by the State Government and the 

power utilities of the State were to do the servicing. Bonds worth Rs 2,022.29 crore 

were issued by the State Utilities. Now, this liability has been assumed by the State 

Government to offset the State’s dues towards the Utilities, on account of default in 

payment of 2000-01 to 2002-03 and Fuel Surcharge Adjustment (FSA). As a general 

practice, FSA is a pass through in the tariff and is borne by the consumers. However, 

the current adjustments reflect a non-rational approach as it interferes with the 

determination of tariff by the Commission. The details of the liabilities taken over by 

the State Government are provided below: 

Table: Details of Liabilities of HSEB Taken Over by the State Government 

Particulars 

(Rs crore) 

Amount Committed 

by the State Government 

Un-paid subsidy for 2000-01 474.86 

13% interest on the liability dues to un-paid subsidy for the 

years 2000-01 and up to 30 September 2001 

96.61 

FSA up to 30 September 2002 481.16 

Stamp Duty 2.00 

40% Surcharge on CPSUs liabilities as a one time settlement 433.01 

FSA up to March 2003 143.10 

FSA upto 31 March 2005 391.55 

Total 2,022.09 

On the whole, the scheme of One Time Settlement (OTS) of outstanding dues was 

beneficial both for the power Utilities as well as the State Government. The surcharge 

amount of Rs 649.52 crore was waived off. Further, under the scheme, various 

incentives to the tune of Rs 421.88 crore were also allowed to the power utilities. 

2.28

Haryana 


1. HVPNL has shown consistency by maintaining the availability of its network 

and sub-stations. To further improve the reliability of the transmission network, 

the Commission may provide an incentive or disincentive scheme, based on the 

availability of the network, and may set benchmarks on similar lines as CERC’s 

guidelines for determination of tariff for Central Transmission Utility (CTU). 

2. The State should conduct requisite load flow studies to further improve the 

reliability and quality of power supply in the network. The network 

augmentation shall dwell upon ‘N-1’ reliability principles and the study so 

conducted shall serve as a pointer towards future network augmentation 

requirements to cater to the demand. 

2.29



DISTRIBUTION SYSTEM 

The following tables show the overall similarity in position of the DISCOMs from the 

pre-restructuring period wherein the DISCOMs faced severe power shortages and had 

to shed the load in order to maintain grid discipline. Also, the financial parameters 

reflect that nothing substantial has been done to turnaround the financial health of the 

DISCOMs during the last seven years of implementation of reforms in the State. 

Uttar Haryana Bijli Vitaran Nigam Limited 

Table: Technical Performance of UHBVNL 

Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 

Peak load met (MW) 1,375 1,494 1,542 1,474 1,776 

Peak load shortage (MW) 200 215 230 255 271 

Assessed energy (MU) 8,640 9,192 9,978 10,402 11,382 

Energy met (MU) 9,058 9,052 9,818 10,293 10,916 

Energy shortage (MU) -418 -140 -160 -109 -465 

Extent of load shedding (MU) 4,180 4,543 4,938 5,367 5,963 

Number of interruptions (11 kV) 1,50,298 1,35,611 90,295 1,45,777 1,52,198 

Number of interruptions (33 kV) 5,916 5,583 1,993 4,482 6,501 

DTs failure rate (%) 18.73 15.62 13.48 14.30 13.85 

Table: Financial Performance of UHBVNL 

Particulars 

1999 

-2000 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

(Rs crore) 

2004 

-05 

Turnover 979.21 1898.86 2070.14 2166.42 2455.09 2597.40 

PBT -234.16 -21.15 -29.78 10.31 37.02 -217.94 

PAT -234.16 -21.15 -29.78 10.31 35.70 -217.94 

Interest paid 14.83 29.80 57.15 85.17 93.40 74.68 

Wages and salaries (Net) 147.84 211.17 215.56 227.59 228.09 347.26 

Equity 573.08 660.87 661.97 661.97 691.93 663.54 

Debt outstanding 166.56 312.19 650.27 884.93 908.26 872.59 

Net worth 338.29 257.36 249.49 287.33 380.30 160.77 

Return on Net worth (%) -69.22 -8.22 -11.94 3.59 9.39 -135.56 

Government subsidy 189.62 505.67 519.19 539.66 618.99 722.30 

APRDP incentive 45.23 

2.30

Haryana 

Dakshin Haryana Bijli Vitaran Nigam Limited 

Table: Technical Performance of DHBVNL 

Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 

Peak load met (MW) 1,347.38 1,422.1 1,551 

Energy Required (MU) 7,771 8,527 9,364 9,606 10,846 

Energy met (MU) 7,221 7,786 8,744 9,453 10,018 

Energy shortage (MU) 550 741 620 153 828 

Extent of load shedding Approximately 7 to 8% of total consumption 

Table: Financial Performance of DHBVNL (Rs crore) 

Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 

Turnover 

1,575.87 1,771.35 1,948.10 2,125.14 2,288.07 

PBT -191.70 -75.40 21.33 43.14 -200.45 

PAT -191.70 -75.40 21.33 43.14 -200.45 

Interest paid 15.42 34.66 47.49 46.23 34.17 

Wages and salaries 163.27 159.06 175.67 178.59 298.91 

Equity 58.52 1.10 0.00 1.56 2.00 

Debt outstanding 226.49 439.25 503.43 507.60 459.73 

Net worth 269.08 117.36 128.82 198.03 -17.85 

Return on net worth 

(profit/net worth) 

-27.82 -133.56 7.12 18.7 -1078.69 

Government Subsidy 263.63 244.35 289.44 304.88 380.00 

APDRP incentive 0 0 2.86 57.40 0 

Haryana has a widespread distribution system, which came up when the State became 

the first in the country to achieve 100 per cent village electrification in the 1970s. The 

distribution network is mostly on 11 kV and lower voltage lines which continues to be 

the backbone even today, as is evident from the table below: 

Table: Growth of Distribution System in Haryana 

Distribution lines (ckt km) Sub-stations 

Year 

33 kV 11 kV 

LT 

33 kV 11 kV 

(400 & 230 volts) 

1970 1,733 16,210 25,664 68 11,760 

1980 2,944 34,714 62,176 132 29,160 

1990 3,945 47,503 91,093 211 64,889 

1998 4,307 54,240 1,03,878 284 99938 

(Source: HERC Tariff Order 2000) 

2.31



PARAMETERS TO MEASURE THE EFFECTIVENESS OF REFORMS 

The impetus of distribution reforms in the State was to bring in discipline and cost 

effectiveness in the following key areas: 

Reliability and quality of power; 

Reduction of losses; 

Reduced Government support in terms of subsidy; 

Financial viability of sector; 

Capital expenditure; and 

Consumer services. 

This section attempts to bring in clear perspective the achievements of the distribution 

licensees on the above parameters to highlight the impact and effectiveness of the 

restructuring process. 

Reliability and Quality of Power 

Extent of load Shedding 

Due to power shortage in the Northern Grid and to maintain grid discipline, both the 

DISCOMs shed around 2.5 to 3.0 MU on a daily basis. Besides the planned load 

shedding, the duration of unannounced load shedding remained 30 minutes to 1½ hrs, 

three or four times a day in 2005-06 across all categories of consumers. Agricultural 

consumers are given priority over industries and urban/mixed urban consumers. The 

utilities claim to supply power for at least 7 to 8 hrs daily for running the agricultural 

tubewells. This fact is disputed as per the tariff orders of the Commission. 

Number of Interruptions and Quality of Supply 

The number of interruptions has shown a marked increase since 2001-02 for both the 

DISCOMs. The annual interruption level per line has decreased for DHBVNL from 

75 in 2000-01 to 57 in 2004-05, but the average duration of interruption hrs/line has 

almost doubled showing the negative trend in reliability of power supply by the 

DISCOMs. The overall performance of 33 kV and 11 kV lines of DISCOMs is as 

follows: 

2.32

Haryana 

Year 

Total no. of 

lines (11 kV 

& 33 kV) 

Table: Interruption Indices for DHBVNL 4 

Total No. 

of interruptions 

Annual 

interruption/line 

2.33 

Duration of 

interruption 

(Hrs) 

Duration of 

interruption 

(annual) hrs/line 

Reliability 

(%) 

2000-01 1,287 96,187 74.73 21,358 17.00 99.805 

2001-02 1,326 97,808 73.76 64,138 48.36 99.450 

2002-03 1,403 1,00,034 71.00 54,777 39.04 99.554 

2003-04 1,594 1,16,542 73.00 61,693 38.70 99.558 

2004-05 1,775 1,01,005 57.00 54,648 30.78 99.648 

(Source: DISCOMs) 

Note: These interruptions are due to faults only which does not includes interruption due to system 

constraints/scheduled cuts on lines. (Interruptions in UHBVNL were 1,58,699 in 2004-05 against 

1,56,214 in 2000-01.) 

Failure of Distribution Transformers 

Performance of DTs indicates the level of quality of supply of electricity to the 

consumers. The DTs failure rate has been consistently reduced from 33 per cent in 

1997-98 to 15.68 per cent in 2002-03. However, there was a reversal in trend in 2003- 

04 when the DTs failure rate increased to 16.15 per cent and further moved up to 16.3 

per cent in 2004-05. The detailed yearly transformer failure rate for the DISCOMs, as 

also for the State as a whole, are depicted below: 

Table: Failure Rate of Distribution Transformers 

Year 

Failure Rate of Distribution Transformers (%) 

Total Haryana UHBVNL DHBVNL 

1997-98 33.00 - - 

1998-99 27.80 - - 

1999-2000 25.73 27.8 22.9 

2000-01 20.19 18.7 22.3 

2001-02 16.56 15.6 17.9 

2002-03 15.68 13.5 18.7 

2003-04 16.15 14.3 18.6 

2004-05 16.30 13.9 19.4 


4 Data for UHBVNL was not available.

% Damage 

30.0% 

25.0% 

20.0% 

15.0% 

10.0% 

5.0% 

0.0% 

25.7% 

27.8% 

22.9% 



Distribution Transformer Damaged during 1999-2000 to 2004-05 

18.7% 

22.3% 

20.2% 

17.9% 

15.6% 

2.34 

16.6% 

18.7% 18.6% 

1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

15.7% 

13.5% 

UHBVNL DHBVNL total 

14.3% 

16.2% 

19.4% 

13.9% 

16.3% 


While the DTs failure rate in UHBVNL has been reduced from 27.8 per cent in 1999- 

2000 to around 13.9 per cent in 2004-05, the performance of DHBVNL has been 

deteriorating since 2001-02. The failure rate of DTs in DHBVNL has increased to 

19.4 per cent in 2004-05 from 17.9 per cent during 2001-02. 

Losses in the Distribution System 

Losses in the distribution system have shown an increasing trend in the postrestructuring 

period. The AT&C losses of the DISCOMs have been showing an 

increasing trend with loss levels as high as 38.26 per cent and 42.59 per cent for 

DHBVNL and UHBVNL respectively. The net result in the DISCOMs is, however, 

not pursuant with the intent of the reform process. In 2004-05, the amount of losses 

suffered was around Rs 821 crore for DHBVNL and Rs 668 crore for UHBVNL. A 

summary of the same is given below: 

Table: AT&C Losses of DISCOMs 

Particulars 

2000 

-01 

2001- 

02 

2002- 

03 

2003- 

04 

2004- 

05 

DHBVNL 

Energy purchased (MU) 7221 7785 8745 9453 10027 

Energy sold (MU) 4894 5149 5682 6301 6746 

Losses (%) 32.23 33.86 35.02 33.34 32.72 

Collection efficiency (%) 92.67 92.13 95.39 88.64 85.51 

AT&C losses (%) 34.78 36.75 36.71 37.62 38.26

Haryana 

Particulars 

2000 

-01 

2001- 

02 

2002- 

03 

2003- 

04 

2004- 

05 

Energy purchased (MU) 

UHBVNL 

- - 9323 10084 10213 

Energy sold (MU) - - 6058 6821 7095 

Losses (%) 31.24 35.66 35.02 32.36 30.65 

Collection efficiency (%) 94.00 88.84 92.15 87.04 81.93 

AT&C losses (%) 40.01 47.30 43.67 41.73 42.59 

Total Loss (%) in Haryana 41.06 42.36 42.62 40.36 41.40 


There have been variations in the collection efficiency computations by the utilities 

vis-à-vis the calculations of HERC. The collections efficiency as per HERC has 

declined from 87 per cent in 2002-03 to 80 per cent in 2004-05 for DHBVNL and 

from 76 to 74 per cent for UHBVNL for the same period. 

2001-02 2002-03 2003-04 2004-05 

DHBVNL 

Collection efficiency (for current year) 87.43 87.57 81.74 80.47 

Collection efficiency (gross) 

UHBVNL 

63.82 64.11 60.88 56.59 

Collection efficiency (for current year) 69.56 76.32 75.42 74.30 

Collection efficiency (Gross) 63.89 63.44 58.77 51.93 

(Source: HERC) 

Figures of AT&C losses for the period 2001-02 to 2004-05 in respect of DISCOMs of 

Andhra Pradesh, Delhi, Rajasthan and Haryana are given at Annexure-I. 

AT&C Loss Reduction Initiatives 

A number of initiatives, as enumerated below, are planned by the DISCOMs to bring 

down AT&C losses: 

Augmentation and erection of new 33 kV sub-stations; 

Addition of new distribution transformers; 

Augmentation of conductor of 11 kV feeders; 

Special checking by the field officers to detect theft of electricity; 

Electromechanical and defective meters are being replaced with electronic 

meters on top priority; and 

Aerial Bunched Cables (ABC) and HVDS are proposed to replace bare 

conductor in rural areas. 

2.35

Theft Reduction Measures 



The Utilities have claimed that enforcement measures to bring down the losses in the 

State have been undertaken. The number of preventive raids were intensified during 

the two years for 2001-02 and 2002-03, but declined during 2003-04. The table below 

provides the details of preventive action taken by the DISCOMs between 2001-02 and 

2003-04: 

Table: Preventive Action and Prosecution for Theft of Electricity 

Category 

UHBVNL DHBVNL 

2000-01 2001-02 2002-03 2003-04 2000-01 2001-02 2002-03 2003-04 

Preventive raids 

(No.) 

NA 2,58,697 2,19,047 1,34,922 2,58,697 2,19,047 1,34,922 1,39,193 

Demand raised 

(Rs lakh) 

NA 28,119 21,624 14,164 28,119 21,624 14,164 16,686 

Penalty amount 

realised (Rs lakh) 

NA 1,842.89 1,486.03 1,551.08 1,842.8 1,486 1,551 1,801 

Prosecuted (No.) NA NA NA NA 1,671 1,046 672 981 

A large number of cases of electricity theft indicate that the problem is widespread 

and has been continuing for a long time. It also reveals that the DISCOMs have not 

been sufficiently vigilant. Further, the break-up of consumer categories is not 

available which could have brought out the consumer categories that are more 

involved in cases of electricity theft. 

Subsidy Support by the State Government 

Agricultural Consumption 

Pumpset irrigation constitutes the major share of agricultural consumption of 

electricity. At the time of restructuring, nearly 80 per cent of the agricultural pumpset 

connections were unmetered. Efforts were made by the DISCOMs to place meters for 

the pumpset connections. However, not much progress has been made on this front. 

The unmetered agricultural pumpset connections are still as high as 67 per cent. The 

DISCOMs were unable to install meters in respect of irrigation pumpset connections 

in a large number of cases because of stiff resistance by the farmers. However, all new 

agricultural pumpset connections released by the DISCOMs are metered. The 

following table provides a snapshot of the progress of agricultural pumpset metering 

in the State. 

2.36

Haryana 

Table: Metering of Agricultural Connections 

DHBVNL 

Total Agricultural (pumpset) Consumers 

UHBVNL Haryana 

% % 

% % 

% % 

Year No. Metered unmetered No. Metered unmetered No. Metered unmetered 

Aug-01 139433 32.90% 67.10% 222032 14.10% 85.90% 361465 21.30% 78.70% 

Apr-02 138199 33.50% 66.50% 223946 15.60% 84.40% 362145 22.40% 77.60% 

Apr-03 143148 37.20% 62.80% 227351 17.30% 82.70% 370499 25.00% 75.00% 

Apr-04 149356 40.40% 59.60% 235753 20.50% 79.50% 385109 28.20% 71.80% 

Apr-05 155961 43.40% 56.60% 241921 23.30% 76.70% 397882 31.20% 68.80% 

Dec-05 160744 45.10% 54.90% 246597 24.90% 75.10% 407341 32.90% 67.10% 

It has been estimated that the electricity consumption by the agricultural sector 

contributes around 33 per cent of the total sales of the DISCOMs. The meters have 

been provided in respect of about 33 per cent of the agricultural connections. There 

exists a difference in estimates of DISCOMs and that of the Commission regarding 

the electricity consumption in respect of agricultural pumpsets in the State. 

For the sales to metered and unmetered agricultural pumpset consumers, the 

Commission had worked out a criterion in its tariff order of 2000-01. The Commission 

has since maintained its consistent approach of projection of consumption of metered 

agricultural pumpsets on the pattern of consumption of actual consumption and that of 

un-metered agricultural pumpsets on the basis of Annual Load Factor (ALF) 

The effect of the methodology on the determination of sale to agricultural consumers 

is depicted below: 

Table: Sales Estimate for Agricultural Consumption 2005-06 (MU) 

Consumer Category 

DHBVNL 

Estimate 

HERC approval 

% of sales 

rejected by 

UHBVNL 

Estimate 

HERC 

approval 

% of sales 

rejected by 

FY 2005-06 FY 2005-06 HERC FY 2005-06 FY 2005-06 HERC 

Agriculture metered 956.42 835 -13% 715.5 640 -11% 

Agriculture 

unmetered 

Subsidy Support 

1384.41 1200 -13% 2764.1 2232 -19% 

Due to concessional tariff being provided to the agricultural consumers in the State, 

the State Government has been providing subsidy to bridge the revenue gap in the 

annual revenue requirement of the DISCOMs. There is a progressive trend in the 

provision of subsidy by the State Government. From Rs 532 crore as depicted in the 

tariff order for 1999-2000, the subsidy support has grown threefold and has reached a 

level of Rs 1,686 crore for 2006-07. The increasing percentage of subsidy support in 

2.37



the total revenue from sale of power of the DISCOMs is depicted in the graph and 

tables below: 

Rs Crs 

1800 

1600 

1400 

1200 

1000 

800 

600 

400 

200 

0 

820 

764 

506 519 

314 289 

244 

Subsidy Support to Discoms in Haryana 

829 

540 

2.38 

969 

664 

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 

305 

1102 

722 

380 

DHBVNL UHBVNL Total Haryana Discoms 

1301 

801 

500 

1686 

569 

1118 


The amount of subsidy booked to revenue from sale of power is given below. The 

table shows the increased dependence of the DISCOMs on subsidy support to meet 

the revenue gap. 

Table: Subsidy Provided by the State Government 

2002-03 2003-04 

(Rs crore) 

2004-05 

DISCOM Subsidy Subsidy 


subsidy Subsidy Subsidy 


subsidy Subsidy Subsidy 


subsidy 

booked received booked to booked received booked to booked received booked to 

revenue 

revenue 

revenue 

DHBVNL 289 289 19.15 362 305 21.10 380 380 20.71 

UHBVNL 540 540 38.58 664 619 43.62 722 722 46.80 

(Source: PFC) 

Commercial Viability 

Receivables 

The amount of receivables has been increasing substantially for both the DISCOMs. 

While it was pegged at around Rs 1,119 crore for the two DISCOMs as on 31 March 

2000, it has shot up to Rs 2,852 crore by 31 March 2005. An overall trend in the 

amount of receivables in respect of the DISCOMs in Haryana is as follows:

Haryana 

3000 

2500 

2000 

15 0 0 

10 0 0 

500 

0 

1119 

586 

533 

Status of Gross Receivables of Discoms in Haryana 

1316 

695 

621 

1605 

819 

786 

31.3.2000 31.3.2001 31.3.2002 31.3.2003 31.3.2004 31.3.2005 

2.39 

1777 

900 

878 

DHBVNL UHBVNL T otal Har yana Di scoms 

The disturbing trend in the matter of receivables in respect of UHBVNL is that 

agricultural and domestic categories together accounted for about 82 per cent of the 

arrears that got accumulated in this period. 

Financial Gap in Distribution Sector 

The Commission has not made any tariff revision since 2001, except for domestic and 

agricultural consumers. While determining the revenue gap in the sector, HERC 

considers the approved Aggregate Revenue Requirement (ARR) for the year and 

works out the gap by matching the ARR against the total revenue from the current 

retail tariff for various consumer categories. 

The revenue gap so worked out is because of the fact that the approved tariffs for 

domestic and agricultural consumers are non-compensatory in Haryana. The amount 

of cross-subsidy generated by other consumer categories is used to fully cover the 

revenue gap in case of domestic category, leaving behind cross-subsidies available for 

the agriculture pumpset consumers. This cross-subsidy adjustment leaves a net 

revenue gap, which is to be provided as subsidy by the State Government towards the 

agricultural pumpset consumers. 

While the ARR is met through the revenue from sale of power and subsidy available 

from the Government, under-performance by the DISCOMs to recover the revenue 

billed leaves a huge gap in the sector. The financial gap in the distribution sector, as 

shown in the table, is supported by the subsidy support by the State Government. 

However, the gap is further increased in case it is calculated on a revenue-realised 

basis. The gap is showing an increasing trend. This is primarily on account of the 

large amount of receivables. 

2218 

1128 

1090 

2852 

1438 

1414

ACS* 



Table: Financial Viability of the DISCOMs 

ARR# 

(without 

subsidy) 

Gap 

(without 

subsidy) 

Gap 

(subsidy 

booked basis) 

2.40 

Gap 

(subsidy 


Gap 

(subsidy, revenue 


2002-03 

DHBVNL 2.21 1.9 0.31 -0.01 -0.01 0.16 

UHBVNL 2.31 1.74 0.57 -0.01 -0.01 0.17 

2003-04 

DHBVNL 2.21 1.86 0.34 -0.04 0.02 0.11 

UHBVNL 2.4 1.78 0.62 -0.04 0.01 0.19 

2004-05 

DHBVNL 2.41 1.88 0.53 0.15 0.15 0.25 

UHBVNL 2.74 1.83 0.90 0.2 0.2 0.48 

(Source: PFC) 

* ACS = Average cost of supply (Total Expenditure/Total Energy Input) 

# ARR = Average Revenue Realised 

A similar analysis has also been performed in respect of some of the Utilities based on 

data given in the PFC report on the ‘Performance of State Utilities for the years 2002- 

03 to 2004-05’. The comparative graph reveals the poor performance of DISCOMs in 

Haryana. While most of the DISCOMs in the graph had a comparable gap in 2002-03, 

by 2004-05 the gap in case of Haryana had increased. The subsidy support was 

required by most of the States to cover the gap, however, the gap further aggravates 

when calculated on revenue-realised basis. The gap on revenue realised basis show a 

negative trend for most of the DISCOMs that implies the level of metering and 

collection efforts the DISCOMs have put to recover the revenues. However, in case of 

Haryana, the gap reflects a steep increase on account of increasing receivables. (Please 

refer Annexure-II) 

Profitability of the DISCOMs 

The trend of profit and loss of the DISCOMs is provided below. The curve shows a 

reversal of trends with DISCOMs reporting a profit of Rs 70 crore in 2003-04 against 

a loss of Rs 414 crore in 1999-00. The same may be partly attributed to the truing up 

of power purchase cost from Faridabad Gas Power Station, which led to reversal of 

the already paid cost by the consumers. 

In 2004-05, the DISCOMs again reported a loss of around Rs 397 crore, which 

reflects that the DISCOMs could not sustain the efforts of enforcement and other loss 

reduction initiatives. Reduction in the loss levels for initial years of reform may also

Haryana 

be on account of the waiver scheme launched by the utilities on account of which 

significant arrears were recovered by the DISCOMs. 

Rs Crs 

100 

0 

-100 

-200 

-300 

-400 

-500 

-179.93 

-234.16 

-414.09 

-98.13 

Profi/Loss of Discoms in Haryana 

1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

-23.28 

-74.85 

-34.05 

-156.74 

-190.79 

2.41 

16.9 

DHBVNL UHBVNL Total Haryana Discoms 

69.93 

37.04 

-192.58 

-204.36 

-396.94 


An analysis to compare the overall profitability of the DISCOMs of Haryana with 

Utilities in other States has also been undertaken. The chart in Annexure-III indicates 

a comparative cash profit amongst the DISCOMs. In the year 2002-03, most of the 

DISCOMs like NDPL, BRPL and Haryana DISCOMs had a similar cash profit 

scenario wherein the Utilities reported a profit on revenue billed basis and making a 

loss when cash profit was calculated on revenue realised basis. However, most of the 

utilities have been able to turn around the revenue realisation and report an increasing 

cash profit even on revenue-realised basis. The DISCOMs in Haryana, on the other 

hand, report an increasing negative loss trend on account of huge receivables. 

Government Intervention to Reduce the Receivables 

To meet the challenge of increasing receivables in the State, the Government has 

introduced a scheme for current bill recovery from 17 June 2005. The scheme 

provided only for recovery of current bills and waiver of arrears subject to regular 

payment by the consumer for the next 20 months w.e.f. 17 June 2005. It is estimated 

that after 20 months from that date, arrears of around Rs 600 crore shall be waived off. 

The State Government has already started compensating the distribution companies in 

monthly instalments and will compensate for the principal component of arrears.

Capital Expenditure 



While distribution sector holds the key to reforms in the power sector, investments to 

bring about reforms have mainly focussed on the generation and transmission sectors 

in Haryana. The investment in distribution sector during the entire post-restructuring 

period has been around 21 per cent of the total investments made in the State power 

sector. This was far below the projected level of investments, which were estimated 

for distribution sector. A detailed break-up of the capital investments on yearly basis 

is provided in the tables below. 

Table: Capital Investments in the Distribution Sector in Haryana 

Particulars 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 Total 

Distribution 0.00 52.97 132.26 218.04 210.50 228.13 213.80 190.93 1055.70 

Total sector 378.60 542.65 510.18 496.45 727.35 1439.98 921.22 754.20 5016.44 

Distribution (%) 0 10 26 44 29 16 23 25 21 

The table indicates the year-wise increase in capex towards augmentation of distribution 

network from the level of Rs 53 crore in 1999-2000 to around Rs 190 crore in 2005-06. As a 

result of the capital investment in the distribution network, augmentation and expansion were 

undertaken in the post-restructuring period and the results are given in the table below: 

Table: Addition of Lines, Sub-Stations and Capacitors 

Activity 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

New distribution Lines (ckt km) 

33 kV - - - - - 247 

11 kV 697.53 938.517 1489.639 1874.868 1983.48 2863.461 

LT 756.86 577.675 696.446 939.373 2871.55 1099.881 

Sub-stations and Capacitors 

New 33 kV sub-station 

Commissioned 

(Capacity in MVA) 

36.3 18.3 27.9 24.6 125 174.2 

33 kV S/S augmented 

(Capacity in MVA) 

66.3 66 31.1 112.9 165.6 123.5 

Capacitor bank installed 

(MVAR) 

Status of APDRP Funding 

- - - - - 46.652 

2.42 


The DISCOMs in Haryana have received funding under the APDRP scheme as 

elaborated in Annexure-IV. The DISCOMs have been making efforts to utilise the

Haryana 

amount sanctioned to meet the goals and targets, which have been agreed under the 

MoA. 

The funds are being spent on installation of DTs, new/augmentation of 11 kV and LT 

lines, consumer metering, feeder metering, loss reduction measures, revamping of 

sub-stations, computerised data logging, consumer indexing, etc. 

However, the progress towards utilisation of APDRP funds is rather slow on account 

of non-availability of meters and shortages of materials and manpower required to 

implement the works. 

Consumer Services 

Standards of Performance and Customer Related Measures 

As per provisions of Section 57 of the EA, 2003, HERC has notified the regulations 

on standards for performance of distribution licensees and the same are to be 

implemented by the concerned Utilities. 

Metering 

The Utilities claim to have achieved 100 per cent metering in respect of all consumer 

services (except agricultural consumers). The number of complaints pertaining to 

meters, being around 70,000 in 2002-03, is high from the initial number of complaints 

prior to restructuring. 

Billing 

While computerised billing for domestic and non-domestic consumers exists, the 

billing complaints in the DISCOMs have increased to about 88,000 in 2002-03 in case 

of DHBVNL 5 after the restructuring in the State wherein the number of complaints 

was around 75,000 in 1998-99. The problems are the errors due to manual entries and 

lead-time of two months for database updating. There is proposal for decentralisation 

of bill preparation work in the next one to two years at sub-divisional level to remove 

the existing deficiencies. In other categories, the billing is computerised and is done 

in-house at circle level. 

5 Data for UHBVNL not available. 

2.43

Collection 



DHBVNL has made arrangements with commercial banks, post offices, private 

collection agencies and departmental counters for receiving the payment of electricity 

bills by the consumers. Collection has also been partly out-sourced. 

Redressal of Consumer Grievances 

There has been delay in setting up the grievance redressal mechanism as mandated 

under the EA, 2003. In 2004, HERC issued the regulation on the subject. During 

discussion held with the Commission, it was stated that the Government had objected 

to the Commission’s right to issue regulations under the Act. The Commission had 

stood its ground that it had legal powers to frame regulations. The objections of the 

State Government appeared ingenious, since the Commissions in other States, by 

exercising powers under the EA, 2003, had issued similar Regulations. The Appellate 

Tribunal, taking suo-motu cognizance of the delay, had issued directions regarding 

creation of consumer grievance redressal forums. Accordingly, these forums have 

been created by the utility only recently. The composition of the forums with the 

serving members of the utility is against the regulations and creates a clash of interest 

and reduces the credibility of the grievance redressal machinery to act fairly and 

independently. 

The data furnished by the DISCOMs does not segregate the type of fault complaints 

received by the Utilities and merely depicts a gross picture of the number of 

complaints received. Though the number of complaints has reduced since 

restructuring, the number is still large. Necessary steps are, therefore, needed to 

remedy the situation. 

Table: Complaint Received by DHBVNL 6 for faults 

Name of 

Status before restructuring of SEB Status after restructuring of SEBs 

Zone 1993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 

C.E., Delhi 38370 399030 394227 391489 389946 388926 387270 383619 382635 377650 

C.E., Hissar 114221 110322 106116 108281 110986 106801 106981 104971 99585 97209 

Total 152591 509352.00 500343 499770 500932 495727 494251 488590 482220 474859 

Besides the number of complaints, the data furnished by the DISCOMs suggests that 

the average time taken to rectify the faults has further deteriorated. 

6 Data for UHBVNL was not available. 

2.44

Haryana 


1. Analysis of the above data indicates that performance of the DISCOMs has not 

been very satisfactory. It appears that the DISCOMs have not achieved 

efficiencies in operations and in delivery of reliable power to the consumers. The 

financial viability of the DISCOMs is adversely affected by the poor track record 

in reducing AT&C losses and receivables. The positive impact of improvements 

in the generation and the transmission utilities in the State has been negated by 

the under-performance of the DISCOMs. The analysis also reveals a significant 

difference in performance between the two DISCOMs when AT&C losses, 

collection efficiency and receivables, etc., compared. 

2. Increased level of subsidies provided to the DISCOMs by the State seems to 

have salvaged the financial position of the DISCOMs. 

3. The main reasons for under-performance of the DISCOMs are: (i) lack of 

necessary systems and applications to revamp their functioning, and (ii) the 

nature of operations of the State Public Undertakings (SPUs) where operations 

are performed by officers as managers and “owner citizens” (i.e., government 

and public) do not assert effectively to improve the working of the State-owned 

Utilities. 

REGULATORY FRAMEWORK 

Haryana Electricity Regulatory Commission was established in August 1998. The 

Commission has so far issued the following tariff orders pertaining to generation, 

transmission and distribution. 

2006 

23May 2006 on application filed by HPGCL for approval of generation tariff for 2006 -07 

2005 

14 Nov 2005 on ARR of DHBVNL for D&RS Business for 2005-06 

9 Nov 2005 on ARR of UHBVNL for D&RS Business for 2005-06 

on application filed by HVPNL for approval of ARR for T&BS for 2005-06 and 

10 May 2005 

determination of BST Tariffs 

02 May 2005 on application filed by HPGCL for approval of generation tariff for 2005-06 

on application filed by DHBVNL for approval of Revised ARR for D&RS Business for 

20 Apr 2005 

2004-05 

on applications filed by UHBVNL for approval of Revised ARR for D&RS Business for 

18 Apr 2005 

2004-05 

2004 

14 May 2004 on HPGCL’S Filing for Generation Tariffs for 2004-05 

9 Mar 2004 on admissibility of ARR for D&RS Business for 2004-05 

2.45



8 Mar 2004 on admissibility of ARR for T&BS Business for 2004-05 and T&BS Tariffs 

2003 

20 Aug 2003 on ARR for D&RS Business for 2003-04 

12 Aug 2003 on ARR for T&BS Business for FY 2003-04 and T&BS Tariffs 

2002 

16Aug 2002 on ARR for D&RS Business for 2002-03 

16Aug 2002 on ARR for T&BS Business for 2002-03 and T&BS Tariffs 

2001 

11 Aug 2001 on ARR for D&RS Business for 2001-02 and D&RS Tariffs 

06 Aug 2001 on ARR for T&BS Business for 2001-02 and T&BS Tariffs 

2000 

22 Dec 2000 on ARR for D&RS business for 2000-01 and D&RS Tariffs 

14 Dec 2000 on ARR for T&BS business for 2000-01 and T&BS Tariffs 

1999 

29 Nov 1999 on ARR Filing by the HVPN for its Distribution and Retail Supply Business for 1999-2000 

26 Nov1999 on ARR Filing by the HVPN for its Transmission and Bulk Supply Business for 1999-2000 

TARIFF REVISION 

Since its inception, the Commission has issued seven orders on ARR for Distribution 

and Retail Supply (D&RS) business of the DISCOMs. However, the distribution and 

retail supply tariff have been revised only thrice in the last seven years. This is in spite 

of the increase in power purchase expenses of the DISCOMs. In the tariff setting 

philosophy of the Commission, it was envisaged that the tariff shall move towards 

cost to serve and the cross-subsidies shall be gradually removed. While there is no 

subsidy to domestic consumers, tariff for industrial and commercial categories have 

remained the same. But agricultural tariffs were reduced instead of being 

progressively increased towards the cost to serve. This is a matter of concern since it 

is a deviation from the basic principle of reforms and tariff rationalisation and phasing 

out of cross-subsidies. The following table shows the tariff structure across the years 

for the DISCOMs. 

2.46

Haryana 

Table: Details of Retail tariff Revisions by HERC 

Particulars 1995-96 1996-97 1998-99 2000-01 2001-02 2004-05 

Agriculture 50 50 50 50 50 25 

Domestic Ist 40 units 90 Ist 40 Ist 40 Ist 40 units Ist 40 units Ist 40 units 263 

paise, above 40 units 150 units 191 260 paise, 263 paise, paise, up to 300 

units 200 paise paise, paise, up to 300 up to 300 units 363 

above 40 above 40 units 360 units 363 paise, above 300 

units 225 units 306 paise, above paise, above units 428 paise. 

paise paise 300 units 300 units 

425 paise. 428 paise. 

Industrial 

Large HT 

240 300 392 409 409 409 

Industrial 

Small LT 

240 300 392 425 428 428 

Commercial HT 240 300 392 409 409 409 

Commercial LT 240 300 392 419 419 419 

IMPLEMENTATION OF PRESENT ISSUES UNDER THE EA, 2003 

Open Access 

HERC Regulations for Open Access have been notified and HVPNL, which acts as 

the nodal agency for Open access, has finalised the norms and procedures for the 

application of short-term Open Access. The Open Access has been allowed w.e.f. 1 

October 2006 for the consumers with contract demand of 15 MVA and above. STU is 

in the process of implementing the regulations for all consumers with loads of 1 MW 

and above, keeping in view the power deficit situation and encouragement to bring 

more power to the State. The surcharge to be levied by the DISCOMs is yet to be 

specified in tune with the principles given for the same. 

Multi Year Tariffs 

National Tariff Policy stipulates creation of Multi Year Tariff (MYT) framework for 

operations by the DISCOMs. MYT envisages improvement in efficiency and degree 

of certainty in regulatory approach. The guidelines and regulations in this regard are 

yet to be issued by the Commission. 

Power Trading 

The Commission has notified the regulations for intra-State trading and eligibility 

criteria for electricity trading. 

2.47

Directives Issued by the Commission 



The Commission has provided the following key directives to the DISCOMs to 

effectively implement the reform process. A summary of the same has been provided 

below: 

Receivables 

Financial 

Management 

• All receivables accounts shall be computerised and detailed audit of 

receivables shall be undertaken; so that precise amount of consumer-wise 

position with age-wise break-up separately for sale of power, delayed 

payment surcharge, municipal tax and electricity duty with current and 

old arrears may be known. 

• To submit a report giving details of the action taken in each case to 

recover arrears from the consumers having arrear above Rs 1 lakh. 

(Directions given in 11.8.2001 and 20.8.2003 orders) 

• To physical verify all the fixed assets, particularly the fixed assets created 

out of the consumers’ contribution. (Direction given in 16.8.2002 order) 

• To reconcile the inter-company accounts between the transmission, 

distribution and generation companies. (Direction given in 16.8.2002 

order) 

Metering • The Commission directed the D&RS licensee to submit detailed metering 

plan for 100 per cent metering in the State. (Direction given on 

16.8.2002) 

• The Commission further directed that 100 per cent metering be 

completed by June 2005 as per Section 55 of the EA, 2003. (Direction 

given on 29.1.2004) 

• Besides consumers’ metering, the licensee should also complete 100 per 

cent metering at feeders and distribution transformers for energy audit 

purpose. 

• To put MDI meters at unmetered agriculture pump-set consumers. 

Performance 

improvement 

Technical 

issues 

(Direction given in 16.8.2002 order) 

• To investigate the causes of high damage rate of distribution 

transformers. To submit separate data for urban and rural areas. 

(Direction given in 20.8.2003 and 18.4.2005 orders) 

• To carry out load survey for the consumers who pay on MMC basis or on 

average basis for a long time. (Direction given in 11.8.2001 order) 

• To establish the computerised State-of-the-Art Area Load Dispatch 

Centre. 

• To undertake activity of consumer indexing and Geographical 

Information Systems (GIS) mapping. (Direction given in 18.4.2005 

order) 

2.48

Haryana 

ROLE OF STATE GOVERNMENT 

The State Government is fully committed to implement the provisions of the EA, 2003 

in respect of electricity pricing, subsidy, promotion of Open Access in the 

transmission and distribution sectors and enforcement of the anti-theft provisions. 

MOU AND THE ACHIEVEMENTS 

The activity-wise status of the MoU/MoA and the implementation status have been 

presented below: 

Sl. 

No. 

Type of Activity 

Target/ 

Schedule 

Date 

2.49 

Actual date/ Status of implementation 

Reform Programme 

1 Electricity Reforms Act 1997 

2 Formation of State Electricity 

Regulatory Commission 

16 August 98 

3. Restructuring of State Electricity 

HPGCL and HPVNL and subsequently 

Board 

UHBVN & DHBVN. 

4. Energy Audit at all levels Being followed 

5. 100 per cent metering of all 31.12.2001 All consumer connections are metered 

consumer 

(except some of the agriculture category 

consumers) 

6. Installation of meters at 11 kV 31.03.2001 Metering is being done through existing 

feeders 

electro-mechanical and electronic meters. 

7. Formation of distinct distribution 31.03.2002 In UHBVN, the matter regarding formation 

profit centres at divisional level 

of separate profit centres at Divisional 

and preparation of separate 

commercial accounts balance 

sheets for such centres 

levels is under consideration. 

8. T&D losses reduction to 20 per 2006 2001-02 = 31.24 

cent 

2001-03 = 35.66 

(Input energy- Billed energy) 

2002-03 = 35.02 

Input energy 

2003-05 = 32.36 

2004-05 = 30.53 

Steps are being taken to reduce the T&D 

losses through extensive checking’s, 

9 Computerised Billing at all major 

replacement of electro-mechanical meters 

with electronic meters and by bi-trifurcation 

of 11 kV overloaded feeders. 

Computerised billing for HT industrial / DS 

towns 

and NDS consumers is already being done. 

A computerised billing centre has been 

established at Panchkula. Initially, 

computerised billing will be done for all LT 

industrial consumers under UHBVN.



ELECTRICITY ACT, 2003 AND THE REFORM PROCESS 

The status of implementation of certain key provisions of the EA, 2003 in Haryana is 

shown blow: 

Section 172 Separation of 

transmission 

utility 

Section 42(5) Forum for 

redressal of 

consumer 

grievance 

Section 55 Supply of 

electricity 

through 

metering 

The bulk supply and trading business has been entrusted to 

HPGCL 

As per the provisions of the Section 42 (5), guidelines have been 

notified by HERC. The pay & allowances, terms and conditions 

for the members of the forum has been approved by the HERC 

and the State Government The ad-hoc forum is already 

functioning and appointment of members for regular forum is 

under process 

As per the provisions of the section-55 of the EA, 2003, 100 per 

cent metering is required to be completed by 10th June 2005 and 

as per NTP by 2007. However, as on date 1,85,465 tubewell 

connections are yet to be provided with the meters 

The status of implementation of the Act in the State is tabulated as under: 

Responsibility Section Status of implementation 

State 

Government 

126 Notification for assessing officer issued on 9 December 2003 

State 

Government 

135(2) Notification for inspecting officer issued on 9 December 2003 

State 

152 Notification for compounding officer issued on 9 December 

Government 

2003 

State 

153 Notification and formation of special courts by the 

Government 

Government of Haryana is still pending. The State 

(Pending) 

Government has recommended the formation of special courts 

to High Court to designate the existing courts of ADJ-2 & 

ADJ-3, two days a week at the district headquarters, as special 

courts for dealing the offences under Sections 135 to 139. 

HERC 127 Notification for form and procedure for appeal to appellate 

authority to appeal against order of assessing officer under 

Section-126 issued by HERC on 12.05.2004 

State 

Government 

127 Appellate authority under Section 127 has been notified. 

Utilities - The utilities have issued instructions for dealing the cases 

under sections 126, 135 & 152 for dealing the cases of 

unauthorised use of electricity, Theft of electricity and 

compounding under section-152. 

2.50

Haryana 

LESSONS FROM THE RESTRUCTURING PROCESS 

STATE GOVERNMENT AND GOVERNANCE ISSUES 

The power sector reforms commenced in 1998 with a clear policy mission, which, 

inter-alia, aimed at creating a vibrant environment for attracting investments in 

generation, etc., in the State. The reform model was supported with substantial 

financial assistance from the multi-lateral agencies. The roadmap, which was prepared 

for the sector reforms, underwent a change with the change of Governments in the 

State. This not only caused a setback to the prospects of new/private investments in 

the sector and also deprived the State of substantial aid, which was promised by the 

International funding agencies. 

The continued commitment of the Government, as envisaged in the Haryana Reforms 

Act of 1997, did not come as was required to carry through the reforms. However, the 

State has maintained its commitment for implementing the reforms. 

Even though the power sector reforms in the state were initiated seven years ago, 

organisational autonomy in terms of administrative, technical and commercial 

decision-making has not been fully transferred by the State Government. One of the 

objectives of restructuring is that the restructured entities shall perform their functions 

in an efficient and autonomous fashion. All the restructured Utilities in the State have 

a common Chairman. While this arrangement may provide coordination between the 

Utilities, it also tends to dilute attention on specific issues and priorities of the 

individual utility. Added to this is the frequent transfer of the MDs, which affects 

continuity and accountability. The powers of the Managing Director and the Board of 

Directors and their accountability are not well defined in the existing organisational 

structure. 

The finances of Government of Haryana are marked by very high self-reliance to fund 

its revenue expenditure (85 per cent in 2004-05). High levels of subsidies to 

agricultural consumers could affect the transfer of resources to meet the needs of the 

social sector. The Government’s inability in the future to serve the subsidy may 

seriously jeopardise the commercial viability in the sector unless the agricultural 

pumpset tariffs are gradually increased in a phased manner. 

The Government approach to bail out the Utilities by taking over the arrears of rural 

domestic and agricultural consumers may find some justification but such ad-hoc 

2.51



support (approximately Rs 1,537 crore), without proper financial restructuring plan for 

the support required by the utilities, would be self-defeating. 

The important lesson from the reform process is the lack of public awareness and 

participation in the process. This has led to total disconnect with regard to the 

objectives, transitional problems and interplay of all the stakeholders in the reform 

process. Communication strategy was part of the power sector reforms when these 

were initiated. However, the same was not sustained to the desired level thereafter. 

However, the required communication on different phases of the reforms did not 

materialise. 

There have been delays in setting up special courts for trying cases of electricity theft. 

The State Government is awaiting the requisite approval of the High Court. Once this 

is received, other measures such as creation of special police stations and special 

teams in the DISCOMs will also be needed. The State Government and the MoP may 

have to take up the matter at the appropriate level to expedite the matter. 

REGULATORY ISSUES 

The regulatory oversight and monitoring which is one of the necessary requirements 

for the sector has been less effective, partly due to the attitude of the Utilities towards 

the directives issued by the Commission and inability of the Commission to enforce 

compliance by the Government-owned Utilities. This inherent dichotomy can be 

addressed by mutual understanding of regulatory process and cooperation with the 

Commission in achieving its objectives. The Commission’s overall role and 

responsibilities have also to be supported by the State Government. 

The treatment of pension liabilities of the staff at the time of restructuring of the 

HSEB was not pragmatic as seen from the impact of unfunded pension liabilities on 

the financial health of the successor entity, i.e., HVPNL. Unlike in the case of Utilities 

in other Group-1 States, the State Government did not take over the past pension and 

gratuity liabilities of the employees of the erstwhile HSEB. The entire burden of past 

liabilities was transferred to the restructured Utilities, which affected the financial 

health of the Utilities right at the beginning 

Regulatory uncertainty regarding funding of provident funds (EPF) on actuarial basis 

has not given full reimbursement from the approved ARR while the Utilities are 

required to provide their share as per the accounting standards prescribed under the 

Companies Act, 1956. 

2.52

Haryana 

GENERATION 

For capacity additions, the State seems to have limited options in view of its 

geographic location and has to depend on power supply sources outside the State. In 

tune with the power sector reform in the State, Yamuna Nagar Thermal Power Project 

was taken up through IPP route, which for certain reasons did not fructify. Thus the 

State lost precious time and has now tried to make up by focussing on optimising the 

scope for installing additional capacity in the existing thermal power plant in Panipat. 

The ABT regime is being misused in spirit by the States that are having surplus 

generation. The regime has led to predatory pricing in the reverse sense. Haryana, 

having tremendous shortages, has the Hobson choice, i.e., either to pay higher prices 

to meet peak demand or resort to massive load shedding. The phenomena of high 

spikes in prices caused by exploitation of ABT regime is similar to what happened in 

power crisis in California during 2000-01. The issue of unfair prices needs to be 

addressed by CERC and/or MoP. 

DISTRIBUTION 

While distribution holds the key to reforms in the power sector, the investments to 

bring about the reforms have been focussed on the generation and transmission sector 

in Haryana. The investment in distribution sector during the entire post-restructuring 

period has been around only 21 per cent of the total investments made in the State 

power sector. This was far below the projected level of investments, which were 

estimated for distribution sector as envisaged. 

The problem of widespread nature of electricity thefts and vested interests seems 

difficult to be solved since the utilities, which are Government owned, have a little 

motivation in making a drastic dent into these malpractices. There is strong evidence 

that lack of effective governance in terms of support of the Government machinery 

and sustained enforcement by the utilities; the theft of electricity by large consumers 

and persons with vested interests cannot be solved. Therefore elimination of electricity 

thefts should be taken up aggressively with the support of the State machinery at all 

levels, as rampant thefts of electricity will negate other efficiency measure undertaken 

by the Utilities. 

A reversal of trends has been observed with DISCOMs reporting a profit of Rs 70 

crore in 2003-04 against a loss of Rs 414 crore in 1999-2000. In 2004-05, the 

DISCOMs again reported a loss of around Rs 397 crore, which reflects that the 

2.53



DISCOMs could not sustain the efforts of enforcement and other loss reduction 

initiatives. 

The key assumptions envisaged for the distribution reforms were to achieve financial 

viability through substantial loss reductions and improved billing and collection 

efficiencies. Merely by creations of separate DISCOMs, turnaround is not possible 

even after subsidy support by the State Government. The Gap between ACS and ARR 

in respect of DISCOMs on subsidy and revenue realised basis has in fact increased 

from about 16 paise to 25 paise per unit in case of DHBVNL and from 17 paise to 48 

paise per unit for UHBVNL in the time period (2002-03 to 2004-05). 

The issues of employees identifying themselves fully with the new Utilities have not 

been adequately addressed. A comprehensive Human Resource Development 

programme is necessary to inculcate a sense of belonging and corporate loyalty 

towards the respective Utility. Such programmes would be helpful in building strong 

commitment with the management’s vision and objectives of meeting the expectations 

of the consumers. 

2.54

Haryana 

WAY FORWARD 

STATE GOVERNMENT AND GOVERNANCE ISSUES 

For the reforms to succeed in the context of the EA, 2003, the State Government 

support is of utmost importance. There has to be an unequivocal commitment to the 

model on which the State has undertaken the restructuring in order to achieve the 

objectives. The Government support, in the transition period, should not only be in 

terms of handholding for providing equity support and financial support for subsidy 

but also for defining the roles and accountabilities for various stakeholders in the 

reform process. The support of the public to the reform process is crucial through 

appropriate communication and dissemination strategies aimed at participation of 

advocacy groups in the reform process. 

Since the Government is a shareholder, its approach should be to facilitate the 

corporate organisational structure of the utilities with adequate financial and 

functional autonomy to the power utilities. The number of Government nominees on 

the board of the utilities should be kept to the minimum and should preferably be 

experts from the related fields. 

The Government and the utilities should have mutually agreed areas relating to 

managerial and financial autonomy and accountability to achieve the targets and goals 

of efficiencies/performance over a defined period. Such MoUs/MoA have been 

introduced in the case of central public sector undertakings and similar models could 

be considered for power sector. 

At the time of restructuring, unfunded liabilities on account of Pension Funds and 

Provident Fund Bonds stood at Rs 673 crore and Rs 379.18 crore respectively for 

HVPNL and HPGCL. Such unfunded liabilities should have been retained by the State 

Government as has been done in other States who have undertaken restructuring of the 

SEBs. Transfer of such unfounded liabilities to the Utilities, have made them 

financially weak right from their inception stage. There is a need to consider financial 

restructuring plan of the Utilities which should provide specific flow of any additional 

revenue support to the Utilities and corresponding obligations of the Utilities for 

achieving the specified AT&C loss levels. This would obviate the occasional ad-hoc 

support, which the State has been providing in the form of waiver scheme etc. 

Arrears from the Government agencies are quite large which calls for creation of a 

separate budget provision for dues to DISCOMs. The same should be reflected in the 

2.55



State budget sub-head with a clear provision that the funds provided for such purpose 

shall not be diverted. 

For improving the ageing network infrastructure in rural areas of Haryana, which were 

created for 100 per cent rural electrification achieved as early as in 1970s, the grant 

funds under the Rajiv Gandhi Grameen Vidyutikaran Yojna should be tapped. This 

would help in stabilisation of retail tariffs and reduce the burden of cross-subsidisation 

on other category of consumers. This may have to be taken up by the State 

Government so that the benefit of this scheme gets extended to the DISCOMs in the 

State. 

The DISCOMs depend for support of the State machinery to curb the theft of 

electricity, which is endemic. The experience of AT&C loss reduction in States like 

Andhra Pradesh shows that enforcement measures with State support produces 

positive results. The State should have a risk-sharing role through agreement for 

AT&C losses reduction in a joint endeavour and the shortfall, if any, should be shared 

by the Government. Through such an arrangement, the State Government would 

receive benefits in the long run, possibly by way of subsidy reduction. 

The growing subsidy burden may call for rethinking the existing low tariffs for 

agricultural consumers, which continues to distort the financial health of DISCOMs. 

REGULATORY ISSUES 

Encouraging consumer advocacy groups and sharing of information by the 

Commission would create better participative space and lead to better understanding 

of regulatory process by the civil society at large. 

Role of media, particularly electronic media has been to downplay the serious issues 

in the sector. It has not attempted to highlight performance/underperformance on 

various aspects of deliverables of the Utilities. 

The regulatory certainty and predictability require that the HERC should formulate as 

early as possible the MYT framework and prescribe the control period for bringing in 

efficiencies in the operation of the utilities as also for the reduction of AT&C losses. 

Promotion of Competition 

The EA, 2003 has mandated the creation of competition and Open Access in the 

distribution end of the sector. The Commission has formulated regulations for Open 

2.56

Haryana 

Access. HVPNL and the DISCOMs have allowed Open Access to their networks as 

per the recent notification. The surcharge was not levied on consumers in order to 

encourage bulk consumers to transport power during the deficit periods. For the 

competition and Open Access, an enabling environment is necessary. There should 

also be clarity regarding surcharge to be levied as per the NTP. 

HSERC is expected to play a vital role in promoting competition and efficiency across 

the value chain in the power sector. Its composition with personnel having domain 

expertise and experience can inspire confidence in the stakeholders. HERC, at 

present, is facing manpower shortage at different levels. Keeping in view the vital role 

of HERC, personnel with relevant expertise need to be inducted into the Commission. 

The EA, 2003 has provided for establishment of a separate regulatory fund, to be 

constituted by the State Government. This would ensure greater financial autonomy 

to the Commission. 

GENERATION 

Under the ABT regime, the State should suitably augment its generation capacity 

either through State owned generation projects or suitable tie-ups with upcoming 

CPSU projects. Considering the fact that the State at present has a generating 

capacity of around 4,033 MW, it must endeavour for a capacity addition target of 

around 3,000 MW in the next three to four years. This will be a prudent step given the 

fact that that UI charges, which are currently very high (between 9 to 10 per cent of 

the total power purchase cost of the State), might get an upward revision in the future 

and may adversely affect States who are overdrawing from the grid to meet their 

peaking requirements. 

TRANSMISSION 

To further improve the reliability of transmission network, there is a need to devise an 

incentives mechanism on the lines of guidelines issued by CERC’s for determination 

of tariff for Central Transmission Utility. 

For the intra-State ABT regime, a number of preparatory steps are to be taken which 

shall be identified and implemented with adequate hand-holding by the Government 

of India, CEA and CERC and other related agencies. 

2.57

DISTRIBUTION 



Employee integration through commitment building shall require special change 

management and Human Resource initiatives, which shall be undertaken with support 

from Ministry of Power. 

Speedy redressal of consumer grievances would help the DISCOMs in increasing the 

collection efficiency. Consumer education and consumer care should be integral part 

of managing the distribution business by the utility. 

In the rural areas voluntary efforts for loss reduction during the peak hours have been 

found to be useful like the ones taken up by the Government of Maharashtra wherein a 

scheme called “Akshay Prakash Yojna (APY)” to restrict load on three-phase supply 

has been implemented. 

The arrears should not get built up as it happened in the past. Waiver of arrears is no 

solution as it causes burden on other sectors of the economy. Steps should be taken 

well in time to minimize legal disputes regarding electricity cases. Haryana 

Government has not set up Special Courts, so far, for speedy trial of cases of 

electricity theft. It is understood that a lot of manpower and resources are employed to 

present the cases in the courts of law from the Utility side also. Special legal cells 

should be established by the Utilities to deal with such matters. 

Going forward, the DISCOMs have the key role to implement the reform process in 

its true spirit. To bring about the same the DISCOMs need to undertake the following 

concrete steps within a given timeframe as may be approved by the Commission: 

AT&C Losses Reduction 

• Technical initiatives for loss reduction including HVDS and Ariel Bunch 

Conductors (ABC) in high loss prone areas; 

• Aggressive plan for installation/replacement of faulty meters in its distribution 

area; 

• Feeder wise consumer indexing, energy auditing for efficient metering and 

billing with requisite IT applications and processes; and 

• Creation of enforcement cells for undertaking anti-theft measures. The 

personnel posted in these cells should possess requisite expertise to deal with 

the cases involving the theft of electricity. 

2.58

Haryana 

Reliability and Quality of Supply 

Major focus should be on strengthening and augmentation of network and fault 

management to improve reliability and quality of supply. IT applications like GIS and 

SCADA should be adopted for detection, intervention and response to ensure the 

effective network monitoring. Through such measures, the prescribed levels of 

performance stipulated in Standards of Performance (SoP) could be complied with. 

Consumer Services and Deliverables 

The following suggestions are made to improve consumer services and deliverables: 

• Setting up of Consumer Call Centres at vital consumer interface points would 

enhance consumer satisfaction and also improve the utility’s image. The call 

centres should serve as centres for all information and necessary consumer 

support for all billing, metering and other power related issues; 

• Strengthening feedback/grievance redressal mechanisms in a structured format; 

• The DISCOMs need to undertake these IT initiatives for timely monitoring of 

revenue management as also for accurate metering and billing, within a defined 

time period; and 

• The DISCOMs should further enhance the payment options to the consumers 

as are prevalent in the telecom sector, etc. 

Change Management and Human Resources Initiatives 

The following suggestions are made in the area of HR initiatives etc.: 

• Since employees represent the face of the organisation the DISCOMs should 

undertake training and development of its employees especially the staff placed 

at consumer interface points; 

• The department’s role and responsibilities of individuals should be defined and 

personnel made accountable for their performance; 

• There should be well-organised enforcement teams for conducting raids. The 

teams should be provided requisite legal knowledge for collection of evidence 

and reporting of the same; 

• The organisational structures can be changed to bring about the change both 

from the perspective of autonomy and empowerment of employees for 

effective decision-making and implementation of reforms; 

2.59



• Creating better commitment levels among the managers through managerial 

incentives and better HR policies; 

• Encouraging successful initiatives in controlling expenses; and 

• Enhancing productivity of employees. 

The reform process can be further strengthened by involving the public at large, 

through social awareness in controlling thefts of electricity. The same can be 

implemented by providing discounts in the electricity bills of the consumers either on 

an area or feeder basis that helps the Utilities in controlling electricity thefts. Such a 

cultural change is extremely important for effectively addressing the menace of 

electricity thefts. 

CONCLUSIONS 

The study recognises the problems, which have arisen or not adequately anticipated at 

the time of reforms. The DISCOMs consequent to the EA, 2003 would have to face 

competition in the sector and, therefore, they need to address issues like: widespread 

inefficiencies and inadequate investments towards upgrading the distribution network, 

so that the DISCOMs are able to provide quality power to the consumers and become 

self-sustaining. 

The most significant lesson emerging from the Study is that the powers Utilities need 

continued support from the Government both in terms of financial restructuring and 

also in institutional development. Capacity building of all the stakeholders and active 

public participation in the reform process are also the essential ingredients for the 

success of power sector reforms. Finally, if the reforms have been somewhat slow and 

progress seems unsatisfactory after the restructuring, it only reinforces the need for 

reforms process to proceed more vigorously. 

2.60

% 

70 

60 

50 

40 

30 

20 

10 

2001-02 

2002-03 

2003-04 

2004-05 

AT & C LOSSES FOR VARIOUS UTILITIES 2001-02 TO 2004-05 

2001-02 

2002-03 

2003-04 

2004-05 

2001-02 

2002-03 

2003-04 

2004-05 

2001-02 

2002-03 

2003-04 

2004-05 

2001-02 

2002-03 

2003-04 

2004-05 

2001-02 

2002-03 

2003-04 

2004-05 

2.67 

2001-02 

2002-03 

2003-04 

2004-05 

2001-02 

2002-03 

2003-04 

2004-05 

2001-02 

2002-03 

2003-04 

2004-05 

2001-02 

2002-03 

2003-04 

2004-05 

2001-02 

2002-03 

2003-04 

2004-05 

2001-02 

2002-03 

2003-04 

2004-05 

APCPDCL APEPDCL APNPDCL APSPDCL DHBVNL UHBVNL BRPL BYPL NDPL AVVNL JDVVNL JVVNL 

ANDHRA PRADESH HARYANA DELHI RAJASTHAN 

Annexure-1

There are wide variations in the trend of AT & C Losses across various utilities in the country. While the discoms in Andhra Pradesh and 

Delhi have substantially reduced their losses in the past three years from 2002-03 to 2004-05, on the other hand, there is a progressive 

increase in AT & C losses in utilities of Haryana and Rajasthan. 

2.68

Rs/kWh 

1 

0.8 

0.6 

0.4 

0.2 

0 

-0.2 

-0.4 

NDPL 

BRPL 

DHBVNL 

Gap 

(without Subsidy) 

UHBVNL 

JVVNL 

APNPDCL 

Comparison of Revenue Gap amongst Discoms 

NDPL 

BRPL 

DHBVNL 

2.69 

UHBVNL 

2002-03 2003-04 2004-05 

Gap 

(Subsidy Booked basis) 

JVVNL 

APNPDCL 

Gap 

(Subsidy Realised Basis) 

NDPL 

BRPL 

DHBVNL 

UHBVNL 

Annexure-II 

JVVNL 

APNPDCL 

Gap 

(Subsidy, Revenue Realised Basis)

2.70 

Annexure-III

Rs Crs 

300 

200 

100 

0 

-100 

-200 

-300 

-400 

-500 

NDPL 

BRPL 

DHBVNL 

UHBVNL 

JVVNL 

APNPDCL 

Comparitive of Profitability of DISCOMs 

NDPL 

BRPL 

DHBVNL 

2.71 

UHBVNL 

2002-03 2003-04 2004-05 

Cash Profit Cash Profit- Subsidy Rcvd Basis Cash Profit on revenue and subsidy rcvd basis 

Table: Status of APDRP Funds Utilisation in Haryana DISCOMs (as on 30.09.05) 

JVVNL 

APNPDCL 

NDPL 

BRPL 

DHBVNL 

UHBVNL 

JVVNL 

APNPDCL 

Annexure-IV

Power Utility 

Project 

name 

APDRP 

portion 

Sanctioned Received 

Fig in Crores 

Actual Expenditure incurred 

Funded 

portion 

(PFC/REC) 

Total APDRP 

portion 

Funded 

portion 

(PFC/REC) 

2.72 

Total APDRP 

portion 

Funded 

portion 

(PFC/REC) 

Total APDRP 

portion 

Funded portion 

(PFC/REC) 

UHBVN 2000-01 13.66 13.66 27.32 13.66 11.69 25.35 11.40 11.39 22.79 2.26 0.30 2.56 

2002-03 101.70 101.70 203.39 74.68 51.03 125.71 74.68 25.01 99.69 0.00 26.02 26.02 

Total UHBVN 

115.36 115.36 230.71 88.34 62.72 151.06 86.08 36.40 122.48 2.26 26.32 28.58 

DHBVN 2000-01 24.11 24.11 48.22 24.12 20.77 44.89 24.12 21.28 45.40 0.00 -0.51 -0.51 

2002-03 125.01 125.01 250.02 94.30 31.25 125.55 94.30 12.77 107.07 0.00 18.48 18.48 

Total DHBVN 

149.12 149.12 298.24 118.42 52.02 170.44 118.42 34.05 152.47 0.00 17.97 17.97 

GRAND TOTAL 

264.48 264.48 528.95 206.76 114.74 321.50 204.50 70.45 274.95 2.26 44.29 46.55 

Balance 

Total


BACKGROUND................................................................................................................... 9.1 

Restructuring Exercise............................................................................................. 9.2 

Chronology of Events ............................................................................................... 9.3 

Formation of four Distribution Companies ........................................................... 9.5 

Effective Communication Strategy ......................................................................... 9.6 

Transfer of Assets to GSECL, GETCL, four DISCOMs and Residual GEB ..... 9.7 

FORMULATION OF FINANCIAL RESTRUCTURING PLAN (FRP)........................ 9.7 

Financial support to be extended by Government of Gujarat ............................. 9.7 

Inter-se Agreements................................................................................................ 9.11 

Intra-State Availability Based Tariff.................................................................... 9.11 

Professionalisation of Companies.......................................................................... 9.12 

Summary ................................................................................................................. 9.12 

NOTEWORTHY INITIATIVES IN POWER SECTOR OF GUJARAT .................... 9.13 

Power Supply Position in Gujarat......................................................................... 9.13 

Initiative of ‘Jyoti Gram Yojna’............................................................................ 9.13 

Initiatives in Information Technology .................................................................. 9.16 

e-Urja Project.......................................................................................................... 9.16 

LESSONS LEARNT AND IMPORTANT RECOMMENDATIONS ........................... 9.18 

Importance of Support of Government and Staff in Restructuring .................. 9.18 

e-urja Project .......................................................................................................... 9.19 

Way Ahead .............................................................................................................. 9.19 

OTHER ACTION POINTS............................................................................................... 9.21 

SUPPLEMENTARY INFORMATION ABOUT UTILITIES....................................... 9.22 

Gujarat State Electricity Corporation Limited .................................................. 9.22 

Gujarat Energy Transmission Corporation Limited ......................................... 9.24 

DGVCL/MGVCL/PGVCL/UGVCL..................................................................... 9.25 

Way Ahead .............................................................................................................. 9.34 

Important Data about Individual Distribution Companies................................ 9.35 

Dakshin Gujarat Vij Company Limited (DGVCL)............................................. 9.35 

Madhya Gujarat Vij Company Limited (MGVCL)............................................ 9.36 

Paschim Gujarat Vij Company Limited (PGVCL)............................................. 9.37

BACKGROUND 

GUJARAT 

Till the year 1998, Gujarat Electricity Board (GEB) was a profit-making SEB and one 

of the more efficiently run Boards in the country. It had made significant progress in 

installing 4,861 MW generating capacity, comprising of thermal, gas and hydro 

stations owned by GEB and Gujarat Electricity Generating Company and extensive 

T&D network covering the entire State. Gujarat enjoyed a high position amongst the 

highly industrialised States in the country. One of the important contributing factors 

for this achievement was the comfortable power supply position in the State. 

From the year 1998 onwards however, due to various circumstances, some of them 

being beyond the control of GEB, it started incurring losses year after year and total 

losses reached a staggering figure of Rs 6,233 crore by the end of 2002-03. It was 

clear to the Government of Gujarat and GEB that such huge loss levels were 

unsustainable. The quality of power supply and customer satisfaction levels had also 

gone down. To remedy this situation, it became necessary to restructure GEB to 

achieve its turnaround and ensure its sustainability. 

Faced with this grave situation, Government of Gujarat took a decision to restructure 

the Electricity Industry in the State. Government of Gujarat and GEB took a number 

of proactive decisions followed by timely supporting actions to ensure a smooth make 

over from a large monolithic vertically integrated organisation of GEB to seven 

distinct corporate entities. These actions have resulted into most successful and 

smooth restructuring of GEB into seven companies as under: 

• Gujarat Urja Vikas Nigam Ltd. (GUVNL) A holding company 

• Gujarat State Electricity Corporation Ltd. (GSECL) A generating company 

• Gujarat Energy Transmission Corporation Ltd. (GETCL) A transmission company 

• Madhya Gujarat Vij Company Ltd. (MGVCL) A distribution company 

• Paschim Gujarat Vij Company Ltd. (PGVCL) A distribution company 

• Uttar Gujarat Vij Company Ltd. (UGVCL) A distribution company 

• Dakshin Gujarat Vij Company Ltd. (DGVCL) A distribution company 

All the above-named seven companies have become operational from 1 April 2005. 

The most noteworthy feature of this exercise was immediate inclusion of 

representatives of the unions and associations of the staff in the restructuring process, 

right from initial stage after deciding on reforming the sector. It convinced the staff 

that Government of Gujarat/GEB management were not pursuing any hidden agenda



and thus built a high trust and confidence about aims and objectives of reforms and 

the process proposed to be followed to achieve them. This ensured their full support to 

restructuring of GEB. The attitude of the staff in the entire restructuring process 

remained positive. If the restructuring exercise adopted by the Government of 

Gujarat/GEB (with full and active support of GEB’s staff) were to be summarised in 

one word, it is ‘Harmony’. It is an object lesson worthy of emulation by other SEBs 

on their path of undertaking a similar journey. 

As stated above, a lot of proactive actions to improve the performance of the 

organisation were taken concurrently along with the restructuring exercise. As a 

result, continuous performance improvements were noticed from the year 2003 

onwards. Therefore, instead of looking for specific improvements only in one year 

after restructuring, it would be worthwhile to look for progress achieved in the period 

2003-05, steps taken by the restructured entities to identify future concerns and ensure 

preparedness to deal with these efficiently. This information would be useful for other 

utilities that have already been restructured and also to other SEBs, which are yet to be 

restructured. 


Preamble 

Way back in 1990s, the erstwhile GEB had realised that it would become more and 

more difficult for it to mobilise funds required for its expansion plans on its own nor 

could it depend totally on Government of Gujarat and that it would be necessary to 

source the required funds from the market. It was clear that for mopping funds from 

the market, it would be necessary to create suitable corporate structures as a first step. 

With this in view a Generating Company named ‘Gujarat State Electricity Corporation 

Ltd’ (GSECL) was incorporated by GEB in August 1993 under the Companies Act, 

1956. To start with, construction of GEB’s Wanakbori Unit No. 7 and Gandhinagar 

Unit No. 5 was taken over by this company. GSECL could raise around Rs 800 crore 

from the market. GSECL could repay all debts and became a profit making company. 

After the restructuring of GEB, the assets/liabilities of remaining generating stations 

of the GEB were transferred to GSECL. 

Later on, as a part of an agreement reached with the Asian Development Bank (ADB) 

while negotiating Gujarat Power Sector Development Programme Loan, in May 1999 

Government of Gujarat incorporated ‘Gujarat Energy Transmission Corporation Ltd 

(GETCL) under the Companies Act, 1956. Unlike GSECL, GETCL did not have any 

9.2

Gujarat 

assets transferred to it from GEB at the time of its incorporation. GETCL acquired 

GEB’s all the assets/liabilities pertaining to transmission only after GEB was 

restructured. 

From the above it would be noted that corporate structures for generation and 

transmission of energy were in place for quite some period even before GEB was 

restructured. 

SEAMLESS TRANSFORMATION FROM GEB TO CORPORATE ENTITIES 

Chronology of Events 

Major events associated with the restructuring process are noted below. Besides these, 

a number of supporting actions were taken by the State Government and GEB to 

ensure that the programme of restructuring of GEB was carried out smoothly without 

any obstructions. 


May 2003 Promulgation of Gujarat Electricity Industry (Reorganisation and Regulation) Act, 2003 

August 2003 Government of Gujarat suggests GEB to form four distribution companies 

October 2003 Signing of Tripartite Agreement between Government of Gujarat, GEB and six 

recognised unions and associations in GEB 

October 2003 Government of Gujarat notifies Scheme of transfer of assets to GSECL, GETCL, four 

DISCOMs and residual GEB 

December 2004/ 

March 2005 

Financial Restructuring Plan (FRP) submitted to Government of Gujarat. A new company 

named ‘Gujarat Urja Vikas Nigam Ltd. (GUVNL)’ was formed and provisional opening 

balance sheets of all companies notified 

April 2005 Formation of Committee for FRP and operationalisation of companies 

December 2005 Government of Gujarat approves the FRP 

May 2006 Government of Gujarat notifies final balance sheets of all companies 

In achieving the above schedule, Government of Gujarat’s role was very positive and 

proactive. It also took stringent/strict measures against theft of electricity by enacting 

the Anti-Theft Law, creation of dedicated police stations and special courts to deal 

with this menace. 

9.3



The Government of Gujarat and GEB availed the services on related issues from a 

number of consultants, namely M/s CRISIL Infrastructure Advisory Mumbai, 

Administrative Staff College of India, M/s Feedback Ventures Mumbai, M/s K.S. 

Madhavan & Associates Hyderabad, P.A. Consultants Indonesia, PGCIL New Delhi, , 

etc., to name a few. 

The highlights of important milestones as well as other important supporting actions 

taken in the intervening period are explained below: 

Promulgation of Gujarat Electricity Industry (Reorganisation and Regulation) 

Act, 2003 

With accumulated total losses reaching Rs 6,233 crore by the end of March 2003, it 

was clear to the Government of Gujarat and GEB that such huge loss levels were 

unsustainable. The quality of power supply and customer satisfaction levels had gone 

down. To correct this situation it was necessary to reform the power sector so that it 

could achieve a turnaround and be sustainable. 

On 12 May 2003, the State Government promulgated ‘Gujarat Electricity Industry 

(Reorganisation and Regulation) Act, 2003’. The Act inter ala provided for the 

following: 

• Establishment of the Gujarat Electricity Regulatory Commission (GERC) 

• Powers of GERC 

• Reorganisation of the Government Electricity Industry, which paved the way for 

restructuring of GEB. 

Important provisions in the Act from considerations of the staff, are indicated below: 

• The first transferee to whom Government of Gujarat will transfer GEB’s assets, 

will be companies or bodies corporate owned or controlled by the State 

Government. 

• Only after due consultation with the first transferee, will the Government transfer 

such part of the undertaking to the second transferee (any other company, body 

corporate, person, etc.). Further, in case of transfer of controlling interest in the 

first transferee or the second transferee by the Government of Gujarat to any 

company, body corporate, person, etc., the same will be given effect only with 

the prior approval by a resolution of the State Legislature. For the Staff, this 

enabling provision provided comfort for expressing its dissent, if any, in future. 

9.4

Gujarat 

• The transfers of the personnel from GEB to first transferee or to second 

transferee shall be subject to the following: 

i) Emoluments and other monetary benefits applicable on transfer shall not in 

any way be less favourable than those applicable before the transfer; 

ii) The personnel will have continuity of service in the first or second 

transferee; and 

iii) The benefits of service accrued before transfer will be recognised and 

appropriately provided for to secure the interest of the personnel. 

FORMATION OF FOUR DISTRIBUTION COMPANIES 

The erstwhile GEB had five zones, viz., North, Central, South, West I and West II, 

each with a number of circle offices attached to it. In forming the distribution 

companies the same zonal areas with the same circles attached to each zone have been 

designated as new distribution companies (DISCOMs). As a result, North Zone has 

now become UGVCL, Central Zone is now MGVCL, South Zone is now DGVCL and 

West I and West II Zones have been merged into one company, PGVCL. With this, 

majority of the staff working in the distribution sector in individual circles continued 

to work in the same circle though under a new company instead of earlier zone, thus 

totally avoiding any possible grievances on account of relocation. 

SIGNING OF TRIPARTITE AGREEMENT 

The most noteworthy feature of the exercise is total and active support GEB could 

muster from its staff for its restructuring. With reform agenda of the State Government 

and enactment of ‘Gujarat Electricity Industry (Reorganisation and Regulation) Act, 

2003’, unions and associations in GEB expressed apprehensions that if their services 

were privatised, there would be adverse impact on their service conditions, and likely 

retrenchments resulting in loss of employment. Though Government of Gujarat/GEB 

had from time to time declared that such apprehensions were unfounded, from the 

viewpoint of ensuring smooth implementation of the policy and allay fears of the 

employees, Government of Gujarat, GEB and recognised unions and associations of 

GEB signed a tripartite agreement. This agreement is the cornerstone of the success 

story. Hence, salient points of this agreement are noted below: 

• Government of Gujarat/GEB confirmed that the status/service conditions in the 

new entities would not be inferior to those prevailing under GEB. Efforts would 

be made to rationalise the conditions to provide for career growth and welfare 

9.5



measures more beneficial to the employees. Employees rendered surplus, due to 

a process of rationalisation, would be redeployed after training. 

• Government of Gujarat/GEB/successor entities would guarantee continuance of 

pension/family pension, retirement benefits such as gratuity, encashment of leave 

and other existing welfare benefits like HBA, medical reimbursement, medical 

advance, festival advance, etc. 

• The period of service of employees under GEB and its successor entities would 

be treated as continuous service for the purpose of service and terminal benefits. 

The successor entities shall be responsible for payment of superannuation 

benefits and, till this was organised, all such payments would be made by GEB. 

In case of subsequent transfer to successor entities not owned by Government of 

Gujarat, the Government would ensure that these are incorporated in the transfer 

scheme. 

• All disciplinary cases already finalised and punishment awarded would not be 

reopened. 

• All employees would be transferred to new companies on ‘as is where is’ basis. 

A committee consisting of representatives of the management and one 

representative of each of the recognised unions/associations would be formed to 

decide the norms for disposal of representations for permanent absorption. Based 

on these norms, another committee, notified for the purpose, would decide on 

requests for transfer and permanent absorption. 

• Provisions of Industrial Disputes Act, 1947 and Bombay Industrial Relations Act 

in-so-far as these are applicable would be continued to be operative; 

• The existing recognition of the trade unions and associations would be continued 

by the successor entities; 

• Services of those recruited under Vidyut Sahayak Scheme for Helpers would be 

regularised; and 

• The agreement would be binding on the Government of Gujarat/GEB, successor 

entities and recognised unions/associations of GEB/successor entities. 

EFFECTIVE COMMUNICATION STRATEGY 

GEB adopted an effective communication strategy in reaching all employees and 

making them aware of the need for reforming the sector, aims and objectives of the 

reforms, efficiency improvement agenda, etc. The Chairman sent a personal 

9.6

Gujarat 

communication to employees highlighting the related issues and the importance of 

their whole-hearted and active participation in the process. A set of champions and 

trainers were created from amongst the staff to spread the message to their colleagues. 

Structured meetings were held with unions/associations regularly to sort out 

misunderstandings if any. Similarly meetings were held with industries associations 

and consumers’ forums to inform them about the reform agenda of GEB. All these 

efforts helped in no small measure in the smooth restructuring of GEB. 

TRANSFER OF ASSETS TO GSECL, GETCL, FOUR DISCOMS AND 

RESIDUAL GEB 

As per the initial transfer scheme, the residual GEB was to retain certain functions in 

respect of bulk purchase of electricity and sale to DISCOMs, residual assets pertaining 

to Load Despatch Centre and those that had remained after transfer to other entities. 

Since trading of electricity is a licensed activity under the Electricity Act, 2003, it 

became necessary to transfer this function from the residual GEB to a corporate entity. 

Therefore in December 2004, Government of Gujarat decided to establish a new 

company under the Companies Act 1956, namely the ‘Gujarat Urja Vikas Nigam 

Limited’ (GUVNL) and transfer all functions/assets earlier proposed to be kept with 

the residual GEB except the assets pertaining to Load Despatch Centre which were 

transferred to GETCL in the meantime. 

FORMULATION OF FINANCIAL RESTRUCTURING PLAN 

The Financial Restructuring Plan (FRP) is one of the most important components of 

the reform agenda. It defines a detailed road map for the successor entities in their 

effort to achieve turnaround by the year 2011 with improvements in their efficiency 

parameters and support from Government of Gujarat in subsidies and capital infusion. 

The highlights of FRP are noted below: 

Financial support to be extended by Government of Gujarat as indicated in the 

FRP 

• Taking over the liability of payment of CPSU Bonds aggregating to Rs 1,628 

crore; 

• Converting the State Government’s loans into equity aggregating to Rs 623 

crore; 

9.7



• Providing moratorium on payment of interest on outstanding Government of 

Gujarat loan of Rs 842 crore for the period 2005-06 to 2010-11. Deferred interest 

to be paid after 2010-11; 

• Subsidy has been capped at Rs 1,100 crore till review after 95 per cent of 

completion of Jyoti Gram Yojna. Thereafter, this cap will be removed and 

subsidy will be computed as per formula of agricultural subsidy. However, 

subsidy will be capped at the amount of electricity duty collected during the year 

(which presently is more than Rs 1,600 crore). 

• Government of Gujarat to provide capital grant of Rs 250 crore per year for 

strengthening the power sector; and 

• Government of Gujarat/profit making State PSUs to provide capital support of 

around Rs 600 crore per year. 

The above commitments from Government of Gujarat for the period 2006 to 2011 

translate into: 

• A total revenue support of Rs 9,498 crore; and 

• A total capital support of Rs 5,854 crore; 

The total revenue and capital during the above-mentioned period would thus be Rs 

15,352 crore, i.e., approximately Rs 2,558 crore per year. 

Improvements to be Achieved by the Companies, as Indicated in the FRP 

The restructured entities need to improve their efficiency parameters like reduction in 

power purchase costs, fuel costs, general purchase costs, interest costs, aggressive 

reduction in T&D losses and bring about improvement in generation efficiency, etc. It 

is proposed to bring down T&D losses from 29.79 to 18.5 per cent and improve 

overall generation efficiency from 72 to 76 per cent. The total savings envisaged 

during the period 2006 to 2011 are indicated below: 

Targets to be Accomplished (As per FRP) 

Particulars 

(Rs crore) 

Savings in costs 

Power purchase cost reduction 1,761.00 

Reduction in general purpose costs 84.00 

T&D loss reduction 3,661.00 

Improvement in generation efficiency 510.00 

Fuel cost reduction 869.00 

Reduction in interest costs 4,024.00 

Total savings envisaged 10,909.00 

Average savings per year 1,818.00 

9.8

Gujarat 

The following table gives financial projections for the turnaround period of 2005-06 to 

2010-11: 

Government of Gujarat conveyed its approval to the FRP in December 2005. 

The Final opening balance sheets of all companies (as on 1 April 2005), as approved 

by Government of Gujarat, were issued in May 2006. 

BETTER FINANCIAL MANAGEMENT AND CONTROL ON COSTS 

The impact of actions of Government of Gujarat/GEB/GUVNL in financial 

management and impact of performance improvements in the areas of generation, 

transmission and/distribution are as follows: 

9.9



Results Achieved by Better Financial Management and Control (Rs crore) 

Particulars Savings 

By re-negotiating the PPAs -1 st phase 495.00 

By re-negotiating the PPAs - 2 nd phase 64.00 

Interest cost reduction by restructuring loan portfolio 

of Rs 4,191 crore 

299.00 

Savings in fuel costs due to use of washed coal/better 

quality coal, negotiated price for LSHS 

Besides the above, because of payment of CPSU dues, 

GUVNL earned an incentive of Rs 312 crore. 

102 .00 

Reduction in T&D losses 

From 30.9% in 2003-04 to 26.28% 

in 2005-06 (estimated) 

Improvement in PLF of GSECL 

From 70.27% in 2003-04 to 72.48% 

in 2005-06 

Improvement in monthly revenue collection (without any From Rs 750 crore in 2003-04 to Rs 

major tariff increase) 

955 crore in first quarter of 2006 

The above has resulted in improving the financial position as under: 

Improvements in Financial Position 

Particulars 2003-04 2004-05 

(Rs crore) 

2005-06* 

Units sold (MU) 31001 31005 16365 

Revenue from sale of power 8545 9050 4900 

Subsidy 1101 1101 550 

Other income 458 441 110 

Total income 10104 10592 5560 

Purchase of power 5578 5358 2540 

Generation of power 2905 3288 1460 

Other expenses 3553 2981 1695 

Total expenses 12036 11627 5695 

Surplus/(Deficit) (1932) (1035) (135) 

Cash profit/(Cash Loss) (1153) (266) 265 

(Source: GUVNL) 

* The information pertaining to half-yearly period. 

UPWARD REVALUATION OF ASSETS 

The assets of the erstwhile GEB were restated upwards in order to ensure that 

financial parameters of the newly formed entities project a realistic and healthy 

picture. The net value of assets of GEB, after allowing for accumulated depreciation, 

stood at Rs 5,950 crore as on 31 March 2005. With a view to strengthen the balance 

sheets of the new companies, the net value of the assets has been restated at Rs 11,246 

crore by reducing the accumulated depreciation amount by Rs 5,296 crore. 

9.10

Gujarat 

OTHER IMPORTANT SUPPORTING ACTIONS BY GEB 

In addition to these important milestones in the journey towards formation of new 

corporate entities, a number of actions were concurrently taken by GEB in the 

intervening period to ensure that the journey towards restructuring is smooth as well 

as the new entities work in a disciplined and professional manner in a new 

environment. These are reported below in brief. 

OPTIONS FOR TRANSFERS AND PERMANENT ABSORPTIONS OF 

EMPLOYEES 

In accordance with the guidelines for deciding applications for permanent absorptions 

to the choice of employee, a total of 811 applications were received in respect of class 

1 and 2 employees. Of these, 771 cases (95.07 per cent) were decided as per the 

choice of employees, 16 cases (1.97 per cent) were decided as per discretion of the 

committee and 24 cases (2.96 per cent) were decided as per discretion of the 

management. It would thus be noted that more than 95 per cent of applicants were 

satisfied with the result. 

INTER-SE AGREEMENTS 

In the new set up, GUVNL’s role is that of a trading company as well as a company 

coordinating with other restructured companies. It purchases power in bulk from the 

generating companies and sells this to the four DISCOMs at Bulk Supply Tariff 

(BST). It is responsible to obtain funds for expansion at competitive interest rates as 

well as to manage loan repayments. 

To maintain commercial relationship in its role, it has signed power purchase 

agreements (PPAs) with GSECL, State IPPs and Central Generating Stations for 

purchase of bulk power. Similarly, it has signed power supply agreements (PSAs) at 

bulk tariff with the four DISCOMs. Transmission services agreements have been 

signed by GUVNL and the four DISCOMs jointly with GETCO on payment terms for 

transmission charges and for carrying out the function of load despatch for inter-State 

as well as intra-State despatch. The agreement also delegates responsibility of 

installing and maintaining interface-metering systems. 

INTRA-STATE AVAILABILITY BASED TARIFF 

With a view to bring discipline in the operation of generating plant and the four 

DISCOMs, it has been decided to implement intra-State ABT. The discipline is 

realised in terms of adhering to defined schedules and actual despatches and payments 

9.11



for unscheduled interchanges (UI). Gujarat may be the first state in the country to 

have proceeded in adopting intra state ABT mechanism. The job of installing meters 

at interface points is entrusted with GETCL. The work is in advance stage in DGVCL 

and UGVCL and trials are expected to be taken in August 2006. It is expected that 

entire system will be operational by the end of this year. 

PROFESSIONALISATION OF COMPANIES 

All the companies have formulated their mission and vision statements. They have 

formulated their business plans for a longer period. Each of the companies has its own 

planning and finance departments in place. Each company has set targets for 

improvement in respect of defined key performance indicators (KPI). Independent 

professional directors are appointed on the boards of GSECL and GETCL. It is 

expected that with the signing of PPAs and PSAs and implementation of intra-State 

ABT, the working of all companies will turn more and more commercial and 

independent of each other. 

SUMMARY 

The above gives an overview of the restructuring exercise carried out by Government 

of Gujarat/GEB. Efforts of the staff continued to be productive in the entire period 

from the time of deciding to reform the electricity sector in the State, till extremely 

smooth completion of the restructuring process, resulting in the formation of seven 

distinct corporate entities and thereafter. Therefore, achievements during entire period 

from 2003 to 2005 (and not only the short period after April 2005) should be 

considered as due to impact of restructuring. The progress achieved in this period in 

generation, transmission and distribution sectors is noted in the subsequent chapters. 

9.12

Gujarat 

NOTEWORTHY INITIATIVES IN POWER SECTOR OF 

GUJARAT 

POWER SUPPLY POSITION IN GUJARAT 

The State has a total installed capacity of 8,974 MW comprising of powers stations of 

GSECL, private sector and state’s share of power from central sector power plants. 

The total capacity of GSECL consists of 4,179 MW thermal, 242 MW gas and 547 

MW Hydro totalling 4,968 MW. Private sector has a total of 2,166 MW capacity and 

State’s share of central sector plants is 1,840 MW. 

The State’s unrestricted peak demand is estimated to be 10,188 MW. The peak 

demand served and maximum daily energy supplied in October 2005 were 8,163 MW 

and 186.84 MU respectively. The maximum daily generation of GSECL’s thermal and 

hydro power stations was 91 MU. Plant load factor (PLF) of thermal power plants was 

83.19 per cent. GSECL’s power stations have achieved a PLF of 72.48 per cent in the 

year 2005-06, a remarkable feat considering the fact that many of the generating units 

are very old. 

Total energy input into the transmission grid of the State in 2004-05 was 50,340 MU 

of which, energy supplied by GSECL has been of the order of 28,000 MU. 

There is no power cut in major urban areas, for HT consumers, industrial estates, 

Gujarat Industrial Development Corporation (GIDC) areas and in 168 Nagar Palikas. 

A total of 17,773 villages under ‘Jyoti Gram Yojna’ (explained below) are supplied 

with 24 hours three phase power supply. Remaining areas have power cuts for four to 

five hours a day. 

INITIATIVE OF ‘JYOTI GRAM YOJNA’ 

The 11 kV feeders in rural areas are composite feeders that supply agricultural 

pumping load as well as other rural loads for the households and rural industries in the 

nearby villages. In order to restrict peak demand, agricultural loads are generally 

provided power supply for a limited number of hours during off peak period in a day 

(in many cases during the night). In the remaining period, these feeders are 

disconnected, which also results in disconnection of power supply to the villages 

connected on the feeder. The life in rural areas thus gets adversely affected. To 

remedy the situation some utilities have resorted to using single-phase transformers 

and providing single-phase supply. 

9.13



To provide 24 hours three phase supply to the residential, industrial and commercial 

loads in rural areas, Government of Gujarat initiated a scheme of separating 

agricultural load from village loads by providing separate dedicated feeders for the 

villages delinking these from the existing composite feeders. This scheme, namely 

‘Jyoti Gram Yojna’ (JGY), was initiated in September 2003. The State has a total of 

18,065 villages. Of these 17,738 villages are electrified in the conventional manner 

and 98 villages are provided with solar panels and 229 villages are not electrified due 

to no demand/less than 10 per cent demand/forest/submerged villages. Till May 2006, 

a total of 17,773 villages were covered under the JGY and three more villages will be 

covered after forest clearance is obtained. 

The physical achievements, related costs and benefits obtained are given below: 

Cost Benefits and other Details of ‘Jyoti Gram Yojna’ 

Description 

2003 

-04 

2004 

-05 

2005 

-06 

From April 

-May 2006 

Total Up to 

May 2006 

Number of villages covered 2,516 6,203 9,002 52 17,773 

Costs for above works (Rs crore) 53.26 358.57 665.66 19.17 1096.66 

Cost of energy saved (Rs crore) 498.93 

Approximate energy saved (MU) 1750.64 

Reduction in demand (MW) 

Network Addition 

600 

Number of new JGY feeders erected 1,324 

Total length of HT line added (ckt km) 46,255 

Total length of LT line added (ckt km) 7,119 

Number of distribution transformers added 11,199 

IMPACT OF ‘JYOTI GRAM YOJNA’ 

The success of this scheme has dispelled the notion that investments in improving 

services in the rural sector do not pay back enough in financial terms. The average 

investment per village is seen to be increasing from Rs 2.12 lakh for the first lot of 

villages to Rs 7.39 lakh for the third lot of villages (Rs 36.36 lakh for last 52 villages) 

probably due to long lengths of 11 kV feeders in each subsequent lot of villages 

covered under JGY. It is, however, seen from the reported savings after almost 

completing the scheme, that in a period of less than three years, more than 45 per cent 

of investments in JGY are paid back. Apart from this favourable cost/benefit ratio to 

the Utility, this scheme will provide the required impetus for development of rural 

economy, creation of job opportunities, better health and education services, leading 

to an improved standard of living in the villages. 

9.14

Gujarat 

It has opened up a number of new opportunities for the utilities. Firstly, it will lead to 

a better effort in conducting energy audit. Energy supplied from the new JGY rural 

feeders could be tallied with the sum total of energy consumptions in all connected 

villages till meters are provided to each distribution transformer and transformer-wise 

audit is conducted. Increasing consumption in rural areas will now bring additional 

revenue to the Utility, as this energy will all be metered. Energy consumption for 

agricultural pumping loads can be assessed more correctly from the energy meters 

provided in the sub-station on the now dedicated agricultural feeders. 

The tariff for agricultural pumpsets is based on horsepower (HP) of the connected 

motor and not on consumption of energy as no meters are provided to individual 

installations. Where groundwater level is high, this leads to pumpsets remaining in 

operation for the entire period when supply is on and no efforts are undertaken to 

conserve the available water and/or reduce energy consumption. Where groundwater 

level has gone down, low capacity motors get replaced with higher capacity motors 

and this does not get recorded in the Utility’s database, resulting in loss of revenue to 

the Utility. With separate feeders for agricultural pumps now available, energy 

consumed per HP of connected load can be worked out for each such feeder. It should 

now be possible to devise a new graded tariff structure, though still based on HP of 

the connected motor, in such a way that tariff is lowest for a slab where energy 

consumed per HP of connected load is lowest and increases according to increasing 

per HP consumption. With careful design of tariff structure, it should be possible to 

induce the consumer to report increased HP of the installation on his own or agree to 

fix an energy meter. Both these options would benefit the Utility as well as 

agricultural consumers. 

With active participation of consumers connected to agricultural feeders, as has been 

successfully demonstrated by villagers in ‘Akshay Prakash Yojna’ in Maharashtra, it 

should be possible to reduce energy consumption and losses on these feeders by selfregulation 

of use of pumpsets in two or three groups, each group using energy at any 

given time for an agreed and defined duration. This will also reduce consumption of 

energy per connected HP and result in reduced tariff for agricultural consumers. 

It can be seen that JGY has been cost effective; it would improve standard of living in 

villages on account of availability of 24 hours of three-phase power supply and has 

opened new opportunities for the DISCOMs. Incidentally this initiative has come, not 

from the administrative/technical wing of Government of Gujarat/GEB, but from the 

political wing in Gujarat. 

9.15

INITIATIVES IN INFORMATION TECHNOLOGY 

e-Urja Project 



With a view to help in streamlining processes and provide greater economic value to 

its customers and other stakeholders of all restructured utilities, an end-to-end ERPbased 

IT solution called e-Urja is being set-up. The project envisages substantial 

reduction in paper work through on-line documentation and approval process. 

The estimated cost of the project is Rs 109 crore. PFC have sanctioned a loan of Rs 87 

crore at concessional interest of 6 per cent for IT initiatives. M/s TCS are providing 

technical support. 

The following Oracle Applications 11i solution has been proposed with specific 11i 

solutions for each company residing in a separate server: 

Oracle applications 11i ERP 

• Financial 

• Procurement 

• Inventory 

• Maintenance management 

• Projects 

• Human resource 

• Process management for GSECL 

• Customer relationship management for the DISCOM 

• Collaboration suite (mails, files) 

Other Applications 

• Payroll 

• Trading solution for GUVNL 

• Utility billing solution for DISCOM 

• Network analysis solution for DISCOM 

Implementation of this solution is being carried out from a centralised station for 

seven pilot sites one for each company. Subsequently the following additional 

locations will also be included: 

9.16

Gujarat 

• GSECL 8 Power stations 

• GETCL 11 Transmission circles 

• DISCOMs 16 Distribution circles 

The rollout in the pilot sites is currently on and complete rollout throughout seven 

companies is expected to be completed later this year. 

The following benefits will accrue to the companies after implementation: 

• Integrated system covering major areas of each of the companies 

• Streamlined and improved business processes 

• On-time accurate MIS 

• Workflow-based approvals and notifications 

• Centralised Database - single source of truth 

Other IT-related Applications in Service 

• GIS mapping has been completed in Vadodara, Bhavnagar, Rajkot, Jamnagar 

and Junagadh cities and the system is operational. GIS system is proposed to be 

implemented in some more cities, namely Bharuch, Surat, Valsad, Vapi, Nadiad, 

Anand, Mehsana. These are planned to be operational in 2007-08. 

• On line data monitoring is completed in respects of three transmission circles and 

is in implementation stage in six more circles. 

• Hand-held machines are being introduced for spot billing. 

• All company headquarters and power stations are linked to HO through WAN. 

PERFORMANCE IMPROVEMENTS 

Progress of Gujarat’s energy sector is commendable. Its power stations have been 

receiving many national awards for meritorious performance. Under APDRP incentive 

scheme, the erstwhile GEB has become eligible to receive incentives from 

Government of India of over Rs 385 crore in the period 2001 to 2003 for reducing 

cash losses. In the studies by rating agencies, Gujarat has consistently improved its 

rating from 7 th position in 2003 to 5 th position in 2004 and to 2 nd position in 2005. It 

was awarded the first prize by the India-Tech Foundation for the best performing state 

in the power sector in the country. 

9.17



LESSONS LEARNT AND IMPORTANT RECOMMENDATIONS 

IMPORTANCE OF SUPPORT OF GOVERNMENT AND STAFF IN 

RESTRUCTURING 

For the smooth and successful implementation of restructuring of SEB, unflinching 

support of the State Government and the Staff in SEB is a must. Such unstinted 

support from the Government is possible only if there is a strong political commitment 

to the restructuring agenda. There should be a general agreement among all political 

parties in respect of aims and objectives of the reform programme as well as about 

process of realising the same. 

The Government needs to realise that the process of dismantling a structure, which is 

more than 50 years in existence, is hard and difficult. It will take some time for the 

restructured entities to stand on their own. In the transition period, the Government 

must provide administrative and financial support to the restructured corporate 

entities. Targets set for new entities should be such that these demand hard efforts on 

the part of utilities but are definitely achievable. Government must allay genuine fears 

of the existing staff about retrenchment and inferior service conditions in the 

restructured entities. 

Once the genuine fears of the staff, about their continuation of services and fair 

service conditions in the new entities, are assuaged by the Government, the staff 

should move out of their small ambit and be ready to concentrate on larger interest of 

the society in making restructured entities efficient and consumer friendly. 

SUCCESS OF JGY SCHEME 

JGY scheme has shown a deep concern about needs of villages in improving the most 

important infrastructure in the form of availability of three phase power supply for 24 

hours a day. Contrary to the general impression, it has also proved that investments in 

the rural sector could also be cost effective. The scheme has thrown open new 

opportunities for the DISCOMs to improve their performance parameters. Most 

importantly, it has built a bridge of mutual understanding and respect between the 

utilities and the rural population. With backing of this fund of goodwill, the utilities 

have taken a firm step forward in their journey towards self-sustenance. Gujarat has 

definitely shown a way to others by successful implementation of JGY scheme. 

9.18

Gujarat 

E-URJA PROJECT 

This is yet another important initiative taken by GEB to streamline operations of 

restructured companies. So far, no other Utility in the country is reported to have 

undertaken a similar initiative. When the system is fully operational, it would lead to 

many advantages in working of the new companies. Other companies in the power 

sector could benefit from following the Gujarat example and taking suitable actions in 

setting up a computerised Information System. 

WAY FORWARD 

Role of GUVNL 

GUVNL is entrusted with the task of bulk purchase and sale of power from GSECL to 

the four DISCOMs. It is required to organise loans on favourable terms from the 

market for the different power companies. It will also coordinate with the 

Government of Gujarat on behalf of these companies. Such umbrella type coverage of 

functions could lead to some difficulties in future. These need to be identified quickly 

for devising suitable solutions. With this in view the following suggestions are made. 

• GUVNL has to guard against its assuming the role of a big brother and of micromanaging 

the affairs of other companies through an invisible hand. In such a 

situation, the companies will lose their freedom and initiative to come up with 

new and innovative ideas appropriate for adopting in their own areas of 

operation. As a result, the very concept of fostering competition in the four 

DISCOMs could suffer. 

• GUVNL is quite aware of this possibility and has taken correct initiatives in 

formulating joint agreements between the DISCOMs and GSECL and GETCL. 

In order to further formalise these arrangements, principles for determining bulk 

rates for purchase and sale of energy on different considerations, such as 

quantum of energy from GSECL, mix of hydro and thermal contribution, energy 

from IPP and central sector plants, etc.; leaving enough room for the companies 

to generate more money by adopting innovative solutions within these defined 

parameters, could be discussed and finalised with the companies on a long-term 

basis. Similarly, the principles of distribution of Government grants, equity 

support, rural electrification subsidy, as well as savings which will have to be 

generated by individual companies by improving their performance could also be 

discussed and finalised for a longer duration on similar lines as is done in FRP. 

These targets and achievements thereof could be discussed twice a year for 

incorporating suitable corrections. With such a system in place, the individual 

9.19



company will be encouraged to operate independently and can be held fully 

accountable for its performance. The initiative to maintain some distance from 

the different companies has to originate from GUVNL. 

Introduction of Intra-State ABT 

Introduction of intra-State ABT will surely lead to discipline in operation of all 

utilities. Till the time utilities get used to operate in strict regime of ABT, there will be 

instances of Unscheduled Interchanges (UI) and payment of penalties thereof. In order 

that the sole objective of avoiding UI and associated payment of penalties does not 

override and obscure the vision of the utilities of providing continuous supply as an 

important parameter of their operations, some guidelines will need to be discussed and 

finalised for operation in the interim period. 

Another aspect that needs to be addressed is the simplification of operation of ABT. 

Presently, a large number of interchange points have been identified for fixing meters. 

This may partly be due to 66 kV lines running across more than one DISCOM’s area. 

In the next few years, efforts should be made so that 66 kV lines do not form any 

interconnection between different DISCOMs and such interconnections are only at 

higher voltage levels. 66 kV network in a DISCOM’s area should remain exclusively 

for serving loads only in that company’s area. Reduction of number of interconnection 

points will help in simplifying the ABT operation. 

CAPITAL INFUSION BY GOVERNMENT OF GUJARAT/PROFITABLE 

STATE PSUs 

In the FRP, every year an amount of about Rs 600 crore is proposed to be provided by 

Government of Gujarat/profitable PSUs of the State, towards capital infusion in 

restructured companies. This amount is in addition to Rs 250 crore per year of grant 

from the State Government. Since Government of Gujarat has other commitments like 

providing RE subsidy, etc.; most of this additional capital infusion may ultimately 

have to come from the identified State PSUs. 

The terms of such capital infusion or the identification of the PSUs is not yet known. 

During discussions, it was mentioned that various options such as direct equity 

support, equity support for specific projects, etc., are being considered. With no core 

competence in the energy sector available with them, PSUs may not be comfortable to 

be equity participants of such a large magnitude. GUVNL could check if some form 

of revenue sharing arrangement could be favoured by these PSUs. 

9.20

Gujarat 

OTHER ACTION POINTS 

In the subsequent chapters on generation, transmission and distribution, certain areas 

requiring attention have been identified for the respective utilities to deliberate upon 

and take suitable necessary actions. These are listed below: 

GSECL 

• Likely difficulties in achieving improvement in PLF of old thermal generating 

plant and remedies thereof; 

• Risks associated with old generating units not achieving desired levels of 

performance even after carrying out Life Extension (LE) and R&M works: and 

• Risks of non availability of required quantity and quality of coal for thermal 

stations. 

GETCL 

• Conversion of a single 66 kV meshed network for entire State into four meshed 

networks one each for individual distribution company’s area; and 

• Providing precision energy meters and high accuracy instrument transformers in 

generator transformer bays in EHV substations for measurement of energy 

delivered on the busbar wherever presently such provisions do not exist. 

DGVCL/MGVCL/PGVCL/UGVCL 

• The programme of fixing energy meters on distribution transformers and 

conducting DTC-wise energy accounting will also need preparation of DTC-wise 

route sequences; and 

• While forming four DISCOMs, Government of Gujarat had considered making 

provision for separate electricity companies for the major cities of Vadodara, 

Rajkot, Bhavnagar, Jamnagar and Junagad. It would be advantageous for the 

DISCOMs to start maintaining separate accounts for such cities in addition to the 

consolidated account of the concerned DISCOM. 

9.21



SUPPLEMENTARY INFORMATION ABOUT GENERATION/ 

TRANSMISSION/DISTRIBUTION COMPANIES 

GUJARAT STATE ELECTRICITY CORPORATION LIMITED (GSECL) 

Present Installed Capacity/energy generated/performance 

Out of the total generating capacity of 8,974 MW in Gujarat, GSECL has an installed 

capacity of 4,968 MW, private sector capacity is 2,166 MW and the State’s share in 

central sector plants is 1,840 MW. GSECL’s capacity comprises of 4,179 MW 

thermal, 547 MW hydro and 242 MW gas based plants. 

The tables below give the details of capacity, energy generated and performance 

parameters: 

Installed Capacity (MW) 

Particulars 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

2004 

-05 

2005 

-06 

Hydel 547 547 547 547 547 547 

Thermal 4179 4179 4179 4179 4179 4179 

Gas 234 201* 162** 269*** 269 242**** 

Total 4960 4927 4888 4995 4995 4968 

* Dhuvaran 27 MW Gas Turbine and 6 MW of Utran old capacity derated. 

** Utran Old 39 MW derated. 

*** Dhuvaran –I 107 MW capacity added. 

**** Dhuvaran old 27 MW capacity derated. 

Energy Generated (MU) 

Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 

Hydel 436 287 588 859 832 795 

Thermal 24922 24970 25450 23800 25280 24525 

Gas 854 819 888 934 1876 1810 

Total 26212 26076 26926 25593 27988 27130 

Performance Parameters 

Particulars 2000-01 

2001- 

02 

2002- 

03 

2003- 

04 

2004- 

05 

2005- 

06 

PLF (%) 67.85 68.14 70.58 70.27 72.02 72.48 

Heat rate (kcal/kWh) 2558 2563 2566 2624 2640 2694 

Oil consumption (ml/kWh) 2.03 1.01 0.94 1.94 1.70 1.57 

Auxiliary consumption (%) 9.62 9.37 9.38 9.79 9.66 9.24 

Plant availability (%) 80.78 78.29 80.17 78.36 85.24 84.51 


in terms of MWh1000 

4,062 5,524 5,096 5,209 3,223 2,262 

Total manpower employed 

9,148 at plant locations plus 300 at head quartersTotal 

9448 

9.22

Gujarat 

Investments Made to Improve Generation Capacity and Efficiencies 

(Rs crore) 

Particulars 

2000 

-01 

2001 

-02 

200 

2-03 

2003- 

04 

2004- 

05 

200 

5-06 

New capacity 7 28 24 36 

Renovation and 

modernisation 

21 76 282 38 107 16 

From the above tables it is seen that there is no significant addition to the generating 

capacity in GSECL in the last six years. The performance in the last two years has 

improved significantly, increasing the PLF to 72.48 per cent and availability to around 

85 per cent. Oil consumption and unscheduled breakdowns have been reduced. 

Considering the fact that almost 90 per cent of the plants are about 20 years old, the 

performance is commendable. 

The manpower deployed per MW of installed capacity works out to 1.90. 

The company has submitted ARR in Jan 2006 and GERC has given its decision on the 

same. 

Planning for Capacity Additions 

The company has formulated its business plan for the period ending 2011-12. It is 

proposed to add 1,887 MW of new capacity with estimated investment of Rs 5,964 

crore and carry out LE and R&M of old plants of 1,860 MW capacity with estimated 

investment of Rs 1,904 crore. 

Way Forward 

Life Extension Works 

Estimated requirement of investments for Life Extension (LE) works of Rs 1,904 

crore appears to be on lower side. Government of Gujarat has indicated that in the bids 

received by it, cost/MW is not in the range of CEA estimates and that the agencies to 

be entrusted with LE works are reluctant to provide assurance of achieving desired 

performance levels over a long period. Gujarat has, therefore, almost decided not to 

proceed with LE works. Since GSECL is considering investments for LE works in 

respect of 1,860 MW, almost the same capacity as installation of new capacity, it 

would be advisable to identify related risks of not being able to achieve expected 

performance levels even after carrying out LE and R&M works and take suitable 

action. 

9.23

Availability of Required Quantity and Quality of Coal 



For obtaining coal for the new power plants, GSECL would most likely be required to 

own and operate coalmines and coal washeries. Some advance action to scout for a 

partner and form a joint venture to own and operate coalmines may have to be taken 

quickly. Also, the option of finalising long-term contracts for imported coal will also 

need to be explored. These issues are also important in ensuring improved 

performance of existing thermal generating plants and are required to be sorted out 

quickly so as to ensure that savings anticipated from improved performance do 

materialise. 

GUJARAT ENERGY TRANSMISSION CORPORATION LIMITED (GETCL) 

GETCL’s transmission network comprises of 400 kV to 66 kV lines and sub-stations 

spread across the State for evacuation of generation from GSECL, IPPs and State’s 

share of power from central sector projects and delivering the power to distributing 

companies. Details of the transmission in the State are as under: 

Details of existing Transmission Lines and Sub-stations 

Voltage (kV) Ckt km Sub-stations (No.) Transformers (No.) 

400 1841 8 15 

220 11149 63 160 

132 4550 48 158 

66 16941 721 1509 

Total 34481 840 1842 

It is noted that 132 kV level will no more be extended further and all future expansion 

will only be in 400/220/66 kV levels. 

Particulars 

Performance of Transmission System 

Year before restructuring Year after restructuring 

5th 4th 3rd 2nd 1st 1st 2nd 3rd 4th 

Energy available (MU) 41104 40627 44872 43633 50340 51175 52992 

Energy delivered (MU) 39339 38824 42923 41709 48152 48946 

Transmission losses (MU) 1765 1803 1949 1924 2188 2229 

Transmission losses (%) 4.29 4.44 4.34 4.41 4.35 4.36 4.37 

Availability of the Transmission systems (%) 

Overall 99.35 99.35 99.35 

Lines 

400 kV 98.99 98.7 99.04 99.1 99.27 

220 kV 98.46 97.89 98.73 98.9 98.86 

132 kV 98.83 98.56 98.98 99.24 98.79 

66 kV 99.18 98.98 99.51 99.67 99.57 

Sub-stations 99.61 99.21 99.84 99.84 99.67 

9.24

Gujarat 

Investments Made to Improve Transmission Capacity 

(Rs crore) 

Particulars 

New transmission lines 

2002-03 2003-04 2004-05 2005-06 


180.46 145.49 147.84 352.54 

transmission system 

* The segregation of the investments for new transmission lines and strengthening of 

transmission system is not available. 

It is seen from the above that the transmission loss is low and the availability of the 

transmission system is higher than norms. GETCL is understood to have formulated a 

long-term business plan. 

The total staff working in GETCL is 10,643. Therefore, MU handled per employee 

per annum comes to 4.98. 

GETCL had submitted ARR in January 2006 and GERC has issued its orders on this 

submission in May 2006. For 2006-07, transmission charge/MW/month approved by 

the Commission works out to Rs 86,142 in place of GETCO’s request of Rs 1,03,539. 

These charges include return on equity amounts of Rs 196 crore in place of Rs 280.88 

crore claimed by GETCO. 

Way Forward 

GETCL needs to look in the following issues and take suitable action: 

1. Conversion of a single 66 kV meshed network for the entire State into four 

meshed networks, one each for the individual DISCOM’s area. 

2. Providing precision energy meters and high accuracy instrument transformers in 

generator transformer bays in EHV sub-stations for measurement of energy 

delivered on the busbar wherever presently such provisions do not exist. 

DGVCL/MGVCL/PGVCL/UGVCL Distribution Companies in Gujarat 

Preamble 

The distribution sector of erstwhile GEB was restructured into four independent 

DISCOMs w.e.f. 1 April 2005. Gujarat’s reply to IIPA’s questionnaire primarily 

contains data prior to restructuring. Information pertaining to individual companies 

after restructuring for the year 2005-06 is not yet compiled though the companies have 

taken actions in terms of formulating individual business plans and have identified 

investments required for capacity additions and improvements over a long term 

period. However actions for improvement of the distribution sector have been initiated 

9.25



since 2003 and are still continuing. A consolidated picture of distribution sector of 

Gujarat as available is given below: 

Various categories of consumers served by the DISCOMs are as under: 

Details of Consumers 

No. of 

consumers 

1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

Residential 5342985 5540354 5700498 5817482 6099118 6400626 

Commercial 765997 802722 830226 850997 908412 947530 

Industrial LT 159902 156259 153923 150760 153097 157691 

Industrial HT 4546 4626 4678 4677 4820 5194 

Public lighting 17302 17595 17152 16686 16934 18583 

Railways 10 10 10 10 11 11 

Agricultural 566232 581494 600414 606210 648053 664059 

Water works 22497 24327 26072 27576 29904 31793 

Licensees 2 4 4 4 4 7 

Others 3 2 2 0 0 0 

Total 6369866 7127393 7332979 7474402 7860353 8225494 

Power Supply Position 

The table below indicates parameters related to quantitative and qualitative supply of 

power to various consumers. A peak load of 8,170 MW is met and a total of 59,078 

MU was served by the DISCOMs in the year 2005-06. 

There is no power cut in major urban areas for HT consumers, industrial estates, 

Gujarat Industrial Development Corporation (GIDC) areas and the 168 Nagar Palikas. 

A total of 17,773 villages under JGY are supplied with 24 hours three-phase power 

supply. The remaining areas have power cuts for 4 to 5 hours a day. 

9.26

Gujarat 

Performance Parameters of Distribution Companies 

Parameters Related to Quantitative and Qualitative Supply of Power 

Particulars 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

2004 

-05 

2005 

-06 

Assessed total demand (MU) 54424 60471 60541 64784 63313 

Peak load met (MW) 7064 7743 7605 8078 8170 

Peak load shortage (MW) 383 638 1174 1403 344 

Energy met (MU) 50069 55127 54727 58206 59078 


Power Transformer 

2.1 1.61 1.68 1.79 2.44 2.07 

a. Failure rate (%) 

Distribution Transformer 

Failure rate (%) 

b. Average restoration time 

Interruptions per feeder per 

month 

24.6 20.4 19.7 19.3 19.7 18.2 

On an average 48 hrs for rural area and 4 hrs for urban 

area 

0.87 1.80 1.20 1.12 1.01 1.25* 

* Increase in number of interruption due to heavy rain/cyclone during June/July 2005 

It can be seen from the above table that the failure rate of distribution transformers, 

though reducing, is still high. The interruptions per feeder per month are low. 

Transmission and Distribution Losses 

The combined T&D losses have shown reduction in the year 2003 from the previous 

level but there seems to be no further improvement in next year. Considering that the 

transmission loss is of the order of 4.4 per cent, the level of distribution loss works out 

to 26.2 per cent, which is high. The data for the year 2005-06 is not available. Hence, 

the present level of losses is not known. However, it has been indicated in the FRP 

that distribution losses would be reduced progressively as under: 

2005 2006 2007 2008 2009 2010 

-06 -07 -08 -09 -10 -11 

Distribution loss (%) 26.46 22.4 19.11 16.51 15.62 15.08 

Now that the JGY scheme is almost completed, accurate consumption of agricultural 

consumers can be worked out from the energy meters installed on feeder panels. It is 

likely that it may reveal that actual consumption in the agricultural sector is less than 

that assumed and that the distribution losses are higher than the level indicated above. 

Therefore DTC-wise energy accounting will have to be done to target high loss areas 

for concentrating effort for reducing losses in future. The programme of fixing energy 

meters on DTCs needs to be expedited. 

9.27



The efforts undertaken to reduce distribution losses entail replacement of faulty 

meters, provision of metal boxes for housing meters and sealing, checking of meter 

installation, etc. The tables below give the details of T&D loss and measures taken to 

reduce the same. 

T&D losses (%) 

2000-01 2001-02 2002-03 2003-04 2004-05 

35.53 34.61 35.90 30.90 30.64 

Efforts for Reduction of T&D losses 

Particulars Unit 2001-02 2002-03 2003-04 2004-05 2005-06 

Faulty meters replaced Lakh 4.59 6.83 7.8 10.78 9.55 

Metal meter box provided Lakh 4.58 6.93 8.54 11.8 8.78 

Connections sealed Lakh 9.23 10.85 11.44 13.89 11.95 

Feeders bifurcated 

Numbers No. 151 98 236 360 272 

Line erected ckt km 759 473 1305 2046 1898 

Amount spent Rs Lakh 1297 840 2478 3879 3970 

DTCs brought at load centres 

Numbers 580 648 650 1377 1619 

Increase in kVA capacity kVA 31119 34247 34885 79880 73582 

Amount spent Rs Lakh 565.49 607.46 617.92 1649.21 1868.09 

Renovation of conductor on Lines 

Length of replaced conductor ckt km 611.51 674.6 808.58 1995.48 2593.0 

Amount spent Rs Lakh 216.57 160.54 332.78 1186.15 1130.74 

No. of installations checked Lakh 18.74 19.67 21.48 20.75 21.52 

Supplementary bills issued Lakh 1.67 2.04 2.14 1.53 1.58 

Theft of energy No.x1000 60.66 79.64 107.98 101.17 96.24 

Malpractice No.x1000 15.53 14.22 12.41 15.18 16.22 

Other cases No.x1000 90.67 110.30 93.91 37.10 45.76 

Amount assessed Rs crore 190.98 229.47 223.93 175.91 146.74 

HT connections checked No. 763 439 267 539 

CT operated meters checked No.x1000 16 19 22 26 21 

LT capacitors checked Lakh 0.96 0.97 1.1 1.0 

Vigilance Activities 

The vigilance department is headed by an IPS officer of the rank of IGP, posted on 

deputation from Government of Gujarat to GUVNL. In all, 70 vigilance squads 

attached to individual circles work in this department. Five separate police stations 

and five special courts have been set-up at Vadodara, Surat, Ahmedabad, Rajkot and 

Bhavnagar. Certain percentage of consumer connections of different categories are 

checked on a regular basis. The details are as follows: 

9.28

Gujarat 

Category of connection 

% Checks planned 

in a year 

High tension 95 

Low tension 83 

Residential 30 

Commercial 40 

Agricultural 26 

In addition to the above, special checking drives are conducted by the vigilance 

department (head office). Details are given below: 

Details of Checking in Special Drives 

Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 

Preventive raids 27 44 53 50 37 


(Rs crore) 

14.71 57.50 59.18 42 23.19 

It is noted that the vigilance activities are not hindered by any political interference. 

The results of these efforts seem to be fruitful. 

Commercial 

Progress of Metering: 

Except for the agricultural consumers, all other consumers are supplied energy 

through meters. 29.48 per cent of agricultural connections have been provided with 

meters till March 2006. 

Details of Cost of Power and Recovery 

(Rs/kWh) 

Particulars 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

2004- 

05 

I Cost to Serve 3.51 3.36 3.46 3.88 3.52 

II Recovery 

a Agricultural 0.15 0.16 0.21 0.27 0.48 

Agricultural tariff 

0.37 0.58 0.74 0.80 0.98 

compensation 

b Domestic 2.54 2.69 2.71 3.10 2.96 

c HT industrial 4.36 4.34 4.24 4.21 4.35 

d LT industrial 4.04 4.42 4.29 4.21 4.14 

e LT commercial 4.40 4.68 4.67 4.78 4.65 

f Public lighting 3.12 3.35 3.26 3.28 3.35 

g Railways 4.96 5.08 4.96 5.10 5.04 

h Water works 1.51 2.25 2.69 2.77 2.73 

i Licensees 2.81 2.99 2.84 2.90 2.77 

J Overall average 1.93 2.21 2.46 2.65 2.85 

9.29

Billing and Collection 



The billing system is computerised. All bills are issued on the basis of meter reading 

except for agricultural consumers where it is based on HP of connected load. The 

periodicity of billing is as follows: 

Periodicity of Billing 

Particulars Periodicity of billing 

HT consumers Monthly 

Industrial consumers 

Monthly for consumers having more than 10 HP load and bimonthly 

for others. In some areas monthly billing is also introduced. 

Residential Bimonthly. Monthly billing is introduced in some areas. 

Commercial Bimonthly. Monthly billing is introduced in some areas. 

Agricultural Bimonthly 

Railways Monthly 

All LT consumers are billed from 20 th till 10 th of the next month and HT consumers 

are billed on 1 st of the subsequent month. The billing activity is generally on time and 

instances of delay are rare. Around 90 per cent of billed amount is collected within the 

due date. Billing efficiency has consistently been 100 per cent and collection 

efficiency has been over 99 per cent in the past two years and 100 per cent in 2005-06. 

Energy audit is conducted every month as per norms. 

No revenue is foregone through concessional tariff but made available by Government 

of Gujarat in the form of subsidy. The details of subsidy provided by Government of 

Gujarat to GEB are given below: 

Details of Subsidy 

(Rs crore) 

Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 

Subsidy booked 1100 1100 1100 1100 1100 1100 

Domestic 74 90 92 0 0 0 

Agricultural 331 663 684 619 480 478 

Water Works 84 82 80 82 100 100 

Arrears of Revenue and Debt 

Details of arrears of revenue and long-term debt and the position in respect of cases 

and amounts locked up in disputes are given below. Through the medium of Lok 

Adalats, a total of 1.11 lakh cases were settled between the period 1998 and October 

2005, realising an amount of Rs 50.82 crore. 65,708 cases involving Rs 865.79 crore 

are still pending in legal dispute. 

9.30

Gujarat 

Details of Arrears of Revenue and Debt 

Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 

(Rs crore) 

2005-06 

Arrears of revenue 1901 1941 1953 2195 2417 

Debt (long-term) 7443 6312 8228 8920 9618 6943 

Financial Data 

Data on Turnover, PBT, PAT, Interest, etc. 

Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 

(Rs crore) 

2005-06 

Turnover 6280 7274 7874 8545 9137 

PBT (2543) (622) (476) (1932) (927) 

PAT (2543) (622) (476) (1932) (927) 

Interest paid 1228 1017 772 1345 1211 

Wages and 

salaries 

723 735 746 777 869 

Equity 0 0 0 0 0 

Debt outstanding 7443 6312 8228 8920 9618 

Govt. subsidy 1505 1853 1876 1719 1578 

APRDP incentive - - 236 - - 148 

Investments made to Improve Distribution Capacities and Efficiencies 

(Rs crore) 

Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 

ND Scheme 144.65 124.86 130.83 147.40 175.59 

System improvement 37.78 27.69 29.44 24.75 25.47 

Jyoti Gram Yojana 43.50 243.92 

Hamlet electrification 2.65 2.80 2.64 

Kutir Jyoti 2.51 2.63 2.50 

Scheme for meters 8.55 42.30 39.14 33.29 

APDRP Schemes 

In addition to the above, schemes for ten circles with investment cost of Rs 680.60 

crore were sanctioned under APDRP in the year 2002-03. Thereafter, in 2004-05, 

schemes for setting up of 15 Nos. of 66 kV sub-stations in six circles and 

SCADA/DMS system for Vadodara city at an estimated cost of Rs 63.97 crore were 

sanctioned under APDRP. 

Major works completed under these schemes are as under: 

• Replacement of 13.71 lakh single phase meters; 

• 48,505 electronic meters provided on LT industrial consumers; 

• 37,420 three phase meters provided on distribution transformers; 

9.31

• 494 feeders bifurcated and 3,339 DTCs installed; 

• Computers provided up to sub-divisional level; 



• 42 No. of 66 kV sub-stations commissioned, four more are to be commissioned 

this year; 

• Replacement of 66 kV breakers and R&M of 66 kV sub-stations and lines; 

• GIS mapping in four cities has been completed and is in process in 3 more cities; 

and 

• SCADA/DMS for Vadodara in progress. 

Major benefits of the scheme 

• 100 electronic meters for all feeders; 

• 80.24 lakh consumers out of 85.45 lakh (93.91) are metered; 

• Consumer indexing upto DTC level in Vadodara city circle, Bharuch, 

Bhavnagar, Jamnagar and Junagadh cities; 

• Reliability index of supply for towns covered in APDRP circles crossed 99 per 

cent and for the other circles, 98 per cent; 

• Total savings of 511.67 MU corresponding to Rs 178 crore till March 2005; and 

• Increase in yearly revenue from Rs 926 crore for March 2005 to Rs 1,072 crore 

for March 2006 with no major increase in tariff. 

Due to actual cash loss reduction, GUVNL has received Rs 236.37 and Rs 148.08 

crore as incentive for the years 2001-02 and 2002-03 respectively. 

Manpower 

The DISCOMs have a total staff strength of 27,345. With total energy of 59,078 MU 

handled in 2005-06, the energy handled per employee works out to 2.16 MU per 

annum. 

Improvements in Customer Services 

All DISCOMs have set-up consumer care centres at city/town/sub-divisional level. 

These are open round the clock. Besides, the DISCOMs have started web based 

complaint management system where consumers can lodge their complaints on 

telephone or website. On receipt of a complaint, it is directed to the concerned subdivision 

and followed up till its redressal. 

9.32

Gujarat 

Payment of bills is accepted at post offices and at outsourced agencies. 

Data about complaints handled is not maintained at headquarters level. Data regarding 

consumer complaints received in Vadodara city circle is given in the table below: 

Details of Complaints Handled in Vadodara City Circle 

Year 


consumers 

Bills 

Issued 

No power 

complaints 

Meter 

complaints 

Billing 

complaints 

Payment 

complaints 

2002-03 435460 2671980 121851 9921 7014 4152 

2003-04 457324 2800806 114514 9561 6624 3659 

2004-05 479876 2952552 104702 9291 5987 3376 

2005-06 508522 2979546 83562 5542 3562 3012 

From the above, it is seen that the level of complaints have reduced considerably after 

implementation of GIS in 2005-06. 

Regulatory Issues 

Gujarat Electricity Regulatory Commission was established in 1998. ARR petitions 

were filed by the erstwhile GEB in 1999-2000 and 2004-05 and the Commission had 

passed its orders on these. All DISCOMs filed ARRs for 2005-06 and 2006-07 in 

January 2006 and the Commission has issued its orders for the year 2006-07 in respect 

of each DISCOM. 

The Commission has issued Regulations in respect of Open Access. These are to be 

made applicable in two phases as given below: 

Phase Load Level Effective from 

I 5 MW and above 

After intra-State ABT is put in place or 

1 January 2006, whichever is later 

II 1 MW and above 2 years after introduction of phase I 

The Commission has issued a draft concept paper on MYT in August 2004 for 

comments by stakeholders and the general public. Further action is awaited. 

The Commission has issued Regulations in January 2005 defining performance of 

utilities in safety, complaint handling, quality of power, reliability of the system, 

complaints about meters/metering systems, release of new connections, complaints 

about billing, reconnection of supply, issue of temporary supply, etc. 

Forum for redressal of consumer grievances has been established and implementation 

of anti-theft measures is in place. Progress of extending agricultural supply through 

meters is around 30 per cent. 

9.33

WAY FORWARD 



The companies will have to undertake a programme of providing energy meters on the 

DTCs and conduct DTC-wise energy accounting. For this purpose, it is necessary to 

identify and index consumers on the basis of transformer from which they are served. 

It is also necessary that the route sequences for meter reading programme will have to 

be so prepared that the meter on the DTC and the meters of consumers served through 

the DTC are read on the same day in a short period of reading the meter on the DTC. 

The above programme will need to be coordinated in such a manner that as soon as 

the meter is fixed on the DTC, the DTC-wise meter reading programme could be 

pressed in service. 

9.34

Gujarat 

Important Data about Individual Distribution Company 

Dakshin Gujarat Vij Company Limited (DGVCL) 

Salient features of the company are as under: 

Area of operation in Gujarat South 

Area served (sq km) 23307 

Districts serviced 6 

Villages serviced 3,780 

Circles Three – Surat, Valsad AND Baruch 

Division offices 16 

Sub-division offices 78 

No. of 11 kV feeders 803 

No. of consumers 15 lakh 

No. of employees 4,519 

The company had submitted ARR to GERC in January 2006 for the years 2005-06 

and 2006-07. The Commission approved the ARR only for the year 2006-07. The 

details of ARR claimed by DGVCL for the year 2006-07 and approved by the 

Commission are given below. It would be noted that DGVCL had claimed return on 

equity of 14 per cent and the approval has been given for seven per cent. 

The break-up of the Annual Revenue Requirement approved for DGVCL for the year 

2006-07 is given below: 

Details of expenditure heads 

9.35 

As requested 

by DGVCL 

(Rs lakh) 

As approved 

by the 

Commission 

Power purchase cost 337658 307401 

Employees cost 10369 9756 

Repairs and maintenance charges 1594 1565 

Administrative and general expenses 2117 2079 

Depreciation 7397 3317 

Interest on loans 4530 4530 

Interest on working capital 5078 5078 

Other debits 1301 1301 

Provision for bad debts 1303 1303 

License fee and other charges 137 137 

Less interest and other expenses capitalised 0 - 

Return on equity 5218 2609 

Provision for tax 0 - 

Total expenses approved 

Bulk Supply Tariff for DGVCL is Rs 3.09 per kWh. 

374202 

after non-tariff 

income of 

2498 

339076

Madhya Gujarat Vij Company Limited (MGVCL) 

Salient features of the company are highlighted as under: 

Area of operation in Gujarat Central 

Area served (sq km) 23,854 





Circles 

Four – Baroda Rural, Baroda City, 

Anand and Godhra 



No. of 11kV feeders 816 

No. of consumers 18,12,164 




details of ARR claimed by MGVCL for the year 2006-07and approved by the 

commission are given below. 


As claimed by 

MGVCL 

(Rs lakh) 

As approved by the 

Commission 










Licensee fee and other charges 70 70 

Less interest and other expenses capitalised (-) 3210 (-) 3210 



Total expenses approved 198205 * 177420 

* after allowing non-tariff income, Rs 2,074 lakh 

Bulk Supply Tariff for MGVCL is Rs 2.62 per kWh. 

9.36

Gujarat 

Paschim Gujarat Vij Company Limited (PGVCL) 


Area of operation Paschim Gujarat 



Nine – Rajkot, Rajkot City, Jamnagar, 

Circles 

Porbandar, Bhuj, Junagadh, 

Surendranagar, Bavnagar and Amreli 



No. of 11KV feeders 2,415 

No. of consumers 29.9 lakh 




details of ARR claimed by PGVCL for the year 2006-07and approved by the 

commission are given below. 


As claimed by 

PGVCL 

(Rs lakh) 

As approved by the 

Commission 











Less interest and other expenses 

capitalised 

(-) 1634 (-) 1634 



Total expenses approved 348675 * 309097 

* after allowing non-tariff income, Rs 5,658 lakh 

Bulk Supply Tariff for PGVCL is Rs 1.81 per kWh. 

9.37

Uttar Gujarat Vij Company Limited (UGVCL) 




Area of operation Northern Gujarat 

Area served (sq km) 39,074 



Circles 

Four – Mehsana, Palanpur, Sabarmati 

and Himmatnagar 



No. of 11KV feeders 2,265 

No. of consumers 18.7 lakh 




details of ARR claimed by UGVCL for the year 2006-07 and approved by the 

commission are as follows: 


As claimed by 

UGVCL 

(Rs lakh) 

As approved by 

the Commission 











Less interest and other expenses capitalised (-) 533 (-)533 



Total expenses approved 302552* 276439 

* after allowing non-tariff income, Rs 2902 lakh 

Bulk Supply Tariff for UGVCL is Rs 2.11 per kWh. 

9.38


EXECUTIVE SUMMARY..................................................................................10.1 

LESSONS LEARNT AND MAJOR RECOMMENDATIONS ...............................10.2 

Timely Capacity Additions ................................................................................................ 10.2 

Positive Impact of Consumers’ Participation .................................................................. 10.4 

Impact of Delay in Restructuring...................................................................................... 10.5 

Setting up a Modern Information System........................................................................ 10.5 

Energy Audit ....................................................................................................................... 10.9 

Discussions on Having one or more Distribution Companies ...................................... 10.12 

RESTRUCTURING EXERCISE.......................................................................10.14 

Introduction....................................................................................................................... 10.14 

Financial Position of MSEB............................................................................................. 10.14 

Need for Reforms.............................................................................................................. 10.15 

Steps taken by Government of Maharashtra................................................................. 10.15 

Government of Maharashtra’s Strategy for Reform .................................................... 10.16 

Restructuring of MSEB.................................................................................................... 10.17 

IMPACT OF RESTRUCTURING.....................................................................10.22 

General Comments ........................................................................................................... 10.22 

positive and sluggish indicators....................................................................................... 10.22 

SPECIFIC ISSUES...........................................................................................10.25 

Generation......................................................................................................................... 10.25 

Way Forward ....................................................................................................................10.30 

Transmission ..................................................................................................................... 10.31 

Way Forward ....................................................................................................................10.34 

Distribution ....................................................................................................................... 10.36 

Reduction in T&D Losses ................................................................................................ 10.37 

Improvement in Services to Customer ........................................................................... 10.38 

Distribution Losses ........................................................................................................... 10.43 

Progress of APDRP........................................................................................................... 10.44 

Commercial Performance ................................................................................................ 10.45 

Billing and Collection Efficiency ..................................................................................... 10.45 

AT&C Losses .................................................................................................................... 10.47 

Preventive Action and Prosecution for Theft of Energy............................................... 10.47 

Status of Regulation/Implementation of Provisions of the EA, 2003........................... 10.49 

WAY FORWARD ............................................................................................................ 10.55

MAHARASHTRA 


Till a decade back, Maharashtra State enjoyed a pride of place amongst the highly 

industrialised States in the country. One of the important contributing factors for this 

achievement was comfortable power supply position in the State. With adequate 

generating capacity and extensive transmission and distribution network, Maharashtra 

State Electricity Board (MSEB) not only provided 24 hours power supply to all its 

consumers including for agricultural pumps, but also assisted the needy neighbouring 

States. 

Later on, allocations of funds from Government of Maharashtra to MSEB started 

drying up and the sector started suffering adversely. To meet the growing demand of 

electricity in the State, Government of Maharashtra and MSEB embarked on setting 

up of a largest private sector generating plant at Dabhol. From the beginning, it ran 

into a number of controversies and after commissioning of first stage of this power 

project, it was abandoned midway through. A period of inaction in taking required 

steps to augment the generating capacity followed. As a result, no significant 

generating capacity was added in the State during the period 2000-05. Consequently, 

the consumers of MSEB continued to face increasing quantum and duration of load 

shedding year after year. 

Government of Maharashtra was quite aware of the large quantum of investments 

needed in the power sector to meet growing needs of the sector, the precarious 

financial health of MSEB and hence the urgent need to reform the sector. In the year 

2002, Government of Maharashtra published a White Paper detailing the condition of 

the power sector in the State, urgent need of reforming MSEB and the policy of 

Government of Maharashtra with regard to reform agenda. Restructuring of MSEB 

into separate companies for generation, transmission and distribution (one or more) 

along with implementing an agenda of internal reforms (initially, while in ownership 

of the State) was proposed in this White Paper. At that stage, it was envisaged that the 

restructuring of MSEB would be taken up in the year 2003. 

However, the restructuring could not be accomplished in the year 2003. It was done 

later in June 2005 as mandated in the EA, 2003. Government of Maharashtra 

restructured MSEB into four companies under the Companies Act, 1956 namely a 

generating company, a transmission company, a distribution company, and a holding 

company, holding Government’s equity in the other three companies.



The period after restructuring is just one year and it may be rather early to assess the 

impact of restructuring. One may have to focus primarily on identifying any 

significant new approaches/processes being adopted by the restructured companies 

rather than improvement in performance parameters in this short period. Nevertheless, 

even a limited review of performance could indicate areas showing signs of 

improvement as well as areas needing immediate attention and strong corrective 

action which would help in quickly improving performances of the resultant 

companies. 

This report aims at achieving above objective, by focusing on initiatives of the new 

companies in specific areas of: 

• Planning for capacity additions; 

• Management of demand; 

• Services to consumers; 

• Steps to improve performance parameters; and 

• Building an efficient organisational set-up. 

The conclusions arrived at are detailed in individual chapters. However, it can be 

stated that there are positive indications in respects of first three areas mentioned 

above but slow progress in the remaining two. These conclusions are based on inputs 

received through replies of the companies to IIPA’s questionnaire, discussions with 

managing directors and officers of the companies, with Government of Maharashtra 

and representatives of the employees and consumers. 

LESSONS LEARNT AND MAJOR RECOMMENDATIONS 

TIMELY CAPACITY ADDITIONS 

Issues associated with running an electrical Utility efficiently are large and complex in 

nature. These issues become even more difficult to handle in respect of Government 

owned Utilities. In the past, Governments generally gave more emphasis on providing 

lower tariff for politically important sections of consumers than ensuring financial 

viability of the power sector. Having addressed this specific agenda, they could 

seldom exercise any pressure on the Utilities to improve their performance 

parameters. non-remunerative tariffs, coupled with below par performance, which 

adversely affected the financial health of the utilities. 

10.2

Maharashtra 

Though this situation changed completely after Regulatory Commissions were set up 

and they started rationalising tariffs, the Utilities continued to experience deep 

financial difficulties and could not cope up with the growing demands of the sector. 

MSEB was affected a in similar way, though probably less on account of Government 

and more due to its inability to take timely actions for improving its performance. As a 

result, MSEB’s consumers have to face long hours of load shedding year after year. 

The foremost lesson learnt is that Utilities have to forecast load growth and 

requirement of energy over a longer period. They should proactively take timely 

necessary actions to organise setting up of the required generating as well as T&D 

capacity in advance of the time it is required, so as to take care of unexpected 

slippages in construction programmes. The argument that investments in capacity 

additions ahead of time of their actual requirement is not a financially sound proposal, 

pales when economic loss on account of load shedding for not having the required 

capacity is taken into consideration. Ours is an energy-starved country and to come to 

a stage, when investments for and requirements of, capacity additions synchronise in 

time, is a long journey. For economic growth and creation of jobs, rapid 

industrialisation is necessary. Before industries are established, infrastructure of 

generation and distribution of electricity is required to be in place and not the other 

way round. 

IMPROVEMENTS IN THE DISTRIBUTION SECTOR 

It is well acknowledged that for achieving overall improvement in electricity sector, 

improvement of distribution sector is of prime importance. If not handled properly and 

urgently, it would not only result in continued financial losses in the distribution 

sector, but would also resulting delayed payments for generation and transmission and 

will bring down the financial health of these sectors as well. 

As a result of inadequate investments in the distribution sector for long periods, the 

network has remained substantially weak, resulting in high distribution losses. It is 

incapable of serving the increased demand. Consumers face very low voltages and 

frequent interruptions of power supply. This definitely calls for increased investments 

in capacity additions by adding number of high voltage lines and sub-stations, 

increasing the number of high voltage transformers and feeders, more distribution 

transformers, reactive support in the network, etc. This will result in reducing 

technical losses in the distribution system. 

10.3



For improving the financial position of the distribution sector, the single most 

important and known area that has remained to be adequately attended to, is reduction 

of commercial losses. A strong and sustained effort is needed for reducing commercial 

losses. In Maharashtra, the level of total T&D losses stood at 39.4 per cent in the year 

2002 as mentioned in the White Paper. Targets of reducing commercial losses in 

urban areas by 3 per cent and rural areas by 2 per cent every year, as well as fixing 

energy meters on all feeders as proposed in the White Paper, have not been achieved 

(during the period of Internal Reforms) before restructuring or probably even after 

restructuring. This suggests a necessity of adopting a revised strategy aimed at 

ensuring a much more strong and pointed effort in quickly reducing commercial 

losses. 

POSITIVE IMPACT OF CONSUMERS’ PARTICIPATION 

Through active participation of consumers in rural areas, Maharashtra State Electricity 

Distribution Company Limited (MSEDCL) has successfully implemented a scheme 

named ‘Akshay Prakash Yojana’ wherein a village opts to voluntarily participate in 

the scheme and ensures that no motive power would be used in the period between 5 

p.m. to 5 a.m. and the load on the feeder will be restricted to 20 per cent of the 

previous level. The villagers also take action to remove all unauthorised high 

consumption equipments such as heaters, hot plates and agree that meters be installed 

on all service connections. The villagers form a ‘Village Dakshata Committee’ and 

ensure that there is no theft of electricity from the transformers serving their areas. On 

its part, MSEDCL ensures that there is no load shedding in these villages and supply 

is given for 23 hours a day. 

Presently over 3,400 villages have voluntarily participated in this scheme and 

MSEDCL has achieved a load relief of over 770 MW. More important than the load 

relief however, is the participative spirit of people from rural areas to ensure that this 

important service of electricity supply caters to their needs and is controlled by them. 

The dialogue between villagers and concerned staff of MSEDCL at the field level, 

leading to understanding of each other’s concerns and the will to address these jointly, 

are the major gains achieved. This participative spirit of rural consumers is a treasure 

and no effort should be spared in future in protecting the same against all odds. 

With success of this scheme due to its win-win nature, MSEDCL can confidently 

devise more and more new schemes and use active participation of consumers as an 

additional powerful resource to supplement its own efforts in improving its 

performance. 

10.4

Maharashtra 

IMPACT OF DELAY IN RESTRUCTURING 

It is seen that though Government of Maharashtra had decided to restructure MSEB in 

August 2002 when the White Paper was published, restructuring could not take place 

as scheduled. Probably absence of strong political will and due to the opposition of the 

staff and unions, the schedule could not be adhered to. The Parliament Elections in 

early 2004 and subsequent State Assembly elections in later part of the year caused 

further delay. Thus a period of almost two years was lost in uncertainty about the 

future structure of MSEB. 

In such situations, when the financial health of the organisation is weak and its future 

uncertain, employees start losing their sense of belonging to the organisation. Due to 

paucity of funds, even minimal developmental activities have to be curtailed. Also, 

deciding priorities of works and allocation of available funds to these works gets 

distorted. This adversely affects the morale of the staff and their zeal to work for the 

betterment of the organisation. The demoralisation of the staff leads to total inaction 

and slowing down work momentum. This seems to have happened in MSEB. The new 

companies will now have to make considerable effort to build up involvement and 

commitment of this inherited staff, in adapting to a new consumer oriented and vibrant 

work culture. 

The staff and unions themselves had earlier proposed that functions of generation, 

transmission, and distribution be run as separate profit centres, retaining MSEB’s 

identity. Looking back, it appears that, along with maintaining the consolidated 

accounts of MSEB, if separate accounts for these three entities were maintained for 

working out profit/loss of the individual profit centre, a fund of valuable information 

pertaining to each function for the period 2002 to 2005 would have become available 

and helped the restructuring exercise as well as successor entities. This period could 

also have been utilised in setting up of an efficient state-of-the-art Information 

System. 

SETTING UP A MODERN INFORMATION SYSTEM 

The importance of quick availability of correct information in any field and its 

efficient and easy handling needs hardly to be stressed. Efficient organisations of 

today, spend considerable time and effort in defining an Information Policy and in 

implementing a ‘state-of-the-art’ computerised information system, encompassing, not 

only internal areas of operations, but also external areas such as market research, 

competitors’ operations, new technologies, and so on. The system design incorporates 

10.5



information relating to, but not limited to, technical, financial, administrative, and 

operational and consumer service related areas and its generation, access and control 

at various levels. The system design ensures that the primary information, forming the 

basis of any computation/presentation later on, is captured and recorded in the 

database, at the instant and at the location only it is generated. This primary 

information so generated cannot be tampered with and can be modified through duly 

authorised high-level intervention after recording reasons needing such later 

modification. Such information in the database forms the base of any further 

compilation/analysis at various levels in the organisation. 

Presently such a system is not in place in the restructured companies. The existing IT 

department in the holding company of MSEB deals primarily with meter reading and 

billing activities including development of required software in respect of sale of 

energy to different categories of consumers of MSEDCL. Its role is thus very limited 

as compared to that required for setting up of a computerised information system 

elaborated above. This department fits in its role as a part of MSEDCL, rather than as 

a shared service as designated at present. 

It is very urgent that MSEB Holding Company (MSEBHC) attends to this important 

requirement of establishing a computerised information system designed to suit 

individual requirements of all the restructured entities as well as common business 

requirements for all companies, on top priority. This would avoid wastage of manhours 

and energy of the staff in collecting required information every time afresh 

besides ensuring availability of most recent and reliable information pertaining to any 

desired aspect by one and all in a transparent way. Such instant availability of 

information to all concerned, could also help in generating internal pressure on nonperforming 

persons/sections/areas/operations within the organisation by way of 

facilitating comparison of performances of similarly situated persons/sections/areas/ 

operations. 

For speedy results, the system design should be outsourced and the agency could be 

asked to work in close coordination with the end users so as to ensure that it is user- 

friendly and implemented in a short span of time. The entire work of running the 

system in the initial period could be entrusted to the agency. Departmental staff should 

be suitably trained in this period to take over the responsibility of operating/updating 

the system under agency’s supervision for a comfortable period of support. 

10.6

Maharashtra 

PRIORITISING INVESTMENTS 

The yearly investments proposed in the next to two to three years are very large, of the 

order of more than three times the investments made so far in every year. The 

companies need to prioritise in selecting from amongst various schemes, for deciding 

investments. Schemes with higher returns and quicker pay back period as well as 

schemes to remove bottlenecks in the system, should be given higher priority, setting 

assessable defined targets in improving performance parameters to be achieved after 

completion. A special task force should be set up in each company to oversee and 

conduct technical and financial audit and certify the technical specifications, 

qualifying criteria for vendors, priorities of taking up schemes for investment, etc., 

before bids for selected schemes are invited, as well as for monitoring their 

implementation after work/purchase orders are issued. 

From amongst the schemes selected for investment, higher investments could be made 

in areas showing better improvements such as further reduction in AT&C losses and 

better management of peak demand and energy, etc. This principle of giving 

differential treatment on commercial considerations is adopted by MERC in ordering 

more hours of load shedding in areas having higher AT&C losses and less hours of the 

same in urban and industrial areas having lower AT&C losses. Courts have also 

found nothing objectionable in MERC’s decision. 

This aspect of allocating investments on sound commercial principles is more 

important in respect of a DISCOM where there could be considerable pressure to 

spread equitable component of total investments on the basis of each geographical 

area irrespective of its revenue earning potential. The company has to guard against 

such demands. 

STRATEGY FOR OUTSOURCING OF SERVICES 

For various reasons, such as reducing cost of operations, faster implementation of 

work, need for availing of special expertise not available with the company, limiting 

the number of employees in the company, etc., the companies will in future need to 

outsource many services presently handled departmentally through in-house staff. 

Care should be taken in deciding works/services which could be and which should 

not be outsourced. Also, detailed specifications regarding performing the outsourced 

activity should be laid meticulously and performance of the agency doing the work 

should be checked and verified to ensure that it is in compliance with these 

specifications. Priorities in performing the outsourced activity by the agency, if any, 

10.7



should be decided by the company and not by agency performing the activity. A 

recent case reported in the press would clarify this point better. An agency was given 

the job of meter replacement in a circle. Major portion of the work was completed. 

Due to delay in completion, the circle office decided to do the remaining work 

departmentally. It was then noticed that replacement of meters important from 

commercial considerations of utility (such as high consumption industrial/commercial 

consumers, long period for which these were faulty, etc.) were not changed in 

preference to meters belonging to consumers with low average consumption. This 

happened because either priority of meter replacement was not specified while 

outsourcing or, if specified, the agency did not follow the same and adhered to its own 

priority! 

SPECIFIC ISSUE OF OUTSOURCING OF METER READING 

So long as Automated Meter Reading (AMR) schemes or pre-paid meters are not 

installed for majority of the consumers, the activity of reading of energy meters at 

intervals is commercially very important for the company. Since it contributes directly 

to revenue earning of the company, total outsourcing of reading of energy meters 

may not be a proper commercial decision. It is only through this activity that the 

inspection of the meter installation is possible at regular intervals when, apart from 

reading of energy meters, other related information regarding faulty meters, meters 

not read, meters fixed at inaccessible locations, possible theft of electricity, etc., 

would be available to the company for taking timely corrective action. Therefore this 

activity should be considered as a value adding activity rather than an unimportant and 

routine activity that could be outsourced. 

Some managers express an opinion that departmental meter readers do not work 

honestly/diligently and hence the need for outsourcing. It is not clear on what basis 

they assume that persons employed by the agency for meter reading are honest and 

would be working properly. 

The remedy lies, not in totally outsourcing this commercially important activity but 

in installing a secure and reliable system of checking of meter readings recorded by 

the meter reader. If additional manpower is needed for this activity, either it can be 

redeployed from other departments of the company or recruited afresh. Since the 

companies will definitely need to move out of ‘General Administration Department’ 

mode to ‘HR’ mode, it should be possible to tap sizeable manpower for redeployment. 

The outsourcing could also be extended in areas of compiling meter readings recorded 

10.8

Maharashtra 

at the consumer end meters/DTC meters, etc, at regular intervals (other than for billing 

purposes) to cross-check the meter reading appearing in the billing data. 

Earlier it was reported in the press that Minister (Energy) had desired that the 

DISCOM would outsource the meter reading activity to Industrial Training Institutes 

(ITI) in the State and that, the students of these institutes will take readings for one 

month and the departmental staff in the subsequent month. ITI will give part of money 

received from the DISCOM to students and will retain part of it to itself. This process 

will ensure checking of readings taken by departmental staff by the ITI students and 

vice versa every month. This scheme should be given a sincere trial as it serves the 

objective of checking of readings recorded by one set of meter readers by the other. It 

would also provide financial help to needy students and thus serve a social cause. 

ENERGY AUDIT 

This is one of the most important resources, which, if used effectively, can help the 

Utilities to quickly regain sound financial health with the minimum need for major 

investments. The investments needed for this in the immediate future will only be for 

defining a foolproof information system and costs towards a maximum number of 

some two to three lakh electronic precision energy meters in the MSEDCL area (to be 

provided for all DTCs, all EHV transformers supplying energy to distribution 

company to record energy flows in primary and secondary, all bays for EHV 

consumers, all 33 kV and 11 kV feeders, both sides of 33/11 kV transformers, etc.). In 

fact, the number will only be less not more, as some meters may already be in place. 

Such electronic meters record many parameters besides energy, such as kVArh, kVA, 

power factor, etc., and can also be interfaced with a Data Acquisition System (DAS). 

Installation of a DAS should be planned for all EHV substations as well as important 

33 kV, 11 kV sub-stations feeding express industrial feeders/MIDC areas, etc., to 

monitor and record important data such as status, manual switching/tripping on fault 

of circuit breakers, hourly recording of energy flows, kVA demand, power factors, 

parameters for monitoring health of transformers and important sub-station auxiliaries, 

etc. At pre-defined intervals, such recorded hourly information could be transmitted 

over data channels to assigned centres for analyses. In this process, human 

intervention in recording the energy meter readings manually should be done away 

with. This database will eventually form the input for the Energy Audit Module of the 

computerised Information System described earlier. 

10.9



The module as described above is designed as a part of the computerised information 

system and such a system is in place in Maharashtra. The following procedure could 

be adopted in manual mode in respect of all EHV S/S, all express feeders, all MIDC 

areas, all DTCs in urban areas (where meters are provided on the DTC) to achieve 

faster results. 

• At every location where staff is available for round the clock operation 

(generating stations, EHV sub-stations, etc.), primary data of meter reading, 

registering the energy input and output through an electric equipment as 

recorded, could be checked for working out the difference between incoming 

energy and outgoing energy through the equipment, or input on the bus and 

outgoing through a set of more than one element on an hourly basis. The same 

procedure is suggested in respect of an express feeder, if not possible every hour 

then at least at the beginning of each shift, ensuring three such readings per day 

for comparison. 

• If any express feeder is emanating from an unmanned location, the energy meter 

readings of meters at both ends could be recorded at a pre-defined round hour. 

The frequency of recording such readings in a week could be decided on 

considerations of quantum of energy supplied from such express feeder. 

• Energy meters of all consumers connected to a DTC and the energy meter on the 

incoming of the DTC should be read on the same day in same reading cycle. 

The reading of input energy meter on DTC and summated energy consumption 

of all consumers connected to the DTC as computed by the billing programme 

comprising of two parts, viz.: total energy in respect of meters actually read and 

total assessed consumption in respect of meters not read, as computed by 

computerised billing programme could be made available in digital format from 

the billing computer. 

• In MIDC areas, the programme of meter reading should be so coordinated that 

readings in respect of energy meters of express feeders, HT feeders, HT 

consumers is done on the same day at a pre-defined round hour. Also meter 

readings of all DTCs in MIDC area and consumers connected to it at LT level 

should be taken within a couple of hours on either side of this pre-defined 

round hour. This meter reading data from the billing computer is to be made 

available for use in energy audit in digital format directly without any human 

intervention/manipulation. 

10.10

Maharashtra 

• Every element in the system, in or from which, energy is measured would have a 

Distinct Identification Number (DIN). From this number alone, it would be 

possible to link it to details of its electrical connection (e.g., from the DTC’s 

DIN, one will know the 11 kV feeder, 33/11 kV sub-station, 33 kV feeder in 

EHV S/S, EHV transformer feeding energy, etc., to which it is connected) as 

well as the administrative linkage (such as geographic location, controlling 

section/ subdivision/division/circle/zone, etc., each of these also having their 

unique identification numbers). Computation for any compilation of data will be 

done from this primary information of meter readings recorded in the system. 

• Apart from output for the energy loss in the elements as obtained from the data 

so collected, further information to find out elements where actual loss exceeds 

normative loss (e.g., < 1 per cent in EHV transformer or near zero for sum of 

energy received on a 33 kV or 11 kV busbar and flowing out of it, etc.) or 

difference in energy sent and received in respect of an express feeder (calculated 

on the basis of length of the feeder, peak load, loss load factor, etc.) to enable 

rectifying relevant energy meter(s) or check correctness/tampering of input 

quantities should be prepared for the concerned staff to take time bound 

corrective action. 

• Proper investigation in respect of express feeders where energy received is more 

than energy sent is required to be done as this does not automatically suggest that 

no action is necessary in case of such feeders. Such a situation could arise 

because of incorrect/tampering of input quantities (e.g., loss of PT supply, large 

difference in voltages at the PT terminals and energy meter terminals, incorrect 

CT ratios, etc.). 

From the above information, the energy lost in individual element/location will be 

presented in kWh lost and not in per cent of loss. The targets for reduction of the loss 

will be set separately for each individual officer-in-charge of the element in terms of 

reduction of kWh lost and reduction in money lost by applying the relevant rate per 

unit of energy (e.g., industrial rate per kWh lost in MIDC area or in respect of an 

express feeder for industry). This final result that will be monitored by higher officers 

at various levels when Energy Audit is done in the manual mode as per the procedure 

suggested above in the intervening period. 

In future, when computerised Energy Audit module is commissioned, there will be no 

need to send any information to any office as the same would be based on the primary 

information maintained in Energy Audit module of the Computerised Information 

10.11



System and is available to designated authorities directly and instantly as and when 

required. 

DISCUSSIONS ON HAVING ONE OR MORE DISTRIBUTION COMPANIES 

Having taken the first step in forming a separate DISCOM and observing its working 

for a period of one year, it is time to review whether one large DISCOM for the entire 

State is the only solution or more than one company would serve the interests of 

consumers as well as the electricity sector itself, in a better way. With this in view, the 

following points are put up for detailed discussions/decisions. 

• MSEDCL with its large network and over 69,000 staff is still unwieldy from 

consideration of effective management and can still be termed a single large 

monopolistic entity. 

• Specific problems of operations, problems faced by consumers, their 

expectations of services and solutions to be adopted to meet these could differ 

from area to area. For example, from considerations of restricting areas affected 

by interruptions and thus limiting loss of revenue in a paying 

industrial/urban/commercial area, there is a need to increase the number of HT 

sub-stations/HT feeders, reducing the maximum length of an HT feeder. 

Consumers in urban/industrial area have very high expectations of interruptionfree 

service and time for rectification of interruptions, of maintaining voltage 

variation at consumers’ end strictly under limits, etc. These consumers are ready 

to pay a higher price for prompt services. Whereas in rural areas, spreading 

coverage of electricity supply may have a higher priority. 

The above explains only the present respective priorities of consumers located 

differently and is not meant to say that rural areas do not need or deserve prompt 

services or that the intent is to create an urban/rural divide. Consumers’ 

expectations of services in each type of area differ. These need to be recognised 

and addressed separately. One large system/company may not be the only answer 

from these considerations. 

• In view of the above, it needs to be examined whether another company for 

urban and MIDC areas could prove beneficial from considerations of improving 

financial positions, address faster improvement of services in areas, etc., with 

differential tariff. Since if such a new company is formed, it will still be 

completely owned by MSEBHC (owned by the Government of Maharashtra), 

better profits from this new company will not be at the cost of rural areas. 

10.12

Maharashtra 

Instead, these could also partly be utilised by the Government for improvements 

in rural areas. 

• The issue whether some more companies from the remaining semi-urban/rural 

areas or more than one company with composite areas (without carving out the 

urban/MIDC areas as stated above) with a combination of urban/rural loads as at 

present, should be formed to instill a spirit of competition for improvement in the 

performance parameters, also needs to be considered. 

10.13

INTRODUCTION 




MSEB provides electricity throughout the State of Maharashtra except for Mumbai 

city, which is served by Tata Power Company (TPC), Reliance Energy Limited (REL) 

and Bombay Electric Supply and Transport Undertaking (BEST). In the year 2002, the 

State had a total of 14,420 MW of installed generating capacity comprising of 9,771 

MW of MSEB, 1,774 MW of TPC, 500 MW of REL and the State’s share of 2,375 

MW in central sector generating stations. Besides, captive generating plants have a 

capacity of about 641 MW. 

With such a huge generating capacity and a T&D network of about 6.7 lakh ckt km of 

lines, MSEB was the largest SEB in the country. Its power stations used to be 

awarded prizes at the national level for achieving excellence in performance. MSEB’s 

energy sales recorded more than hundredfold increase from 346 MU in 1960-61, the 

year of its formation, to 37,067 MU in 2001-02. Despite such impressive performance 

of MSEB, the State faced shortage in meeting the peak demand. Further, T&D losses 

in MSEB stood at 39.4 per cent and arrears of revenue at Rs 7,114 crore. Provisions of 

Government of Maharashtra’s loans to MSEB had come down from 38 per cent 

(1992-93) to 13 per cent (2001-02) as a percentage of MSEB’s Annual Plan Outlay. 

FINANCIAL POSITION OF MSEB 

To remedy this situation, it was necessary to set up additional generating capacity and 

strengthen the T&D network to meet the anticipated growth in demand in the next ten 

years, which required an estimated investment of over Rs 30,475 crore. MSEB’s 

financial health had deteriorated considerably due to its average sale price per kWh 

being lower than its expenses and it suffered huge losses in the years 1999-2000, 

2000-01 and in 2001-02 (to a lesser extent due to some improvements in performance) 

as will be seen from the table below: 

Gap between ACS and ARR 

Particulars 1999-2000 2000-01 2001-02 

Average cost of supply (Rs/kWh) 3.01 3.65 

Average realisation without subsidy (Rs/kWh) 2.50 2.92 

Gap (Rs/kWh) 0.51 0.73 

Revenue (Rs crore) 10,626.00 11,739.00 12,030.00 

Profit/Loss (Rs crore) without subsidy (1,681.00) (2,842.00) (308.00) 

10.14

Maharashtra 

Need for Reforms 

Considering the financial health of MSEB and necessity of huge investments in the 

sector, it was clear that the State would need to approach the Central Government and 

Financial Institutions to provide the necessary funds. Without these investments, the 

sector would not have been able to meet the needs of a competitive economy, 

resulting in an adverse impact on the State. Government of India had also taken the 

initiative to evolve a national consensus for reforms in the power sector. From the 

deliberations and decisions taken in the conference of Chief Ministers of States 

(organised by the Central Government), it had become clear that Central Government 

and Financial Institutions would be helping only those SEBs, which embarked on a 

reform agenda. The Electricity Act, 2003 also encouraged competition in generation 

and distribution segments and emphasised on reforms in the sector. 

It was thus clear that for sustaining growth of the power sector and its ensuring 

financial viability, it was necessary to reform the sector. Main objectives of reform as 

stated by the Government of Maharashtra were: 

(a) To promote development of an efficient, commercially viable and competitive 

power sector; 

(b) To provide reliable quality and uninterrupted power supply at reasonable prices 

to all consumer categories; and 

(c) To ensure that social and environmental aspects are fully taken into 

consideration. 

Steps taken by Government of Maharashtra 

Earlier, the Government of Maharashtra had constituted the State Electricity 

Regulatory Commission (SERC). In February 2001, the State Government constituted 

an Energy Review Committee (ERC) to review the power situation in the State and 

suggest broad future course of reforms for the power sector in the State. As a part of 

the process of building consensus for reforms of MSEB, Government of Maharashtra 

decided to publish a White Paper on the proposed reforms in the power sector. For 

preparation of the White Paper, in April 2002, Government of Maharashtra released 

advertisements in leading newspapers inviting responses on three documents, viz., 

ERC Report, Maharashtra Electricity Reform Draft Report and Government of India’s 

Electricity Bill, 2001. Officials from MSEB visited the States that had undertaken 

reforms and gave their suggestions. Minister (Energy) held wide-ranging discussions 

with officials and staff unions of MSEB. After extensive consultations and after 

10.15



getting views of industrialists, consumers, staff in MSEB, agricultural consumers, 

NGOs and Maharashtra Electricity Regulatory Commission (MERC), the following 

options of reforms emerged: 

(a) MSEB to retain its existing identity with generation, transmission and 

distribution to be run as profit centres; 

(b) Corporatisation of MSEB without restructuring; 

(c) Restructuring and corporatisation of reorganised entities of MSEB; and 

(d) Restructuring, corporatisation of restructured entities of MSEB followed by 

privatisation of distribution entities. 

Government of Maharashtra’s Strategy for Reform 

In August 2002, Government of Maharashtra presented the White Paper in the 

Legislature. It highlighted the condition of the power sector in the State and the urgent 

need for reforming MSEB. It also spelt Government of Maharashtra’s strategy for 

reform in the power sector, aimed at meeting consumer interests while addressing 

concerns of the employees. Government of Maharashtra promised not to totally 

withdraw from the sector but to bring efficiencies in the sector to enable it to become 

self-sustaining. 

Measures outlined in the White Paper 

Restructuring of MSEB into separate companies for generation, transmission and 

distribution (one or more) along with implementing an agenda of internal reforms 

(initially, while in ownership of the State) was proposed in this White Paper. 

The reform process proposed in the White Paper incorporated the following major 

components: 

(a) Internal Reforms: This included development of human resources, reduction of 

T&D losses, prevention of theft of electricity, energy audit and metering, 

demand side management, redressal of consumers’ complaints and improvement 

of services to consumers; 

(b) Independent Regulatory Framework: Government to withdraw from regulation 

and operation of the power sector and eventually ownership of certain segments 

of the sector but continue to provide support of law and order, administrative 

support; 

10.16

Maharashtra 

(c) Restructuring of MSEB into generation, transmission and distribution companies 

and establishment of a holding company; 

(d) Continued Government support to weaker sections of the society; and 

(e) Government to continue to extend fiscal support during transition period 

expected to be of five years till the electricity sector become financially selfsustaining. 

Besides the above, timeframe for achieving certain milestones in regard to the 

legislative action, restructuring and efficiency improvement were indicated in the 

White Paper. At that stage it was envisaged that the restructuring of MSEB would be 

taken up in the year 2003. 

Restructuring of MSEB 

The above timetable for restructuring of MSEB, however, could not be adhered to. 

MSEB was subsequently restructured in June 2005, when Government of Maharashtra 

followed the mandate under the EA, 2003 and its notification duly extending the 

deadline set for restructuring. Government of Maharashtra restructured MSEB into 

four companies which were incorporated under the Companies Act, 1956, namely a 

generating company - Maharashtra State Electricity Generating Company Limited 

(MAHAGENCO), a transmission company -Maharashtra State Electricity 

Transmission Company Limited (MSETCL), a distribution company -Maharashtra 

State Electricity Distribution Company Limited (MSEDCL), and a holding company - 

(MSEB Holding Company Limited) holding government’s equity in these three 

companies. The following was the chronology of events: 

October 2003 

Government of Maharashtra appointed PricewaterhouseCoopers (PwC) as 

reform consultants. PwC makes several presentations on various 

alternatives of industry structures to various stakeholders including MSEB, 

Government of Maharashtra, etc. 

September 2004 MERC advised on restructuring of MSEB 

October 2004 

January 2005 

MSEB forms 18 member working group along with consultants to focus on 

restructuring requirements in different areas 

Cabinet of Government of Maharashtra decided to restructure MSEB into 

four companies 

Government of Maharashtra restructured MSEB into four companies and 

notified the Transfer Scheme 

10.17

Highlights of the Transfer Scheme 



Restructuring has been done on the basis of the Provisional Transfer Scheme, wherein 

the valuation of assets was based on their book value. Government of Maharashtra’s 

Resolution of January 2005 mentions that the valuation of the assets of MSEB to be 

transferred to the companies should finally be based on revenue potential of the assets 

transferred. The assets would be revalued on the basis of their revenue potential within 

a period of one year and this revaluation would be effective retrospectively from the 

date of transfer. The financial restructuring after revaluation would be structured in 

such a manner that the consumers would face minimum increase in tariff. 

The final valuation and methodology to be adopted would soon be decided by 

Government of Maharashtra. This Transfer Scheme includes the list of assets 

transferred, opening balance sheet as on 31 March 2004, functions and duties of each 

company. Besides, it allocated the staff division-wise, circle-wise and State-wise 

seniority, on as is where is basis to individual companies and has set up committees 

for redressal of grievances on allocation of staff to three companies. It has also listed 

certain departments/offices at corporate level to provide common services to all three 

companies. 

Government of Maharashtra’s Financial Support in Restructuring 

The following table gives the extent of liability support from the Government of 

Maharashtra. Asset adjustments on the right side of the table are part of the balance 

sheet strengthening process and are used to match/support the total liability 

adjustment of Rs 7,217 crore. 

Liability Supports to MSEB from Government of Maharashtra 

(Rs crore) 

Liability Adjustment Amount Asset Adjustment Amount 

Government of Maharashtra Loans 2,742 Retained Earning (Losses)/Reserves 1,980 

State Government Bonds 261 Deferred Cost written-off 6 

PFC 205 Provision for doubtful debts 4,580 

Loans from Banks and Others 150 Govt. Maharashtra Equity Addition 651 

Current Liabilities 2,345 

Interest Accrued 1,251 

Capital Reserves 263 

Total 7,217 Total 7,217 

Capital Liabilities of the Four Companies 

With the above adjustments of liabilities, the capital liabilities of the four companies 

are as given in the following table: 

10.18

Maharashtra 

Particulars 

Government of Maharashtra 

loans 

Private bonds (State Govt. 

guaranteed) 

Table: Liabilities Adjustments 

MSEB prerestructuring 

10.19 

(Rs crore) 

*These three items pertain to Dabhol related loans and are proposed to be taken 

over by Government of Maharashtra. 

i) The proposed restructuring adjustment of Rs 3,358 crore of capital 

liabilities/long-term loans is presently parked in MSEB holding company. 

ii) Loans from Government of Maharashtra to MSEB (Rs 2,742 crore) up to 5 June 

2005, have been utilised in meeting restructuring write-off requirements and setoff 

of accumulated losses of MSEB. 

iii) Project specific loans have been allocated to the relevant companies on the basis 

of end use. 

iv) Common loans of Rs 1,642 crore are allocated in a ratio of 31:37:32 to 

generation, transmission and distribution companies. 

With the above adjustment of Rs 3,358 crore taken over by Government of 

Maharashtra, the capital liabilities of the four companies are as under: 

Table: Capital Liabilities 

(Rs crore) 

Particulars MSEB MSPGCL MSETCL MSEDCL MSEB 

(HC) 

Capital 

liabilities 

9,279 1,832 2,204 1,885 3,358 

Current Liabilities of the Four Companies 

Restructuring 

adjustment 

The following adjustments in current liabilities have been proposed: 

MSEB post- 

restructuring 

2742 (2742) - 

1417 (261)* 1157 

PFC 2370 (205)* 2165 

Loans from banks 533 (150)* 383 

Total adjustments (3358)

Adjustments in 

current liabilities 



Table: Adjustments in Current Liabilities 

MSEB prerestructuring 

10.20 

Restructuring 

adjustment 

(Rs crore) 

MSEB post- 

restructuring 

Power purchase dues 495 (495) - 

CPSU bonds 1,018 (1018) - 

Interest on CPSU 

bonds 

172 (172) - 

CPA deductions 603 (603) - 

Other adjustments 57 (57) - 

Total adjustments (2345) 

(i) The amount of Rs 495 crore pertains to power purchase dues of Dabhol Power 

and is proposed to be retained and serviced by the Government of Maharashtra; 

(ii) The CPSU bonds towards dues of MSEB and interest thereon will be retained 

and serviced by the Government of Maharashtra; 

(iii) Government of India had adjusted Central Plan Allocation (CPA) amount to the 

extent of Rs 603 crore towards payables of MSEB to NTPC, NPC, Coal 

companies, Railways, etc., Government of Maharashtra had earlier treated this 

amount as a loan to MSEB. It is now proposed to be retained by Government of 

Maharashtra. 

The above adjustment of Rs 2,345 crore of current liabilities/short-term loans is 

parked with MSEB Holding Company, till the time Government of Maharashtra takes 

it over. The status of current liabilities of the four companies after the above 

adjustments, is as under: 

Table : Current Liabilities of Companies 

Particulars MSEB MSPGCL MSETCL MSEDCL 

(Rs crore) 

MSEB (HC) 

Current Liabilities 9,172* 1,591 629 4,607 2,345 

* As on 5 June 2005-The date of Transfer Scheme 

The above gives the broad outline of the restructuring process adopted by the 

Government of Maharashtra and the financial support extended to the new companies. 

The Transfer Scheme is, however, provisional and will be finalised by Government of 

Maharashtra soon. Once the final scheme is approved and announced, the extent of

Maharashtra 

financial support provided by Government of Maharashtra in restructuring will be 

decided. Also, as stated in the White Paper, the form and content of continued 

assistance proposed to be given by the Government of Maharashtra during the 

transition period, till the companies become financially self-sustaining, will then be 

known. Government of Maharashtra’s commitment to continued support to the sector 

was, however, reiterated by Secretary (Energy) Government of Maharashtra during 

the course of discussions at the time of preparation of this Report. 

10.21

GENERAL COMMENTS 



IMPACT OF RESTRUCTURING 

Restructuring of MSEB into four companies took place in June 2005. It would be 

premature to look for any impact of restructuring on immediate improvement in 

performance of the individual entities in such a short period. Certain improvements in 

the performance parameters noted in respect of individual companies as well as new 

initiatives taken by the restructured companies are given in the corresponding chapters 

dealing with each sector. 

POSITIVE AND SLUGGISH INDICATORS 

Due to short period after restructuring, the impact of restructuring with focus on new 

initiatives undertaken in certain areas, rather than on improvements in performance 

parameters are identified. These are summed up as given below: 

Positive Indicators 

1. Planning for capacity additions 

• Business plans of generation, transmission and distribution companies for 

future were prepared and are under approval; 

• Equity funding of Rs 1,720 crore for new generating schemes of 2,000 MW 

committed by Government of Maharashtra; 

• Transmission schemes to remove bottlenecks in the system and achieve more 

than 99 per cent availability from 2006-07 onwards; and 

• Distribution schemes to improve reliability and quality of supply and reduce 

distribution loss to 18 per cent by 2010-11. 

2. Demand Management 

• Successful implementation of ‘Akshay Prakash Yojana’ by the DISCOM with 

voluntary participation of consumers in rural areas, achieving relief of 770 MW 

in peak demand. 

3. Services to Consumers 

• Setting up of consumer grievance redressal forums at 11 locations for quick 

settlements of consumers’ grievances; 

• Creation of five-consumer facilitation centres in 2005-06. More consumer 

facilitation centres have been planned for the future; and 

10.22

Maharashtra 

• 25 ATPs were set up for bill collection in 2005-06. More are planned this year. 

4. Step to improve performance parameters 

• New instrumentation to continuously control optimum efficiency of the 

generating plant in each shift being planned. 

Status Quo/Sluggish Indicators 

(i) Services to Consumers 

• Data regarding actual achievements in reduction of interruptions, timely 

release of connection after receipt of application from new consumers, 

reduction of billing complaints, etc., was not immediately available. No 

verifications of claims of improvement in these areas could be possible. 

(ii) Steps to improve Performance Parameters 

• Slow progress in fixing energy meters to all HV feeders and Distribution 

Transformers; and 

• Slow progress in reduction of arrears of revenue. 

(iii) Building an efficient Organisational set-up 

• Set up is hierarchical with decision making concentrated at HQ; 

• Information System model is old. Needs considerable human effort and 

time in obtaining required data, further the data so obtained may not be 

current/ accurate; 

• One finance department for all the four companies, so commercial decision 

making may get delayed; and 

• Structure not totally autonomous, unwieldy in respect of distribution 

company, susceptible to political/government influence in day-to-day 

operations. 

ABSORPTION OF STAFF IN NEW COMPANIES 

Though there was considerable resistance shown by the staff in restructuring of 

MSEB, actual transfer of the staff to different companies has been smooth. This to 

some extent was due to long existing separate cadres of staff and officers on 

generation and T&D sectors and decision of allocating staff within T&D on ‘as-is- 

where- is’ basis. Further the transfer scheme of Government of Maharashtra provided 

for setting up of two committees for redressal of grievances on allocation, one for the 

10.23



Group III and IV employees in circle-wise and division-wise seniority and the other 

for the employees in State-wise seniority. With these actions, the new companies have 

not faced any difficulties in absorption of staff. 

Some staff and union representatives however, still feel that restructuring is not the 

only way and express a view that whatever performance improvements are talked 

about after restructuring, cannot be attributed to restructuring alone and could also 

have been achieved in previous organisational set up of SEB. In extreme, they point 

out that nothing has really changed except for the labels of new companies and their 

logos. In support of their argument they point out that they do not notice any 

decentralisation in decision-making and major decisions are still driven from 

headquarters without realising field situation. This obviously is the view expressed in 

the short period after restructuring and will change in future. But it points out that 

some employees have not identified themselves with these new companies even after 

one year. 

At the same time, it has been reported in the press that in an urban circle, the target of 

revenue collection was not achieved in the month of April 2006. As a result all 

employees in the circle have voluntarily offered to accept a 10 per cent cut in their 

salary for the month. This shows complete commitment of the employees to the 

organisation. So the status of the employees’ identifying themselves with fulfilling 

objectives of the organisation is presently a mixed bag. 

10.24

Maharashtra 

GENERATION 

Installed Capacity 

SPECIFIC ISSUES 

The installed capacity of MSEB in the year 2000-2001 was 9,771 MW comprising of 

2,434 MW Hydro, 6,425 MW Thermal, and 912 MW Gas. The table below gives the 

details of capacity additions and the energy generated from 2001 onwards. It will be 

noted that in the period from 2000-01 till 2005-06, there has been no significant 

addition to the capacity except for addition of 6 MW of Hydro Generation. In fact, 

with the scraping of one 60 MW Gas based unit in the year 2003-04, total capacity got 

reduced from 9,771 MW to 9,711 MW. These assets are now transferred to 

MAHAGENCO. 

Table: Installed Generating Capacity 

Sector 

Year before restructuring 

5 

Year after restructuring 

(MW) 

th 4 th 3 rd 2 nd 1 st 1 st 2 nd 3 rd 4 th 5 th 6 th 

Hydro 2434 2434 2434 2434 2440 2440 2690 2690 2690 2690 2690 

Thermal 6425 6425 6425 6425 6425 6425 6925 6925 7425 9425 12025 

Gas 912 912 912 852 852 852 852 852 852 3292 3292 

Total 9771 9771 9771 9711 9717 9717 10467 10467 10967 15407 15407 

Restructuring w.e.f. 06-06-2005 

Table: Energy Generated 

Sector 

5 

Year before restructuring 

(MU) 

Year after restructuring 

th 4 th 3 rd 2 nd 1 st 1 st 2 nd 3 rd 

4th 

Hydro 3738 3675 4184 4093 4079 5465 3823 

Thermal 38719 41651 40304 42178 42929 40928 45279 

Gas 3473 3692 3891 4006 4115 3777 3800 

Total 45930 49018 48379 50277 51123 50170 52902 

Because of the stagnant generating capacity, the State has been experiencing difficulty 

in meeting peak demand. The quantum of load shedding of 1,822 MW in 2000-01 

progressively increased to 4,539 MW in 2005-06. This has forced an increasing 

quantum and duration of load shedding for every consumer served by the erstwhile 

MSEB and now the MSEDCL. 

10.25

Ageing of Generating Units 



The installed thermal generating capacity of 6,425 MW has been de-rated to 6,396 

MW. This year MAHAGENCO is preparing to submit proposals to Central Electricity 

Authority (CEA) for its approval for further de-rating of some old units. About 48 per 

cent of above thermal capacity is between 15-25 years old and 15 per cent is over 25 

years old. Forced outage rates of these old machines are high resulting into their 

reduced availability. Also with the quality of coal available, it is not possible to get 

full rated output from these old machines. The consumption of oil per kWh of 

generation also increases considerably. 


The details of performance parameters achieved in five years preceding restructuring 

and after restructuring are indicated in table below: 

Particulars 

Table: Technical Parameters 

Years before Restructuring 

10.26 

Years 

After 

Restructuring 

5 th 4 th 3 rd 2 nd 1 st 1 st 2 nd 

PLF (%) 72.78 74.34 71.93 75.07 76.62 73.05 77.69 

Heat rate (kcal/kWh) 2743 2804 2717 2680 2675 2688 2675 

Oil consumption (ml/kWh) 2.54 2.68 2.65 2.18 1.96 2.27 2.00 

Auxiliary consumption 

(thermal) (%) 

8.73 8.82 8.81 8.75 8.74 8.83 8.80 

Availability (thermal) (%) 86.06 86.49 83.79 84.64 85.57 81.18 84.41 

ABT incentive 


in 1000 X MWh (rounded 

off) 

Total manpower employed 

5847 4627 4620 4537 3619 5468 NA 

Sanctioned staff: 17,436 

Staff filled in: 14,001 

It is seen from the above table that despite adverse conditions cited earlier, there has 

been improvement in the performance. On account of shortage of capacity in the 

State, units were not spared for carrying out annual overhaul and statutory overhaul 

works. This also added to increased forced outage rates. As a result, availability and 

Plant Load Factor (PLF), both suffered adversely. The figures for 2 nd year after 

restructuring are projections. 

Annual Overhaul/Capital Overhaul (AOH/COH), which used to be availed after 18/24 

months of boiler operation, were progressively taken within 12/18 months of 

operation. In 2005-06, AOH/COH of 20 units was completed. 29 units are scheduled

Maharashtra 

to undergo this exercise in 2006-07. Washed coal is being used in Koradi, 

Khaperkheda and Chandrapur and imported coal is being used for blending with 

indigenous coal for use in Nasik and Bhusawal. 

The above measures have contributed in reducing the hours lost on account of forced 

outages. The performance parameters have suffered a significant adverse impact in 

2005-06 (and will also suffer in 2006-07) due to damage of turbine blades of 

Chandrapur Unit No. 5 (500 MW), which has been out of service since July 2005 and 

was expected to be back after repairs only in November 2006. 

Monitoring of Plant Heat Rate 

In the absence of instrumentation to monitor the heat rate in an on line mode, all 

computations in respect of heat rate tend to be approximate and are based on the 

yearly coal consumption, total calorific value based on measurements of various 

quantities of coal received in lots from time to time and total energy generated by 

thermal units. By very nature of this method of computation, the number arrived at, 

could only be indicative. Further, it does not provide any opportunity to the plant 

operator to take any timely corrective action during operation to improve performance 

of the machine. 

To improve this situation, MAHAGENCO is considering implementing a novel pilot 

scheme for a 210 MW machine. The company has identified some 9 to 10 operating 

parameters of the machine, which if maintained in a narrow band of variation during 

operation, ensure efficient operation of the machine. It is proposed to input accurate 

and high-resolution measurement of these selected parameters during operation of the 

machine to a dedicated computer in a real time mode. This dedicated computer placed 

with the shift in-charge, will continuously calculate instantaneous efficiency of the 

machine as well as invite attention of engineer-in-charge of the shift, in case any of 

the monitored operating parameters crosses the close range set for it. This will enable 

the operator to take immediate corrective action. At the end of a shift, an integrated 

number representing the efficiency at which the plant was operated in that shift will be 

available. With this arrangement in place, the plant in-charge will be in a position to 

take timely corrective actions to ensure that the plant always operates at optimum 

efficiency. This arrangement, if successful, will be replicated for other machines as 

well. 

10.27

Proposed Capacity Additions 



MAHAGENCO had earlier taken up the work of setting up of 1x250 MW set at New 

Parli and 1x250 MW set at Paras. Works on these two thermal generating units have 

been completed on schedule and units are expected to be in commercial operation in 

2006-07. In addition 2x125 MW Ghatghar (Hydro) pumped storage scheme is 

expected to be commissioned in the year 2006-07, increasing the total installed 

capacity to 10,467 MW. 

In addition to the above, MAHAGENCO has prepared project reports for addition of a 

total of 7,540 MW in two phases as given below: 

Table: Phase-I Projects 

Location Capacity (MW) 

Expected date of 

synchronisation 

New Parli TPS Unit No. 2 250 December 2008 

Paras TPS Expn. Unit No.2 250 December 2008 

Khaparkheda TPS expansion 500 November 2009 

Bhusawal TPS expansion. Unit No. 1 500 November 2009 

Bhusawal TPS expansion. Unit No. 2 500 February 2010 

Total 2,000 

Table: Phase-II Projects 

Location Capacity (MW) 

Expected date of 

synchronisation 

Chandrapur TPS expansion 500 March 2010 

Uran GTPS expansion Block 1 * 520 September 2009 

Uran GTPS expansion Block 2 * 520 December 2009 

Talegaon GTPS. Block 1 * 700 September 2009 

Talegaon GTPS. Block 1 * 700 December 2009 

Koradi TPS expansion Unit no. 1 500 April 2010 

Koradi TPS expansion Unit no. 2 500 January 2011 

Dhopawe TPS Unit no. 1 800 October 2010 

Dhopawe TPS Unit no. 2 800 January 2011 

Total 

* Subject to availability of gas. 

5,540 

Phase-I project has been approved by the Government of Maharashtra with a 

commitment of 20 per cent equity of Rs 1,720 crore. The debt component will be 80 

per cent. MAHAGENCO has drawn a plan to award the first two projects of Phase-I 

by negotiation to BHEL. Other two projects will be through open competitive bidding. 

As per the programme of bidding the letters of agreements (LOAs) are expected to be 

placed soon and the projects are to be completed in a period of 38 months from the 

date of LOA. 

10.28

Maharashtra 

Residual Life Assessment (RLA) Studies and Life Extension (LE) Works 

Earlier, MSEB had carried out RLA studies for some old units. Since LE works were 

not considered to be feasible in respect of the following units, tenders floated for these 

were cancelled. 

Bhusawal Unit-1 62.5 MW 

Paras Unit-2 58.0 MW 

Parli Unit-1&2 30.0 MW each 

Tenders for Koradi Units 1 and 2 (each of 120 MW) are in hand. It is, however, noted 

that the quoted rates are almost double as indicated in the estimates of CEA. Further 

the bidders are unwilling to guarantee the performance after carrying out the repairs. 

The pay back period of related works extends to around 11-12 years. In view of 

uncertainty of sustained desired performance after LE works, MAHAGENCO are 

considering an alternative of using part of the auxiliary equipments of these old sets 

which can be still used with little repair expenses. 

MAHAGENCO is therefore, not likely to proceed further with the LE work in respect 

of these old units. 

Manpower 

Against a sanctioned strength of 17,436 posts, number of posts filled in is 14,001 

leaving over 3,435 posts vacant. Based on present installed capacity of 6,425 MW, the 

staff on the basis of sanctioned strength per MW works out to 2.71 and on actual posts 

filled, it works out to 2.18. 

Financial Health 

The Revenue Account for the period 6 June 2005 to 31 March 2006 (Provisional and 

unaudited), is given below: 

Table: Revenue Account 

(Rs crore) 

Particulars Gross Capitalised Net 

Revenue from sale of power 5445.27 5445.27 

Subsidies and grants 00 00 

Other income 43.71 43.71 

Total revenue (R) 5488.98 5488.98 

Expenditure 

Generation of power 4393.91 4343.91 

Repairs and maintenance 320.98 0.87 320.11 

Employee cost (excluding gratuity) 306.45 14.78 291.67 

Gratuity 46.94 46.94 

Administration and general expenses 31.28 17.51 13.77 

Depreciation 317.98 0.24 317.74 

10.29



Interest and finance charges 122.76 122.76 

Other debits (Materials cost variation) 0.73 0.73 

Extraordinary items 0.25 0.25 

Total expenditure (E ) 5541.28 33.40 5507.88 

Surplus/(Deficit) [(R)-(E)] (52.30) (18.90) 

Return on Equity amount of Rs 2,691 

crore as per provisional transfer scheme 

(0.7)% 

While transferring MSEB’s generating plant assets to MAHAGENCO, Government of 

Maharashtra had indicated equity of Rs 2,691 crore as its contribution. The return on 

this equity is negative and works out to (0.7 per cent). 

Way forward 

A few of the areas needing close attention in immediate future are listed below: 

i) The company should form a core group to identify its total requirements of all 

relevant data pertaining to administrative, financial and operational activities of 

the company as well as presentation of various outputs from the same for 

efficient decision-making. This should be attended to on top priority so that when 

the holding company of MSEB implements the computerised Information 

System, MAHAGENCO would have already finalised its own requirements. 

ii) The staff, which earlier worked with MSEB, has gained considerable expertise in 

efficiently handling the setting up of generating plants and completing the works 

in the defined time and within a reasonable cost. Considering however, large 

annual capital investments for the proposed generation projects and adverse 

impact if these are delayed, it is preferable to undertake computerised monitoring 

of construction activities of the new generating stations. 

iii) Technical specifications of new generating plant may need inclusion of energy 

efficient systems/auxiliary equipments in place of conventional ones in use so 

far. Similarly control and instrumentation systems will need to be so designed as 

to ensure automatic efficient operation of the machines. 

iv) Risks associated with timely availability and required quantities of coal, gas and 

water for future power stations will have to be identified, properly addressed and 

mitigated. The mines for linkages of coal for future plants may be located far 

away (more than 1,000 km). Also coal washeries will have to be established at 

these mines. Joint ventures may have to be formed for construction and operation 

of not only these washeries but in some cases captive mines as well. 

Preparedness in advance to deal with the related issues would be advantageous to 

MAHAGENCO. 

10.30

Maharashtra 

TRANSMISSION 

The transmission system of MSEB comprises of a very large network consisting of 

132 kV to 400 kV lines and sub-stations as well as a +/- 500 kV, 750 km long, high 

voltage direct current (HVDC) transmission line capable of transmitting 1,500 MW of 

power. The following table gives the year-wise details of number of sub-stations, 

transformation capacity in MVA, circuit km of various voltage levels added in the 

period 2001-02 to 2005-06 and proposed expansion of the network in future. The 

transmission assets of MSEB have now been transferred to MSETCL. 

Table: Details of Transmission System in MSEB/MSETCL 

Particulars 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 

-02 -03 -04 -05 -06 -07 -08 -09 -10 -11 

No. of sub stations 

+/- 500 kV 2 2 2 2 2 2 2 2 2 2 

400 kV 15 15 16 17 17 18 18 20 23 25 

220 kV 106 113 118 120 123 130 145 159 165 171 

132 kV and below 301 308 313 322 326 343 358 367 378 387 

Total 424 438 449 461 467 493 523 548 568 585 

Ckt-km of lines 

+/- 500 kV 1504 1504 1504 1504 1504 1504 1504 1504 1504 1504 

400 kV 6230 6230 6376 6376 6376 6500 6635 7045 8075 8835 

220 kV 10399 10872 11288 11415 11512 12072 12504 13415 14656 16060 

132 kV and below 14631 14793 14935 15412 15713 16367 17202 18269 19455 20850 

Total 32764 33399 34103 34707 35105 36443 37845 40233 43690 47249 

MVA capacity of sub-stations 

+/- 500 kV 3582 3582 3582 3582 3582 3582 3582 3582 3582 3582 

400 kV 10090 10720 11535 12035 12035 12350 12665 13610 15500 17130 

220 kV 18911 19661 21086 22156 23086 26236 30436 36311 39536 42261 

132 kV and below 15725 16288 16621 17087 17431 19898 22623 24881 26979 28850 

Total 48308 50251 52824 54860 56134 62066 69296 78384 85597 91823 

Outlay (Rs crore) 

Total outlay 394 333 245 308 228 1054 3680 3762 3188 3011 

Evacuation 64 1366 1706 1580 1273 

R&M 154 265 233 225 211 

A peculiar feature of Maharashtra's power system is, location of major generating 

stations in the eastern part of the State at Koradi, Khaperkheda and Chandrapur. Also 

major part of the State's share of power from Central Sector projects is delivered at 

Koradi/Chandrapur. Major loads are however located in the western part. Thus, power 

is required to be transported over large distance of over 700 km, leading to increased 

transmission losses. Also, outage of any one of the five 400 kV circuits between east 

and west, or outage of a pole of HVDC line, results in a bottleneck, hampering proper 

operation of the transmission system. 

10.31



The above situation will undergo change with commissioning of a number of 

generating plants in the west, namely Ratnagiri Power Plant, Tarapore Nuclear Plant 

and the proposed 4,000 MW mega project of Government of India to be set up on the 

southern coast of the State. 

Planned additions to the Transmission Capacity 

The table above also shows proposed additions/augmentation in the network. It is 

noted that the expansion programme in the next three years, i.e., 2006-07 to 2008-09 

is envisaging major additions of lines and transformation capacities to 220 kV 

network in general and 132 kV network in particular and 400 kV network continues to 

be the backbone for carrying long haul transmission of bulk power. This increased 

spread of 132 kV and 220 kV network will result in reducing the average length of 33 

kV feeders. This will also help the distribution company in reducing distribution 

losses. 

In the timeframe 2009-11, the growth shifts to higher voltage level of 400 kV and 

introduction of the next higher voltage level of 765 kV in the system in 2011-12. In 

this period, the growth rate in 220 kV level would get stabilised and growth of 132 kV 

system is expected to taper off. This suggests that slowly 220 kV will become the subtransmission 

voltage in place of the present sub-transmission voltage of 132 kV. 

Performance of the Transmission System 

The following table gives details of total energy handled by the transmission system, 

energy delivered, transmission loss, and the percentage availability of the transmission 

system in the years 2002-03 to 2005-06 as well as projections for the years 2006-07 

and 2007-08 (except for the availability per cent). 

Table: Performance of Transmission Sector 

Particulars 

2002 

-03 

2003 

-04 

2004 

-05 

2005 

-06# 

2006 

-07* 

2007 

-08* 

Energy from MAHAGENCO (MU) 46464 47245 38539 48639 53503 

Energy from others (MU) 19649 20044 19210 22095 24305 

Total energy received (MU) 63118 66113 67289 57749 70734 77807 

Total energy delivered (MU) 58053 60924 63246 53633 66490 73917 

Transmission losses (MU) 5065 5189 4043 4116 4244 3890 

Transmission losses (%) 8.02 7.85 6.00 7.13 5.99 4.99 

Wheeling cost (Paise/kWh) 26 

Availability (%) 

*Estimations 

# Till January 2006 

96.37 98.22 98.55 98.72 

10.32

Maharashtra 

The present level of transmission loss is rather high though it is seen to be reducing 

from 8.02 per cent in 2002-03 to 6 per cent in 2004-2005. In the year 2005-06 it has 

increased to 7.13 per cent worked out on the basis of data for the period March 2005 

to January 2006. This is attributed to the outage of one pole of HVDC in August 2005 

when unipolar operation was resorted to. HVDC bipole operation has now been 

restored since March 2006 and the losses for the future period could be restricted to a 

level of about 5 to 6 per cent. 

The availability of the transmission system is seen to be continuously improving from 

96.3 per cent in 2002-03 to 98.72 per cent in 2005-06. MSETCL contends that if there 

was no breakdown of one pole of HVDC the availability would have crossed 99 per 

cent. MSETCL has set a target of achieving more than 99 per cent availability of its 

transmission system in a sustained manner from 2006-07 onwards. 

Staff strength 

The company has a staff of 13,223 on roll. On the basis of 70,734 MU of energy 

proposed to be handled this year, energy handled per employee works out to 5.35 MU. 


MSEB did not submit ARR and tariff petition to MERC for 2004-05 and 2005-06 till 

February 2006 even though it has been restructured into MAHAGENCO, MSETCL 

and MSEDCL in June 2005. As a result, tariff order dated 1 December 2003 issued by 

MERC was still in force. 

MERC have notified Tariff Regulations in August 2005. Recently MSETCL has 

submitted its Aggregate Revenue Requirement (ARR) to MERC for 2005-06 and 

2006-07. The ARR is based on following important assumptions: 

i) Transmission losses have been considered as 6 per cent of energy handled; 

ii) Five per cent increase is considered for most expenditure heads in line with 

prevalent inflation index; 

iii) All allocated loans considered for calculation of interest. Interest also includes 

guarantee fees; 

iv) Average depreciation rate adopted is 5.94 per cent; and 

v) For 2005-2006, 4.5 per cent surplus is considered till 5 June 2005 and for the 

balance period; return on equity of 14 per cent is adopted. 

10.33



The ARR for the three years thus worked out is as under: 

Table: Aggregate Revenue Requirement for MSETCL 

(Rs crore) 

Particulars 

2004-05 

Un-audited 

2005-06 

April-March 

2006-07 

Forecast 

Total revenue expenditure 1378.37 1402.64 1491.89 

Return on equity capital 155.52 313.03 376.45 

Aggregate revenue requirement 1533.89 1715.66 1868.34 

Energy delivered (MU) 63808.73 64845.70 73359.28 

Transmission charges (Rs/kWh) 0.24 0.26 0.25 

It is seen from the above that transmission charges work out to 26 paise per kWh of 

energy delivered, for the year 2005-06 and 25 paise for the period 2006-07. These 

charges include return on equity amounts of Rs 313.03 crore for 2005-06 and Rs 

376.45 crore for the year 2006-07. The ARR is awaiting approval of MERC. 

Way forward 

A few of the areas needing close attention in the immediate future are listed below: 


relevant data. This should be attended to on top priority so that when the holding 

company of MSEB takes action of implementation of the computerised 

Information System MSETCL would have finalised its own requirements. 

ii) Data Acquisition System (DAS) should be provided at EHV sub-stations to help, 

inter-alia, collection of energy meter readings without any manual intervention. 

Priority should be given in installing such systems in sub-stations feeding energy 

in MSEDCL system at 11/22/33 kV level and in these sub-stations further 

prioritising in interfacing the energy meters to the DAS. Presently, sub-stationwise 

data of consumption of energy in auxiliaries, losses in transformers, etc., is 

not available. MSETCL proposes to undertake this in immediate future. 

Energy meters should be fixed on the incoming and outgoing of all EHV 

transformers directly feeding energy in DISCOM’s 33, 22 and 11 kV network as 

well as on associated 33, 22 and 11 kV feeders emanating from such 

transformers (wherever not done already). This will help in tallying the 

difference between readings of incoming and outgoing energy meters on 

transformers (representing transformer loss, which typically should be of the 

order of less than 1 per cent for EHV transformer) as well as tallying incoming 

energy and sum of energy on the outgoing feeders flowing out to the distributing 

company and the feeder supplying sub-station auxiliaries/colony (should be 

nearing zero or negligible). 

10.34

Maharashtra 

The total number of such transformers in the transmission company is less than 

one thousand. Assuming that an average of four feeders are emanating from each 

such transformer and one for sub-station auxiliaries and further assuming that 

none of these have already been provided with an energy meter, the maximum 

number of energy meters required to be fixed on priority would only be 7,000 

Nos. With high priority, the job of fixing these energy meters can be completed 

in a couple of months. This activity will help energy accounting in respects of 

not only a transmission company but distribution company as well. 

Similarly if there is a common feeder for supply to auxiliaries and sub- station 

colony then reading of energy meter on the feeder must match with sum of 

energy meter readings of sub-station auxiliaries and colony. These readings 

could be checked on hourly basis as all these sub-stations have operating staff for 

24 hours. Any deviations in the above comparisons should be investigated and 

corrected on priority. 

iii) Presently in many sub-stations, in which energy is received from generating 

plants, energy meter is not provided in the generator bay for measurement of 

energy input on the EHV busbar. The energy supplied to the transmission 

company by the generator, is computed from the difference between the readings 

of energy meters on the LV side of the generator transformer and on the unit 

auxiliary transformer and the losses in the generator step up transformer go to 

MESTCL’s account. To avoid this, direct measurement of energy input on the 

busbar would be required and an energy meter of class 0.2 accuracy and current 

transformers having metering core of 0.2 accuracy class be provided for this 

purpose in each generator transformer bay. 

iv) Transformer is very important equipment in transmission and distribution of 

energy. Failure of EHV transformer leads to large-scale disruption in the 

transmission system besides considerable costs involved in repairs/replacement. 

It is therefore very prudent to provide on-line and off-line ‘condition monitoring 

devices’ to prevent failure of EHV transformers. This aspect needs to be given a 

higher priority while procuring transformers and their subsequent maintenance in 

service. 

v) In 400 kV and major 220 kV sub-stations, it would be very useful to provide 

sequence of events recorders and numeric relays to enable proper analysis of 

faults. 

10.35

DISTRIBUTION 

Introduction 



The State is facing a large scale load shedding due to inadequate generating capacity. 

MSEDCL is also confronted with a number of daunting tasks in its operations. A 

number of actions have been initiated by MSEDCL to effectively deal with these 

tasks. Three important areas, as noted below, which will have significant impact on 

the health and operations of the Utility, have been selected to look for signs of 

improvement. 

Demand Management 

To mitigate hardships to consumers on account of load shedding, reducing the peak 

demand through Demand Side Management (DSM) provides a useful tool. A number 

of schemes like single phasing, Gaothan feeder separation, installation of capacitors 

on DTC and agricultural pump-motors are taken up in hand. 

Most noteworthy amongst these however, is the innovative scheme of 'Akshay 

Prakash Yojana' (APY). MSEDCL has achieved commendable success in getting load 

relief in peak demand from rural areas under this scheme. The programme rests on 

collective responsibility of the inhabitants of the village and is carried out voluntarily. 

The scheme envisages that the Village Body (Gram Sabha) passes a resolution to 

participate in the scheme. Villagers restrict the use of any 3-phase load during 5 p.m. 

to 5 a.m. Only lighting load is used in this period and the load on the feeder is 

restricted to 20 per cent of the full load recorded earlier. These load restrictions are 

supplemented by removing unauthorised heavy consumption devices such as heaters, 

hot plates and hooks on the distribution lines. The scheme envisages adoption of 

energy saving lighting and use of capacitors on motors. Veej Dakshata Committees or 

Surveillance Committees are formed by the villagers for monitoring use of electricity 

and for supervising removal of unauthorised connections. Patrols are organised by 

villagers to uncover theft of electricity and all consumers voluntarily adopt metered 

connections. These villages are totally exempted from daily load shedding and enjoy 

supply for 23 hours a day. 

The success of the scheme is phenomenal and has turned into a social movement. The 

penetration of the scheme is facilitated through visual impact of APY villages on non- 

APY villages. In a short span of less than one year 3,400 villages have joined the 

scheme giving a load relief of 772 MW, which will help in reducing distribution 

losses as well as improving services to the consumers. More important than the load 

10.36

Maharashtra 

relief is the participative spirit of people from rural area to ensure that this important 

service of electricity supply caters to their needs and is controlled by them. 

In future, APY villages should be considered for additional fiscal support vis-à-vis 

non-APY villages. This participative spirit of rural consumers is a treasure and no 

effort should be spared in protecting the same against all odds. 

Gaothan Feeder Separation Scheme 

Another scheme, which can help reduce the peak demand, is ‘gaothan feeder 

separation scheme’. In this scheme the feeder supplying energy to a composite load 

comprising of agricultural pumps and the nearby village is separated by provision of a 

separate feeder for supplying energy to the village and retaining the existing feeder 

only for supplying the agricultural pumps. This can help in reducing the peak demand 

if the agricultural feeder could be switched on for a period of say 8-10 hours during 

defined off-peak period and could be switched off during peak-hours. 

Such assured supply of electricity for pumping though only in off-peak hours, should 

be acceptable to farmers than uncertainty of supply. Also conservation of available 

water will in future be an important aspect, that will dictate the need for limiting the 

hours of agricultural pumping and such schemes will certainly be required then. 

The energy consumption in the gaothan feeder will show considerable growth and 

since this consumption is metered it will bring additional revenue to the utility. In 

selecting schemes for separation of gaothan feeder, priority should be given where the 

agricultural pumping load on the composite feeder is high, the length of the resultant 

gaothan feeder after separation is comparatively small. 

Besides the above, MSEDCL has launched a Ten-Point Action Plan, specifying 

programmes under each point, to improve the working of the company. The results of 

these actions are expected to start becoming visible from the end of this year. 

Reduction in T&D losses 

Various steps are taken by MSEDCL for reducing distribution losses, like additions to 

the high voltage lines and sub-stations, improving HT: LT ratio, check on theft of 

electricity, fixing of electronic time of day meters on HT connections, adding fixed 

and switched capacitors, etc. Monthly energy audit is carried out in respect of 

distribution transformer centres (DTCs) (for which energy meters are fixed), express 

feeders, Maharashtra Industrial Development Corporation (MIDC) areas, etc. 

10.37



Reduction of distribution losses is the single most important item capable of quickly 

improving the financial health of the company. Therefore, besides undertaking other 

measures mentioned earlier, some urgent actions regarding fixing of energy meters to 

DTC and to all HV feeders should be taken on top priority. Also actions/modifications 

to the procedure of conducting energy accounting will prove to be useful. 

The ground situation in the area of fixing energy meters appears to be not meeting 

expectations. The progress in fixing meters to DTCs and HV feeders is slow as can be 

seen from data for the period ending December 2005. Out of 2,20,799 DTCs in the 

system, energy meters are provided only on 53,700 and of these, energy accounting is 

done in respect of 48,254 DTCs. The number of DTCs in urban/industrial areas would 

definitely be much larger than those covered in energy accounting. Similarly not all 

HV feeders are provided with energy meters. At the time of publishing the White 

Paper in 2002, it was reported that out of 7,128 feeders of 11 kV and above, energy 

meters were provided on 5,829 feeders. Balance 1,299 feeders were to be provided 

with meters by December 2002. The work of providing energy meters on all HV 

feeders is still incomplete. This situation needs to be improved on priority. 

Along with actions as above, in the new procedure of energy accounting the focus will 

have to shift from simply submitting energy audit data to higher officers in the 

hierarchy to taking full responsibility and accountability by each concerned officer in 

the field in respect of network under his control. Further, the data of losses of 

individual DTC should directly be generated while processing the meter readings for 

billing by comparing the difference of energy recorded on the DTC meter and the sum 

total of energy meter readings of consumers connected to the DTC. No extra 

computing should be required for this purpose. The broad principles of modification 

proposed for discussions/consideration/adoption by the company are given in this 

report. 

Improvement in Services to Customer 

For payment of electricity bills, consumers have facility to choose from, payment 

through banks, post offices, private bill counters, ATM, Internet, etc. Bill collection 

has been partially outsourced. To facilitate redressal of consumer complaints, 

consumer grievance redressal forums have been set up in each zone at different 

locations in the State. 

Data of billing complaints in the State is not compiled at headquarter. However the 

trend seems to be towards reducing these complaints. From data of Nagpur zone it is 

10.38

Maharashtra 

noted that total number of billing complaints from four circles of Bhandara, Wardha, 

Chandrapur and Gadchiroli dropped from 18,492 in 2004-05 to 16,300 in 2005-06. 

The company is taking action to adhere to the Standards of Performance Regulations 

of MERC. However, data in support of the achievement in this respect is not 

available. 

Background Information 

MSEDCL has a very large customer base in the State. At the end of 2005, the 

company had a total of about 1.37 crore customers comprising of about 98 lakh 

domestic, 11 lakh commercial, 23 lakh agricultural, 2.9 lakh industrial, 1 lakh public 

water works and public lighting, categories. The State was among the first to have 

achieved 100 per cent rural electrification. Even as per revised definition of 

electrification of a village, 86.5 per cent of the total of 41,095 villages have been 

electrified leaving a balance of 5,500 villages to be electrified. Out of a total of 

1,09,93,623 rural households as per 2001 census, 58,16,346 households have 

electricity, representing 52.91 per cent of total rural households (as on 31 March 2005, 

Source: CEA). The following table gives details of consumers in different categories 

served by the DISCOM: 

Table: Details of Consumers 

Consumer Category 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 

Domestic 9258154 9286465 9349683 9580048 9732362 9854816 

Commercial 1153044 1066669 1056211 1098082 1116375 1102485 

Public lighting 54448 54994 58783 62410 64683 66668 

Irrigation and watering 2145558 2196086 2224351 2213668 2274146 2297303 

Public water works 47577 46834 46125 46324 44098 44171 

Industrial (LT/ HT) 322897 320577 306382 310897 299738 290262 

Railway traction 499 501 472 483 476 472 

Bulk supply (Licensees) 2 2 2 2 2 2 

Outside supplied 4 4 4 4 4 4 

Miscellaneous 596 541 508 506 514 

Total 12982779 12972673 13042521 13312424 13532398 13656183 

(Source: Statements of Accounts, MSEB) 

10.39

Consumer category and 

consumption slab 



Table: Category-wise Consumption of Electricity 

2000- 

01 

2001- 

02 

10.40 

2002- 

03 

2003- 

04 

2004- 

05 

(Figures in MU) 

2005- 

06 

Five 

Year 

CAGR 

HT category 

HTP industrial 13026 12409 12070 12549 13731 15453 3% 

HTP-I (HT industrial - 

BMR/PMR) 

6455 6556 6197 6482 6183 4237 -8% 

HTP-II (HT industrial - non 

BMR/PMR) 

6571 5853 5867 6032 7508 11155 11% 

HT industrial - seasonal 6.3 34.1 40.6 62 

HTP-III (HT water works - 

BMR/PMR) 

576 557 573 607 614 610 1% 

HTP-IV (HT water works - non 

317 324 322 376 423 482 9% 

BMR/PMR) 

HTP-V (railway traction) 809 817 863 934 992 1068 6% 

HTP-VI (bulk supply) 218 253 268 292 326 336 9% 

Residential complex 214 236 251 276 309 318 8% 

Commercial complex 4 17 17 16 17 19 35% 

HTP-VII (HT agriculture) 497 714 643 552 453 418 -3% 

Tata power company 0 0 0 33 54 

Mula Pravara Electricity Cooperative 

Society (MPECS) 

557 623 605 631 609 552 0% 

Inter-state sales 650 176 28 18 9 0 -77% 

TOTAL HT Category 16651 15872 15372 15959 17191 18974 3% 

LT category 

Domestic (LD 1) 6427 6587 6925 7135 7328 7359 3% 

Non Domestic (LD 2) 1308 1349 1493 1599 1764 1922 8% 

General Motive Power (LTP- 

G) 

Public Water Supply 

3636 3036 3207 3036 3364 3793 1% 

Urban P. W. schemes 63 36 43 34 31 31 -13% 

Rural P. W. schemes 607 534 535 439 363 353 -10% 

Sub Total PWW 

Agriculture 

670 571 577 473 394 385 -11% 

Flat rate tariff (Rs/HP/month) 9553 7282 8611 9014 8554 8636 -2% 

Metered tariff 208 230 387 604 849 1350 45% 

Sub Total (Agriculture) 9760 7512 8998 9618 9403 9985 0% 

Street light 257 383 494 520 541 539 16% 

Temporary Connections 3 7 9 11 19 25 54% 

TOTAL (LT Category) 22062 19444 21703 22392 22812 24008 2% 

Total MSEDCL 38713 35317 37075 38351 40003 42982 2% 

From the growth of demand of energy by different categories of customers as given in 

the above table it is seen that CAGR per cent for all the categories of customers in

Maharashtra 

MSEDCL over the period 2000-01 to 2005-06 is two per cent. The company had a 

turnover of Rs 15,072 crore in 2005-06. 

The distribution network comprises of 2,15,321 ckt km of HV lines of 33/22/11 kV 

and 4,61,793 ckt km of LT lines, 2,20,799 DTs having 22,154 MVA capacity and 

16,980 MVA of 33 kV transformation capacity as given below: 

Table: Distribution Network Related Information 

Item 2003-04 2004-05 2005-06 Remarks 

Total number of DTCs 205542 212272 220799 

Number of DTCs failed 31422 30133 39352 

DTCs failure rate (%) 14.67 18.52 15.58 

33 kV transformers capacity (MVA) 16280.45 16570.1 16980.3 

DTs capacity (MVA) 18967.9 20879.3 22153.646 

33 kV, 22 kV, 11kV lines (ckt km) 208726.95 212087.27 215321.016 

LT Lines Commissioned (ckt km) 444618 452809.51 461792.84 

33 kV, 22 kV, 11 kV lines (ckt km) 26150.52 26541.91 27088.856 

22 kV, 11 kV lines commissioned. (ckt 

km) 

21424.61 21733.77 21978.629 

11 kV lines commissioned. (ckt kms) 161151.82 163811.59 166253.531 

Extent of Load Shedding 

10.41 

2005-06 

data upto 

February 

2006. 

At the 

beginning 

of the year. 

Due to inadequate generating capacity to meet the demand, MSEDCL is forced to 

resort to load shedding and the extent of load shedding is given below: 

Table: Details of Load Shedding* 

2000-01 2001-02 2002-03 2003-04 2004-05 

(Maximum in MW) 

2005-06 

1,822 1,016 2,421 2,042 3,045 4,539 

* as on 22 December 2005 

MSEDCL has categorised total load in non-sheddable load of (3,554 MW), 

comprising of EHV feeders, feeders for Maharashtra State Industrial Development 

Corporation (MIDC) areas, express-feeders for industries, municipal water works and 

utility, and remaining as sheddable load of 8,730 MW of the total of 12,284 MW. 

Load shedding is done in accordance with a plan ordered by MERC. The salient 

features of this novel load shedding plan approved by MERC are noted as under:



i) MERC has classified the consumers located in three regions namely urban and 

industrial conglomerates, other regions and agricultural dominated regions; 

ii) Each of the above regions is further classified into four groups A, B, C and D 

based on the level of T&D losses and collection efficiency in the area. A refers to 

the best and D refers to the worst; and 

iii) The apportionment of sheddable load between the above three regions is made in 

the ratio of 1:1.5:3.5, which results in following load shedding hours. 

Table: Load Shedding Plan as per MERC Order 

Group 

Urban and 

industrial conglomerates 

Other regions 

(Duration in hrs) 

Agricultural dominated 

regions 

A 2.5 4.5 11 

B 3 5 11.5 

C 3.5 5.5 12 

D 4 6 12 

The customers are made aware of the load shedding plan through advertisements in 

newspapers. 

Number of Unannounced Load Shedding and Duration 

In addition to the planned load shedding as above, there have been disruptions of a 

large nature due to instances of Grid failure. These details are noted as under: 

2002 

Table: Details of Grid Failure 

Grid failure event 

No. Date Cause From To Duration 

1 23 May 2002 Storm, tower collapse 8:54 17:57 9:03 

2 29 May 2002 Storm, tower collapse 2:09 9:00 6:51 

3 30 July 2002 Low frequency over drawl 20:11 

(31 July) 

19:49 

4 6 Oct. 2003 Bus fault- Kalwa S/S 10:37/11:24 14:00 3:23 

2003 

5 

6 

5 Nov. 2003 

7 Nov. 2003 

Low voltage 

Low voltage 

10:24/10:33 

13:03 

15:00 

16:00 

4:36 

2:57 

7 6 Dec. 2003 Low Voltage 12:21/12:38 15:00 2:39 

2004 8 5 Feb. 2004 Bus fault- Chandrapur S/S 14:16 17:48 3:32 

2005 

9 27 Feb. 2005 Fire at 400 kV Koradi S/S 19:18 

(28 Feb.) 

4:59 

9:41 

10 28 Feb. 2005 

Power swing due to 

occurrence at 400KV Satpura 

S/S 

Bus fault at 220 kV Padgha 

1:56 

(28 Feb.) 

4:59 

3:32 

11 21 Sept. 2005 S/S reduced 400 and 220 kV 

transmission network 

9:58 13:00 3:02 

10.42 

4:00

Maharashtra 

12 26 Sept. 2005 

13 26 Sept. 2005 


Grid failure event 

Tripping 220 kV Kalwa- 

Padgha ckts. reduced 400 

and 220 kV transmission 

network 

Tripping 220 kV Kalwa- 

Padgha ckts. reduced 400 and 

220 kV transmission network 

10.43 

10:33 13:00 2:27 

14:29 17:30 3:01 

The quantitative and qualitative performance of MSEB and MSEDCL (as available) is 

given below in various tables along with the highlights of important aspects seen from 

these. It may however be kept in mind that it is only a year since restructuring and 

some data may not be available. However, wherever possible, efforts being made by 

MSEDCL to improve the performance in future are highlighted. Also areas where 

more focus is required are mentioned at the end of this chapter under the heading 

'Way Forward' for consideration of MSEDCL. 

Table: Quantitative and Qualitative Supply of Power: 

Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 

Assessed/Unrestricted 

demand (MU) 

47,533 50,033 50,910 50,477 57,876 65,274 69,544 87,968 96,459 

Assessed total demand 

(MW) 

10,473 10,119 11,425 11,357 12,749 14,061 15,646 17,332 19,243 

Peak load met (MW) 8,651 9,103 9,004 9,315 9,704 9,856 

Peak load shortage 

(MW) 

-1822 -1016 -2421 -2042 -3045 -4205* 

Energy met (MU) 45930 49018 48379 50277 51124 



failure rate (%) 

4.4 4.0 3.5 3.0 

DTs failure rate (%) 15.95 14.67 18.52 13.07** 11 9 7 

*As on 28.12.2005, however the maximum deficit was 4622MW on 9 th Feb 2006 although it was not a peak demand day 

** up to November 2005 

The percentage of failures of DTs could not be derived from the number of 

transformers failed and the number of transformers in the system. In discussions, the 

reason for increase in percentage of failures of DTs in 2004-05 was indicated to be 

due to overload. 

DISTRIBUTION LOSSES 

The year-wise distribution losses are given in the following table. Though attempts are 

made to reduce the distribution losses, the reduction achieved is not significant. A



highly focussed effort is needed to ensure faster reduction of the losses. Some 

suggestions in this regard are given in the end of this chapter for consideration of 

MSEDCL. 

Table: Distribution Losses (%) 

2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07 2007-08 2008-09 

34.81 34.14 33.24 33.12 31.14 28* 25 22 19 

Note: * up to December 2005 

Progress of APDRP 

Physical progress of schemes under APDRP in 2005-06 is given in the following 

table. It is seen from the physical achievement that progress of fixing single-phase 

meters, three phase meters and meters for agricultural consumers is lagging far behind 

the respective targets. 

Table: Year-wise Receipt and Expenditure for Investment Under APDRP 

(Rs crore) 

Particulars 2002-03 2003-04 2004-05 2005-06 

Grant 22.5 35.59 17.12 61.31 

Loan 22.5 37.7 15.0 61.32 

FIs - 64.59 25.7 65.21 

Expenditure - 50 138 345.2 

APDRP schemes are executed as per 25 per cent grant from Government of India, 25 

per cent loan from Government of India and 50 per cent loan from Financial 

Institutions (FIs). 

In addition Government of India has sanctioned Rs 80.78 crore as grant in 2005-06. 

However Government of Maharashtra has not released it as yet. 

Table: APDRP Physical Progress 2005-06 

Particulars Unit Target Achievement 

33 kV S/S No. 67 42 

33 kV line ckt km 949.3 571.16 

11 kV line ckt km 5877 3354.7 

LT line ckt km 1172.8 720.4 

DTCs No. 7184 5252 

S/S revamping No. 245 166 

S/S augmentation No. 30 28 

Single phase 

meters 

No. 1686882 440106 

Three phase 

meters 

No. 77796 16817 

Agriculture meters No. 375618 132939 

10.44

Maharashtra 

Commercial Performance 

Billing for Energy Consumption 

The billing system is computerised for all consumers in MSEDCL. Consumer’s meter 

reading and payment data is fed in the system to compute the bill as per prevalent 

tariff as well as to update the master file and creation of MIS data. 

Meters of all residential, commercial and industrial consumers in urban areas and all 

HT consumers including those in rural areas are read monthly. Bi-monthly reading is 

done in respect of consumers in semi urban areas and quarterly reading is done for all 

consumers in rural areas (except HT consumers) and agricultural consumers. Billing is 

done in accordance with the frequency of meter reading. 

Bills are raised on the basis of actual reading of the meter. In accordance with the 

"Electricity Supply Code and Other Conditions of Supply Regulations 2005" laid 

down by MERC, the distribution licensee can issue bills on average basis only up to 

two billing cycles. In case of a faulty meter, consumer can be billed on average basis 

up to a period of 12 months. In urban areas spot billing is being introduced. 

Presently 7.94 per cent consumers are billed on average basis and meters of 8.82 per 

cent consumers are faulty. The extent of delayed billing per billing cycle is less than 

five per cent. 

Progress of Metering 

MSEDCL has requested permission of MERC to extend the period for installation of 

meters on all agricultural connections till March 2008. All other consumers are 

supplied electricity only through meters. The progress of installation of meters is 

given in table below: 

Table: Metering as a Percentage of Total Connections 

Category 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

2004 

-05 

2005 

-06 

2006 

-07 

2007 

-08 

Agricultural 38 43 60 100 

All other categories 100 100 100 100 100 100 100 100 

10.45

Billing and Collection Efficiency 

Particulars 

2000 

-01 



Table: Billing and Collection Efficiency (%) 

2001 

-02 

2002 

-03 

2003 

-04 

10.46 

2004 

-05 

2005 

-06 

2006 

-07 

2007 

-08 

2008 

-09 

Billing efficiency 

65.19 65.86 66.76 66.88 68.86 72.31* 75 78 81 

Collection efficiency 

Over all 92.3 89.27 89.13 90.03 85.19 85.67 92 94 96 

Domestic 95.77 90.50 95.03 93.98 97.08 97.26 

Industrial LT 94.06 88.85 95.48 97.61 97.98 98.47 

Industrial HT 98.77 101.07 102.71 99.77 100.86 98.84 

Agricultural 39.59 29.01 19.37 50.21 70.65 20.47 

* Up to November 2005. 

Note: There is no tool/methodology available with MSEDCL for determination of billing efficiency 

consumer category wise. 

Arrears of Revenue 

MSEDCL has large amount of revenue arrears pending with the consumers and these 

are seen to be increasing each year. The following tables give the position in respect 

of arrears from various categories of consumers as well as yearly position of debt. 

Particulars 

Arrears of 

revenue 

Table: Position of Arrears of Revenue Vs Debt (as on February 2006) 

(Rs crore) 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

2004 

-05 

2005 

-06 

5909.00 7258.76 8810.67 9299.33 7717.39 9042.95 

Debt 9690.09 10444.38 10412.14 10097.75 9446.87 2793.00 4249 3630 2384 

(Source: Audited Accounts for 2000-01to 2004-05, and MSEDCL (Commercial Section) for 2005-06) 

Arrears are the net receivables after making provision for bad debts. 

2006 

-07 

Table: Category-wise arrears and No. of days (as on February 2006) 

(Rs crore) 

Particulars Arrears No. of days 

HT- industrial and 

railways* 

259.26 12 

LT - residential 776.47 103 

LT - commercial 244.46 81 

LTPG – industrial 142.62 50 

Powerloom 307.03 551 

PWW** 873.40 793 

Street light 213.15 502 

Agriculture*** 2859.19 839 

2007 

-08 

2008 

-09

Maharashtra 

Particulars Arrears No. of days 

PD and others 2596.34 

Mula Prawara Society 656.00 

Inter State 115.00 

Total 9042.95 

* HT – Industrial and Railways. Includes – HTP-I, HTP-II, HTP-V, HTP-VI 

** PWW includes – LT PWW, HTP-III, HTP-IV 

*** Agriculture includes LT Agri., LT Poultry, HTP-VII, SP-I 

It appears that it would be difficult to recover a large portion of these arrears. During 

discussions, a view was expressed that on account of large scale load shedding there 

are practical limitations in organising a crash programme to recover arrears. 

Aggregate Technical and Commercial Losses 

The position in respect of AT&C losses is given as under: 

2001- 

02 

2002- 

03 

Table: Year-wise AT&C losses (%) 

2003- 

04 

2004- 

05 

10.47 

2005- 

06 

2006- 

07 

2007- 

08 

2008- 

09 

45.7 45.27 44.18 35.97 36.06 31.0 26.7 22.2 

MSEDCL has reported that the following measures has been undertaken by it for 

reducing AT&C and other losses: 

i) Replacement of faulty meters; 

ii) Erection of additional lines/transformers/substations; 

iii) Check on theft of energy through 36 flying squads; and 

iv) As in November 2005, 52,923 DTs were provided with meters. Energy 

accounting in respect of 47,918 transformers was carried out. Out of these, 46 

per cent transformers have registered less than 25 per cent AT&C losses. 

Steps to further reduce losses include installation of meters on all DTs, 

implementation of High Voltage Distribution System (HVDS) to improve HT/LT 

ratio, capacity additions to install additional lines/sub-stations/transformers, etc. 

Preventive Action and Prosecution for Theft of Electricity 

The following table gives details of raids carried out, demand raised and prosecution 

cases registered in respect of cases of theft of electricity.



Table: Details of Preventive Raids and Demand Raised 

(Rs lakh) 

Particulars 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

2004 

-05 

2005 

-06* 

Preventive raids (No.) 11411 13890 13319 13999 18904 15647 

Demand raised 6191.99 6064.37 3019.4 4369.35 3013.71 1030.52 

Prosecuted (No.) 

* Till February 2006 

308 392 666 1176 1847 1063 

Note: (1) Demand raised includes the penalty amount. 

(2) For the year 2000-01 to 2002-03 demand raised included the penalty of 25 per cent of 

assessed amount. 

From the period 10 June 2003 to January 2005, demand raised was on the basis of two 

times the tariff applicable to the particular category of consumer. Further, w.e.f. 20 

January 2005, i.e., from date of issue of MERC Regulation 2005, demand is raised on 

the basis of 1½ times the tariff applicable to that particular category of consumer. 

The amount of demand raised on account of preventive raids of Rs 10.30 crore 

mentioned above is less than 0.07 per cent of the total turnover in the year. From this 

it appears that the raids may have been carried out randomly and not on the basis of 

any intelligence gathered from the meter reading data, or targeting consumers from 

high loss transformers, or comparison of consumption of similar type of consumers, 

etc. In this regard it may be noted that the private utilities treat the meter reading 

activity as a value adding activity and make use of this information gainfully. 

MSEDCL could gain from initiating action on similar lines. 

In a separate appendix, MSEDCL have given details of the present method of energy 

accounting process from data collection to final computation. Since reduction of 

distribution losses is the single most important step to improve the financial strength 

of the utility, some alterations in the method adopted by MSEDCL are suggested for 

consideration/adoption with a view to bring quick and more enhanced improvement in 

reduction of losses. These are indicated in chapter ‘Lessons Learnt and Major 

Recommendations’. 


Following table gives details of turnover, PBT, PAT, equity, net worth, Government 

subsidy, APDRP incentive, etc. 

10.48

Maharashtra 

Table: Financial Performance 

Parameters 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

2004 

-05 

2005 

-06 

2006 

-07 

2007 

-08 

(Rs crore) 

2008 

-09 

Turnover 11888 12702 13447 14454 15072. 15100 16978 21450 24402 

PBT (1982) (730) (255) (549) (556) (836) (693) 252 452 

PAT (836) (693) 232 417 

Interest paid 1522. 1476 1489 1519 1385 245 505 817 1056 

Wages and salaries 1660 1770 1747 1812 1293 1422 1486 1553 1623 

Equity 3465 3465 3465 3465 3465 1986 1986 1986 1986 

Debt outstanding 9690 10444 10412 10098 9447 2793 4249 3630 2384 

Net worth 6512 6285 6346 6252 6020 1986 1986 2218 2403 

Govt. subsidy 789 493 833 1101 1554 696 

APRDP incentive 138 

Investments made 

for improvement 

1013 1055 972 1071 * 1559 3333 3913 3008 

Note: Figures are rounded to nearest Rs crore. Figures indicated for the period prior to restructuring 

pertain to MSEB as a whole, the values for 2004-05 marked * are under finalisation. 

STATUS OF REGULATION/IMPLEMENTATION OF PROVISIONS OF THE 

EA, 2003 

DETERMINATION OF TARIFF 

MERC was established on 12 August 1999. So far, MESB had approached MERC for 

revision of tariff on three occasions and MERC has revised the tariff of MSEB in May 

2000, January 2002 and March 2004. The following table gives the ARR proposed by 

MSEB in 2000-01, 2001-02 and 2003-04 and approved by MERC. Cross-subsidies do 

exist however these are getting reduced in each subsequent tariff order. MSEDCL has 

recently submitted an ARR and the extent of under recovery or otherwise will be 

known after approval of MERC. 

Table: Expenses Proposed and Approved by MERC 

2000-01 Tariff order 2001-02 Tariff order 

(Rs crore) 

2003-04 Tariff order 

Particulars MSEB MERC MSEB MERC MSEB MERC 

proposal approval proposal approval proposal approval 

Energy input (MU) 59140 59240 59465 61145 63922 62652 

Expense head 

Generation of power 3456 3387 3792 3763 4243 4104 

Purchase of power 3798 3542 2818 2950 3493 3132 

Repairs and maintenance 675 675 672 670 738 737 

Employee costs 1519 1419 1840 1704 1695 1655 



151 151 278 120 145 139 

Depreciation 1294 1293 1544 1527 1585 1578 

10.49



2000-01 Tariff order 2001-02 Tariff order 2003-04 Tariff order 

Interest charges 1239 1127 1308 1110 1308 1126 

Lease rent 85 85 85 85 85 85 

Provision for doubtful 

200 200 200 170 250 181 

debts 

Other debits 317 277 251 255 248 206 

Total expenses allowed 12733 12156 12788 12353 13790 12943 

Cost (Rs/ kWh) 2.15 2.05 2.15 2.02 2.16 2.07 

Non-tariff Orders 

Besides the tariff orders mentioned above, MERC issues a number of non-tariff orders 

from time to time. In 2005 and 2006 a total of 17 non-tariff orders have been issued so 

far. These, inter-alia, include Compliance of order dated 13 July 2004 regarding 

provision of meters by MSEB, passing on tax on sale of electricity to industrial and 

commercial consumers by MSEB. Demand forecast methodology for long-term 

purchase of power through competitive bidding by MSEDCL. General conditions and 

special conditions applicable to distribution licensees, principles and protocol for load 

shedding by MSEDCL, Order on proposal of Confederation of Indian Industries for 

generating power from captive power plant to remove load shedding in Pune, etc. 

Other Important Regulations 

MERC has issued following important regulations among others: 

• ‘Consumer Grievance Redressal Forum and Ombudsman Regulations’; 

• ‘Standards of Performance and Supply Code’; 

• ‘Transmission and Distribution Open Access Regulations’. 

The Phases for Distribution Open Access are as follows: 

Contract Demand Effective Date of Open Access 

> 5 MVA Date of notification 

> 2 MVA < 5 MVA April 1, 2006 

> 1 MVA < 2 MVA April 1, 2007 

Currently no consumer in MSEDCL has opted for Open Access. 

MERC has made MYT effective from 1 April 2007. MSEDCL has initiated action to 

formulate a structure for this phase. 

10.50

Maharashtra 

The progress in regard to some specific provisions of the EA, 2003 is given as under: 

Section 172 Maharashtra State Electricity Transmission Company is the State 

transmission utility carved out of the erstwhile MSEB. 

Section 42(5) Consumer grievance redressal forums have been formed by MSEDCL 

at each zonal centre as per the regulations of MERC. 

Section 55 Supply of electricity through metering. In MSEDCL, only agricultural 

consumers have yet remained to be provided with meters. MSEDCL 

have requested MERC to extend the time period for installing these 

meters till March 2008. 

Section 135 State amendments have been carried out to allow Police to investigate. 

The State has not established any special courts or Police Stations 

for this purpose so far. 

Business Plan/Investment Plan 

MSEDCL have formulated a business plan and a corresponding investment plan. The 

efficiency improvement assumptions as well as assumptions of expenses in 

formulating these plans and loss statement have been in the draft stage. These 

documents are currently awaiting approval of the Board and are given below only for 

reference: 

Assumptions in preparing Business Plan, Business and Investment Plan (Preliminary) 

Distribution loss reduction assumed at three per cent per annum till 2008-09 and 

thereafter by one per cent as given below: 

Particulars 2005-06 2006-07 2007-08 2008- 09 2009-10 

Distribution Loss (%) 28 25 22 19 18 

Collection efficiency taken to 98 per cent by 2010-11 as noted below: 

Particulars 2005-06 2006-07 2007-08 2008-09 2009-10 

Collection efficiency (%) 90 92 94 96 98 

10.51



Expense Assumptions 

Item Basis of forecasting 

Percentage 

increase 

Other income As a percent of revenue 

CPSU power purchase cost per unit YoY increase * 5.00 

Repairs and maintenance cost YoY increase 4.50 

As a per cent of incremental GFA # 2.50 

Employee cost FY 06 Increase 10.00 

YoY increase 4.50 

Provision for bad and doubtful debts As a per cent of Revenue 2.50 

Depreciation As a per cent of GFA 6.00 

Other finance charges 4.5 per cent YoY increase 4.50 

* YoY : Year-on-Year # GFA : Gross Fixed Assets 

Business Plan Snapshot (Preliminary draft) 

In Rs. Crores FY 06 FY 07 FY 08 FY 09 FY 10 

Equity 1,986 1,986 1,986 1,986 1,986 

Debt - Equity 67-33 80-20 86-14 88-12 89-11 

NFA 3,479 3,756 5,097 7,644 10,106 

Revenues 15,100 

Retained Earnings (with 14%) (836) 

ICG (1,268) 

Investment and Financing Plan (Preliminary draft) 

A total financing of Rs 15,073 crore is required for an investment of Rs 11,119 

crore. 

10.52 

16,978 

(693) 

(1,014) 

21,450 

232 

(3) 

24,402 

417 

219 

26,496 

670 

850 

Capital Outlay 1,378 2,800 3,052 1,971 1,918 

Sales(MU) 46,997 52,158 68,615 78,132 82,526 

Distributon Loss 28% 25% 22% 19% 18% 

Collection Efficiency 90% 92% 94% 96% 98% 

Average PP Cost 3.39 3.39 3.09 3.06 3.12 

Average Tariff (Rs.) 3.09 3.15 3.21 3.27 3.33 

Rs Crores 

5 Year Construction 

FY:05-06 FY:06-07 FY:07-08 FY:08-09 FY:09-10 

Plan 1378 2800 3052 1971 1918 

Physical Contingencies 34 70 76 49 48 

Price Contingencies 34 70 76 49 48 

IDC 112 393 709 938 1066 

Total 1,559 3,333 3,913 3,008 3,080 

ICG 

Govt Equity 

Financed By 

(1,234) (916) 283 623 1,333 

Debt 2,793 4,249 3,630 2,384 1,746 

Total 1,559 3,333 3,913 3,008 3,080

Maharashtra 

Staff Strength 

Investment and Financing Plan (Preliminary draft) 

As on 31 March (In Rs. Crores) 

INCOME 

FY06 FY07 FY08 FY09 FY10 

Total Revenues 

EXPENSES 

15,100 16,978 21,450 24,402 26,496 

Purchase of Power 12,531 14,084 17,265 19,582 20,977 

Repairs and Maintenance 346 377 437 531 631 

Provision for depreciation 571 625 750 962 1,182 

Total Operating expenses 15,794 17,544 21,077 23,839 25,680 

Total interest p 

245 505 817 1,056 1,197 

Total Expenses 15,937 17,671 21,198 23,950 25,770 

NET INCOME (836) (693) 252 452 725 

Tax Payment - - 19 35 56 

RETAINED EARNINGS (836) (693) 232 417 670 

Income before Interest & Depreciation (123) 59 1,123 1,524 1,998 

Provisions 286 323 412 470 511 

Less : Working Capital Requirement 1,051 1,089 1,204 1,174 730 

Less: Debt Service 380 307 314 567 872 

Less : Income Tax - - 

19 35 56 

Total ICG / Total Deficit (1,268) (1,014) (3) 219 850 

The total staff of MSEDCL is 68,887 and the energy sold per employee works out to 

about 6.32 lakh kWh per annum. 

Table: Average Recovery per Unit of Electricity 

Year Rs/kWh Year Rs/kWh 

1989-90 1.04 1997-98 2.15 

1990-91 1.12 1998-99 2.69 

1991-92 1.40 1999-2000 3.16 

1992-93 1.57 2000-01 3.37 

1993-94 1.62 2001-02 3.22 

1994-95 1.68 2002-03 2.97 

1995-96 1.98 2003-04 3.07 

1996-97 2.08 2004-05 3.09 

(Source: Administrative Reports, and Annual Accounts, various issues) 

Year 

Table: Average Cost of Supply 

Expenditure 

(Rs Lakh) 

10.53 

Energy 

Sold (MU) 

Cost of 

Supply 

(Rs/kWh) 

1999-2000 1284881 41981.5 3.06 

2000-01 1400347 39993.5 3.50 

2001-02 1354946 38735.033 3.50 

2002-03 1367316 41900.959 3.26 

2003-04 1435221 43575.416 3.29 

2004-05 1556387 46100.97 3.38 

2005-06 1793784 45955.94 3.90

Year 



Data has been taken from statement of accounts of the erstwhile MSEB (un-audited 

for 2004-05), for 2005-06 data has been taken from ARR filed by MSEDCL before 

MERC for 2006-07. 

Average cost of inputs year-wise and source-wise is given in the following table: 

Purchase 

of power 

Table: Average Cost of Inputs Year-wise and Source-wise 

Generation 


Repair 

& maintenan 

ce 

Employee 

A&G 

expenses 

10.54 

Depreciation 

& 

related debits 

Interest 

and finance 

charges 

Expen- 

diture 

Sales 

(MU) 

(Rs lakh) 


Supply 

(Rs/kWh) 

1999-00 437705 338122 56790 157653 19905 122275 152431 1284881 41982 3.06 

2000-01 517110 356613 46014 165952 29336 133093 152229 1400347 39994 3.50 

2001-02 405804 406443 59172 176967 14953 143963 147644 1354946 38735 3.50 

2002-03 428008 392329 63289 174684 16073 144058 148875 1367316 41901 3.26 

2003-04 446892 424735 66429 181177 18761 145364 151863 1435221 43575 3.29 

2004-05 477430 494877 69856 212077 20285 143356 138506 1556387 46101 3.38 

Table: Length of Distribution Network (below 11 kV) 

(ckt km) 

Particulars 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

Distribution lines 4,27,191 4,33,504 4,38,262 4,44,618 4,52,810 4,61,793

Maharashtra 

WAY FORWARD 

Important areas needing active efforts in immediate future are as under: 


relevant data pertaining to administrative, financial and operational activities of 

the company as well as the presentation of various outputs from the same for 

efficient decision-making. This should be attended to on top priority so that when 

the holding company of MSEB takes action on implementation of the 

computerised Information System, MSEDCL would have finalised its own 

requirements. 

ii) Besides intensifying actions to reduce distribution losses by implementing other 

measures such as fixing capacitors, addition of new lines and sub-stations, etc., 

immediate modifications to trapping of relevant information of energy meter 

readings without any human effort or manipulation, directly from information 

database explained above as well as from energy meter readings of consumers as 

soon as the readings are validated would be required. Also the procedure of 

conducting energy audit may have to be critically reviewed and modified. 

In the modified procedure, the focus of field officers will have to shift from 

simply submitting energy audit data to higher officers in the hierarchy to taking 

full responsibility and accountability by the concerned officer in respect of losses 

in the network/equipments under his control. Target of reducing distribution 

losses should be set separately and also individually for each in-charge of the 

area and for each feeder/DTC, express feeder as the case may be. Performance 

appraisal of the officers-in-charge could be based on the degree of success 

achieved in meeting the targets set. 

iii) The arrears of revenue have assumed alarming proportions. Special efforts are 

required to reduce these arrears. Some out of box thinking may also be required 

to find out ways to reduce the arrears. MSEDCL regularly publishes names of 

major defaulters and the amount of arrears of revenue due from them in the local 

newspapers. However, it is not clear if this results in prompt payment by such 

defaulters. Otherwise, it would result only in additional cash out flow for 

payment of advertisement charges. 

The legal issue whether, the premises where supply is given as well as the 

occupier of the premises, could be jointly and severally be made responsible for 

payment of electricity charges may be investigated. If found feasible, necessary 

modifications to the conditions of supply could be proposed to MERC for 

10.55



approval. If such an amendment is legally possible, it would help the Utility to 

transfer the arrears of electricity charges of a consumer from one location to 

another location if it is known that the defaulter consumer is consuming energy 

at another location within the area of supply of the Utility. 

Also, since MSEDCL is a totally Government-owned company, the issue 

whether arrears in payment of electricity could be treated on similar terms as 

arrears of land revenue could also be studied. If this is feasible, it will act as an 

effective measure. 

10.56


Introduction..............................................................................................................11.1 

Performance of the Board.......................................................................................11.1 

Financial Performance ............................................................................................11.2 

Strengths of the Board.............................................................................................11.5 

Weaknesses of the Board.........................................................................................11.6 

Major Achievements of the Board .........................................................................11.8 

Reform Measures.....................................................................................................11.8 

The Way Forward....................................................................................................11.9 

Summary of Findings and Recommendations ....................................................11.10 

Responses from TNEB to IIPA Questionnaire ...................................................11.12 

Transmission ..................................................................................................11.13 

Distribution ....................................................................................................11.14 

Regulation and Tariffs ..................................................................................11.17 

Electricity Act ................................................................................................11.18 

Suggestions .....................................................................................................11.19 

Service to Consumers....................................................................................11.21

INTRODUCTION 

TAMIL NADU 

The Tamil Nadu Electricity Board (TNEB), one of the well-run electricity boards in 

the country, is lagging behind most others in the reform process. It still functions as a 

monolithic Board performing all the traditional functions of an electricity Board 

namely generation, transmission and distribution. Its generation capacity is 5,400 

MW, out of which, 1,987 MW is hydel, 2,970 MW is thermal and 424 MW is gaspowered. 

Since most of its hydel stations are rain-dependent, they generate power of 

some significance only during monsoon, and the Board uses the stored energy at other 

times to meet the peak load shortage. The Board has four thermal power stations with 

a total installed capacity of 2,970 MW. Since Tamil Nadu does not have any thermal 

coal resources, the Board has to transport it from far-off coalfields through a rail-cumship-cum-rail 

route. Transport of coal is a logistical nightmare and also involves 

transport of huge quantity of ash over long distances and its disposal later on at a huge 

cost with many environmental ramifications. The Board also purchases substantial 

power from the Central power utilities. Five Independent Power Projects (IPPs), 

which have been commissioned in the State, are also contributing to the financial 

woes of the Board. The Board has a good and highly reliable transmission system 

(over 99%). Its distribution system is quite large, covering the entire state of Tamil 

Nadu. The Board has electrified 94.90 per cent of villages in the State (as on 31 March 

2006), and household electrification is also very high (71.18%) due to the Board’s 

commitment to give connection to all those who apply for it and the Government’s 

policy of free hut service connection. The performance of the Board in this respect has 

been driven by the political commitment of successive Governments. The State is 

highly industrialised with nearly 70 per cent of its revenue coming from industries. 

While the Board has been able to sustain industrial activities in the State, the 

industries too have been sustaining the Board by their major contribution to the 

Board’s income. The quality and reliability of power to industries is not a major 

concern, but the cost is, which is driving industries to go in for alternative sources of 

power such as wind energy, captive generation, etc. 

PERFORMANCE OF THE BOARD 

The performance of the generation wing of the Board can be rated as very good under 

all parameters. The PLF of the thermal power stations has been improving over the 

years, along with improvements in other parameters, as could be seen from the table 

given below:



Performance Parameters of Thermal Power Stations 

Particulars 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

PLF (%) 72.29 74.81 78.13 81.02 78.31 76.89 

Heat rate (kcal/kWh) 2,705 2,735 2,762 2,713 2,705 2,688 

Oil consumption (ml/kWh) 7.44 4.77 3,.666 2.13 1.92 1.37 




in terms of MWH 26,58150 8,99,910 27,23,490 24,68,070 29,70,000 36,73,890 

The reliability of the transmission system is very high, almost 100 per cent, and that of 

the distribution system is rated as 99 per cent. The Board has put in place a system for 

measuring and monitoring interruptions, a major area of complaints from the public. 

The distribution transformers (DTs) failure rate has been brought down from 10.99 

per cent in 1998-99 to 7.3 per cent in 2004-05. The failure rate of power transformers 

too was low, only 1.45 per cent in 2004-05. The Board meters all supplies except 

agricultural supply, since it is free – agriculturists are getting free power from the 

Board since 1990. The system of collection is excellent; services are disconnected if 

the dues are not paid within a specified date, which results in almost 100 per cent 

collection. The Board has been maintaining this system for decades, which has been 

accepted by consumers without any resentment. The maintenance of the transmission 

and distribution system can be rated as good based on the above facts. 

FINANCIAL PERFORMANCE 

As mentioned earlier, the financial position of the Board is seriously affected by free 

power to the agricultural sector on Government directive and the highly subsidised 

power to the domestic sector. Although the government is mandated to compensate 

the Board for its losses, it has not been able to do so because of its own financial 

difficulties. The situation has somewhat improved with the setting up the SERC, and 

there is now a legal force for compensation. 

This has naturally led to continued losses despite its good technical performance as 

could be seen from the details given below: 

11.2

Tamil Nadu 

Financial Position of the Board 

Year 2000-01 2001-02 2002-03 2003-04 

(Rs crore) 

2004-05 

Turnover 7,578.10 8,222.47 9,515.74 11,508.21 12,703.65 

PBT (-) 1,055.34 (-) 2,201.79 112.57 -1,110.13 -1,176.77 

PAT (-) 1055.34 (-) 2,201.79 112.57 -1,110.13 -1,176.77 

Interest paid 643.60 647.68 783.06 887.81 942.19 

Equity 100.00 200.00 225.00 425.00 510.00 

Debt outstanding 5,524.58 6,492.45 7,096.82 8,694.85 9,070.92 

Net worth 3,146.10 1,258.28 1,727.01 1,284.26 603.06 

Return on net 

worth (%) 

-0.34 -1.75 0.07 -0.86 -1.95 

Budget subsidy 250.00 322.50 2,212.14 250.00 924.50 

Another reason for the poor finances of the Board is the huge power purchase cost it 

has to pay to the IPPs. Most of the IPPs use petroleum-based fuel with a pass-through 

clause; and with high petroleum prices, the cost of such power is naturally prohibitive. 

Under the Power Purchase Agreement (PPA), the Board has to purchase the power or 

pay ‘take-or-pay’ charges. Unfortunately, the possibility of such a sharp hike in fuel 

prices was not visualised at the time these projects were negotiated. 

The Board is in the forefront in harvesting wind energy because of its liberal policies 

of power purchase from wind generation and banking support. Its banking policies 

have encouraged many industries to go in for wind mills, and as a result, the Board 

ends up paying industrial tariff for wind energy, which is much higher than the 

recommended tariff of the Ministry of Non-Conventional Energy Sources. 

The main drag on the finances of the Board, however, is the free power for the 

agricultural sector closely followed by the domestic sector with a slab system. 

Although the State Government has to compensate the Board for these losses, it is 

unable to do so, and the Board, as an instrument of the State, is helpless in demanding 

it from the State Government. The following table gives the tariff structure of the 

Board that penalises the industrial and commercial consumers and favours the 

agricultural and domestic consumers. 

11.3



The Cost of Power and Realisation from Different Categories of Consumers 

(Paise per unit) 

Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 

Average. Cost 

of Power 

266.00 305.00 320.00 333.00 337.00 

Consumer Category wise Recovery 

Agricultural 1 2 2 22 23 

Domestic 157 158 177 211 216 

Industrial large HT 394 349 420 440 442 

Industrial small LT 313 401 359 390 406 

Commercial HT 456 480 535 627 618 

Commercial LT 386 396 472 565 579 

It is clear from the above table that the subsidy for agriculture and domestic sectors is 

huge. The following table gives the picture of the losses suffered by the Board due to 

free power to farmers and subsidised power to the domestic consumers: 

Revenue Foregone by TNEB due to Free and Subsidised Power 

(Rs crore) 

Consumer 

category 

2000-01 2001-02 2002-03 2003-04 2004-05 

Domestic 757.00 1,136.00 1,251.00 1,181.00 1170.00 

Agricultural 2,408.61 2,876.38 2,864.77 2,975.60 3,062.76 

The obvious question is whether the Government had been compensating the Board 

for these losses. The position is given in the following table: 

Compensation Provided by the State Government (Rs crore) 

Consumer category 2000-01 2001-02 2002-03 2003-04 2004-05 

Domestic 

Agricultural 250 250.00 322.50 196.00 

Subsidy (others) 1,962.14* 250.00 16.00** 

Compensation as % 7.9 55.1 7.8 6.0 5.0 

*Securitisation of outstanding dues owing to CPSUs 

** Subsidy for huts. 

The amount provided by the State Government is nowhere near the actual losses 

suffered by the Board; and the Board has been meeting these losses through 

borrowings, which had gone up from Rs 5,524 crore in 2000-01 to Rs 9,091 crore in 

2004-05. Needless to say the Board is now burdened with the additional interest 

amount. Such a this situation cannot go on forever. 

11.4

Tamil Nadu 

Strengths of the Board 

TNEB has the reputation of a well-functioning Board at all India level despite many 

handicaps it suffers essentially because of Government policies. It is worthwhile 

analysing the reasons for this well-deserved reputation. Some of the major causes for 

TNEB’s success and sustained survival are discussed below: 

• The Board has been able to achieve 100 per cent metering in respect of all 

categories except agricultural. This has been possible because TNEB does not 

release new connections without meters. This calls for round-the-year 

availability of meters with the Board. TNEB has been able to achieve this by 

streamlining its purchase policy; it has a transparent and open system and orders 

are placed based on a careful assessment of the needs – it has a computerised online 

inventory management system, which helps in making this assessment. No 

consumer has to wait for want of meters or for any other material. 

• Installation of meters on consumer connections by itself is not adequate; it is 

necessary to read the meter regularly so that the consumer could be billed 

regularly. The Board has a large number of assessors to do this task, and a 

system of incentive payment is in vogue, which provides for more payment to 

the assessors on the basis of the number of connections read by them. As a result, 

meter reading is almost 100 per cent, even though the consumer-base is large, 

nearly 170 lakhs. Even if reading for a few connections is not taken for some 

reason, the last bill amount is repeated; and the final bill is worked out after a 

subsequent reading of the meter. What is interesting is that consumers do not get 

a bill; when assessors read the meters. The meter reading and the amount due are 

recorded on the meter reading card available on the consumer premises. This 

serves as the bill and no separate bill is sent to him. This eliminates a major 

complaint prevalent in other utilities - non-receipt of bills. Consumers are 

required to act on the meter-reading card and make payments within 15 days of 

the succeeding month. Meters for domestic and commercial consumers are read 

once in two months; and payments are also made once in two months, with each 

assessor covering two separate areas within his jurisdiction. Industrial consumers 

who are the mainstay of the Board are billed every month. 

• Once the meter is read on the customer premises, it is the responsibility of the 

consumer to make payments within the specified date; he is given some more 

time on payment of a penalty beyond which the service is disconnected. Since 

dates and the system are well known, and connections are routinely 

disconnected, consumers invariably pay up within the specified time – naturally, 

11.5



they do not want to go through the process of reconnection. Surprisingly, the 

Board does not suffer any interference from any quarters for delaying 

disconnections. Consumers including industrial consumers accept this system 

being followed in a non-discriminatory fashion. This time-tested system is the 

main reason why the Board has been able to achieve almost 100 per cent 

collection. Municipalities and other local bodies are the only defaulters, since the 

Board is not a position to disconnect – it, however, collects this amount from any 

government dues to these local bodies. All the same, any arrear the Board has 

invariably belongs to local bodies. 

• Theft of energy is a major concern for most of the Boards, but not so for the 

TNEB. The reason is the good discipline of inspections, checking and 

prosecution that it has been able to enforce over the years. The Board has an 

excellent system of checking thefts under an Inspector General of police, who is 

independent of the technical head. He collects information on electricity thefts 

and conducts periodic raids in consumer premises. Although most cases are 

compounded with a huge penalty, prosecution is also launched in a few cases. 

Such raids and prosecutions are publicised in the media to instil fear among the 

consumers. The Board’s staff also are generally vigilant against theft, since 

detection of thefts by the independent teams under the IG will bring a bad name 

to them. These steps have kept energy thefts low in the State. The level of theft 

has not been assessed separately, though the total T&D losses of the Board have 

been estimated to be 18 per cent. 

• A good work culture among employees of the Board is another important reason 

behind its strength. They are technically sound and are conscious of the need for 

improved services to the public. As they have to deal with vigilant and 

demanding consumers, they have to equip themselves to meet the increasing 

demand of consumers. The level of corruption is low, and hence performance is 

better. All Divisional Engineers and Superintending Engineers are conscious of 

the need for 100 per cent metering, billing and collection and hence monitor 

these aspects continuously. These are monitored regularly even at the Board 

level. The Board and its employees are thus focussed on the essential 

performance parameters, which obviously contributes to its better performance. 

Weaknesses of the Board 

Although TNEB has many strengths, it suffers due to some of the policies of the State 

Government. Free power for the agricultural sector is not only a financial drain on the 

11.6

Tamil Nadu 

Board and the Government, but also an energy drain. With no cost to themselves, 

farmers do not seem to be much concerned about energy conservation measures; they 

have no incentive to install energy-efficient motors or energy-saving devices or to go 

in for water-saving crops; sometimes, they do not even bother to switch off motors, 

wasting energy. Also, the Board incurs further losses due to the low power factor of 

the rural grid in addition to the huge cost it has to incur on capital expenditure to lay 

long lines in remote areas. This policy has led to lowering the water table in the State, 

which results in higher energy consumption year after year. The Government has not 

been able to compensate the Board adequately for this loss. It is doubtful whether the 

Government will fully compensate the Board ever in the future, since the financial 

position of the Government is also not sound. 

Another major weakness of the Board is that it is bloated with a huge staff. From the 

figures given by the Board, it is clear that it is conscious of this – it has been able to 

reduce the number of employees from 93,721 in 2000-01 to 79,773 in 2004-05, a 

commendable job indeed. The system of employing contract workers and a constant 

demand to regularise their service have added to the staff cost considerably in the past. 

The Board should guard against repetition of the same mistake, as demand for this is 

constant. Further, employees who have become redundant are still in position, and 

they should be retrained and used productively. Work norms for various categories of 

employees have been liberally fixed – so liberal are the norms that the thermal stations 

are three-times over staffed as compared to the NTPC’s stations. Any major gain in 

this area is possible only with the support of the unions, which are highly fragmented 

and have considerable political clout. Although employees are individually convinced 

of the need for reform in this area, unions are resisting any change, and successive 

managements have not been able to convince them and bring about sharp reduction in 

employee cost. 

The third area of concern is the cost of power purchased from IPPs. Agreements with 

them had been entered into with a pass-through cost of fuel charges. As per the PPA, 

the Board will have to pay take-or-pay charges even when it does not consume any 

energy from the IPP – in fact, it is paying these charges for at least one project. These 

are agreements, which the Board signed in the heydays of private sector entry into 

power generation and under the then-existing conditions and policies. The Board has 

resorted to merit order despatch to somewhat reduce the cost of the purchased power. 

Some scope for further reduction of this cost exists, but it calls for political will and 

sharper negotiating skills. 

11.7

Major Achievements of the Board 



The Board could take pride for 100 per cent metering, billing and collection, because 

of its long-established systems. In addition, it has many achievements to its credit, 

some of which are listed below: 

• Implementing Energy Audit in respect of all the 22/11 kV feeders having line 

losses of more than 10 per cent; 

• 100 per cent metering of 11 kV feeders; 

• A special focus on energy conservation; 

• Computerisation of inventory management; 

• Computerisation of LT and HT billing; 

• A focus on consumers through call centres and a web-enabled consumer 

redressal system; 

• An excellent system for monitoring the interruptions in supply; 

• Installation of high quality meters; 

• Installation of capacitors both in substations and in consumer premises to 

improve the system power factor; 

• Close monitoring of billing, collection and disconnection activities; 

• High level of PLF of thermal power stations by better maintenance and 

management practices; and 

• Efficient use of the hydel storage to mitigate the peak-hour shortage. 

Reform Measures 

Despite many achievements, TNEB has been lagging behind in the reform process. 

Except for the setting up of the SERC and issue of tariff orders by it, not much 

progress is seen in the State. The tariff revision of 2003 has also been put back by the 

Government on account of drought; but the Government has not been compensating 

TBEB fully. This means that though SERC is functioning and issuing tariff orders, 

government could modify the tariff merely with a promise of compensation. This does 

not augur well for the power sector reform. TNEB, being fully owned by Government, 

will find it difficult to collect the dues from the Government. It is also doubtful 

whether SERC will be able to enforce its decision. Power sector reform can proceed in 

this country only if all players are convinced of the need for such a reform and 

cooperate with one another in achieving results, by respecting the rights and 

11.8

Tamil Nadu 

obligations of all the players. This is a national level issue and a consensus decision on 

this is vital. The history of consensus decision, however, does not speak well of such 

decisions – they were easily breached without much thought. The decision to reduce 

the cross subsidy over a fixed timeframe is a case in point. Perhaps, it is time a legal 

solution to this issue is found. Otherwise, the objective of having independent tariffsetting 

bodies to insulate such decisions from politics will not be achieved. 

As regards restructuring, it appears from the reply given by the Board that it is going 

back on it. Although at one stage, the Board seriously considered it and did in fact 

send a proposal to the State Government, it is now having a rethinking. It is 

considering the profit centre concept that has now been recommended by its 

consultant M/s CRISIL Infrastructure Advisory, Mumbai. It thus appears that the 

Board has no intentions of restructuring and wishes to continue as a monolithic body. 

It hopes to achieve efficiency gains by introducing the profit centre concept. It is 

possible that the Board had taken this decision because of the employees unions. 

The Way Forward 

It appears that the thinking of the Board and its employees unions is that the efficiency 

gains of reform have already been achieved by the Board and hence there is no need 

for restructuring. Obviously, such thinking is flawed; it must be remembered that 

further efficiency gains will be all the more difficult and will be possible only by 

restructuring the Board. The scope for any further gain lies in reaching higher 

technical parameters and sharp cost-cutting through improved management, which 

will be difficult in the present structure. Restructuring, however, offers tremendous 

scope for further efficiency gains and improvements. With smaller management units, 

improvements in management and cost control will be a lot easier and more feasible. 

No doubt, the Board will not be able to escape from its main burden of free power to 

farmers anytime soon. It is also clear that it is not going to get adequate compensation 

for this burden either. The only option for the Board therefore is to focus on efficiency 

gains from within. As any further gains are impossible in the present structure, it has 

to seriously consider speeding up reform. 

Profit centre concept was relevant five years back, but may not serve any purpose 

now. With globalisation and the sustained growth of the economy, rapid power sector 

reform is a must in order that our industries get the benefit of cheaper power like our 

competitors in other countries. The skewed tariff structure needs to be corrected, and 

the cross subsidy eliminated over a period. The first step in this effort is to have a 

restructured utility focussed on efficient functioning. Also, the present TNEB is really 

11.9



unwieldy with about 79,000 employees spread over the entire state. Restructuring will 

certainly lead to a competitive environment in which performance of restructured 

entities could be more accurately measured, making them more responsible and 

accountable. 

The first step that the TNEB should take is to restructure itself into a transmission, 

generation, and at least three distribution utilities with each restructured utility 

functioning as a separate corporate entity. Three distribution entities have been 

recommended, as one will be too large and it will preclude a competitive environment. 

Competition among government owned utilities, though may not be ideal, would 

certainly lead to efficiency gains. A close supervision by the SERC too will be 

necessary to realise such gains. By accurately fixing the tariff compensation to the 

restructured distribution utilities, the SERC can hope to unleash the forces of 

competition on a level-playing field. It should not be difficult for the management to 

convince the employees unions on the need to push reform further. 

Tamil Nadu has an excellent manufacturing base, and Chennai is emerging as an 

automobile and IT centre. Good quality power at a competitive rate is essential to 

attract industries to the State. Because of intense competition arising out of 

globalisation, industries migrate towards areas having a sound infrastructure. Power is 

a vital infrastructure for investment and also for the growth and well-being of the 

people of the area, and therefore, the TNEB has a major role to play in the 

development of the State. For this, the reform process has to be speeded up. The 

alternative of status quo will lead to lowered efficiency, the signs of which are already 

evident by frequent supply interruptions and increased consumer complaints. There is, 

therefore, no alternative to taking up reform in right earnest while addressing the issue 

of tariff distortion. 

Summary of Findings and Recommendations 

Findings 

• Tamil Nadu Electricity Board (TNEB) is one of the best-performing electricity 

boards in terms of technical and commercial parameters – its PLF is about 78 per 

cent; its T&D losses are at 17.8 per cent; the availability of power is said to be 99 

per cent; the failure rates of transformers are relatively low; its billing and 

collection efficiency is almost 100 per cent - only the local bodies are the 

defaulters; the level of electricity theft is low because of effective systems of 

detecting such thefts. 

11.10

Tamil Nadu 

• The progress in rural electrification in the State is commendable; the Board is in 

a position to achieve 100 per cent household electrification soon. 

• Its main difficulty stems from the free power to the agricultural sector and highly 

subsidised power to the domestic sector. Although these policies are mandated 

by the State Government, the Board has not been able to get full compensation 

for the loss it suffers. The State has been able to compensate only to the extent of 

five percent. The result is that the financial losses are mounting and are met 

through borrowings, increasing the interest burden of the Board. 

• Yet another aspect that has an adverse impact on the finances of the Board is the 

cost of purchased power from IPPs that are dependent on hydrocarbon fuels. 

• The progress on the reform front is however poor in the state. Except for the 

setting up of the Regulatory Commission, not much has been done. The Board is 

considering only setting up profit centres with no intention to restructuring and 

of course no intention to privatise. The State Government’s views have not come 

so far, but it can be inferred that the Board is acting on the lines of Government’s 

thinking. As of now, it appears that TNEB will remain as it is. 

Recommendations 

• Although TNEB has achieved many technical and commercial parameters 

envisaged under power sector reforms, further progress is possible only through 

reform. The Board will be able to achieve further efficiency gains only through 

restructuring. It should be restructured into one generation, one transmission and 

three distribution utilities. Continuing without any reform will affect the 

functioning of the Board adversely. Already there are signs of deterioration in the 

quality of supply. 

• A mechanism by which the State Government compensates for the loss caused to 

the Board because of its policy decisions should be evolved. This is a national 

level issue, extremely difficult and tricky. Unless a solution is found to this tricky 

issue, the purpose of setting up the Regulatory Commission will not be fully 

served. 

Responses from TNEB are attached at Appendix. All the questions raised in the 

questionnaire are in ‘italics’. The responses from the Government/utilities are in 

‘regular font’. 

11.11

GENERATION 



RESPONSES FROM TNEB TO IIPA QUESTIONNAIRE 

What is the legal status (Act under which registered)? 

11.12 

Appendix 

Tamil Nadu Electricity Board is authorised to continue to function as the State 

Transmission Utility and a Licensee under the provisions of the Electricity Act, 2003, 

up to December 2006. 

What is the total generating capacity (in MW)? 

Table 1.1 

1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

Hydel 1947.75 1947.75 1955.75 1963.25 1995.2 1995.9 1995.9 1995.9 1987.4 1987.4 

Thermal 2970 2970 2970 2970 2970 2970 2970 2970 2970 2970 

Gas 130 130 130 130 130 227.88 227.88 322.88 424.28 424.28 

Others 19.355 19.355 19.355 19.355 19.355 19.355 19.355 19.355 19.355 19.355 

Total 5067.11 5067.11 5075.11 5082.61 5114.56 5213.14 5213.14 5308.14 5401.04 5401.04 

What is the total energy generated in MUs? 

Table 1.2 

1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

Hydel 4714.00 4252.00 5287.00 4918.00 4444.00 5450.00 4350.00 2724.00 2067.00 4426.00 

Thermal 17220.00 18595.00 17682.00 17076.00 18861.00 19464.00 20325.00 21080.00 20431.00 20004.00 

Gas 18.00 82.00 79.00 124.00 217.00 215.00 870.00 1107.00 1592.00 2003.00 

Others 419.00 20.00 19.00 23.00 27.00 18.00 17.00 18.00 24.00 18.00 

What is the amount of energy sold in MUs? 

Table 1.3 

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

Hydel 3649 3267 4082 3741 3641 4459 3528 2033 1211 3378 

Thermal 13327 14289 13651 12990 14299 14888 15556 15846 15432 15046 

Gas 15 68 66 103 181 180 729 857 1219 1527 

Others 7619 8034 9145 10848 12314 13891 15389 17612 20835 21248 

Total 24610 25658 26944 27682 30435 33418 35202 36348 38697 41199

Tamil Nadu 

What is the energy cost at bus bar (paise per unit)? 

Table 1.4 

1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

Hydel 24.05 19.57 28.33 28.51 32.68 23.58 35.21 60.62 130.19 44.21 

Thermal 144.38 155.79 194.12 186.15 185.78 187.18 198.61 186.61 196.51 212.22 

Gas 712.02 272.55 346.25 278.54 253.06 

Others 275.00 290.00 301.11 316.00 131.76 

Total 117.71 128.65 164.09 148.66 154.63 154.53 172.03 180.17 197.52 186.52 

Overall 

sale price 

of energy 

What is the sale price of energy (Paise per unit)? 

Table 1.5 

1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

166.00 173.00 192.00 197.00 205.00 222.00 229.00 256.00 280.00 293.00 

Improvement in the technical parameters 

Table 1.6: Thermal 

Particulars 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

PLF (5) 77.12 71.48 67.96 65.62 72.29 74.81 78.13 81.02 78.31 76.89 

Heat rate (kcal/kWh) 2780 2775 2756 2715 2705 2735 2762 2713 2705 2688 

Oil consumption (ml/kWh) 1.25 5.146 4.74 8.556 7.44 4.77 3.666 2.13 1.92 1.37 

Auxiliary consumption (%) 8.63 8.64 8.99 9.14 8.98 8.46 8.50 8.47 8.48 8.67 

Plant availability (%) 84.47 82.50 81.5 77.04 78.45 74.4 80.3 83.58 77.55 75.9 

Unscheduled break-downs 

in terms of MWH 

Manpower employed in 

whole TNEB 

TRANSMISSION 

Year 

1287000 169587015889502771010 2658150 899910 2723490 246807029700003673890 

88647 91038 96516 93649 99484 93721 90231 87493 83829 79773 

Length of Transmission system 

No. of Transmission Lines (Ckt Km) 

Sub-stations EHT Total HT Total LT Total 

1992-1997 734 18257 90120 342986 

1997-1998 782 18824 108595 406286 

1998-1999 831 19569 110964 409100 

1999-2000 876 20328 116741 415215 

2000-2001 913 21041 117985 416367 

2001-2002 948 21729 118512 432259 

2002-2003 984 16474 123588 456633 

2003-2004 1044 17372 126660 467847 

2004-2005 1082 17887 128936 476886 

11.13



Table 2.1 

Items Covered 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

Energy available for 

transmission (mUs) 

Energy delivered 

(MUs) 

Transmission losses 

(MUs) 

DISTRIBUTION 

Technical 

29621.00 30940.00 32457.00 33529.00 36557.00 40022.00 42033.00 44326.00 47192.00 50244.00 

24610.00 25659.00 26943.00 27862.00 30434.00 33418.00 35202.00 36347.00 38697.00 41200.00 

5011.00 5281.00 5514.00 5667.00 6123.00 6604.00 6831.00 7979.00 8495.00 9044.00 

Table 3.1: Parameters related to Quantitative and Qualitative Supply of Power 

1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

i Assessed total 

demand (MU) 

35126 36545 37113 37841 38916 42226 45730 47765 52036 52707 

ii Peak load met (MU) 4555 4888 4918 5208 5659 6360 6719 6960 7253 7556 

iii Peak load shortage (5) 0 0 0 0 0 0 0 0 0 0 

iv Energy met (MU) 31121 32701 34065 35172 38313 41764 43920 46389 49712 51805 

v Energy shortage 

(MU). 

4005 3844 3048 2669 603 462 1810 1376 2324 902 

iii Extent of load 

shedding in units NA NA NA NA 168 333 272 827 5 0 

viii Power transformer 

failure rate (%) 1.44 1.88 1.63 1.55 1.34 2.23 1.68 1.28 2.83 1.45 

ix Distribution 

transformer failure 

rate (%) 

Commercial 

8.99 9.02 10.29 10.99 10.65 10.28 8.20 7.20 6.98 7.30 

Assessment of efficiency in metering, billing, collection of receivables, arrear 

clearances, etc. 

(i) What is the extent of metering across all groups of consumers? 

Table 3.2 : Metering Progress as a Proportion of Total Connections 

2001-02 2002-03 2003-04 2004-05 

Percentage of Agricultural services 

2.00 3.50 5.50 5.40 

receiving metered supply (%) 

11.14

Billing 

efficiency 

Tamil Nadu 

Details of Cost of Power and Recovery (Paise/kWh) 

Table 3.3: Per Unit Cost (paise/kWh) 

Particulars 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

Avg. cost of power 171.00 185.00 208.00 231.00 259.00 266.00 305.00 320.00 333.00 337.00 

Agriculture 1 1 1 1 1 1 2 2 22 23 

Domestic 121 131 161 158 158 157 158 177 211 216 

Industral large HT 265 275 300 331 364 394 349 420 440 442 

Industrial small LT 232 213 280 299 300 313 401 359 390 406 

Commercial HT 390 408 456 480 535 627 618 

Commercial LT 314 301 331 337 387 386 396 472 565 579 

Revenue 

forgone (Rs in 

crores) 

(b) Billing and Collection Efficiency 

Table 3.4: Billing and Collection Efficiency 

1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

97.27 95.75 93.10 93.76 99.27 99.58 96.69 97.53 96.78 98.29 

The Extent of Revenue Foregone through Concessional Tariffs 

Table 3.5 

1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 * 

a.Domestic -203.00 -221.00 -196.00 -376.00 -597.00 -757.00 -1136.00 -1251.00 -1181.00 -1170.00 

b.Industrial Average industrial tariff rate is more than average cost - hence no revenue foregone 

c.Agricultural -1125.52 -1228.87 -1506.82 -1719.16 -2265.89 -2408.61 -2876.38 -2864.77 -2975.60 -3062.76 

* Note: The revenue foregone for the year 2004-05 represents the amount after availing the Government's tariff subsidy for each category. 

The extent of subsidy made available by the State for concessional tariffs 

Table 3.6 

1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

Agricultural 415.93 586.51 570.06 1076.22 250 250 250.00 322.50 196.00 

Subsidy (others) 1962.14* 250.00 16.00** 

• *Securitisation of outstanding dues owing to CPSO 

• ** Subsidy for huts. 

Revenue lost on account of theft or commercial and technical losses (include loss on 

account of failure) 

11.15



Table 3.7: T&D losses (%) 

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

16.91 17.06 16.99 16.90 16.75 16.50 16.25 18.00 18.00 18.00 

(i) Extent of arrears and debt year-wise (including the dues outstanding 

that were securitised or waived or rescheduled amounts) 

Table 3.8: Revenue Arrears 

Arrears of 

revenue 

Debt (long 

term loans) 

1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

6.12 8.75 32.24 75.72 114.06 107.04 69.32 68.70 74.97 75.92 

3204.38 3371.93 3528.04 4099.87 4976.17 5524.58 6492.45 7096.82 8694.85 9070.92 

The Commission directs the 

TNEB to undertake energy audit 

at the HT/ LT levels and its own 

generating stations and submit a 

quarterly report to the 

Commission. 

Is the audit done as per norm? Reasons for deviation 

Based on the energy accounting 

study undertaken in different 

distribution circles at the rate of 2 

HT feeders per substation, the No. of 

HT feeders having high loss was 

identified as 1587. Improvement 

works have so far been carried out in 

468 feeders. 

Expenditure incurred in 338 feeders 

Rs.16.5 crore. 

For the balance feeders, the CEs 

have been asked during June 2005 to 

evolve proposals for improvement 

and the strengthening and bifurcation 

category works are to be completed 

before the close of the financial year 

2005-06. 

What is the extent of cases and amount involved/ locked up in legal disputes? 

Total no of cases up to 31March 2005: 1223 

Total arrears (Rs crore) : 110.58 

11.16 

In the balance feeders, the loss 

will be reduced by carrying out 

improvement works. 

An action plan with 

quantification of work and 

fixing target date for 

completion of work may be 

submitted to Chairman. 

Details of expenditure incurred 

for the feeders, in which 

improvement works have been 

carried out, may be furnished.

Tamil Nadu 

Preventive action and prosecution for theft 

Table 3.10 

1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

Preventive raids 157659 154864 158630 150154 150578 140514 107557 112852 117271 121443 

Demand raised 1875.73 1754.91 4332.51 1453.51 2345.21 801.71 3032.69 1063.23 2847.05 956.66 

FINANCIAL 

(a) Data on turnover, profit before and after tax, interest payments, debt servicing, 

net worth, equity 

Table 3.11: Financial Parameters 

1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

Turnover 4128.27 4490.49 5311.05 5682.53 6473.48 7578.10 8222.47 9515.74 11508.21 12703.65 

PBT 339.19 329.63 273.64 334.94 (-) 850.64 (-) 1055.34 (-) 2201.79 112.57 -1110.13 -1176.77 

PAT 339.19 329.63 273.64 334.94 (-) 850.64 (-) 1055.34 (-) 2201.79 112.57 -1110.13 -1176.77 

Interest paid 379.80 422.27 465.19 488.14 583.67 643.60 647.68 783.06 887.81 942.19 

Equity 400.00 765.69 788.11 219.43 0.00 100.00 200.00 225.00 425.00 510.00 

Debt outstanding 3204.38 3371.93 3528.04 4099.87 4976.17 5524.58 6492.45 7096.82 8694.85 9070.92 

Net worth 3513.07 4350.79 4811.44 4738.85 3870.83 3146.10 1258.28 1727.01 1284.26 603.06 

Return on networth 0.10 0.08 0.06 0.07 -0.22 -0.34 -1.75 0.07 -0.86 -1.95 

Budget subsidy 415.93 586.51 570.06 1076.21 569.50 250.00 322.50 2212.14 250.00 924.50 

APRDP incentive 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 

Regulation and Tariffs 

Customer related measures. 

Computer–Based power failure redressal call centre is functioning at TNEB 

Headquarters to register the complaints of 18 lakh consumers of Chennai City. Similar 

Call Centres are functioning in Kovai, Madurai and Trichy. 

In TNEB the grievance redressal forums are established and functioning. One 

grievance redressal forum is functioning for each circle covering all regions. 

11.17 

(Rs cro

Electricity Act 



Status of implementation of certain provisions of the Electricity Act, 2003. 

(a) Section (172) : Separation of Transmission utility 

Notification was issued by Govt. of Tamil Nadu to TNEB to continue to 

function as State Transmission Utility and a licensee for a further period of six 

months beyond 9.December 2005 i.e., up to 9.June 2006. 

(b) Section 42(5): Forum for redressal of consumer grievance 

TNERC has issued guidelines and also notification and gazetted vide Tamil 

Nadu Gazette dated 18 February 2004 for establishment and functioning of 

consumer Grievances Redressal forum and Electricity Ombudsman. 

In TNEB the grievance redressal forums are established and one grievance 

forum for each circle covering all regions are functioning. 

(c) Section 55: Supply of electricity through metering 

Also as per TNERC directive No.7.10 in the tariff order dt.15 March 2003 all 

the services are to be metered within 3 years from the date of notification. 

(d) Section 135: Implementation of anti-theft measures 

In Tamil Nadu Electricity Board 17 enforcement squads and one flying squad 

are functioning for- 

i) The prevention of theft of energy through intensive inspection of services, 

mainly power intensive and theft prone industries both during night and 

day. 

ii) Detection of energy theft cases and 

iii) Close follow up of cases to create deterrence. 

Anti-Theft Measures 

i) All HT specialised services one in a year, and other live HT services once 

in two years and all LT services once in three years are inspected. 

ii) Seasonal Industries are inspected during respective seasons. 

iii) Services indicating sudden drop in energy consumption and/or 

consumption not commensurate with the connected load and disconnected 

services are inspected on regular basis. 

11.18

Tamil Nadu 

iv) Information received regarding theft of energy is kept confidential and 

immediate action is taken on that. 

v) Electronic meters are provided in HT and LT/CT operated services for 

accurate detection of energy consumption and to ensure a fool proof 

mechanism of checking theft in those industries and readings are taken by 

Board Engineers every month. 

vi) Installation of electronic meters in all HT/LT CT services for display of 

tamper indications, if any and to enable downloading of data through 

Common Meter Reading Instrument (CMRI) and for further computerised 

analysis. 

vii) Check meters are provided outside the factory premises in respect of 

select high consumption pattern. 

Apart from this, special drive on inspection of suspected HT industries, like 

steel, Carbide, etc., during night hours is carried out to detect energy theft 

cases. 

Status of implementing the provision in the Act regarding non-discriminatory 

Open Access. The amount of surcharge applicable on such transfers. 

TNERC has notified Open Access in a phased manner. As per this, a consumer having 

a connected load of 10 MVA can seek Open Access within 6 months from the date of 

notification. However TNERC is yet to finalise the wheeling charges and additional 

surcharge payable by the consumer in the event of Open Access. 

Suggestions 

What are the factors that contribute to the slow (or rapid) progress of the reforms? 

Why has the SEB not restructured? 

What is the action plan for the future 

• M/s.CRISIL Infrastructure Advisory, Mumbai was engaged for consultancy 

services for assisting the TNEB for advising on reorganisation. A proposal to 

form a Government-owned transmission company having functions of 

transmission utility and that of State Load Despatch Centre (SLDC) and the rest 

of TNEB to function with generation, distribution and trading functions was sent 

for the consideration of the Government of Tamil Nadu. M/s.CRISIL 

subsequently vide their letter dated 5 January 2005 to the Chairman has given a 

11.19



proposal on profit centre concept wherein it is indicated that unlike restructuring, 

where new separate legal entities are created as part of the restructuring process, 

the implementation of profit centres does not entail any separation of legal 

entities. This does not, however, compromise the objective of creating smaller 

more manageable units. Hence TNEB is currently studying the concept of profit 

centres which would result in a form of organisation where each operating unit 

acts independently of the corporate office to the extent of the functions and levels 

of authority that have been specifically delegated downstream. The revelation of 

the study is likely to take considerable time. 

TNEB has been still conducting discussions with various Employees’ Unions 

regarding restructuring of Board and the consensus is expected to be arrived at soon. 

Innovative measures adopted (under consideration) both by the Government and by 

the Electricity Board to improve the performance of the power sector. 

• TNEB is one of the top performing utilities in the country in terms of its 

generation performance, low level of T&D losses, high percentage of metering, 

billing and collection performances. T&D losses as reassessed in line with 

TNERC directives, stand at a low level of 18 per cent. Board serves about 170 

lakh consumers through a fairly well connected transmission and distribution 

network. The reliability index is of the order of 99 per cent. 

• TNEB has taken all initiatives to encourage renewable energy generation. The 

exploitable wind potential in Tamil Nadu is 3,500 MW. Out of this, Tamil Nadu 

has harnessed 2,553 MW so far. 

• All the villages were electrified by 1992 itself. 

• 100 per cent metering has been completed in respect of all 11 kV and above 

feeders. 

• Energy auditing is being carried out at the distribution circle level. 

• Auditing is being done in respect of 11/22 kV feeders where line loss is more 

than 10 per cent. 

• Stringent measures to curb power theft. 1,623 cases booked and Rs 25.68 crore 

assessed. 

• Separate cell for energy conservation has been formed. 

11.20

Tamil Nadu 

Service to Consumers 

i) A website (www.tneb.org) has been created exclusively for consumers and 

posted with the important details like tariff structure, procedure for getting new 

services, statistical information, citizen charter and tender details etc.; 

ii) Web-based complaints monitoring system; 

iii) Call Centres: In order to redress promptly the grievances of consumers regarding 

power supply failures, a computer-based Call Centres are functioning Chennai, 

Coimbatore, Madurai and Trichy; and 

iv) Project BEST (Project–Billing of Energy Services in Tamil Nadu). 

Computerisation of LT Billing and Collection up to Municipalities is under progress. 

What were the goals and strategies agreed in the MOU and the achievements in 

physical and financial terms? 

As per MOU signed on 9 January 2002 with Government of India, the following 

actions were undertaken: 

Reform Measures Action taken 

1. Government of Tamil Nadu would 

appoint the Chairman to SERC by 

31 January 2002 and make the 

SERC functional 

2. The Government of Tamil Nadu 

will ensure timely payment of 

subsidies required in pursuance of 

Government of Tamil Nadu’s 

orders on the tariff determined by 

the TNERC 

3. Government of Tamil Nadu will 

ensure the current operations in 

distribution reach break even by 

31 March 2003 and positive return 

thereafter 

11.21 

Chairman /State Regulatory Electricity 

Commission has been appointed and 

TNERC is made fully functional from 17 

June 2002 

Revised tariff rates are effective from 16 

March 2003. Initially, the tariff charges for 

huts and agricultural services were paid by 

the consumers by receiving the cash from 

The State Government. Since the State 

Government has announced the free supply 

to the hut dwellers and agricultural 

services, Government of Tamil Nadu is 

paying the tariff compensation directly to 

TNEB as per the TNERC directives. 

TNEB in their tariff revision petition dated 

25September 2002 has requested TNERC 

to revise the tariff with effect from 1 

December 2002 where as the revised tariff 

is made effective only from 16 March 

2003 Th i d t




4 Government of Tamil Nadu will 

complete rural electrification of all 

villages and hamlets by 2007 

5.i. Installation of meters at all 11 kV 

feeders by 31 December 2001 

5.ii 100% metering of all consumers 

by 31st December, 2003 

5.iii Energy audit at 11 KV substations 

level would be made operational 

11.22 

2003. There was a revenue increase due to 

this revision. However due to continuous 

drought condition, hydro generation 

reduced very much lower than the average. 

Hence the cost of power purchase 

increased. Further, water has to be pumped 

from deep wells for irrigation and even for 

drinking. Hence, the Tamil Nadu 

Government has committed to extend the 

benefit of free power to the agricultural 

sector and hut dwellers and to revise the 

domestic rates to the pre revised tariff 

conditions duly providing tariff subsidy. As 

such, burdening the consumer further by 

increasing the tariff at this juncture is not 

desirable. Hence, break even could not be 

achieved as expected. 

In Tamil Nadu all the villages were 

electrified as early as March 1992 itself. 

From 1 April 2004, new definition of 

village electrification was announced by the 

Government. of India, which announced a 

policy to electrify the villages by 2007 and 

all households by 2012. As per the guide 

lines of GOI, proposals to a tune of Rs 732 

crore has been sent to REC, the nodal 

agency for sanction for electrification of 

de-electrified villages and house holds. 

This work has been completed. 

All services except agricultural and hut are 

metered. 

TNERC vide order No.T.01-62, dated 29 

August 2005 has intimated that the period 

for installations of meters in agricultural 

(other than SFS) and hut services be 

extended up to 30 June 2006. 

Energy accounting study has been carried 

out in respect of all 11/22 kV feeders.

Tamil Nadu 


from 1 January 2002. Energy auditing is in progress in feeders 

where the line loss is more than 10%. 

5.iv. Development of effective 

distribution management 

Information 

5.v. Formation of distinct distribution 

profit centres at divisional level 

and preparation of separate 

commercial accounts/shadow 

balance sheets for such centres 

from 31 March 2002 

6. Computerisation of HT and LT 

billing by 31December 2002 

7. Government of Tamil Nadu will 

securitise outstanding dues of 

CPSUs as per the scheme 

approved by Government of India. 

After securitisation, Government 

of Tamil Nadu will ensure that 

CPSU outstanding does not cross 

the limit of 2 months’ billing. 

8. Tamil Nadu will maintain Grid 

discipline, comply with grid code 

and carry out the directions of 

Regional Load Despatch Centre. 

9. Tamil Nadu will take all steps for 

the implementation for energy 

conservation and demand side 

management 

10. Tamil Nadu will constitute district 

level committees to undertake 

11.23 

TNEB has an effective MIS for the 

distribution segment. 

TNEB is taking action to form distinct 

distribution profit centres at divisional 

level. 

HT computerisation has already been 

completed. TNEB has taken steps to 

computerise LT Billing so that the 

customers can make payment of electricity 

bill and other charges anywhere. 

Tripartite agreement has been signed 

between Government of Tamil Nadu, 

Central Government and Reserve Bank of 

India on 20 March 2003 to convert 

outstanding loan of Rs 1962.14 crore as on 

30 September 2001 to Central Public Sector 

Units and securitisation has been 

completed. 

RLDC’s instructions are carried out 

immediately. Further, as per instructions of 

RLDC, AVAILABILITY BASED TARIFF 

is in force from 1 January 2003 and hence 

quality and stable power is supplied to 

customers. 

Energy conservation cell has already been 

formed. Cell has been formed to supervise 

the demand side management and an 

officer has been appointed for each 

electricity distribution circle for DMS. 

As a first step, State level Reforms 

Committee meeting reviewed the




resource planning, monitoring of 

distribution reforms and rural 

electrification. 

11. Implementation of the MOU 

would be monitored every three 

months 

12. MOU will be for a period of five 

years and will be subject to review 

annually. 

11.24 

implementation of reforms on 7 January 

2003 and second State level APDRP 

distribution reforms meeting held on 14 

July 2003. 

Implementation of MOU is being 

monitored. 

Being reviewed.


Background ........................................................................................................12.1 

Ongoing Projects................................................................................................12.1 

Tariff ...................................................................................................................12.2 

T&D Losses ........................................................................................................12.2 

Performance of Key Institutions ......................................................................12.3 

Rural Electrification..........................................................................................12.3 

Power Utilities in the State................................................................................12.4 

Conclusion ..........................................................................................................12.7

BACKGROUND 

WEST BENGAL 

The salient features of the power sector in West Bengal are as follows: 

i) The generating capacity of 5,772 MW comprises of 4,660 MW in the State 

sector, 312 MW from the DVC plus Central Allocation of 600 MW. 

ii) The length of transmission and distribution lines is 1,96,012 ckt km. 

iii) The transformer capacity is 38,408 MVA. 

iv) 84.97 per cent of the villages have so far been electrified. Number of pumps 

energised is about 1.15 lakh. 

v) Number of consumers is 7.3 million. 

vi) Demand in the State is 26,783 MU. Export outside the State was 3,171 MU in 

2004-05. The energy sale pattern in 2004-05 was 29.51 per cent domestic, 45.10 

per cent industrial, 12.04 per cent commercial, 4.36 per cent agricultural, 3.32 

per cent public service, 4.34 per cent traction and 1.32 per cent to other 

categories of consumers; 

vii) The Plant Load Factor (PLF) for the State sector thermal power stations was 66 

per cent in 2004-05 with average availability at 80 per cent. The AT&C loss for 

WBSEB was 37 per cent, whereas the T&D loss for the whole State was 25 per 

cent. 

viii) During 2005-06 the peak load was estimated to be 4,694 MW with availability of 

3,981 MW. For the current year (2006-07), the peak load is estimated to rise to 

4,892 MW with availability increasing to 4,376 MW. The State is planning to 

bridge this gap during this year itself. The projections for 2011-12 are 5,832 MW 

of peak load with availability increasing to 6,990 MW. In 2005-06, availability 

was 29,678 MU whereas energy demand was 27,600 MU. During the current 

year the energy demand is likely to rise to 29,010 MU whereas the availability is 

likely to rise to 31,094 MU. Projections for 2011-12 are 48,545 MU of 

availability with the energy demand rising to 37,020 MU. 

ONGOING PROJECTS 

i) Purulia Pumped Storage Project with capacity of 900 MW (4225 MW). Project 

cost is Rs 2,700 crore funded by JBIC. The first unit is scheduled to be 

commissioned in March 2007; 

ii) Sagar Dighi Thermal Power Project Phase I (2300 MW);

iii) Bakreswar TPP Units 4 and 5 (2210 MW); 

iv) Durgapur Projects Ltd. Unit 7 (1300 MW); and 

v) Santaldihi TPS Unit 5 (1250 MW). 



In the State Sector, total capacity under execution during the Tenth Plan period is 

2,470 MW. For the Eleventh Plan, the State proposes to add 2,550 MW of capacity at 

five locations. 

The commissioning schedule of the ongoing projects is as follows: 

Bakreswar TPP Unit 4 March 2007, and Unit 5 June 2007. Unit 1 Sagar Dighi TPP is 

likely to be commissioned in January, 2007 and Unit-2 in April, 2007. Unit 5 of 

Santaldihi TPS is likely to be commissioned in January, 2007. Unit 7 of DPL is also 

likely to be commissioned in January, 2007. 

TARIFF 

The average tariff in West Bengal under the regulatory regime in paise per unit has 

been as follows: 

Year 

Average tariff 

(paise per unit) 

2000-01 306 

2001-02 301 

2002-03 342 

2003-04 331 

Tariff varies from agency to agency, due to historical reasons. 

T&D LOSSES 

There is significant improvement in this field as would be seen from the following 

figures: 

Year T&D Losses (%) 

2001-02 31.11 

2002-03 28.064 

2003-04 26.16 

2004-05 25.37 

12.2

West Bengal 

PERFORMANCE OF KEY INSTITUTIONS 

Durgapur Projects Ltd (DPL) has made profits in 2003-04 and 2004-05. 

The West Bengal Power Development Corporation Ltd. (WBPDCL) has been 

consistently making profit for several years now. The performance of the WBSEB can 

be seen from the following table: 

Annual revenue 

receipts (Rs crore) 

Loss reduction trend 

in (Rs crore) 

Revenue gap 

between average 

realisation and cost 

of supply (paise per 

unit) 

Operating surplus 

(Rs crore) 

2000-01 2001-02 2002-03 2003-04 2004-05 

2222.13 2437.81 2979.34 4268.55 4799.96 

This trend has been maintained in 2005-06 as well. 

RURAL ELECTRIFICATION 

686.25 519.69 344.53 258.17 

-72 -55 -25 -18 

-506.72 -232.14 300.01 503.61 

In 2004-05, 622 villages have been energised. The State has undertaken the 

programme of achieving 100 per cent village electrification by March 2007. The four 

districts which are lagging behind are: Purulia, Bankura, East Midnapur and West 

Midnapur. Under the Accelerated Rural Electrification Programme (AREP), Rs 

379.03 crore have been sanctioned to cover 5,697 virgin villages. 

Other schemes are: 

i) WBREDC – 0 per cent interest scheme of REC – 765 numbers; 

ii) WBREDC from other fund provisions 561 numbers; and 

iii) WBSEB 82 numbers. 

The State Government has decided that after the restructuring of WBSEB, future RE 

programmes will be funded by itself. 

12.3

POWER UTILITIES IN THE STATE 

WBPDCL 



West Bengal Power Development Corporation Ltd (WBPDCL) is a State Government 

undertaking. WBPDCL have a total generating capacity of 2,900 MW in five 

locations. Total energy generated during the last year was 15,109 MU and five years 

ago the same was 12,595 MU. Last year, they have sold 13,350 MU of energy. It 

generates about 39 per cent of the power in the State and caters to 75 per cent of the 

sales to the WBSEB. 

The Corporation has an ambitious programme of capacity addition, in addition to 

increasing the PLF of the Kolaghat and Bakreswar stations. 

The State Government has visualised settlement of the liabilities of WBSEB to 

WBPDCL to the tune of Rs 2,725 crores through reduction of its corresponding debt 

obligation. If this happens, the Corporation will save Rs 150 crores of interest cost 

per year. 

Once its books get cleaned up it can raise capital from the market to finance its 

expansion programme. 

DURGAPUR PROJECTS LIMITED 

This is a State Government Company having thermal generation capacity of 401 MW 

in 2005-06. 2,176 MU of energy was generated out of which 1,844 MU was sold. The 

energy cost at busbar was 206.86 paise/unit and the sale price was 218 paise per unit. 

Rs 314 crore was spent on renovation & modernisation and improving the generation 

capacity from 387 MW to 401 MW. After that, there has been no investment. PLF has 

improved from 30.23 per cent in 2001-02 to 62 per cent in 2005-06. Plant availability 

has improved from 42.74 per cent to 81.53 per cent during the corresponding years. 

In its area of operation the total demand is assessed at 240 MVA, which is also the 

peak load. 

The distribution losses have come down from 13.25 to 6.5 per cent during the last five 

years. The company has undertaken 100 per cent metering. 90 per cent of the billed 

amount is collected within the due date. No subsidy is paid by the State Government. 

Up to 2003-04, the company was running at a loss but it has started earning profits 

from 2004-05. 

12.4

West Bengal 

The restructuring proposals under consideration include separation of the COGP 

business including selling it off to SAIL and transferring the water business to the 

Durgapur Municipal Corporation. In future the option of merging the generation 

business with the WBPDCL and the distribution business with the successor entity of 

the WBSEB remain open. 

CESC LIMITED 

This is the oldest distribution licensee in India operating in an area of 567 sq. km in 

Kolkata and adjoining areas. Its generating capacity is 975 MW of Thermal Power. In 

2004-05, they generated 7,054 MU of energy against which 5,864 MU was sold. The 

PLF of the generating stations was 82.6 per cent and availability factor was 93.2 per 

cent. The T&D losses have come down from 22.8 per cent from 2000-01 to 16.3 per 

cent in 2004-05. AT&C losses have similarly come down from 23.2 per cent in 2000- 

01 to 16.8 per cent in 2004-05. 

The company has undertaken 100 per cent metering. They have no agricultural 

consumer. They own 267 ckt km of EHT line, 749 ckt km of HT line and 9,625 ckt 

km of LT line. It is a profit-making company declaring dividends to its shareholders. 

The company has the advantage of serving the compact metropolitan area of Kolkata. 

CESC will not come under the purview of proposed reforms. 

WEST BENGAL STATE ELECTRICITY BOARD 

The Board continues to be an integrated entity. It has 167.7 MW of hydel generating 

capacity and 100 MW of gas based generating capacity. Due to abnormally high cost 

of generation the gas turbine power station has not been running from 2003-04. The 

Thermal Power Plants at Bandel and Santaldihi have been transferred to WBPDCL 

from 1 April 2001. In 2004-05, the Board sold 13,548.62 MU of energy. Investments 

made to improve generation capacity and efficiencies: Rs 317.04 crore was spent in 

2003-04 for adding new capacity. This went up to Rs 380.94 crore in 2004-05. For 

renovation and modernisation the annual expenditure is around Rs 3 crore. The Board 

has achieved 100 per cent metering except for agriculture, in which only 20 per cent 

of the connections have been metered. 98 per cent of the bills are generated through 

computer in 44 divisional computer centres. They have achieved 100 per cent billing 

and collection efficiency. The Board has been doing well for the last five years. 

12.5



Proposals under consideration are to corporatise the business of the WBSEB into two 

successor entities: 

i) The State transmission utility and the SLDC; and 

ii) Separate strategic business units (SBUs) for undertaking the functions of Trading 

and Hydropower. Three SBUs for distribution of electricity. 

Financial restructuring proposals include: 

i) Writing-off of a substantial amount of outstanding principal with the State 

Government, along with accumulated interest. The balance debt would be 

serviced by the successor entity; 

ii) Settlement of power purchase liability of WBSEB to WBPDCL; 

iii) Recognition of the unfunded employees liability and carrying it on the opening 

balance sheet of the successor entities to the WBSEB; and 

iv) Under-valuation of hydel assets of Teesta and the Purulia Pump Storage Project 

in order to enhance the competitiveness of those hydel assets by reducing the 

fixed costs. 

12.6

West Bengal 

CONCLUSION 

The State Regulatory Commission came into being in 1999 and is issuing tariff orders. 

The State Government is going to finalise its strategy on reforms shortly. It has 

already received the report from PwC and has consulted the stakeholders. 

Restructuring of the sector is attracting due attention from the Government. 

Privatisation of distribution beyond what already exists is not a top priority in the 

State. The Kolkata Metropolitan Area and the industrial area contribute to the bulk of 

the revenue. The other areas with the exception of the Durgapur belt may not be able 

to sustain separate distribution companies. The State Government wants to make 

WBPDCL a commercially viable entity to attract some private capital also. DPL is 

going to be restructured. The WBSEB has turned around in the present set-up. To 

achieve further gains the process of restructuring needs to be expedited. 

Commendable work has been done in the State in the matter of metering, billing and 

collection. The quality of service has also improved significantly. Conscious attempts 

have been made to reduce theft of electricity. They are already thinking of creating a 

separate transmission company, which would also be in-charge of load dispatch. A 

new distribution company will be set-up having strategic business units, which would 

act as profit centres. In due course of time, creating separate companies can be thought 

of. In the peculiar context of West Bengal, it appears to be a sensible strategy. 

The State is yet to finalise its policy regarding inducting private capital for power 

generation. But they have an ambitious Eleventh Plan target. It would be a good idea 

to set-up joint ventures in West Bengal, as it may not be possible for the State to pump 

in adequate equity. 

12.7


RESPONSES FROM STATE GOVERNMENT TO IIPA QUESTIONNAIRE........... 6.2 

BRIEF SUMMARY OF ELECTRICITY REFORM AGENDA .................................................................6.2 

PROCESS OF RESTRUCTURING .......................................................................................................6.3 

PROGRESS OF REFORMS.................................................................................................................6.4 

DRIVERS OF POWER SECTOR REFORMS ........................................................................................6.5 

DESIRED OUTCOMES AND DELIVERABLES OF THE REFORMS .....................................................6.5 

FINANCIAL RESTRUCTURING.........................................................................................................6.5 

FINANCIAL COMMITMENT TAKEN BY THE GOVERNMENT IN RESTRUCTURING .........................6.6 

ROLE OF THE STATE GOVERNMENT IN THE REFORM PROCESS IN THE POWER SECTOR ...........6.6 

RESPONSES FROM RRVUNL (GENCO) TO IIPA QUESTIONNAIRE................... 6.8 

GENERATING CAPACITY (MW).......................................................................................................6.8 

ENERGY GENERATED (MU).............................................................................................................6.8 

ENERGY COST AT BUS BAR AND SALE PRICE OF ENERGY.............................................................6.8 

IMPROVEMENTS IN TECHNICAL PARAMETERS.............................................................................6.9 

KOTA THERMAL POWER STATION .................................................................................................6.9 

INVESTMENTS MADE TO IMPROVE GENERATION CAPACITY .......................................................6.9 

MAIN DRIVERS OF POWER SECTOR REFORMS ..............................................................................6.9 

COMMENTS ...................................................................................................................................6.12 

NON-CONVENTIONAL ENERGY.....................................................................................................6.13 

MATHANIA SOLAR PROJECT ........................................................................................................6.13 

RESPONSES FROM RRVPNL TO IIPA QUESTIONNAIRE.................................... 6.14 

LENGTH OF TRANSMISSION LINES ..............................................................................................6.14 

INVESTMENTS MADE TO IMPROVE TRANSMISSION SYSTEM ......................................................6.14 

RESPONSES FROM DISCOMS TO IIPA QUESTIONNAIRE.................................. 6.17 

TECHNICAL ...................................................................................................................................6.17 

QUANTITATIVE AND QUALITATIVE SUPPLY OF POWER .............................................................6.17 

DISTRIBUTION LOSSES..................................................................................................................6.18 

COMMERCIAL ...............................................................................................................................6.19 

BILLING AND COLLECTION EFFICIENCY.....................................................................................6.22 

EXTENT OF SUBSIDY FROM THE STATE FOR CONCESSIONAL TARIFFS......................................6.24 

ENERGY AUDIT..............................................................................................................................6.24 

EXTENT OF ARREARS AND DEBT..................................................................................................6.24 

PREVENTIVE ACTION AND PROSECUTIONS FOR THEFT OF ELECTRICITY.................................6.25 

FINANCIAL ....................................................................................................................................6.27 

FUNDS RELEASED AND EXPENDITURE INCURRED UNDER APDRP...............................................6.31 

CUSTOMER SERVICE.....................................................................................................................6.33 

REGULATION AND TARIFFS..........................................................................................................6.34 

ROLE OF THE STATE GOVERNMENT ............................................................................................6.40 

IMPLEMENTATION OF PROVISIONS OF THE THE ELECTRICITY ACT, 2003 ...............................6.43 

GENERAL FINDINGS AND LESSONS LEARNT ...................................................... 6.53 

POLITICAL SUPPORT.....................................................................................................................6.53 

IMPACT OF REGULATION .............................................................................................................6.53 

PERFORMANCE OF RESTRUCTURED UTILITIES ..........................................................................6.54 

GENERAL RECOMMENDATIONS ............................................................................. 6.55 

GENERATION.................................................................................................................................6.55 

DISTRIBUTION...............................................................................................................................6.56

Questionnaires Prepared by IIPA were sent to Government of Rajasthan and 

generation, transmission and distribution companies. The responses, along with 

comments of Shri P.N. Bhandari, IAS (R), Member, `Group of Experts’, are 

attached to this State Report. 

All the questions raised in the questionnaire are in ‘italics’. The responses from the 

Government/utilities are in ‘regular font’. Comments, if any, of Shri P.N. Bhandari 

are given after the relevant response under the subheading ‘COMMENTS’. 

The issues arising out of the questionnaire have been discussed at length in a meeting 

where the following officers were present: 

• Shri Shreemat Pandey, IAS, CMD, RRVPNL and Chairman DISCOMs. 

• Shri Yaduvendra Mathur, IAS, Secretary (Energy), Government of Rajasthan. 

• Shri R.G. Gupta, MD, Jodhpur DISCOM. 

• Shri Dinesh Kumar, IAS, MD, Ajmer DISCOM. 

• Shri R.P. Goyal, MD, Jaipur DISCOM. 

• Shri R.K. Agrawal, IAS, Director (Finance), RRVPNL. 

• Shri A.K. Jain, Director (Technical), RRVPNL. 

The issues were also discussed in another meeting which was attended by the MD, 

Jaipur DISCOM, officers of the rank of Executive Engineer and above from the Jaipur 

DISCOM and RRVPNL. Another meeting was organised where all the labour unions 

of the three DISCOMs were represented. The key issues were discussed with many 

other serving and retired officials connected with the power sector. The matter was 

also briefly discussed with Shri N.S. Choudhary, CMD, RRVUNL.



RESPONSES FROM STATE GOVERNMENT TO IIPA 

QUESTIONNAIRE 

BRIEF SUMMARY OF ELECTRICITY REFORM AGENDA OF THE 

GOVERNMENT OF RAJASTHAN 

Background 

In 1991, as part of its effort to mobilise resources for power generation, Government 

of India opened the power generation industry to private sector investment. In 1993, 

the Government of Rajasthan decided to reform its power sector so as to create 

conditions for sustainable development of the sector and improving efficiency and 

quality of service to the consumers by allowing private sector participation in the State 

power industry, particularly in generation. The Broad Reform Policy Statement, 

issued in September 1995, aimed at attracting private investment and expertise to 

expand and improve electricity services in the State and to enable the sector to gain 

access to capital market and commercial financing. The policy statement was revised 

in 1997 and 1998 and with the developments taking place in the power sector, the 

earlier policy statement was replaced by the Policy Statement declared in May 1999. 

Policy Statement on Rajasthan Power Sector Reform Programme 

The policy statement included the following objectives: 

• To facilitate and attract investments; 

• Bring about improvements in the efficiency of the delivery system; and 

• Create an environment of growth in the power sector for the overall benefit of 

the people of the State. 

The main components of the reform programme have been: 

• Enactment of legislation to pave the way for reforms; 

• Establishment of an Electricity Regulatory Commission for licensing, regulation 

and tariff determination for the electricity sector; 

• Restructuring Rajasthan State Electricity Board (RSEB) into separate companies 

for generation, transmission and distribution functions; 

6.2

Rajasthan 

• Private sector participation in electricity distribution in a phased manner through 

conversion into joint venture companies; and 

• Improvements in the transmission and distribution networks through World Bank 

assisted projects. 

Rajasthan Power Sector Reforms Act 

Rajasthan Power Sector Reforms Bill, 1999 was approved by the State Legislature on 

25 September 1999 and came into force w.e.f. 1 June 2000. 

PROCESS OF RESTRUCTURING 

With the notification of the Rajasthan Power Sector Reforms Transfer Scheme 2000, 

on 19 July 2000, the assets, liabilities and personnel of the RSEB were transferred to 

the following newly formed companies: 

• A generation company (RRVUN); 

• A transmission company (RRVPN); and 

• Three distribution companies, namely: 

o Jaipur Vidyut Vitaran Nigam Ltd (VVNL); 

o Ajmer VVNL; and 

o Jodhpur VVNL. 

Chronology of major events in the process is as under: 

Reform Policy Statement May 1999 

Reform Bill passed September 1999 

Regulatory Commission set–up January 2000 

Single Stage Restructuring of RSEB 

July 2000 (GENCO, 

TRANSCO and 3 

DISCOMs) 

First set of Tariff Orders issued by RERC March 2001 

MoU signed between Ministry of Power and Government of 

Rajasthan 

March 2001 

World Bank Loan of $180 million effective March 2001 

Revised Financial Restructuring Plan (FRP) approved August 2003 

Updation of Revised FRP November 2005 

6.3

PROGRESS OF REFORMS 



Rapid and self-sustaining growth of the power sector and its financial viability is 

essential for speedy and sustained socio-economic development of the State. In this 

context, the State Government initiated comprehensive power sector reforms. 

As part of the power sector reforms, the State Government decided to restructure the 

balance sheet of RSEB as a precursor to restructuring of the integrated utility on 

financial lines. The efficiency improvements in the utilities were expected to take time 

and the State Government was committed to support the sector during the transition 

period till turnaround was achieved. A Financial Restructuring Plan (FRP) for the 

sector was prepared. The FRP contained the following: 

(i) One-time restructuring adjustments; 

(ii) Opening balance sheet and financial projections for the successor companies; 

(iii) Commitments from the utilities and the State Government for the turnaround of 

the sector; and 

(iv) Transition period support from the State Government till turnaround of the 

successor companies. 

Investment Plans 

Details of investment plan for the sector are given below: 

Capital Investment Plan 

(Rs crore) 

Particulars 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 Total 

RRVUNL 287 983 926 1505 908 811 769 690 6,879 

RRVPNL 288 432 487 524 577 784 1,020 947 5,059 

Jaipur DISCOM 289 596 775 568 409 420 393 404 3,854 

Ajmer DISCOM 293 571 571 604 464 454 438 363 3,758 

Jodhpur DISCOM 275 594 618 644 560 464 493 340 3,988 

Total 1,432 3,176 3,376 3,846 2,919 2,932 3,113 2,743 23,538 

Among the various restructuring models, the State Government has committed itself 

to the franchisee model as has been envisaged in the EA, 2003. The State is looking at 

various models of franchisees because it is felt that the benefits will accrue not merely 

by total privatisation but by introducing competition, which can be better obtained 

through franchisees model. The State Government has so far taken up Alwar Circle 

under the franchisee option. 

6.4

Rajasthan 

DRIVERS OF POWER SECTOR REFORMS 

Main drivers of power sector reforms (in order of priority) according to Principal 

Secretary, Rajasthan are: 

(a) National consensus on power sector reforms, especially on pricing of power; 

(b) Poor performance of the SEB in terms of high cost, inappropriate pricing, 

inadequate expansion, unreliable power supply, etc.); 

(c) Need to remove subsidies to the sector in order to release the State resources for 

other priority areas; 

(d) Inability of the State sector to finance needed expansion/modernisation 

programmes; and 

(e) Desire to raise revenues for the Government through sale of assets (disinvestment). 

DESIRED OUTCOMES AND DELIVERABLES OF THE REFORMS (IN 

ORDER OF PRIORITY) 

The desired outcomes are deliverables are as under: 

(a) More affordable access to electricity for consumers; 

(b) Better quality of service to the consumers; 

(c) Improvement in the fiscal position of the Government; and 

(d) Redefining the role of the public sector. 

FINANCIAL RESTRUCTURING 

The financial restructuring was done on book value of assets. 

Existing liabilities were settled in following manner: 

Funds required for Rs crore Funds utilised from Rs crore 

Set-off of subsidy receivables from 

the State Government 

2,671 Loans from Government [A] 1,662 

Provision for overdue receivables 284 Consumer contribution 1,108 

Set-off of other receivables from the 

State Government 

31 Capital reserves 232 

6.5



Funds required for Rs crore Funds utilised from Rs crore 

Provision for unserviceable stores 32 ED Payable to Government [B] 36 

Deferred costs, other assets 3 

Accumulated losses 17 

Total funds required 3,038 Total funds utilised 3,038 

Restructuring support from Government of Rajasthan [A +B] 1,698 

FINANCIAL COMMITMENT TAKEN BY THE GOVERNMENT IN 

RESTRUCTURING 

The amount of financial commitment taken by Government of Rajasthan has been 

elaborated in the updated FRP. Total subsidy of Rs 8,400 crore by 2011-12 will be 

provided by the State Government, which includes cash subsidy of Rs 3,400 crore 

apart from retention of electricity duty and differential interest subsidy on World Bank 

loan. 

MODALITIES OF GOVERNMENT SUPPORT (FOR THE YEAR 2004-05) 

(Rs crore) 

Equity 348.00 

Guarantees 532.40 

Subsidy 1,069.04 

Loans 327.00 (Interest-free loan) 

APDRP incentive NIL 

Adjustment of stamp duty 10.25 

ROADMAP PREPARED AND PUBLICISED FOR IMPLEMENTATION OF 

REFORMS 

An MoU was executed by the State Government with the Government of India on 23 

March 2001 to affirm the commitment of the parties to reform the power sector in the 

State. The process of reform is closely monitored by Government of India and 

adherence to the roadmap to reform process with reasons of slippage is regularly 

appraised. 

ROLE OF THE STATE GOVERNMENT IN THE REFORM PROCESS IN 

THE POWER SECTOR 

The power sector reform process in Rajasthan is accorded the highest priorities by the 

State Government. The sector review meetings are convened at least once every 15 

6.6

Rajasthan 

days at the level of Hon’ble Chief Minister who is also the Energy Minister. Detailed 

and exhaustive reviews have led to policy decisions being taken from time to time 

with the objective of ensuring sustainability of the sector and to promote equity and 

efficiency. Regulatory oversight is given full support and there is no conflict between 

the SERC and the State Government/Utilities. The promotion of renewable energy 

sources is a key policy commitment. Implementation of RGGVY, Feeder Renovation 

Programme (covering 9,000 11 kV rural feeders, at an estimated cost of Rs 4,000 

crore), Generation Capacity Augmentation Plan (1,500 MW in the State sector) at a 

cost of Rs 6,000 crore, and ensuring 8 hours supply to rural three-phase service 

connections, with 24 hours domestic supply are the key action agendas of the State 

Government. 

6.7



RESPONSES FROM RRVUNL (GENCO) TO 

IIPA QUESTIONNAIRE 

GENERATING CAPACITY (MW) 

1995- 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005- 

96 -97 -98 -99 -00 -01 -02 -03 -04 -05 06 

Hydel 164 164 164 164 164 164 164 164 164 164 164 

Thermal 850 850 850 1100 1100 1350 1600 1850 2295 2295 2295 

Gas 0 36 36 36 36 36 36 111 111 111 111 

Total 1,014 1,050 1,050 1,300 1,300 1,550 1,800 2,125 2,570 2,570 2,570 

ENERGY GENERATED (MU) 

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 

-96 -97 -98 -99 -00 -01 -02 -03 -04 -05 -06 

Hydel 351.91 382.61 417.05 351.54 161.91 49.08 92.15 32.59 204.03 276.49 219.58 

Thermal 5210 5637 6117 6514.6 7948.5 9549.84 10569.2 13703.51 15064.01 17113.7 18244.98 

Gas 0 27.52 202.10 253.3 228.1 229.42 119.78 197.68 223.34 353.85 398.69 

Total 5561.91 6047.13 6736.15 7119.44 8338.51 9828.34 10781.13 13933.78 15491.38 17744.04 18863.25 

ENERGY SOLD (MU) 

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 

-96 -97 -98 -99 -00 -01 -02 -03 -04 -05 -06 

Hydel 347.995 378.410 412.88 348.02 160.3 48.57 90.68 31.56 202.01 273.75 217.17 

Thermal 4684 5079 5503 5861 7179 8724.62 9577.50 12417.6 13587.54 15486.91 16571.99 

Gas 0 25.10 180.10 250.8 225.8 227.31 115.26 191.61 215.71 328.35 394.74 

Total 5031.995 5482.51 6095.98 6459.82 7565.1 9000.5 9783.44 12640.8 14005.26 16089.01 17183.90 

ENERGY COST AT BUS BAR AND SALE PRICE OF ENERGY 

Pooled Cost (paise per unit) 

Particulars 2000-01 2001-02 2002-03 2003-04 

Pooled cost at bus bar 195.09 203.99 205.48 205.69 

Sale price of energy 195.09 203.99 205.48 205.69 

Note: RRVUNL has operated on no loss no profit basis as per FRP approved by Government of Rajasthan. 

6.8

Rajasthan 

IMPROVEMENTS IN TECHNICAL PARAMETERS 

Kota Thermal Power Station 

Particulars 

1995 

-96 

1996 

-97 

1997 

-98 

1998 

-99 

1999 

-00 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

PLF (%) 72.90 75.70 82.15 78.82 84.57 86.45 85.30 88.01 86.04 

Heat rate 

(kcal/kWh) 

2720 2728 2748 2790 2796 

Oil consumption 

(ml/KWh) 

3.83 2.52 1.69 1.30 0.96 0.68 0.63 0.43 0.39 

Auxiliary 

consumption (%) 

10.22 9.85 10.04 10.03 9.59 9.46 9.54 9.77 9.81 

Plant availability 

(%) 

Unscheduled 

76.54 78.54 85.41 81.36 86.01 86.77 85.97 89.02 90.36 

breakdowns in terms 

of MkWh 

237 505 177 163 

Suratgarh Thermal Power Station 

Particulars 

1998 

-99 

1999 

-00 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

PLF (%) 71.24 74.44 80.24 85.04 88.94 80.74 

Heat rate (kcal/kWh) 2374 2448 2356 2505 2576 2429 

Oil consumption (ml/kWh) 9.45 4.35 2.74 1.56 1.07 0.98 



Investments Made to Improve Generation Capacity 

6.9 

(Rs crore) 

1995 1996 1997 1998 1999 2000 2001 2002 2003 

-96 -97 -98 -99 -00 -01 -02 -03 -04 

New capacity 397.75 401.90 537.73 581.93 562.37 826.78 855.45 859.82 255.4 

Renovation and 

modernisation 

0 0 0 0 0 2.98 0 0 6.26 

Main Drivers of Power Sector Reforms (in Order of Priority) 

1 

2 

3 

4 

Poor performance of SEBs in terms of high cost, inappropriate pricing, inadequate expansion, 

unreliable power supply, etc; 

Inability of the State sector to finance the needed expansion/modernisation; 

Desire to raise revenues for the Government through sale of assets (disinvestments; and. 

Need to remove subsidies to the sector in order to release State resources for other priorities. 

Desired Outcomes of The Reforms (in Order of Priority) 

1 More affordable access to electricity for consumers; 

2 Better service quality for consumers; 

3 Redefining the role of public sector; and 

4 Improvement in fiscal position of the Government



What are the critical obstacles to reform? (in order of priority)? 

1 

2 

3 

4 

Managerial and administrative difficulties of dismantling existing institutions and 

structures; 

Lack of experience among persons managing reforms; 

Lack of political commitment; and 

Public opposition to removal of subsidies. 

FINANCIAL STATUS OF RRVUNL 

Financial status of Rajasthan Rajya Vidyut Utpadan Nigam Ltd, showing income, 

operating cost, receivables, manpower cost, interest repayment, subsidies received 

from the Government, current assets and current liabilities since 2000-01 till date has 

been as under: 

Particulars 

2000-01 

(Audited) 

19-7-00 to 

31-3-01 

2001-02 

(Audited) 

Liabilities 

6.10 

2002-03 

(Audited) 

2003-04 

(Audited) 

2004-05 

(Audited) 

(Rs crore) 

2005-06 

(expected) 

State Govt. equity 

(subscribed and issued) 

162.00 1232.76 1287.59 1496.59 1775.59 1775.59 

State Govt. equity (pending 

allotment) 

792.59 54.83 209.00 159.00 - 331.00 

Loan (working capital) 3679.04 3895.67 4668.70 4605.50 4708.42 4679.80 

Total (liabilities) 4633.63 5183.26 6165.29 6261.09 6484.01 6786.39 

Assets 

Gross fixed assets 2764.42 3634.42 4399.25 5376.21 5981.85 5981.85 

Less: Depreciation 513.16 698.51 949.27 1250.10 1452.66 1652.91 

Net fixed assets 2251.26 2935.91 3449.98 4126.11 4529.19 4328.94 

Work in progress 1174.03 1159.48 1253.76 678.16 359.83 895.30 

Investment 

Current assets 

159.31 0 0 0 0 0 

(a) Stores 219.64 259.41 152.05 144.10 318.49 501.59 

(b) Other assets including 1432.89 1390.47 1911.20 1880.72 1820.78 1649.08 

receivables subvention* 

(c) cash and bank balance 43.41 84.20 70.85 9.17 10.69 4.08 

Gross current assets 1695.94 1734.08 2134.00 2033.99 2149.96 2154.75 

Less: Current Liabilities 647.72 648.09 686.58 624.15 640.44 672.46 

Net current assets 1048.22 1085.99 1447.51 1409.84 1509.52 1482.29 

Misc./deferred expenditure 0.81 1.88 14.03 46.98 85.48 79.86 

Gross Loss 0 0 0 0 0 0 

Total (Assets) 4633.63 5183.26 6165.29 6261.09 6484.01 6786.39 

* State Government subvention of Rs 563.75 crore was pending as on 31 March 2004, 31 March 2005 and 31 March 2006.

Rajasthan 

Particulars 

2000-01 

(Audited) 

19-7-00 to 31- 

3-01 

2001-02 

(Audited) 

2002-03 

(Audited) 

Expenditure 

6.11 

2003-04 

(Audited) 

2004-05 

(Audited) 

(Rs crore) 

2005-06 

(expected) 

Cost of fuel and 

O&M 

884.90 1364.36 1805.22 1945.32 2396.33 2440.70 

Repairs & 

maintenance 

20.90 49.72 47.71 38.38 54.54 71.30 

Establishment cost 34.52 50.08 53.99 58.69 62.26 74.61 

Admin & general 

expenses 

Interest & 

6.20 13.54 17.91 20.09 28.88 17.97 

financial charges 

(including lease 

rental) 

469.97 666.07 666.24 647.23 526.94 564.08 

Depreciation 72.30 186.49 246.42 300.25 200.25 200.25 

Other expenses 

Expenditure 

12.24 0 0 0 0 0 

incurred in last 

year 

0.01 20.22 (-)34.89 13.75 (-) 20.26 -- 

Total 

Less: 

Expenses/interest 

during 

1501.04 2350.48 2802.90 3023.71 3248.94 3368.91 

construction, 

transferred to 

capital 

expenditure 

99.37 212.82 141.91 164.76 45.54 62.26 

Total 

(Expenditure) 

1401.67 2137.66 2660.99 2858.95 3203.40 3306.65 

Income 

Cost of net energy 

sold to RRVPNL 

1297.25 1969.74 2603.05 2799.77 -- -- 

Cost of net energy 

sold to Jaipur, 

Ajmer and 

Jodhpur Vidyut 

Vitran Nigam Ltd 

---- -- -- -- 3170.54 3276.54 

Other income 104.42 167.92 57.94 59.18 32.86 30.20 

Total (Income) 1401.67 2137.66 2660.99 2858.95 3203.40 3306.65 

As per FRP formulated under power sector reforms, Rajasthan Rajya Vidyut Uptadan 

Nigam had sold its entire electricity generated to RRVPNL on no profit no loss basis 

till 31 March 2004. Consequent to enactment of the EA, 2003, RRVUNL has been 

selling power after 1 April 2004 directly to three DISCOMs, i.e., Jaipur, Ajmer and 

Jodhpur in the pre-assigned ratio of 36:36:28 respectively on no profit no loss basis. 

As per the revised FRP, this policy of no profit no loss shall be adopted till March, 

2009.

COMMENTS 



The generation wing in Rajasthan has all along performed very well even during the 

pre-restructuring period. 

The PLF of Kota/Suratgarh Thermal Power Stations were comparable to that of the 

top category thermal stations in the country. Time and again, these plants have won 

awards at the national level. After restructuring also, this tempo has been maintained, 

rather it has further improved and the generation capacity, which was 1,299.53 MW in 

1999-2000, reached 2,569.35 MW in 2003-04, which means an increase of nearly 100 

per cent. Further, the expansion plan, as given below, is also quite ambitious: 

• Giral Lignite Thermal Power Project, Unit 1(125 MW); 

• Dholpur Combined Cycle Gas Thermal Power Project (330 MW); 

• Giral Lignite Thermal Power Project, Unit 2 (125 MW); 

• Chhabra Thermal Power Project, Phase I (2250 MW); 

• Kota Thermal Power Project, Unit 7 (195 MW); and 

• Suratgarh Thermal Power Project, Unit-6 (250 MW). 

Expected capacity addition in the State sector by December 2008 is 1,525 MW. 

For the first time, there is a serious attempt to exploit the huge lignite deposits in 

Rajasthan and a lignite thermal power project is being set up at Giral, with a capacity 

of 250 MW at an investment of around Rs 1,400 crore. The biggest advantage of 

lignite generation would be that the cost of power would be substantially reduced as 

no transportation cost is involved in pithead stations. In Rajasthan, the cost of 

transporting coal to STPS and KTPS is more than that of coal. Instead of being 

attracted with the location of power plants within the State, a time has come when 

different States may like to collaborate in setting up of the power plants at pithead 

stations as wheeling of power is cheaper than transportation of coal over a long 

distance. Expansion of KTPS and STPS would be economical since the infrastructure 

already exists there. 

To discourage the tendency of having State-wise power plants, leading to heavy 

expenditure on transport of coal and straining the railway transport system, the NTPC 

might like to prepare a shelf of projects based on pithead thermal stations. It could 

invite willing States to join. Of course, tactically the State where the generating plant 

6.12

Rajasthan 

is to be located should also be persuaded to join as a partner State. Once the 

alternative of pithead stations becomes viable and tariff turns out to be attractive, the 

States will avoid the temptation of having thermal stations located far off from the 

coalmines. 

NON-CONVENTIONAL ENERGY (RAJASTHAN RENEWABLE ENERGY 

CORPORATION LIMITED) 

The Renewable Energy Corporation Ltd., a Government of Rajasthan undertaking, 

looks after the issues of renewable energy in the State. The organisation has done 

commendable work particularly in the area of wind energy and by now a capacity of 

352 MW has been created at a cost of Rs 1,588 crore. Suzlon and Enercon are the key 

private players in setting up wind generation plants and then handing them over to 

different private parties who find the projects attractive, particularly because of the 

income tax incentives, etc. A few biomass plants have also been set up. 

MATHANIA SOLAR PROJECT 

Rajasthan receives the maximum solar insolation in the country and much needs to be 

done to utilise this potential. Unfortunately, the progress of the Mathania solar project 

presents a picture of inadequate planning. Studies conducted by the Ministry for Non- 

Conventional Energy Sources (MNES) have identified Mathania as the most suitable 

site for setting up of a 30 MW solar power plant in 1990. Detailed Project Report 

(DPR) was prepared through BHEL for a 35 MW solar plant. At the instance of 

Global Environment Trust, World Bank and KFW (Germany), a comprehensive 

feasibility report was prepared by Engineers India Limited (EIL) in June 1995. Since 

then, the project has taken many twists and turns. Not satisfied with generation during 

the day time, the Rajasthan authorities opted for a 125 MW component of Naphthabased 

combined cycle power plant. In a 140 MW plant, with solar component being 

only 35 MW, it is difficult to term it as a solar plant. The naphtha prices in the 

international market were skyrocketing and the authorities should have realised the 

futility of such an option but they persisted with this option for years. Finally, naphtha 

was replaced by Liquified Natural Gas (LNG). It involved laying of more than 300 km 

long pipelines from one corner of the State to another. This option too, with heavy 

expenditure on the gas pipeline was unlikely to succeed and finally Gas Authority of 

Industry of India Limited (GAIL) backed out from the project. The Rajasthan 

authorities perhaps would do well to concentrate on the solar component of the project 

instead of trying to make it a hybrid plant. 

6.13



RESPONSES FROM RRVPNL TO IIPA QUESTIONNAIRE 

Rajasthan Rajya Vidyut Prasaran Nigam Limited, registered under the Companies 

Act, 1956, has been granted the status of State Transmission Utility (STU) by the 

Government of Rajasthan under the provisions of the EA, 2003. 

Length of Transmission Lines (ckt km) 

Year 400 kV 220 kV 132 kV Total 

2004-05 620.18 7,491.89 11,465.53 19,577.60 

Particulars 

Energy 

available for 

transmission 

(MU) 

Energy 

delivered (MU) 

Transmission 

losses (MU) 

Wheeling cost 

of energy 

(paise/unit) 

Energy Available/Delivered and Transmission Losses 

1995 

-96 

1996 

-97 

1997 

-98 

1998 

-99 

6.14 

1999 

-2000 

17880.6 17825.0 19557.1 21271.4 22448.1 23377.5 23580.0 25020.7 26581.5 29288.7 

13135.5 13714.3 14752.2 15780.5 16304.8 22418.7 22596.6 24100.6 25327.7 27943.3 

4745.1 4110.6 4804.9 5491.0 6143.2 958.8 983.3 920.0 1253.8 1345.5 

During RSEB time, no such calculation was done. Bulk supply tariff determined only. 17 

Transmission 

losses (%) 

Reduction in 

26.53* 23.06* 24.57* 25.81* 27.37* 4.10 4.17 3.68 4.72 4.5 

transmission 

losses (% 

points) 

3.47 -1.51 -1.24 -1.56 -0.07 0.49 -1.04 0.22 

* T&D Losses. After restructuring, these pertain to transmission losses only. 

Investments Made to Improve Transmission Capacities and Efficiency of 

Transmission System 

Investment in Transmission System 

New transmission 

lines and strengthe- 

ning of system 

1995 

-96 

1996 

-97 

1997 

-98 

1998 

-99 

1999 

-2000 

2000 

-01 

2000 

-01 

2001 

-02 

2001 

-02 

2002 

-03 

2002 

-03 

2003 

-04 

2003 

-04 

2004 

-05 

(Rs lakh) 

23904 21057 21661 18873 23106 17847 21279 27623 35877 25620 

Training 9.76 9.65 13.3 8.58 17.41 6.04 2.61 2.85 0.95 14.15 

2004 

-05

Years 

Rajasthan 

Statement showing Income, Operating Cost, Receivables and Manpower Cost 

Total income 

(including 

other income) 

Purchase 


Generation 

cost 

6.15 

Repair & 

maintenance 

Employee 

cost 

Adm. 

& 

other 

exp. 

Interest 

(Rs lakh) 

Net 

receivables 

RSEB 

1995-96 286491 108601 54727 6836 22824 2355 53956 68256 

1996-97 323438 113354 68001 8846 26688 2721 80756 79452 

1997-98 339937 152859 81986 9385 34711 3083 84745 93076 

1998-99 443497 187295 79417 10580 41572 3860 94530 104042 

1999-00 560686 210060 101185 11156 48413 3871 115010 125006 

2000-01 (up 

to 19.7.2000) 

RRVPNL 

2000-01 

197792 68906 34241 3101 16181 996 36117 122525 

(20.7.00 to 

31.3.01) 

338946 302270 6291 2470 3412 559 15769 63591 

2001-02 505531 439032 9554 4724 17030 752 22021 89745 

2002-03 558989 493062 9336 4885 17518 813 21328 185058 

2003-04 574168 508000 9617 5131 18675 1564 20014 204813 

2004-05 75675 1119 12460 4772 19820 2351 18496 81892 

Manpower of RSEB 

Category of employees 1995-96 1996-97 1997-98 1998-99 1999-2000 

As on 19 

July, 2000 

REGULAR 

(I) Technical 

(a) Officer 2031 2067 2275 2374 2286 2215 

(b) Subordinate staff 38552 37875 38400 38528 36603 35118 

TOTAL I 40583 39942 40675 40902 38889 37333 

(II) Non-Technical 

(a) Officer 185 263 295 286 283 266 

(b) Ministerial 10367 10454 10357 10494 10306 10217 

(c) Class IV 4813 4472 4570 4517 3754 4070 

TOTAL II 15365 15189 15222 15297 14343 14553 

(III)Temporary employees 

(1) Work charged 446 567 74 75 57 48 

(2) Daily rated 736 415 322 581 163 366 

TOTAL III 1182 982 396 656 220 414 

GRAND TOTAL( I + II + III) 57130 56113 56293 56855 53452 52300



Manpower of RRVPNL (TRANSCO) 

Category 2000-01 2001-02 2002-03 2003-04 2004-05 

A. Technical 

(a) Officers 730 730 670 706 801 

(b) Others 4372 4268 4675 4767 4779 

Total (A) 5102 4998 5345 5473 5580 

B. Non-Technical 

(a) Officers 75 74 75 80 77 

(b) Ministerial 1579 1543 1704 1608 1584 

(c) Group D 1075 1341 938 1063 1047 

Total (B) 2729 2958 2717 2751 2708 

Grand Total (A+B) 7831 7956 8062 8224 8288 

6.16

Rajasthan 

RESPONSES FROM DISCOMS TO IIPA QUESTIONNAIRE 

TECHNICAL 

Assessment of demand and supply for power, peak load, gap, load shedding, quality 

of power, etc 

Quantitative and Qualitative Supply of Power 

1995 1996 1997 1998 1999 2000 2001 2002 2003 

-96 -97 -98 -99 -2000 -01 -02 -03 -04 

i Assessed total demand (MW) 3475* 3795* 4128* 4491* 4850* 4514* 4844* 5180* 5537* 

ii Peak load met (MW) 2728 2925 3169 3482 3583 3497 3547 3620 4267 

iii Peak load shortage (MW) 747 870 959 1009 1267 1017 1297 1560 1270 

PERCENTAGE OF (iii) to (i) 21.50 22.92 23.23 22.46 26.12 22.52 26.77 30.11 

iv Energy met (Units in crore) 17880 19156 20978 23233 24433 22410 22596 24100 25327 

v Energy shortage. 546 258 687 926 510 679 636 631 743 

PERCENTAGE OF (v) to (iv) 3.53 1.34 3.27 3.98 2.08 3.02 2.81 2.61 2.93 


(a) Transformer failure rate 

NA NA NA NA NA 14.96 11.24 12.62 11.13 

(b) Average restoration 

time (hours) 

< 100 < 84 < 84 < 72 < 72 < 72 < 48 < 48 < 48 

Distribution Transformer 

(a) Transformer failure rate 

NA NA NA NA NA 13.43 13.49 15.01 17.55 

(b) Average restoration 

time (hours) 

< 144 < 144 < 144 < 120 < 120 < 120 < 80 < 72 < 72 

(c) Interruptions per feeder 

per month 

NA NA NA NA NA NA NA NA 0.09 

*: As per 16 thh power survey and draft 17 power survey. 

COMMENTS 

The general power supply position in Rajasthan is satisfactory. Supply during peak 

load hours has substantially increased from 2,728 MW in 1995-96 to 4,267 MW in 

2003-04. But along with this, demand is also increasing at a much faster pace. As a 

result, the peak shortage, which used to be in the range of 21 to 23 per cent earlier, is 

now ranging between 26 to 30 per cent. Due to ever increasing demand of the 

agricultural sector, frequent power cuts have been imposed on industries causing 

heavy losses to them. The energy shortage is marginal. This is ranging around three 

per cent, which is a slight improvement over the previous years. 

The earlier failure rate of transformers is not readily available but in the postrestructuring 

period the failure rate of distribution transformers has increased from 

13.43 to 17.55 per cent. In the case of power transformers, the failure rate has come 

down from 14.96 to 11.13 per cent. 

6.17

DISTRIBUTION LOSSES 

1995-96 1996-97 1997-98 1998-99 




1999- 

2000 

6.18 

2000-01 2001-02 2002-03 2003-04 

28.31 24.93 26.46 29.43 42.00 38.36 37.66 39.83 41.5 

COMMENTS 

T&D losses play the most crucial role in the success or failure of the power sector 

reforms. If the DISCOMs fail to reduce the losses, no amount of improvements on 

other fronts can give a shining picture of power sector reforms. 

The distribution losses appear to be a never-ending problem. During pre-restructuring 

period, the losses used to be ranging between 24 and 29 per cent. In the postrestructuring 

period, these are ranging between 37 and 42 per cent. A comparison of 

the two periods may not be fruitful as the methodology for computing the losses has 

been totally changed. Earlier, most of the losses were attributed to the flat rate 

agriculture connections. Now it is not possible to shield behind flat rate tabulation. 

Hence, it is better to separately analyse the figures of the last five years. There are no 

signs of any notable improvement on this key front. The losses have ranged 

between 37.66 and 42 per cent. More significantly, the losses in 2001-02 (37.66 per 

cent) have increased to 39.83 per cent in 2002-03 and further increased to 41.5 per 

cent in 2003-04. The State Regulatory Commission has from time to time 

expressed its strong displeasure on virtually no progress being achieved on this 

front despite huge investments for system improvement. A firm determination to 

tackle the politically sensitive issue of electricity theft appears to be lacking. For a 

variety of reasons, a large number of officers and staff do not seem keen to vigorously 

pursue cases involving theft of electricity. With frequent transfer of officers at the 

instance of public representatives, the morale at the field level seems to be low. 

Control of electricity theft is one of the main tasks of the DISCOMs. The RSEB 

management used to launch a series of drives against theft and the top management 

was able to very often withstand political pressure against such raids. Unfortunately 

after restructuring, comparatively junior level officers are posted as MDs of the 

DISCOMs. Inevitably, the government influence increases in their working and 

very often they are unable to resist Government pressure.

Rajasthan 

COMMERCIAL 

The progress of metering in respect of the agricultural category of consumers is given 

below: 

Metering of Agricultural Services (%) 

1995-96 1996-97 1997-98 1998-99 

1999- 

2000 

2000-01 2001-02 2002-03 2003-04 

29.2 30.1 31.56 32.22 35.3 36.54 51.06 53.27 61.32 

COMMENTS 

Rajasthan’s performance on this front has always been impressive. Even during the 

pre-restructuring period, all the categories except agriculture had 100 per cent 

metering. That trend continuous even now. 

In the pre-restructuring period, Rajasthan was amongst the first States in the 

country to introduce electronic meters in a big way even for domestic consumers. 

A lot of meter-related thefts, with or without collusion of the staff, could be controlled 

through the introduction of the electronic meters. The T&D losses were substantially 

reduced wherever such meters were installed. During the pre-restructuring period, 

there was a high incidence of electricity theft amongst the industrial consumers also. 

In a single year, all electro mechanical meters of the HT consumers were replaced by 

sophisticated static meters, which ensure that even if there was any manipulation 

during the previous 45 days, it would get recorded in the memory of the meter. 

Installation of such meters led to a drastic reduction of electricity theft in industrial 

units. For the last several years, only electronic meters have been purchased by RSEB 

and later by the DISCOMs. 

The emphasis on tamper-proof and reliable meters has continued during the postrestructuring 

period also. In the agricultural sector, 100 per cent metering has not yet 

been achieved although the percentage of meters for agricultural consumers is 

increasing year after year. In the agricultural sector, by 2003-04, only 61 per cent 

metering has been achieved but reckless metering of agricultural connections in 

isolation is no solution. In the past, a large number of agricultural consumers have 

not allowed the meters to function properly. Consequently, the revenue from the flat 

rate consumers was almost double that of the metered consumers. Mere symbolic 

installation of meters for agricultural consumers is not enough. The entire chain 

needs to be reviewed. So long as non-operational meters are a paying proposition 

to such consumers, they would not allow the meters to run. The Regulatory 

6.19



Commission will have to fix the minimum charges, etc., in such a way that the 

agricultural consumers themselves start insisting for meters. In some form or the 

other, the charges from a consumer should be much higher if his meter is nonoperational, 

compared to the consumer whose meter is operational. One solution could 

be that per unit subsidy may be allowed by the Government for metered agricultural 

connections. After paying their bill of metered connection, they could be allowed a 

cash refund on presentation of the paid bill. This can overcome the resistance of the 

farmers to installation of meters. Psychologically, this can also highlight the extent of 

subsidy, which the Government is giving to the agricultural consumers. 

Detailed Price Build up of Operations 

Particulars 

Average cost 


(Rs/kWh) 

Percentage 

increase in 

cost of power 

Recovery 

(Rs/kWh) 

Deficit in 

paise per 

kWh 


shortfall 

1995 

-96 

Details of Cost of Power and Recovery 

1996 

-97 

1997 

-98 

1998 

-99 

6.20 

1999 

-2000 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

2.05 2.30 2.59 2.72 3.26 4.17 4.26 4.46 4.67 

12.2 12.61 5.02 19.85 27.91 2.16 4.69 4.71 

1.73 1.95 2.17 2.08 2.26 3.11 3.39 3.43 3.51 

0.32 0.35 0.42 0.64 1.00 1.06 87 1.03 1.16 

15.61 15.22 16.22 23.53 30.67 25.42 20.42 23.09 24.84 

Revenue Realised (Consumer category-wise) 

Agriculture N.A. N.A. 204.25* 231.42* 275.3* .81 1.11 1.13 

(Rs crore) 

1.18 

Domestic N.A. N.A. 415.2* 458.15* 600.02* 2.68 3.36 3.4 3.36 

Industrial large 

HT 

N.A. N.A. 1493.7* 1436.13* 1508.14* 4.56 4.56 4.47 4.42 

Industrial 

small LT 

N.A. N.A. 224.17* 231.57* 268.1* 4.54 4.87 4.73 4.67 

Commercial N.A. N.A. N.A. N.A. N.A. 5.45 6.17 6.16 6.08 

COMMENTS 

The annual percentage increase of the cost of power procured by the RSEB 

substantially from outside used to be much higher. Now the comparative percentage 

of cost of power is much lower because, firstly, the State’s power generation has gone

Rajasthan 

up; secondly, the Government and the State Regulatory Commission have allowed the 

generation company to run on “no profit no loss basis”. Consequently, the per unit 

cost to DISCOMs from GENCO is much less. Hence, the annual jump in the power 

cost is much lower. While the annual rise earlier used to be in the range of 10 to 20 

per cent, from 2001-02 onwards, the percentage increase has ranged between 2 to 5 

per cent. 

The per unit deficit has also increased significantly as could be seen from the 

following Table: 

GAP between ACS and ARR (paise per kWh) 

1995-96 1996-97 1997-98 1998-99 1999- 

2000 

6.21 

2000-01 2001-02 2002-03 2003-04 2004-05 

32 35 42 64 100 106 87 103 116 117 

However, despite the lower cost of power to the DISCOMs, the gap between the cost 

of power and the cost of recovery has increased. From 1995-96 to 1998-99, the 

shortfall in per unit cost ranged between 32 and 64 paise. In the post-restructuring 

period, the gap has ranged between 87 and 117 paise. In percentage terms also, 

while earlier the deficit used to be in the range of 15 to 16 per cent (1995-96 to 

1997-98), it has risen to a range of 20 to 25 per cent during the four years of the 

post restructuring period.

BILLING AND COLLECTION EFFICIENCY 

Category 



Category-wise Number of Regular Consumers 

No. of consumers as on 31 March 

2001 2002 2003 2004 2005 

Domestic 4041263 4240762 4378825 4494513 4673522 

Non-domestic 701629 723633 744148 755500 776606 

Commercial 6635 7864 7658 8512 8823 

Agriculture 675471 656941 682640 704050 725120 

Industry 165356 170969 178404 183492 190764 

Mixed 11084 11505 11942 12074 13277 

TOTAL 5601438 5811674 6003617 6158141 6388112 

Energy billing is done by the private computer agencies on contract. There are two 

softwares, one for large industrial consumers, whose billing is controlled centrally by 

the Senior Accounts Officer (HT) at the company headquarters, and other software for 

rest of the consumers. Total consumers are divided for billing on monthly and bimonthly 

basis according to their supply voltage and category. They are further divided 

into cycles (four cycles in a month). Tariff codes are assigned to the consumers 

according to their category, supply voltage and nature of load. Various other usage 

codes like – exemption in the electricity duty, relief to various consumers and 

debit/credit of sundries are also in use. 

Every week, input data in hard copy, comprising of master formats that contain all 

information of new consumers added and for existing consumers, reading of meters, 

status of meter, other correction advices, payment information of the consumers, etc., 

are sent to the computer agencies by the unit officers. The computer agency processes 

the input data so received and provides the unit officer hard copies of energy bills, 

ledgers, and other control reports like list of defaulting consumers, list of meter that 

remained defective, etc. Every week, the same cycle is repeated. At the end of the 

month, MIS reports, containing month-wise, category-wise energy sold, element-wise 

assessment of revenue, payment received and outstanding remained against the 

consumers are provided by the computer agencies to the unit officers as well as to 

circle officers. According to the MIS reports, the entries in the books of accounts of 

company are entered. 

6.22

Rajasthan 

Category 

1995 

-96 

1996 

-97 

Billing and Collection Efficiency (%) 

1997 

-98 

1998 

-99 

6.23 

1999 

-2000 

Billing Efficiency (%) 

Domestic 100 100 100 100 100 100 100 100 100 

Industrial 100 100 100 100 100 100 100 100 100 

Agricultural 100 100 100 100 100 100 100 100 100 


Domestic NA NA 96.5 95.9 95.2 96.9 99.3 97.7 97.1 

Industrial NA NA 101.2 100.8 99.7 100.1 101.1 100.6 99.8 

Agricultural NA NA 99.9 100.8 96.00 93.2 99.5 93.1 96.0 

Rajasthan has been performing very well on this front. Even during the prerestructuring 

period, 100 per cent billing of all the consumer categories was 

ensured. That system continues even now. The collection efficiency is ranging 

between 97 to 99 per cent in respect of domestic consumers and 99 to 100 per cent for 

industrial consumers. In the pre-restructuring period also, collection efficiency 

ranged between 99 to 101 per cent. In case of agricultural consumers, the collection 

efficiency has ranged from 98 to 100 per cent in the past. This percentage has 

somewhat declined in the post-restructuring period. Out of four years, the collection 

efficiency was 93 per cent in two years, 96 per cent in one year and 99 per cent in one 

year. 

The Regulatory Commission had raised the tariff of flat rate consumers in its last tariff 

order. However, there was a huge protest rally by the farmers and finally the 

Government had to yield. The DISCOMs have been directed that though the bills may 

be sent to the consumers on the basis of new tariff, the DISCOM should charge on the 

basis of old tariff from the billing month of October 2005. The estimated annual loss 

of revenue due to this step is likely to be more than Rs 200 crore. The Government has 

also issued oral directions from November 2002 for suspension of recovery of 

minimum charges from agriculture-metered consumers. This concession is continuing 

since then. The financial burden on DISCOMs, due to this oral direction, is estimated 

to be more than Rs 300 crore annually. 

The EA, 2003 stipulates that if any concession is to be given by the Government to a 

consumers or group of consumers, it should compensate the DISCOMs but if the 

methodology as mentioned above becomes a precedent, it could open the 

floodgates for populist decisions by the Government in tariff matters, without 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04



any financial liability on the Government. All these measures are adding to the 

level of outstanding dues. 

Extent of Subsidy from the State for Concessional Tariffs 

Subsidy Towards Concessional Tariff 

6.24 

(Rs crore) 

1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 

226 442 253 188 458 261 439 763 954 

Energy Audit 

Energy audit of 11 kV feeders is carried out on monthly basis through outsourcing. 

DISCOMs are in a position to identify the high T&D loss level areas. For distribution 

transformer-wise energy audit, the matter is under tendering process and will be done 

from 2007-08. 

Extent of Arrears and Debt 

The dues outstanding that were securitised or waived or rescheduled as under: 

Details of Arrears and Debts 

Particulars 

1995 

-96 

1996 

-97 

1997 

-98 

1998 

-99 

1999 

-00 

2001 

-02 

2002 

-03 

2003 

-04 

(Rs crore) 

2004 

-05 

Arrears of revenue* 3.6 4.8 4.7 4.8 5.5 6.2 6.7 7.2 8.0 

Percentage increase/ 

decrease 

31.2 -1.1 1.8 13.5 12.9 8.2 8.4 10.7 

Debt outstanding 3755 4318 3371 4354 5606 8684 10356 11384 12577 

COMMENTS 

For a variety of reasons, cumulative arrears generally increase year after year as fresh 

arrears are added every year. It is, however, significant that during the prerestructuring 

period in 1997-98, due to sustained efforts, the arrears declined for 

the first time. This achievement has not been repeated thereafter. In 1998-99, the 

increase was less than 2 per cent. As against this, the increase in the post-restructuring 

period has ranged between 8 to 13 per cent. This indicates a decline in performance on 

this front.

Rajasthan 

Preventive Action and Prosecutions/Compoundings for Theft of Electricity 

Particulars 

1996 

-97 

1997 

-98 

1998 

-99 

1999 

-00 

2001 

-02 

2002 

-03 

2003 

-04 

2004 

-05 

(Rs lakh) 

2005 

-06 

Preventive raids 

(No.) 

74637 70864 78730 100729 106825 106300 81195 74164 103220 

Demand raised 3294.47 4666.76 3541.47 4669.67 6364.36 6022.26 4507.14 4580.20 5690 


recovered 

204494 2689.17 2747.64 3601.06 3546.68 3202.74 2530.86 2306.43 2924.4 

Prosecuted/ 

compounded (No.) 

8672 13356 17055 22977 1639 1036 518 218 1222 

• Through various orders vigilance department has been streamlined. 

• Inter sub-division/division and joint checking concept introduced resulting in fresh impetus to 

vigilance checking. 

• State Government has notified the creation of 34 Anti-Power Theft Police Stations. 

• 15 Anti-Power Theft Police Stations have started w.e.f. 1 April 2006. 

A look at the four-year period of preventive raids for the pre-restructuring period 

would show that the number of raids substantially increased every year but in the postrestructuring 

period, the number of raids has significantly reduced year after year 

except in the year 2005-06. The number of such raids was 74,164 in 2004-05. This 

figure was achieved eight years back in 1996-97 (74,637). Almost two lakh new 

consumers are added every year and hence, with the increasing number of consumers, 

the number of raids should have also gone up. The number of raids was around 

1,00,000 up to 2002-03, but in the next two years it has recorded a decline of more 

than 25 per cent. 

The same trend is to be noticed in recovery of penalty amount. During the previous 

five years, the figure increased substantially every year, so much so that from a 

recovery of Rs 15.24 crore in the year 1995-96, it rose to Rs 36.01 crore in 1999-2000. 

This is more than 100 per cent increase. During the post-restructuring period, the 

penalty amount has constantly declined, year after year, so much so that the penalty 

amount of Rs 35.46 crore in 2001-02 has come down to Rs 23.06 crore in 2004-05. 

Incidentally, even seven years back in 1997-98, the penalty amount had reached the 

figure of Rs 26.89 crore. Penalties are directly related to tariff. Since tariff has 

substantially increased during these nine years, even if the same number of raids were 

organised, the net penalty amount should have been much higher. 

In the matter of prosecutions/compoundings, the earlier tempo does not seem to have 

been maintained. During the pre-restructuring period, the figure had jumped from 

1,861 in 1995-96 to 22,977 in 1999-2000. The figure has gone up every year during 

those five years. After restructuring, the figure has declined drastically. In 2001-02, 

the figure had come down to 1,639. The next four years have maintained a declining 

6.25



trend in the number of prosecutions. The total prosecutions/compoundings during the 

last three years, i.e., 2002-03 to 2004-05 were 1,772, while in 1995-96, in a single 

year alone the prosecutions/compoundings were 1,861. 

The figures for 2005-06 are, of course, an improvement over the previous year but it is 

not certain that this trend will continue. 

It appears that the Government has not encouraged vigorous raids for detecting cases 

of electricity theft. DISCOMs too seem to show indifference on this front, which was 

showing excellent results during the pre-restructuring period. During that time, the 

most competent officers were posted in Vigilance Wing of RSEB and they were 

encouraged in every way. During the later period, the DISCOMs do not seem to 

pursue electricity theft cases with the vigour shown in the earlier period. 

Fifteen Special Police Stations have been created especially to handle electricity theft 

cases. Formerly, the regular police stations, due to a variety of reasons and pressure of 

work, used to discourage filing of FIRs in electricity theft cases. Partly they were 

discouraging FIRs in order to keep the crime graph in check. Now hopefully, with 

separate police stations, the regular police stations would also be able to render 

appropriate support without being obsessed by the crime graph figures because the 

fresh cases of electricity theft would be registered in these special police stations. 

In electricity theft prone areas, the DISCOMs are gradually opting for aerial bunch 

cables (ABC). Though the cost of these conductors is about 50 per cent higher, they 

have given good results and tapping directly from the LT lines, which was so common 

earlier, has substantially reduced wherever ABC have been installed. For agricultural 

consumers, meters are being installed on transformers to discourage tampering with 

the meters installed on individual service connections. 

6.26

Rajasthan 

FINANCIAL 


6.27 

(Rs crore) 

Particulars 1995 

-96 

1996 

-97 

1997 

-98 

1998 

-99 

1999 

-00 

2001 

-02 

2002 

-03 

2003 

-04 

2004 

-05 

2092 2513 3118 3034 3587 4501 4665 4772 5269 

PBT (Loss) (without 

subvention) 

(430) (498) (640) (1041) (1678) (1291) (1582) (1754) (2014) 

PAT/(Loss) (without 

subvention) 

(430) (498) (640) (1041) (1678) (1291) (1582) (1754) (2014) 

Interest and finance 

charges 

548.76 636.73 753.48 807.86 994.00 1315.43 1278.99 1305.69 1207.80 

Wages and salaries 339.87 382.61 469.70 553.39 628.95 639.88 650.20 688.97 712.11 

Equity 

Debt outstanding 

913.09 1027.59 1774.59 1774.59 1774.59 2137.59 2469.59 2751.59 3099.59 

(Including STL*, 

excluding State 

Govt. loans) 

3755 4318 3371 4354 5606 8684 10356 11384 12577 

Net worth 799 1051 1945 2154 2299 2491.95 3111.31 3726.53 4464.24 

Return on net worth 

# 

- - - - - - - - - 

Govt. subsidy (recd. 

during the year) 

226 442 40 105 259 264 578 825 1175 

APDRP incentive - - - - - - - 138 - 

# The companies are required to operate on no-profit no-loss basis. Since there cannot be any 

profit/loss, hence, question of any return does not arise. The revenue gap (income-expenditure), if 

any, is treated as subvention receivable from Government of Rajasthan. 

* ShortTterm Loan 

COMMENTS 

The losses are rising in the post-restructuring period. The accumulated losses of the 

earlier four years were Rs 3,857 crore while in the post-restructuring period, the 

losses in the first four years have touched Rs 6,641 crore. Inevitably such heavy 

losses are bound to adversely affect the net worth. However, the DISCOMs are 

claiming that subvention is “expected” from the Government. Hence, according to 

them, their net worth has not eroded. 

State Allocations to Power Sector 

Allocation to Power Sector as Percentage of Total State Plan 

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 

-91 -92 -93 -94 -95 -96 -97 -98 -99 -00 01 -02 -03 -04 -05 -06 

18 18 19 20 11 11 5 5 6 6 6 26.01 31.14 38.01 29.64 27.14

COMMENTS 



The share of the State’s allocations for the power sector was ranging between 18 to 20 

per cent during 1990-94. It recorded a steep decline for the next eight years and the 

allocations were ranging between 5 to 7 per cent from 1996-97 to 2001-02. After this, 

from 2001-02, there has been again a sharp rise in the State’s allocations. Substantial 

funds have been allocated for the expansion of thermal stations also. The financial 

position of the State Government has also registered a remarkable improvement 

during the last three years and consequently the State Government has been somewhat 

more generous in allocating funds for the power sector. The power purchase bills of 

DISCOMs have gone up very substantially and consequently the State Government 

had to come to the rescue of the DISCOMs, particularly as it had committed to the 

agricultural consumers that it would increase the power supply from six to eight hours 

per day. 

Particulars 

Revenue 

(industrial 

consumers) 

Percentage 

reduction* 

Percentage of Revenue from Industrial Consumers 

1996 

-97 

*compared to previous year 

1997 

-98 

1998 

-99 

1999 

-00 

6.28 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

69 69 65 63 58 53 52 51 51 

2 - 4 2 5 5 -1.89 -1.92 - 

Over the years, the industrial consumers have been bearing the brunt of crosssubsidies. 

Their tariffs have risen sharply. Hence, all over the country, the industrial 

consumers are switching over to captive plants. The revenue from industrial 

consumers, which used to be 71 per cent of the total revenue in 1995-96, had reduced 

to barely 58 per cent by 2000-01. After restructuring, there is a further reduction by 

five per cent. By 2004-05, this has come down to 51 per cent. Even then, the 

DISCOMs do not appear to display any proactive approach in arresting this declining 

trend. Unless special efforts are made to attract industrial consumers, the revenue from 

the industrial sector is likely to reduce further, which will worsen the financial 

position of the DISCOMs. 

Annual Revenue 

Total Revenue of the State Power Sector 

2004 

-05 

(Rs crore) 

Particulars 

1995 

-96 

1996 

-97 

1997 

-98 

1998 

-99 

1999 

-00 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

2004 

-05 

Revenue 2373 2801 3338 3407 3797 4496 4722 4933 5007 5618 

Increase (%) 18.03 19.71 2.06 11.44 18.40 - 4.46 1.49 12.21

Rajasthan 

The trend of revenue increase on annual basis has been much higher during the prerestructuring 

period than in the post-restructuring period. In three out of five years 

(pre-structuring), the percentage of annual revenue increase was ranging between 18 

to 20 per cent. In the post-restructuring period, in three out of five years, the increase 

did not go beyond five per cent. Rather, in 2001-02, for the first time there was a 

negative growth. There were only two tariff increases during this period and as a 

result of these tariff orders of the Regulatory Commission, the increase has been 

around 12 per cent in 2001-02 and again similar increase in 2004-05. 

Percentage of Revenue Collection 

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 

-96 -97 -98 -99 -00 -01 -02 -03 -04 -05 

95.42 95.41 100.17 99.62 98.18 98.17 100.09 98.88 98.94 98.49 

The percentage of revenue collection has been traditionally very good in Rajasthan. 

During the four years preceding the restructuring, the percentage of revenue collection 

ranged from 98 to 100 per cent. In post-restructuring period, for two years while 

maintaining the tempo, the increase was marginally higher than 100 per cent. But in 

the subsequent years, there is a slight decline. This is reflective of a soft approach on 

the part of DISCOMs. In 2002, the Government has directed the DISCOMs not to 

recover the increased minimum charges in rural areas. 

Outstanding Dues against Consumers* 

6.29 

(Rs crore) 

1996 1997 1998 1999 2000 2001 2002 2003 2004 

-97 -98 -99 -00 -01 -02 -03 -04 -05 

364.29 477.83 472.60 481.21 546.01 667.27 723.48 801.14 364.29 

*Net of provision for Doubtful debts. 

Deficit (Without Subsidy) 

(Rs crore) 

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 

-96 -97 -98 -99 -00 -01 -02 -03 -04 -05 

430 498 639 1041 1678 1578 1291 1582 1754 2014 

Immediately after the restructuring, due to the cleaning up of the balance sheets, etc., 

the deficit recorded some reduction but after that it is increasing. Even after six years 

of restructuring and pumping in sizeable investments, the results are not 

commensurate with the investments made in the sector.

Year-wise Position of Loans Raised 



Loans Raised 

6.30 

(Rs crore) 

1996 1997 1998 1999 2000 2001 2002 2003 2004 

-97 -98 -99 -2000 -01 -02 -03 -04 -05 

Long-term 837.88 942.62 1025.78 1160.02 1459.00 1584 1923 1001 1218 

Short-term - 50.00 348.00 810.00 1085.00 1725 2233 2681 2681 

Total 837.88 992.62 1373.78 1970.02 2544.00 3309 4156 3682 3899 

Total of four years Rs 5174.00 

Long-term loans are mounting year after year. After restructuring, the figure of 

accumulated loans has shot up by nearly 80 per cent. The rise in the short-term loans 

is really alarming. From a figure of Rs 681 crore at the time of restructuring, it has 

shot up to Rs 4,291 crore. 

During the four-year period prior to restructuring, total amount of loans obtained by 

RSEB was Rs 5,174 crore while in the very first year after restructuring, the loan 

amount was Rs 2,544 crore. 

Restructuring of the State power sector may have taken place in other areas but the 

financial wing continues to be centralised. On paper, each company has its separate 

financial wing but de facto, the central financial wing of RRVPNL is acting as a 

unified entity and in spite of multitude of constraints, it has managed the affairs well. 

It has been able to avoid defaults in payment and maintain a façade of regular 

payments. But the financial management cannot be divorced from the field level 

working of the companies. With high T&D losses and increasing electricity thefts, 

losses are on the increase. The most disturbing part is that short-term loans are rising 

faster than the long-term loans. Long-term loans can be justified for capital investment 

and asset creation but short-term loans are merely indicative of deficit funding. Very 

often, the funds are borrowed merely to repay past loans. The interest burden is also 

staggering. 

Revenue % from Sale of Electricity- Consumer Category-wise 

Category 2001-02 2002-03 2003-04 2004-05 

Domestic 20.64 21.26 21.64 21.58 

Commercial 11.37 11.79 12.05 11.89 

Agriculture 10.49 10.66 10.83 11.73 

Industrial 53.12 52.23 51.43 50.98 

Others 4.38 4.06 4.05 3.82

Rajasthan 

Investments made to Improve Distribution Efficiency 

(Rs crore) 

Particulars 

1995 

-96 

1996 

-97 

1997 

-98 

1998 

-99 

1999 

-2000 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

New capacity 229 227 191 188 101 NA NA NA NA 


distribution systems 

114 135 141 161 219 NA NA NA NA 

Billing system NIL NIL NIL NIL NIL NIL NIL NIL NIL 

Particulars 

1996 

-97 

Total Capital Investment 

1997 

-98 

1998 

-99 

6.31 

1999 

-2000 

2001 

-02 

2002 

-03 

2003 

-04 

2004 

-05 

Sector as a 

whole 

975 1076 1120 1203 1584 1890 1263 1421 

DISCOMs 498 475 533 871 

The capital investment shown in the years before restructuring, i.e., RSEB period 

includes investment on generation, transmission and distribution activities while those 

after restructuring in the last row of the above table is in respect of DISCOMs only. 

Funds Released and Expenditure Incurred under APDRP 

(Rs crore) 

Years Funds released Expenditure incurred# 

2002-03 125.64 155.62 

2003-04 219.77 212.49 

2004-05 40.49 277.15 

2005-06* 0.00 251.12 

* up to January 2006 

# expenditure also includes counterpart funds also 

APDRP aimed at reducing T&D losses by developing/improving sub-transmission 

and distribution network and to enhance consumer satisfaction. APDRP cash incentive 

amounting to Rs 137.71 crore was received by the State from Government of India in 

2003-04 (based on performance of the year 2001-02). 

APDRP Funds Utilisation 

DISCOM 

Sanctione 

d cost of 

APDRP 

Schemes 

Revised 


Scheme 

Funds 

released 

by MOP, 

Govt of 

India 

During 

2002- 

03 

Expenditure incurred under APDRP 

during 

2003- 

04 

during 

2004- 

05 

Up to 

March 

06 in 

2005-06 

Total up 

to March 

06 

% 

Achieve 

ment 

(Rs crore) 

Balance 

to be 

incurre 

d 

JAIPUR 650.60 589.36 177.39 106.57 87.44 134.49 205.92 534.42 90.68 54.94 

AJMER 249.09 249.09 93.62 3.820 23.32 67.89 82.83 177.86 71.40 71.23 

JODHPUR 377.27 361.95 114.81 45.23 101.73 74.77 84.58 306.31 84.63 55.64 

TOTAL 1276.96 1200.40 385.83 155.62 212.49 277.15 373.34 1018.60 84.85 181.81



Feeder Renovation Programme is one of the major activities under the APDRP. The 

return on investment is likely to be repaid within two to three years. 

Year-wise AT&C Losses 

AT&C Losses (%) 

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 

-96 -97 -98 -99 -00 -01 -02 -03 -04 -05 

28.31 24.93 26.46 29.43 42 38.36 37.66 39.83 41.5 41.73 

Note: The main reason for sharp variation is that in erstwhile RSEB, the consumption in respect of 

flat rate agriculture consumers (included in billed energy) was computed on the basis of 

number of supply hours, whereas after restructuring the same is worked out as per the 

formula prescribed by the Commission from time to time based on connected load of such 

consumers. 

Measures Implemented by DISCOMs for Reducing AT&C Losses 

T&D loss Reduction in Rural Areas Through 11 kV Feeder Renovation Programme 

(Rs crore) 

DISCOM 


Feeders 

11 kV Feeders under FRP (Targets and Investment Plan) 

2005-06 2006-07 2007-08 2008-09 Total 

Investment No. of 

Feeders 

Investment 

6.32 


Feeders 

Investment Investment 


Feeders 

Investment 

Jaipur 350 304 1000 500 850 300 0 2200 1104 

Ajmer 275 250 1300 450 1400 500 225 2975 1425 

Jodhpur 500 200 1250 500 1550 500 185 3300 1385 

Total 1125 754 3550 1450 3800 1300 410 8475 3914 

Shortage of Staff 

Total number of Employees in DISCOMs 

2002-03 2003-04 2004-05 2005-06 

39180 38330 36719 36833 

Long before restructuring, recruitment had almost been stopped in RSEB. The same 

ban continues even now. In the past, in spite of the ban, there used to be lot of back 

door entry through temporary appointments which had to be subsequently converted 

into regular appointments but there is more strictness on recruitment now. With the 

fast increasing number of consumers and a plethora of additional duties, as also the 

fact that the number of aged officers and staff is much higher in the power companies, 

the shortage of staff is rather acute. But instead of mechanically filling up the posts 

in the traditional manner, this can be an opportunity to outsource many

Rajasthan 

activities. If the regular staff tends to be indifferent, precious little can be done 

but if the staff is on contract basis, it is easier to dispense with their services 

whenever their performance is found wanting. 

Particulars 

Utility-Wise Staff Position (As on 1 April 2005) 

Total sanction 

strength 

6.33 

Existing working 

strength 

Vacancies 

RRVPNL 

(TRANSCO) 

10294 7375 2830 

Jaipur DISCOM 18817 15030 3787 

Jodhpur DISCOM 13764 9467 4297 

Ajmer DISCOM 14354 12508 1846 

RRVUNL (GENCO) 4718 3196 1522 

Grand Total 61947 47576 14282 

Customer Service 

Have you outsourced collection completely? 

DISCOMs are looking for franchisees to take up this work at various levels and 

Government of Rajasthan Lokmitra and Janmitra schemes will cover most of the areas 

of DISCOMs through outsourcing. 

Meter Faults 

FY 

2000-2001 

2001-2002 

2002-2003 

No of 

Metered 

consumers 

Defective Meters 

as on 01.04. During 

the Year 

Year-wise Details of Meter Faults 

THREE DISCOMS 

Replacement of Defective Meters 

Total Defective 

Meters During the 

Year 

Defective Meters 

During the Year 

No. of Meters 

Replaced 

No of Defective 

Meters at the end of 

FY 

1 2 3 4 5 6 7 8 9 10 11 12 

Net % of 

Def. 

Meters 

1 Phase 3 Phase 1 Phase 3 Phase 1 Phase 3 Phase 1 Phase 3 Phase 1 Phase 3 Phase 12*14 

4824830 431109 31792 375590 39236 806699 71028 330720 38624 475979 32404 17.10 

4946029 472293 31886 596419 84230 1068712 116116 929271 94142 139441 21974 5.28 

5054360 139138 21936 556894 81819 696032 103755 589035 85152 106997 18603 3.98 

2003-2004 5402234 114550 19655 469117 68657 583667 88312 387079 56651 196588 31661 6.79 

2004-05 5920705 196588 31661 526088 94020 722676 125681 565094 80044 157582 45637 5.55 

2005-06 6137772 157821 43164 514944 93520 672765 136684 512696 81413 160069 55271 5.65 

COMMENTS 

The percentage of defective meters used to be quite high earlier partly because of 

lesser quantity of supply of new meters. The percentage of defective meters has 

significantly declined in view of the higher availability of meters but still the



performance is far from satisfactory. In absolute terms, the number of defective meters 

has substantially increased. The number of three phase defective meters have 

increased year after year during the last three years. The number of single-phase 

defective meters is also higher compared to last four years. Defective meters adversely 

affect the revenue of the DISCOMs. 

Are electronic meters in place? If yes, the extent of such meters 

For the last several years, long before restructuring, RSEB had stopped procurement 

of electro-mechanical meters and RSEB was among the earliest utilities to introduce 

electronic meters even at the level of domestic consumers. Year after year, only 

electronic meters are being procured. 

Regulation And Tariffs 

Category 

June 

94 to 

Sep 95 

Oct 95 to 

June 97 

Details of Tariff Revision 

Oct 96 to 

June 97 

July 97 to 

Oct. 99 

6.34 

Nov.99 to 

April 2001 

May 2001 

to Jan. 

2005 

Feb. 

2005 to 

continue 

Agriculture 50 50 50 50 70 90 90 90 110 

Percentage increase from 

previous year 

Domestic 

28.57 22.22 

First 50 units month 90 90 112 112 155 170 170 170 195 


previous year 

9.68 14.71 

Next 50 units/ month 100 100 133 133 220 275 275 275 350 


previous year 

25 27.27 

Next 100 units/month 100 100 154 154 220 275 275 275 350 

Next 100 units month 110 110 154 154 220 275 275 275 350 

Balance above 300 units 110 110 165 165 220 275 275 275 350 

Industrial large HT 162 185 205 225 259 401 401 401 401 


previous year 

Industrial LT 

(I) Small Industries. 

54.83 0.00 

Up to 15 HP 112 130 144 164 203 344 344 344 350 


previous year 

69.46 1.74 

Above 15 HP to 25 HP 

(II) MIP 

122 140 154 174 203 344 344 344 350 

25 HP to 100 HP 144 160 184 204 236 372 372 372 375 


previous year 

57.63 0.81 

Above 100 HP to 150 HP 

NDS LT 

(I)Up to 25 KW 

150 165 184 204 236 372 372 372 375 

First 100 units month 145 155 165 185 264 450 450 450 450 


previous year 

70.45 0.00 

Next 100 units month 160 170 190 215 304 490 490 490 490 


previous year 

61.18 0.00 

Next 200 units month 160 170 205 235 304 490 490 490 490

Rajasthan 

Category 

June 

94 to 

Sep 95 

Oct 95 to 

June 97 

Oct 96 to 

June 97 

July 97 to 

Oct. 99 

6.35 

Nov.99 to 

April 2001 

May 2001 

to Jan. 

2005 

Feb. 

2005 to 

continue 

Balance above 400 

units/month 

175 185 205 235 304 490 490 490 490 


previous year 

61.18 0.00 

(II) above 25 KW to 50 KW 

NDS HT 

190 205 225 260 304 490 490 490 490 

First 100 units/month - - - - - 450 450 450 490 

above 100 units/month - - - - - 450 450 450 490 

COMMENTS 

The first tariff order issued by the Regulatory Commission in 2001 permitted the long 

due increase of agricultural tariff by more than 28 per cent. The industrial/commercial 

consumers, however, had to again bear the brunt of substantial increase in tariff, 

which ranged from 54 to 70 per cent. Three years later, in its second tariff order, the 

agricultural tariff was again raised by the Commission by 22.22 per cent. This time, it 

was realised by the Commission that the tariff hikes for industrial/commercial 

consumers were counter-productive and was forcing them to opt for captive plants. 

Hence, virtually no increase was allowed in industrial/commercial rates. The domestic 

tariff was increased by 25 per cent in the second tariff order issued in 2005. 

OPEN ACCESS, MULTI-YEAR TARIFF, POWER TRADING, 

PERFORMANCE STANDARDS AND CUSTOMER RELATED MEASURES 

Open Access 

Only one consumer has been given permission up till now for Open Access by the 

Regulatory Commission. But that party is also facing lot of problems in view of the 

total non cooperative approach of the DISCOMs. The Commission has given some 

relief but the DISCOM is opposing the directions of RERC on this issue. The 

message to others is obvious “do not go for Open Access”. Presently the surcharge 

for availing Open Access is ranging from Rs 1.55 to Rs 1.75 per unit. This is rather 

exorbitant and would discourage requests by other consumers for Open Access. 

Multi Year Tariff 

Section 61(f) of the Electricity Act provides that in specifying the terms and 

conditions for determination of tariff, the Commission shall be guided by the MYT 

principles. Under this Section, RERC has notified the Regulations on the terms and 

conditions of determination of tariff on 15 October 2004. The technical and financial 

parameters in this Regulation have been specified for the period commencing from



first year of the tariff period (i.e., 2004-05) and up to 31 March 2009 for generating 

companies and transmission licensee vide Regulation 12 and from 2006-07 to 2008-09 

vide Regulation 84. Para 5.3(f) of tariff policy requires MYT frame work to be 

adopted for any tariff to be determined from April 1,2006 and initial control period 

may be for three years duration and that in case of lack of reliable data, the 

appropriate Commission may state assumptions in MYT for first control period. 

GENCO, TRANSCO and DISCOMs have filed ARR/tariff petition for 2006-07. They 

have been directed by the Commission to file tariff petition/ARR for the control 

period, the same is awaited. 

In respect of generation, station tariff is fixed power station-wise and their capital 

cost, all operating parameters including operation and maintenance (O&M) and index 

for evaluation of O&M are specified on normative basis. Variation in cost of fuel will 

be covered by fuel price adjustment clause. As such for the generating stations, tariff 

can be determined for the control period following the MYT. 

In case of transmission system, the Central Electricity Regulatory Commission 

(CERC) follows determination of tariff transmission project-wise. Tariff for 

transmission of power by Power Grid is the summation of tariff determined for 

various transmission projects. As capital cost for the lines and sub-stations, covered 

under each project, is fixed with its commissioning and O&M charges and its 

escalation is determined on normative basis, it is feasible to determine the tariff for 

each project valid for the control period. In the States, a number of lines and substations 

are added by the transmission system. The lines and sub-stations do not form 

part of the project but are decided in the Annual Plan. As such, the States cannot 

adopt the policy of CERC as their tariffs will have to be determined for each line and 

sub-station and then summed up for hundreds of such lines and sub-stations. The 

concerned State Commission determines the transmission tariff, based on assets 

created at the end of previous year, likely to be created during the current year and 

ensuing year. Long-term projection for capital addition in transmission system is not 

precisely feasible and as such any transmission tariff determined for the control period 

will have conditionality of investment, their debt equity ratio, interest and financing 

charges, etc. On account of this, though tariff will be determined for the control 

period, it will undergo review/revision annually, if, investment, interest and finance 

charges, etc., are different from that assessed. 

6.36

Rajasthan 

In respect of distribution, besides aspect of capital addition, there are number of other 

factors affecting tariff, namely: T&D loss reduction, growth of load, consumer mix, 

etc. Tariff determined for the control period will have more conditionalities and may 

have to be fine tuned annually. 

The MYT determination will have the advantage of giving trend of expenses, revenue 

and tariff for future. In cases where tariff determined for a year is high and reduction 

is anticipated later, tariff can be reduced. 

MYT is certainly a desirable concept, which should take roots in due course, but 

particularly for DISCOMs, it is rather premature. DISCOMs are passing through a 

transitional phase. The regulatory mechanism is yet to fully register with the public 

representatives. Reduction of subsidies is a very sensitive subject. Publishing in 

advance the reduced subsidies in future may unnecessarily scare them and the political 

parties in the Opposition would highlight such increased future tariff. A tariff for 

which the Government may agree soon after the elections may not be palatable to the 

same Government on the eve of elections. Tariff fixation is not merely an accounting 

exercise. It is also a part of long-term strategy. Therefore, the experiment of multiyear 

tariff should be gradually introduced. 

Power Trading 

RERC has notified its Regulation on licensing of the traders. According to Regulation 

3, an inter-State trader, issued license by CERC, will not be required to take license 

for sale or purchase of electricity within the State. He will, however, abide by 

provisions of Regulations 26 and 29 regarding submission of information and 

redressal mechanism. Presently, there is little likelihood of any trader operating only 

within the State of Rajasthan. At a later date, when Open Access is extended below 1 

MW and traders enter into supply to retail consumers, such a situation may arise. 

Performance Standards 

Regulations regarding distribution licensee’s standard of performance were notified 

on 29 March 2003. Provision has been made for registration of every complaint. A 

time limit has been fixed for disposal of complaints. Complaint redressal meetings are 

to be held on 10 th of every month at the level of Assistant Engineer and 20 th of every 

month at the level of Superintending Engineer. Distribution transformers have to be 

rectified or replaced within two days of complaint in the urban areas and within three 

6.37



days in the rural areas. In case of power transformers, this limit is seven days. 

Schedule outage is to be notified to the public in advance. Time limit has been fixed 

for release of various categories of electric connections. 

Consumer Related Measures 

Consumers Call Centres have been established to track the status of no current 

complaint handling at all District Headquarters. 

For day-to-day grievances, Consumers Service Centres are being established to handle 

redressal of grievances relating to new connections, wrong billing, defective meters, 

loose wires, replacement of burnt transformers, line shifting, load extension, etc. 

Spot billing is being introduced to eliminate grievances related to wrong reading, 

distribution of bills and to enable the consumers to calculate bill amount on their own 

with bill calculator available on website with the billing status, payment status, 

consumption pattern, etc. 

Subsidy/Cash support received from State Government 

(Rs crore) 

Sl. 

No. 

Particulars 

1996 

-97 

1997 

-98 

1998 

-99 

1999 

-00 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

2004 

-05 

2005 

-06 

1 Retention of ED NA 0 0 192 41.00 82.66 79.54 103.00 178.84 190.64 

2 

Interest Subsidy 

on WB Loan 

NA 0 0 0 0.00 0.79 0.77 1.84 3.83 4.52 

3 

Interest Subsidy 

on RSEB Bonds 

NA 12.92 12.92 12.92 0.00 0.42 0.26 0.07 0.00 0.00 

4 

Cash support from 

State Government 

Subvention against 

NA NA NA NA 0.00 0.00 72.17 145.00 146.44 145.28 

5 stamp duty & land 

building tax 

Subvention against 

NA NA NA NA 0.00 0.00 0.00 3.42 1.00 0.00 

6 non-revision of 

tariff 

NA NA NA NA 0.00 0.00 0.00 0.00 81.02 0.00 

7 Equity Share NA NA NA NA 0.00 0.00 15.00 15.00 60.00 80.00 

Total A 41.00 83.87 167.74 268.33 471.13 420.44 

6.38

Rajasthan 

Financial 

year 

Revenue Deficit of Power Sector (From 1997-98 to 2005-06) 

Revenue Expenditure Deficit 

6.39 

(Rs crore) 

Unfunded deficit minus 

cash subsidy provided by 

Government of Rajasthan 

1997-98 3,338 3,978 640 600 

1998-99 3,406 4,448 1,042 940 

1999-00 3,788 5,462 1,674 1413 

2000-01 4,646 6,227 1,581 1180 

2001-02 5,015 6,307 1,292 1024 

2002-03 5,329 6,910 1,581 1002 

2003-04 5,290 7,042 1,752 929 

2004-05 5,695 7,711 2,016 837 

2005-06 6,724 8,429 1,705 818 

Financial 

year 

Opening 

balance 

Long Term Loans 

Receipt Repayment Net receipt 

(Rs crore) 

Closing 

balance 

1997-98 2,577 943 199 744 3,321 

1998-99 3,321 1,027 253 774 4,095 

1999-00 4,095 1,162 327 835 4,930 

2000-01 4,930 1,445 369 1,076 6,006 

2001-02 6,006 1,583 526 1,057 7,063 

2002-03 7,063 1,922 842 1,080 8,143 

2003-04 8,143 1,002 1,069 (67) 8,076 

2004-05 8,076 1,217 1,008 209 8,285 

2005-06 8,285 1,909 1,385 524 8,809 

Note: Excluding State Government loans of Rs 792 crore. 

Long-term loans are mounting year after year. After restructuring, the figure of 

accumulated loans has risen by nearly 80 per cent. 

Financial 

year 

Opening 

balance 

Short Term Loans 

Receipt Repayment Net receipt 

(Rs crore) 

Closing 

balance 

1997-98 0 50 0 50 50 

1998-99 50 349 138 211 261 

1999-00 261 811 391 420 681 

2000-01 681 1,083 663 420 1,101 

2001-02 1,101 1,727 1,205 522 1,623 

2002-03 1,623 2,231 1,642 589 2,212 

2003-04 2,212 2,680 1,585 1,097 3,309 

2004-05 4,291 2,654 1,698 982 4,291



The rise in the short-term loans is really alarming. From a figure of Rs 681 crore at the 

time of restructuring, it has risen to Rs 4,291 crore 

Year 

Debt Servicing 

Repayment 

(including of STLs) 

6.40 

Interest Total 

1997-98 200 999 1,199 

1998-99 390 1,086 1,476 

1999-00 720 1295 2,015 

2000-01 1,031 1,307 2,338 

2001-02 1,730 1,331 3,061 

2002-03 2,482 1,316 3,798 

2003-04 2,656 1,303 3,959 

2004-05 2,705 1,289 3,994 

2005-06 3329 1230 4559 

COMMENTS 

(Rs crore) 

The burden of debt servicing is indeed staggering. From a figure of Rs 2,015 

crore at the time of restructuring, the debt servicing liability has reached Rs 

4,559 crore – a jump of 126 per cent. The tight rope walking through which the 

debt servicing is being done is fraught with great risk. Unless there is genuine 

improvement in the working, such window dressing is not sustainable for long. 

Instead of deferring the problems, the Government will have to initiate bold measures 

to check the steep fall in the performance of DISCOMs. 

ROLE OF THE STATE GOVERNMENT 

Whether policies of the State Government with respect to electricity pricing and 

subsidies transparent, promote competition in the market and facilitate the company 

in controlling theft? 

For controlling theft, etc., much needs to be done at the Government level. Its 

approach has been at best lukewarm on this front. In matters relating to agricultural 

consumers, there is need for greater transparency.

Rajasthan 

Goals and Strategies of the MOU 

MOU was signed between the Energy Department, Rajasthan Government and 

Ministry of Power, Government of India on 23 March 2001. Substantial progress has 

been made by the State Government on many fronts. Particularly the capacity addition 

programme in generation has moved very fast and three units have been added to 

STPS, raising the generation capacity by 750 MW. The plant load factor of KTPS was 

envisaged to be beyond 85 per cent in 2001-02 and that of STPS beyond 80 per cent. 

The GENCO has succeeded in bringing the PLF of KTPS at 90.06 per cent and that of 

STPS at 90.88 per cent in 2005-06. 

One 220 kV grid sub-station (GSS) and eleven 132 kV GSSs were planned to be 

established in 2001-02. The targets have been exceeded and similarly the target of 3 

new 220 kV GSS and 18 new 132 kV GSS in 2002-03 has also been achieved. For 

energy audit as per MOU, inter-company boundary metering has been provided and 

energy audit has been started. On metering of feeders, substantial work has been done. 

Jodhpur and Ajmer DISCOM have already achieved the target and by August 2006, 

Jaipur DISCOM would also achieve the target of 100 per cent metering of 11 kV 

feeders. 

Regarding 100 per cent consumer metering, no new connections in any of the 

consumer categories are being released without meters. The flat rate agricultural 

consumers are also being gradually converted into metered category though this is 

facing resistance for a variety of reasons. Till now, 1,51,824 number of flat rate 

connections have been converted into metered category in urban/rural areas. Similarly, 

meters have been provided on all flat rate domestic service connections in rural areas. 

As per the MoU, the State Government was to notify the Final Transfer Scheme in so 

far as it relates to allocation of assets and liabilities of erstwhile RSEB. The 

Government has issued appropriate amendments in the Transfer Scheme on 18 

January 2002 and with these amendments, the Transfer Scheme has become final. 

So far as the promises of the Government of India are concerned, on some of the 

issues the progress is somewhat slow. As promised in the MOU, special allocation of 

one-third capacity of Anta gas power station (GPS), i.e., 112 MW withdrawn by the 

Ministry of Power in 1999 has not been restored. The Ministry of Power had also 

promised 100 MW surplus power from the Eastern Grid to Rajasthan but only 30 MW 

has been allotted on firm basis wef 14 December 2005. The Power Ministry had also 

6.41



promised that the share of Rajasthan in the unallocated power of central generating 

stations will not fall below 25 per cent but the average of Rajasthan is presently 20.29 

per cent only. 

Policy on Captive Power Generation Before and After the Reforms 

Captive generation is not being welcomed by the DISCOMs because they perceive it 

as a threat to their revenue. Since the Electricity Act has very much liberalised the 

definition of captive generation, directly the DISCOMs can do precious little to 

check the growth of captive plants but indirectly they try to create hurdles. They 

are not able to fully meet the power requirement of the industries and subjecting them 

to frequent power cuts and yet they discourage captive power generation by the 

private companies. 

A captive power plant (CPP) may have adequate generation capacity for its industrial 

unit but for reasons of added safety, it would still like to be connected with the 

DISCOM system so that it can draw power in case of shutdown, annual maintenance, 

etc. Such a consumer has to have full contract demand so that he can operate his plant 

and machinery in case of emergency. The age old minimum charges were conceived 

for consumers who were supposed to draw power on regular basis and if they did 

not draw power, the DISCOMs rightly charged minimum charges for the system 

remaining idle. However, the present scenario is totally different where a 

mechanical application of the old rules and procedure may lead to gross 

injustice. Formerly every consumer would take DISCOM connection for regular 

consumption of power but the captive plants and open access consumers have no 

intention to use the power of DISCOMs on a regular basis. Levying the same 

minimum charges from an occasional consumer (as for a regular consumer) is 

rather too harsh, which deters the growth of captive plants and Open Access 

consumers. A case has been noticed in Rajasthan where a consumer having a 

captive plant of more than 150 MW has to shut down his plant for some duration 

every month so as to consume power from the DISCOM system equal to the 

minimum charges payable by him. This creates double loss of power. Firstly, the 

generation of 150 MW is lost because the captive plant is compelled to shut down. 

Secondly, the CPP connected industrial unit draws 150 MW from the DISCOM 

system to utilise its minimum charges. Had such a restriction not been in place, this 

150 MW could be supplied by the DISCOM to other needy industrial consumers. In 

the ultimate analysis, even if minimum charges are not levied from captive plants and 

6.42

Rajasthan 

Open Access consumers, the DISCOMs would not lose and they would be able to sell 

the available power to other industries. Many other cases have also come to notice in 

Rajasthan where the captive plants have to either shut down or reduce their generation 

to satisfy the conditions put forth by the DISCOMs. 

It is strange that, on the one hand, the Ministry of Power, Government of India is 

trying to encourage the captive plants to run round the clock so that if necessary they 

can inject the surplus power in the grid and, on the other, the outdated provisions 

regarding the minimum charges compel the captive plant owners to shut down 

their plants or to substantially reduce their generation in order to utilise the 

power equivalent to the minimum charges to be paid by them to the concerned 

DISCOM. 

In order to encourage the captive plants, it could be laid down that only energy 

charges would be levied from them as and when they use power – may be the 

energy charges could be 10 per cent higher than the normal energy charges. If 

such a provision is introduced, it will encourage the captive power plants in a big way 

and the DISCOMs will have the benefit of additional generation available through 

CPPs without extra investment made to enhance the generating capacity. Such a 

concession will not have any adverse financial impact on the DISCOMs – rather their 

availability of power will improve. Way back in 1995, RSEB took such a forward 

looking view and exempted such CPPs from minimum charges. In emergency, 

whenever they used RSEB power, they were charged on temporary power tariff basis. 

IMPLEMENTATION OF PROVISIONS OF THE THE ELECTRICITY ACT, 

2003 

The status of implementation of certain provisions of the EA, 2003 is as under: 

Section (172): Separation of Transmission Utility 

With the notification of the ‘Rajasthan Power Sector Reforms Transfer Scheme’ 2000, 

on 19 July 2000, the assets, liabilities and personnel of the erstwhile RSEB have been 

transferred to the newly incorporated five companies namely a GENCO (RRVUNL), a 

TRANSCO (RRVPNL) and three DISCOMs, viz., Jaipur VVNL, Ajmer VVNL and 

Jodhpur VVNL. Separation of functions of trading from TRANSCO (RVPNL) was 

effected with effect from 1 April 2004 vide Notification dated 28 February 2004. 

6.43



By this Notification, the rights relating to procurement and bulk supply of electricity 

were transferred from TRANSCO to the three DISCOMs. 

For separating power trading function from TRANSCO w.e.f. 1 April 2004, the 

Government of Rajasthan created the Rajasthan Power Procurement Centre on 1 

March 2004. The RPPC works under the guidance of a Directional Committee headed 

by Chairman, DISCOMs and comprises of all MDs of DISCOMs. The Chief Engineer 

(CE), RPPC who is the overall administrative and functional in charge of RPPC is the 

Member Secretary of the Committee. 

Section 42(5): Forum for Redressal of Consumer Grievances 

At present the following committees have been constituted for redressal of consumer 

grievances. 

Sub-divisional/Circle/SDO/ Collector level committee 

Sub-div. Level 

Committee 

Internal Forum External Forum 

Circle Level 

Committee 

6.44 

SDO Level 

Committee 

Collector Level 

Committee 

(Monthly Meeting) (Monthly Meeting) (Weekly Meeting) (Monthly Meeting) 

District Level Forum: Constituted by the Regulatory Commission under clause 51 of 

Terms and Condition of Supply of Electricity 2004 (in pursuance of section 42 (5). 

Settlement Committees 

During the pre-restructuring period, the RSEB had set up Settlement Committees, 

which were very successful. Every year, a large number of cases used to be disposed 

of by these committees. These committees provided an efficient and a cost effective 

mechanism for redressal of grievances and consequently the institution of cases in the 

various Courts was significantly reduced. This mechanism continues even now in 

Rajasthan. 

The disposal of cases by the five tier settlement committees is quite impressive as 

would be seen from the following table:

Rajasthan 

Corporate 

level 

Cases Settled in Settlement committee at 

Chief 

engineer 

Circle Division 

6.45 

Subdivision 

Total 

cases 

settled 

2001-02 145 623 3338 5975 1628 11709 

2002-03 135 671 3515 10802 1781 16904 

2003-04 106 440 3401 10353 1579 15879 

2004-05 127 467 2620 9813 1623 14650 

Apart from the above, a full-fledged division at the corporate level under Executive 

Engineer (Grievance) is in operation to receive and redress all type of grievances from 

general consumers regularly. 

Ombudsman 

This institution has been constituted under clause 53 of Terms and Condition of 

Supply of Electricity, 2004. Any consumer, aggrieved by non-redressal of his 

grievance, may under Clause 51 or 52 make representation for redressal of his 

grievance to the ombudsman, appointed by the Commission. The Divisional 

Commissioners, located at the headquarters of the DISCOMs, i.e., Jaipur, Jodhpur and 

Ajmer, have been designated as ex-officio ombudsmen. Each ombudsman is assisted 

by a retired engineer. They are supposed to dispose of the complaints within 90 days. 

i) The grievance redressal mechanism except the Settlement Committees is very 

weak. If the committees function with a judicial approach, they would inspire 

confidence and the consumers would prefer to approach them rather than rush to 

Courts. On the other hand, if a deliberately biased and pro-DISCOM view is 

taken by these committees, as appears to be the latest trend then the consumers 

would lose faith in such committees and this is what has happened gradually. 

Purely internal committees of the DISCOMs do not inspire the due confidence. 

Under Section 42(6) of the EA, 2003, the Ombudsman is the first independent 

authority to handle such disputes. Since Clause (5) of this Section lays down that 

prior to approaching the Ombudsman, the channel of internal committee must be 

exhausted, this provision has rendered the institution of Ombudsman nonfunctional. 

Out of three Ombudsmen appointed in Rajasthan, one has not handled 

any matter and another has decided just one case and the third has decided barely 

four cases, since they were appointed. There are no pending cases with 

Ombudsmen. The reason is obvious. The Ombudsman has no jurisdiction to



entertain disputes directly and the consumer is totally tired and frustrated by the 

time he exhausts the internal grievance redressal channels. This mechanism tends 

to be slow, biased and unresponsive. 

ii) During discussions with the Chairman and the Members of the Rajasthan 

Regulatory Commission, it was suggested that instead of the consumer being 

required to go through the series of internal channels, there should be only one 

channel to be crossed before he can approach the Ombudsman. There is a 

separate forum for redressal of grievances at the district level and at the corporate 

level. The consumer is required to exhaust all these channels before he can 

approach the Ombudsman. It was also mentioned that on the pattern of the 

Settlement Committees, perhaps based on the disputed amount and the type of 

grievance, there could be a division of functions between the District Forum and 

the Corporate Forum so that the consumer is not required to approach first the 

District Forum and then the Corporate Forum. Secondly, it was suggested that in 

order to check deliberate delays at the level of DISCOMs, it should be clearly 

laid down that if the matter is not resolved within 30 days from the submission of 

grievance, the concerned Internal Grievance Redressal Committee will cease to 

have jurisdiction and the Ombudsman can directly take cognisance of such 

matters. This matter was also discussed with all three Ombudsmen and they were 

lamenting that they are virtually non-functional because of the existing 

provisions. 

Section 135: implementation of anti-theft measures 

Government of Rajasthan has notified 34 anti-theft police stations out of which 15 

have started w.e.f. 1 April 2006 and the remaining are to start very shortly. 

Ariel bunch conductors are being installed in theft prone areas. 

Open Access 

As in captive generating plants, similar non-cooperative approach is being faced 

by Open Access consumers. They too as abundant precaution prefer to have a 

connection from the DISCOM for emergency purposes. They are also subjected to the 

same illogical minimum charges. They too have to unnecessarily consume power 

equal to the amount of minimum charges from the DISCOM. Additional power would 

6.46

Rajasthan 

be available to other consumers if they were allowed to use grid power only in case of 

emergency and not subjected to heavy minimum charges. 

RERC was amongst the earliest Commissions to enact regulations regarding captive 

plants and Open Access. 

Suggestions for further improvements 

Member, Judicial/Legal in State Regulatory Commissions 

Section 84(1) of the EA, 2003 states that the Chairman/Members of the Commission 

should have knowledge of engineering, law, etc. Since complex issues of law are also 

raised before the Commission, very often they are handicapped if neither the 

Chairman nor the Members have legal or judicial background. At least one member 

with a legal/judicial background should be mandatory. Section 112(2)(b) of the EA, 

2003 states “provided that every bench constituted under this clause shall include at 

least one judicial member and one technical member”. Similar provision should be 

laid down for the State Regulatory Commission also, if not for each bench. 

Composition of Selection Committee for Chairman/Member of State Commission 

Section 85 of the Electricity Act deals with the composition of the selection 

committee for selecting the members. The Chief Secretary is one of the members of 

the Selection Committee. In many States, the Commission gives the impression of 

tilting too much in favour of the Government. In order to ensure greater independence, 

it may be desirable not to have the Chief Secretary as a member of the Selection 

Committee. The State Commissions are discharging the role, which used to be 

discharged earlier by the High Courts. Their independence is very vital for the orderly 

and balanced growth of the power sector. Unless there is a level playing field for all 

the players, the monopoly regime of pre-Electricity Act will continue to exist. Under 

Section 85(c), either chairperson of the authority or the Central Commission is to be 

one of the members. It may be desirable to have both of them as members and 

withdraw the Chief Secretary as a member. 

6.47



Chairperson of the Selection Committee for State Commissions 

Since the Chairperson of the Appellate Tribunal is of the rank of a Judge of the 

Supreme Court or Chief Justice of the High Court, it may be desirable that the 

Selection Committee for the SERC, under Section 85(1)(a), should also be headed by 

a retired Judge of the Supreme Court or a retired Chief Justice of the High Court 

because it would be odd to have the Chairperson of the Selection Committee being 

junior to one of the members, i.e., Chairperson of the Appellate Tribunal. 

Second Term for Chairman/Members of Appellate Tribunal 

Section 89(1) specifies a 5 years term of Chairperson/Members of the Commission. 

However, Section 114 specifies a term of three years for the Chairperson and the 

Members of the Appellate Authority. They are eligible for a second term of three 

years. One time appointment, with no provision for extension or reappointment or 

second term for the Members of the Commission including the Chairman was laid 

down to ensure their independence. Once appointed, they do not have to look forward 

for a second term. The same logic applies with greater force for appointments in the 

Appellate Tribunal. The Chairman or Member should be appointed for a term of 5 

years or 6 years at a time with no provision for a second term. 

Difference in upper age limit of Chairman and Members of Appellate Tribunal 

The upper age limit for the Chairpersons and the Members of the Commission is the 

same but not so in the case of Appellate Tribunal. In the case of Appellate Tribunal, 

the upper age limit for the Chairperson is 70 years while for the Members it is 65 

years. There is no logic for this. Assuming that the higher age of 70 years has been 

kept for the Chairperson as retired Judges of the Supreme Court or Chief Justices of 

the High Court are likely to be appointed. Since retired Judges can also be appointed 

as Members, there is no logic for keeping the upper age limit of the Members lower 

than that of the Chairperson. 

Capital subsidy 

In case the State Government requires any reduction in tariff for supply of electricity 

to any consumer as determined by the State Commission under Section 62 of the EA, 

2003, , it has to provide subsidy. However, in respect of any such reduction effected 

by the State Government in respect of charges specified vide Section 46, 47 and 50 of 

6.48

Rajasthan 

the EA, 2003 through policy directive under Section 108 or otherwise, the State 

Government is not required to provide capital subsidy. This does not appear to be 

correct because both have similar financial implications for the licensee. This section 

needs be amended. After the word “Section 67, the words “and charges determined 

under section 46, 47 and 50” should be added. 

Constitution of fund for the State Commission 

For ensuring independence of the Commissions, Section 103 of the EA, 2003 lays 

down the requirement of creating a separate fund. This fund has not been created as 

yet in Rajasthan. This leads to too much of dependence of the Commission on the 

State Government. There is a need to lay down a time limit for creation of such a 

fund. 

Powers of Civil Courts for the Commissions: 

Under Section 120(3) of the EA, 2003, an order of the Appellate Tribunal shall be 

executable as a decree of a Civil Court but analogous powers have not been conferred 

upon the Commissions. It would, therefore, be desirable that in Section 94 also, 

powers analogous to Section 120(3) and (4) are incorporated to enable the 

Commission to enforce its order regarding imposition of fines, award of 

compensation, etc., without moving to a Civil Court. 

Appeals Against Orders of the Ombudsman 

There is no provision for appeal against the order of the Ombudsman. The Regulatory 

Commission should have the right to hear appeals against the decisions of the 

Ombudsman. 

General Superintendence of the Commission over Ombudsman 

Under Section 121 of the EA, 2003 the Chairperson of the Appellate Tribunal 

exercises general power of superintendence and control over the State Commissions. 

Similar provision should be incorporated for supervision by the Commission over the 

working of the Ombudsman. 

6.49

Direct jurisdiction of Ombudsman in emergent matters 



In matters involving revenue, the DISCOMs generally tend to take a pro-revenue 

approach and very often consumers have no faith in fairness of their approach. The 

internal channels are useful in initial screening of matters but since the internal 

committees have no statutory authority, therefore, a consumer should not be 

compelled to waste his time while going through such channels, in every case. The 

consumers should, therefore, have the freedom to approach the ombudsman 

directly at least where the disputed amount is substantially higher and where 

particularly stay is required for an emergent situation. Such pattern is in vogue in 

the consumer courts under the Consumer Protection Act, where if the disputed amount 

is substantial, the consumer can directly approach the next higher level. 

Morale, Motivation and Productivity 

Firstly, there does not seem to be much difference in the working of the personnel 

even after restructuring. The working conditions are virtually the same. The staff is 

not involved in the policy making directly or even remotely. 

Prior to restructuring, RSEB had developed a unique mechanism of collective 

decision-making process. Every week, the Chairman RSEB would take an 

“agenda-less meeting”. Any officer could raise any issue whether directly related to 

his assignment or not. The formal atmosphere in such meetings was replaced by 

informal atmosphere, where even junior-most officers could freely make any 

suggestion. The hierarchies were blurred in such meetings. Collective decisions used 

to be taken through such meetings. Decisions, based on common consensus in such 

brainstorming sessions, were far more practical and realistic because the grassroots 

level workers and the top management were jointly involved in the decision-making 

process. The approach was unconventional but it paid rich dividends. The lower staff 

felt for the first time that they also had a say in the decision-making process. The rich 

experience of the field staff was encouraged and shared by the top management. At 

the headquarters, such meetings used to be attended by executive engineers and above. 

In each district also, similar meetings were taken by the Chairman, where not only the 

assistant engineers participated but also there was a separate session of workers also 

with the Chairman. 

Through these meetings, the Chairman would gather a lot of grassroots level feedback. 

He was able to motivate the staff even at the junior most level. Targets jointly decided 

6.50

Rajasthan 

in such meetings were invariably achieved, rather exceeded. In general, the morale of 

the staff at all levels was very high. 

Incidentally even trade union problems were also resolved through such 

continuous dialogue and collective decision-making. No wonder, when the RSEB 

was restructured into five companies, there was not even a single day’s strike. The 

resistance, which was often noticed in other States, did not surface in Rajasthan. 

During the pre-restructuring period, the officers and staff of all the three wings had 

close coordination but now the companies being totally separate, the spirit of mutual 

support is lacking and this creates problems of coordination. The State Government 

has now realised this and, to bring about better coordination, the CMDs of the 

DISCOMs have been designated as MDs and the CMD of TRANSCO has been made 

Chairman of all the three DISCOMs. However, the watertight barriers still exist 

between the companies. 

In many States like Haryana, Gujarat, Madhya Pradesh, Karnataka, etc., even 

after restructuring, the seniority of the officers was kept common which provides 

adequate flexibility in the deployment of officers from time to time but that 

flexibility is no more available in Rajasthan. One company may be over staffed and 

another company may be under staffed but surplus officers of one company cannot be 

deployed in another company. 

The frequent transfers of officers is also quite demoralising. The Jaipur DISCOM is 

having its fifth MD since 2001 and so also the Ajmer DISCOM. Jodhpur DISCOM 

too has had three MDs since 2001. With such frequent changes, there is no stability 

and instead of concentrating on reforms, the MDs are very often concerned about their 

own tenures. The least that can be done is to provide a minimum tenure of five years 

for the MDs, which should be curtailed only in exceptional cases. 

Frequent change of MDs has also led to decline in performance of the utilities. Power 

sector is a highly specialised subject. If IAS officers are posted as MDs, they should 

have reasonably long tenures so that they can closely grasp the problems of the power 

sector. But with frequent changes, by the time an officer picks up the basic issues, he 

is shifted elsewhere and the next officer has again to start from scratch. Officers 

posted in the power sector cannot afford to remain mere generalists. They will have to 

acquire some sort of specialisation and that is possible only through longer tenures. 

6.51



Concentrated Zones (Urban) or Mixed Zones (Rural and Urban)? 

In Rajasthan, the three DISCOMs were carved out, balancing the various factors 

including geographical area, industrial load, number of consumers, administrative 

units, staff strength, etc. 

Is the Financial Restructuring Plan (FRP) of the State power sector supplemented 

by a Business Plan (BP) formulated by the individual utilities in the State? 

The FRP contains the business plan and financial projections for each successor 

entity. The entities, however, need to develop action plans to achieve the 

commitments made in FRP to improve operational efficiency and achieve financial 

turn-around. 

Whether all the restructured companies in the State power sector are finalising and 

publishing audited annual accounts in time? 

The accounts have been regularly audited and finalised during 2000-01 to 2005-06. 

6.52

Rajasthan 

POLITICAL SUPPORT 

GENERAL FINDINGS AND LESSONS LEARNT 

(a) Faced with a choice between populist policies and reforms, Governments have 

tended to favour the former. Support for reforms has never been spontaneous but 

very often under compulsion. The staggering losses of the SEBs had made them 

virtually bankrupt and hence at the political level there was no option but to go in 

for reforms. 

(b) Rajasthan had long back taken the lead in the rationalisation of the agricultural 

tariff. An out-of-turn scheme called Nursery Scheme was introduced for 

agricultural connections. The average waiting time earlier used to be around 13 

years but instant connections were provided under the Nursery Scheme. The 

initial charges were roughly 10 times higher and the tariff was 100 per cent 

higher. Yet the scheme was a roaring success and thousands of connections 

were released under this category. The scheme exploded the myth that 

agricultural tariff is a holy cow. RSEB had succeeded in phenomenally raising 

the agricultural tariff under the garb of optional scheme and thousands of farmers 

opted for this scheme. The Planning Commission of India and the World 

Bank have lauded the scheme. Unfortunately, due to political pressures, 

which the DISCOMs could not resist, the scheme was diluted gradually. 

(c) The average number of agricultural connections released used to be 25,000 per 

year. In view of the fast depleting water level, this number itself was quite high 

but the Government in its over-enthusiasm directed this figure to be raised to 

40,000 connections per year. The increased number of yearly agricultural 

connections was claimed to be a measure, which would drastically reduce the 

number of pending agricultural connections, but the result has been just the 

reverse. Such a large number of agricultural connections every year are a totally 

avoidable burden on the DISCOMs. 

IMPACT OF REGULATION 

Notwithstanding the teething troubles and the occasional inroads of the State 

Government, with the setting up of Regulatory Commissions, tariff matters have been 

broadly insulated from the populist tilts of the Government. Gradually an attempt has 

6.53



been made to reduce subsidies. Since the SERCs are in place, the various stakeholders 

have been able to have a level playing field. As the Commission gains in importance, 

it would inspire greater faith and confidence among the stakeholders. The EA, 2003 

envisages a more proactive role for the Commission. Instead of acting merely as a 

judicial Court, it will have to more aggressively promote the basic agenda 

envisaged in the EA, 2003, the National Electricity Policy and the National Tariff 

Policy. In a nutshell, the setting up of the SERCs is a major achievement of the power 

sector reforms. 

PERFORMANCE OF RESTRUCTURED UTILITIES 

The generation and transmission wings were performing quite well in the prerestructuring 

period and are continuing their excellent record even now. The 

performance of the DISCOMs, however, has shown no improvement rather there 

seems to be a decline. The T&D losses have increased. Electricity theft goes on 

unabated. In matters of agricultural connections, the DISCOMs administration is 

unable to resist the Government pressure. The administrative control of the top 

management has slackened with the greater involvement of the Government in 

the day-to-day functioning of the DISCOMs. Instead of distancing itself from the 

routine administration of the utilities, the Government presence has increased 

manifold. With frequent changes, the top officials including the MDs are unable to 

take a long-term perspective. A lot of funds have been pumped in the system but it 

seems that the outcome is not commensurate with the investment made. The 

establishment cost has gone up after restructuring. There is lot of duplicacy of work. 

Instead of a single tender being floated by RSEB, now the five companies issue 

tenders separately, despatch separate teams for inspection and place separate orders. 

In the unified Utility, what was being done by a team headed by a Chief Engineer is 

now being done by a Superintending Engineer or may be even below. The problems 

of the power companies with almost 65 lakh consumers are basically field level 

problems, and they require field level solutions. 

6.54

Rajasthan 

GENERATION 

GENERAL RECOMMENDATIONS 

(a) In Rajasthan the cost of transporting coal to STPS and KTPS is more than the 

cost of coal. Instead of being attracted with the location of power plants within 

the State, a time has come when different States may like to collaborate in setting 

up of the power plants at pithead stations. Wheeling of power is much cheaper 

than transportation of coal. Incidentally, the pressure on railways would also ease 

if a firm stand is taken to discourage thermal power stations planned far away 

from the coal mines. 

(b) To discourage the tendency of having State-wise power plants, leading to heavy 

expenditure on transport of coal and straining the railway transport system, 

NTPC might like to prepare a shelf of projects based on pit head thermal 

stations. It could invite willing States to join. Of course, tactically the State where 

the generating plant is to be located should also be persuaded to join as a partner 

State. Once the alternative of pithead power stations becomes viable and tariff turns 

out to be attractive, the States will avoid the temptation of having thermal power 

stations located far off from the coal mines. 

(c) For a variety of reasons, private generation has not picked as expected. NTPC 

may consider encouraging private companies to set up generating plants. 

Private generators appear to be hesitant to deal with the financially weak utilities. 

The NTPC has no such problems and its recovery is nearly 100 per cent. NTPC 

could float international tenders and based on the lowest tariff quoted by such 

private generators who choose to set-up generating plants, it could enter into long 

term PPA for purchase of power. 

(d) Rajasthan receives the maximum solar insolation in the country and much needs to 

be done to utilise the same. Unfortunately the progress of the Mathania Solar 

Project, particularly in its shifting fuel choices, present a picture of inadequate 

planning. In a 140 MW plant, with solar component being only 35 MW, it is 

difficult to term it as a solar plant. The Rajasthan authorities perhaps would do 

well to concentrate on the solar component of the project instead of trying to 

make it a hybrid plant. 

6.55

DISTRIBUTION 

Professional Directors 



In order to professionalise the Board of the power companies, it is felt that there 

should be 50 per cent independent directors who could be professionals in various 

fields. Presently the Boards of all the five companies have Government nominees 

only. It is felt that the Power Finance Corporation, the Rural Electrification 

Corporation and the Commercial Banks from whom the power companies have 

borrowed heavily, should be empowered to nominate their nominees as directors. In 

many of the Government undertakings, non-officials have been appointed as directors 

but the power sector companies do not seem to have even a single director who is 

from outside the Government. 

Whole Time Members 

In RSEB, the top-level management consisted of the Chairman and three whole time 

Members looking after generation, distribution and finance respectively. Major policy 

decisions used to be taken by the Committee consisting of the Chairman and three 

whole time Members. These Members substantially contributed to the decisionmaking 

process and there used to be adequate debate and discussions on various 

issues in the meetings of the Committee. But after restructuring, most of the power 

companies do not have whole time Members. The top management consists of the MD 

only. This is bound to affect the quality of the decision making process. It is prudent 

to entrust major decisions to a Committee of whole time members rather than to a 

single officer (MD). 

Agricultural Connections 

(a) During the pre-restructuring period, the number of pending applications used to 

be around 1.25 lakh. During the last three years, with the release of all time high 

agricultural service connections, the public expectations have gone up and in 

spite of release of a large number of connections during the past three years, the 

number of pending connections has risen to 2.20 lakh. 

DISCOM-Wise Agricultural Connections Released During 1998-99 to 2001-02 

1998-1999 1999-2000 2000-2001 2001-2002 

Nursery General Total Nursery General Total 

Nursery/ 

special 

General Total 

Nursery/ 

special 

General Total 

13333 11718 25051 8674 14268 22942 15509 10561 26070 8123 6928 15051 

6.56

Rajasthan 

Year-Wise Pending Applications 

2002-2003 2003-2004 2004-2005 

General Nursery/ 

special 

Farm 

house 

Total 

General 

Nursery/ 

special 

Farm 

house 

Total 

General Nursery/ 

special 

Farm 

house 

Total 

190900 11747 2857 205504 197418 7701 5410 210529 178851 32188 9938 220977 

(b) There is a need for gradually restricting the subsidies among the agriculture 

consumers only to those who really deserve. Through the nursery scheme, 

mentioned under general findings, broadly a distinction could be made 

between the haves and have-nots. The haves have opted for the nursery scheme 

(instant connection) and willingly paid higher capital cost and tariff. The havenots, 

who were left out, were provided connection under the ordinary category. 

The newly adopted annual targets of releasing 40,000 agricultural service connections 

are counter-productive and not sustainable in the long run. The traditional target of 

25,000 agricultural service connections should be restored. Out of this, 50 per cent 

connections should be released under the out-of-turn scheme so that the 

DISCOMs do not have to subsidise the affluent farmers. 

Captive Plants and Open Access - Waiving Minimum Charges 

Minimum charges for captive plants, Open Access consumers and industrial units, 

connected with the DISCOMs system, should be substantially reduced, if not waived 

because they are connected with the system only for exigencies. Otherwise the 

captive plants have to be shut down every month, in order to consume the 

quantum of electricity equal to the minimum charges to be paid to the respective 

DISCOM. 

Control of Electricity Theft – Involvement Of District Administration 

Control of electricity theft is one of the biggest challenges faced by the power sector. 

DISCOMs alone cannot handle this problem unless there is active support from the 

district administration. The Government should issue special directives to the 

Collectors and Superintendents of Police to actively support the DISCOMs when the 

raids are conducted. Substantial rewards could be offered to the district administration 

for outstanding work on this front. 

Outsourcing 

There are a large number of vacancies in the power companies. Spontaneously the 

demand comes for filling up the vacancies. The time has come when more and more 

6.57



activities should be outsourced so that there is no permanent liability on the power 

companies. This would lead to greater efficiency, since the continuation of the 

contractual staff would primarily depend on their meeting the set performance levels. 

Regulators 

Creation of fund 

For ensuring independence of the Commissions, Section 103, of the EA, 2003 lays 

down the requirement of creating a separate fund. Even after so many years, such a 

fund has not been created as yet in Rajasthan. This leads to too much of dependence 

of the Regulatory Commission on the State Government. A time limit needs to be 

fixed for creation of such a fund. 

Borrowings to meet Revenue Deficit 

To meet the revenue deficit, the DISCOMs partly receive subsidy from the 

Government. They also have to borrow from the market to meet their increasing 

liabilities towards the suppliers. The borrowings are not reflected in the annual 

revenue requirements and deficits as worked out in the Commission’s orders. Thus 

while these figures are not reflected in the tariff petition, the financial health of 

the DISCOMs is getting adversely affected and their escrow capacity is also 

significantly reduced. 

Capital Subsidy 

As mentioned in the responses from DISCOMs to IIPA questionnaire, the charges 

determined under Sections 46, 47 and 50 of the EA, 2003 should also be included for 

claiming capital subsidy. 

Staffing of Regulatory Commission 

The Government has laid down that the Commission will have its staff on deputation 

from the power companies. During the initial period, such an arrangement may work 

but if periodically the staff is to be sent back to the power companies, firstly their 

loyalties can get divided and secondly whatever specialisation is acquired is lost when 

the concerned person is transferred back to the parent department at the end of the 

deputation period. From a long-term perspective, the Commission should have its own 

independent staff. It may like to give preference to such staff from the power 

companies who opt for permanent absorption in the Commission. 

6.58


EXECUTIVE SUMMARY................................................................................. 7.1 

CHRONOLOGY OF REFORMS AND RESTRUCTURING........................ 7.8 

Demand-Supply Situation in Uttar Pradesh..................................................... 7.9 

GENERATION SECTOR ................................................................................ 7.11 

Overview of Installed Capacity ..................................................................... 7.11 

Operational Performance in Generation ........................................................ 7.13 

TRANSMISSION AND DISTRIBUTION SECTOR .................................... 7.17 

Investments in the Transmission Sector ........................................................ 7.17 

Investments in the Distribution Sector........................................................... 7.18 

Consumer Metering ....................................................................................... 7.20 

Average Hours of Supply............................................................................... 7.21 

Rural Electrification....................................................................................... 7.21 

Operational Performance ............................................................................... 7.22 

Transmission Losses ...................................................................................... 7.22 

Distribution Losses ........................................................................................ 7.22 

AT&C Losses................................................................................................. 7.23 

SUBSIDY SUPPORT FROM THE STATE GOVERNMENT..................... 7.25 

Receivables Position ...................................................................................... 7.26 

ACCUMULATED FINANCIAL LOSSES ..................................................... 7.28 

CONCLUSIONS................................................................................................ 7.30 

REFERENCES .................................................................................................. 7.32

OBJECTIVE OF REFORMS 


The Government of Uttar Pradesh undertook to reform its power sector in 1999 so that 

its power utilities run on commercial lines in a competitive and appropriately regulated 

power market. 

PROCESS OF RESTRUCTURING 

The Uttar Pradesh Electricity Regulatory Commission (UPERC) was established in 

September 1998. In 1999, the Uttar Pradesh Electricity Reforms Act, 1999 was enacted, 

followed by notification of the Uttar Pradesh Electricity Reforms Transfer Scheme, 2000 

on 14 and 15 January 2000. This transfer scheme restructured the erstwhile Uttar Pradesh 

State Electricity Board (UPSEB) along functional lines of generation, transmission and 

distribution into four entities as given below: 

(a) Uttar Pradesh Rajya Vidyut Utpadan Nigam Limited (UPRVUNL) responsible for 

the thermal stations of UPSEB; 

(b) Uttar Pradesh Jal Vidyut Nigam Limited (UPJVNL) responsible for hydro power 

stations of UPSEB; 

(c) Uttar Pradesh Power Corporation Limited (UPPCL), responsible for transmission 

and distribution of electricity in Uttar Pradesh; and 

(d) Kanpur Electricity Supply Company (KESCO), for undertaking distribution 

operations in Kanpur. 

The State of Uttaranchal came into existence on 9 November 2000 and assets of the 

erstwhile UPSEB pertaining to generation, transmission and distribution located within 

the State of Uttaranchal were transferred to the newly carved out State. This was 

followed by the second phase of restructuring on 12 August 2003, wherein UPPCL was 

further restructured into a separate transmission entity and four distribution companies 

(DISCOMs). 

LIABILITIES SETTLEMENT 

In order to enable the newly carved out entities to start on a clean slate, the State 

Government written-off/assumed massive liabilities of more than Rs 31,300 crore. as 

indicated below:



Government of UP loan and accrued interest written off Rs 20,116 crore 

Adjustments for transfer of Unchahar Plant to NTPC Rs 919 crore 

CPSU liabilities retained by Government of UP Rs 2,515 crore 

The additional financial commitment taken by Government during the restructuring of 

UPSEB is indicated below: 

Terminal liabilities retained by Govt. Rs 6,176 crore 

GPF liabilities Rs 1,634 crore 

PERFORMANCE OVERVIEW OF RESTRUCTURED ENTITIES 

The restructuring of UPSEB was expected to lead to improved operational and financial 

performance, encourage investments and ensure better quality of supply to the 

consumers. The performance of these newly created entities from 2000-01 onwards on 

key performance indicators is briefly summarised below. 

Demand-Supply Deficit 

The State had been facing huge energy and peak shortages at the time of reform of the 

power sector. The peak load deficit prevailing in the State was in excess of 30 per cent 

up to 1998-99. However, the peak deficit continues to be in the vicinity of 30 per cent 

from 2003-04 onwards. The energy deficit hovered around 15 per cent during the prereform 

years, deteriorating further to 20 per cent from 2003-04 onwards. The peak 

demand has consistently outstripped availability from the installed capacity in the State, 

by a considerable margin even after the restructuring of UPSEB. Lack of additional 

generating capacity in the State in the recent past has mainly contributed to this bleak 

situation, while the peak demand has been witnessing robust growth over the years. The 

poor financial health of the State sector has not permitted it to contract more power from 

other States. 

Operational Performance in Generation 

UPRVUNL has initiated measures to improve operating performance levels in the 

existing generating stations during the post-reform period. After restructuring, PLF of the 

generating plants has consistently improved. The PLF has increased by 10 percentage 

points from the year 2000 onwards. The specific oil consumption has also fallen sharply 

during the post-reform period and is close to the CERC approved norm of 2 ml/kWh. 

The plant availability has improved to 73.28 per cent in 2003-04 from 64.89 per cent in 

the first year of restructuring (2000-01). However, there is a scope for reduction of 

7.2

Uttar Pradesh 

auxiliary consumption. The present level of auxiliary consumption of 10.3 per cent is 

certainly on the higher side when compared to the CERC norm of 9 per cent. 

The investments made on renovation and modernisation (R&M) of the existing plants is 

presently very low despite the considerable potential of these plants which could 

contribute towards reducing the energy deficit in the State. Till date, only about Rs 200 

crore have been spent during the post-reform period up to 2004-05 on R&M of the 

ageing plants due to the persistent cash-crunch in the State. 

Investment in Transmission and Distribution 

There have been no focussed initiatives to improve the transmission infrastructure by 

way of adequate investments so that there is improvement in the quality of supply and 

there is a reduction in losses. The pace of investments in transmission has in fact, slowed 

down after 2000-01. UPPCL has, however, fared better in terms of improvement of 

tranformation capacity at grid sub-stations and has been able to sustain the growth 

momentum during the post-restructuring period. 

There has been an inadequacy of the reactive compensation in transmission system of 

UPPCL. The situation regarding transformation capacity and available reactive 

compensation (at the end of 2003-04) is as under: 

Aggregate secondary transformation capacity 12,000 MVA (approx) 

Requirement of reactive compensation 7,200 MVAR 

Installed capacity of capacitor banks 4501 MVAR 

Capacitors in working order 

7.3 

3,309 MVAR i.e. about 73% 

of the installed capacity 

Such a highly under-compensated system not only leads to low power factor and low 

voltage but it also puts additional strain on the system. 

Consumer Metering 

At the retail consumers’ level, out of a total of 8.2 million consumer connections, only 

4.6 million or about 56 per cent are presently metered. Metering in the agricultural sector 

is almost negligible and in the domestic sector, it is about 50 per cent. In view of this, it 

is clear that the figures of consumption and consequently loss figures are not realistic. 

This has also led to considerable difference of opinion between the SERC and the 

utilities on the assessment of unmetered consumption and consequently, the distribution



losses. UPERC has been consistently re-stating the level of losses for the unmetered 

consumption. 

Rural Electrification 

As per the data available with the Ministry of Power, 42 per cent of the villages of the 

State are yet to be electrified. Further, the access to electricity by rural households is at a 

dismal 19.84 per cent (2001 Census) as against the national average of more than 40 per 

cent. The State sector has, however, taken initiatives recently to improve rural 

distribution infrastructure under the RGGVY. 

Losses 

Transmission losses are being maintained between 5 to 6 per cent, which are comparable 

to those of TRANSCOs in other States. The distribution losses still remains a significant 

area of concern and account for loss of more than 30 per cent of the power available for 

sale at the distribution interface level. The AT&C loss level, standing at more than 50 per 

cent during early reform years, has come down to about 40 per cent as per Utility data. 

This aspect would indicate a considerably good performance on the part of the 

distribution sector if the same is also ratified by the SERC. 

Financial Position 

The subsidy support from the State Government has been maintained at below Rs 1,000 

crore level due to its financial constraints, while the need for subsidy has been mounting 

in the wake of increased consumption from the subsidised categories. It may be noticed 

that the outstanding receivables and bad debt situation has started to rise again in the 

sector despite massive write-offs undertaken during the restructuring process. An 

analysis of the arrears position indicates that the Government departments also account 

for a considerable part of these receivables. The cash gap in the system is leading to 

accumulation of losses in the books of the utilities. The losses for 2003-04 stood at about 

Rs 1,700 crore as against Rs 132 crore during 2000-01, indicating a worsening situation 

of the utilities. 

Independence of Operations 

Most of the newly created entities are still being headed by a common Chairman. This 

has considerably negated the benefits of restructuring to the individual companies and 

the situation is no better than that of the erstwhile UPSEB. The State Government should 

ensure that these corporations have independent functioning and follow the principle of 

7.4

Uttar Pradesh 

one-man-one-post to foster a competitive environment, which would facilitate the 

benefits accruing from restructuring and reforms to percolate down to the consumers. 

Capacity Building 

The State Government needs to ensure that the individual entities also have the right 

institutional arrangements, which promote efficiency and improvement both in terms of 

cost reduction and increase in collection of the billed amounts. The corporations need 

substantial institutional strengthening and operational planning. They lack trained 

technical, financial and managerial manpower at all levels. It is, therefore, extremely 

important that the Government assist these corporations in strengthening the 

management structure and facilitate their independent operations. 

Energy Accounting 

A robust energy audit infrastructure considerably assists in pinpointing the problem areas 

in distribution and enhancinging accountability. Consumer indexing and feeder level 

monitoring of supplies is a vital part of this efficiency chain. Considerable financial 

assistance is available from the Central Government in the form of APDRP loans and 

grants to improve the energy audit system of the distribution utilities. 

Collections from Government Department/Institutions 

Mounting arrears of the DISCOMs are an area of concern. The poor collection levels, 

coupled with the high level of T&D losses, is pushing the State power sector into a 

severe financial crisis and the DISCOMs are not in a position to pay for adequate power 

purchased from Central utilities and State generation entities. This, in turn, is leading to 

financial un-viability of the generation sector as well. One of the reasons for the poor 

financial position of the DISCOMs is the non-payment of the electricity dues by the State 

Government departments/institutions. Hence, the State Government needs to institute 

requisite mechanisms to ensure timely settlement of these dues. 

Augmentation of Supply 

The State is facing a severe power shortage. The quality of supply through out the State 

is poor and erratic. This is impeding industrial and commercial growth in the State. There 

is a need to augment generating capacity within the State urgently to improve supply 

conditions. This is even more vital in view of the State taking considerable initiatives in 

creating a rural distribution infrastructure under the RGGVY. The benefits of 

investments made under the RGGVY would be more discernable only when there is 

7.5



adequate power in the system to cater to the increased demand in the State from the 

newly electrified rural areas. 

It is, however, heartening to note that plans are afoot to install new generation capacity in 

the State to remedy the prevailing dismal situation of demand-supply deficit. Coal-based 

Anpara-C Power Project (1,000 MW) has been awarded to M/s LANCO Power on the 

basis of competitive bidding. M/s Reliance Energy Limited has also proposed a gasbased 

station at Dadri in excess of 3,500 MW with major share to Uttar Pradesh. The 

State is also slated to receive its part-share from the Tehri Hydel station being developed 

in the joint sector. However, the new capacities in the State would only be realised 

towards the end of the Eleventh Plan and the State is likely to face considerable strain in 

supply till that period. The State also needs to ensure that the proposed capacity additions 

get off the ground to the implementation stage at the earliest possible. 

POWER SECTOR REFORM PROGRAMME OF THE STATE 

The Government of Uttar Pradesh undertook to reform its power sector with a view to 

providing commercial viability and quality power to its citizens at affordable rates. The 

State Government declared its Energy Policy in the year 1994 wherein the major 

emphasis was on inviting private sector participation in the generation sector. The 

revised Energy Policy was announced in 1999 with a clear road map for restructuring the 

power sector in the State. In this framework, the State Government notified the `UP 

Power Sector Reform Act, 1999’. 

The mission statement of Uttar Pradesh Power Sector restructuring programme included 

the following objectives: 

• Electricity to be supplied under the most efficient conditions in terms of cost and 

quality to support economic development of the State; 

• Power sector to cease to be a burden on the State's budget and eventually become a 

net generator of financial resources; and 

• Protection of interest of the consumers. 

7.6

Uttar Pradesh 

The power sector reform programme, announced in January 1999, aimed at achieving the 

following goals: 

(a) Restructuring of UPSEB by segregating power generation, transmission and 

distribution functions through establishment of autonomous and separately 

accountable entities, through transfer of assets, liabilities and personnel to them; 

(b) Corporatisation and commercialisation of new emerging entities in a phased 

manner; 

(c) Establishing an independent regulatory body; 

(d) Promotion of private sector participation in power generation and distribution in 

phases; and 

(e) Tariff reform with the objective to rationalise tariff for full cost recovery and 

minimise cross-subsidy. 

After the enactment of the EA, 2003, the State Government declared its “Power Policy 

2003” for Uttar Pradesh with the objective of fulfilling the need for universal access and 

for providing reliable, quality and affordable power to the consumers. 

7.7



CHRONOLOGY OF REFORMS AND RESTRUCTURING 

The Government of Uttar Pradesh (Government of UP), vide its Notification dated 14 

January 2000, brought into effect the Uttar Pradesh Electricity Reforms Act, 1999 and 

the Uttar Pradesh Electricity Reforms Transfer Scheme, 2000. 

The Uttar Pradesh Electricity Regulatory Commission (UPERC) was established in 

September 1998 under the Electricity Regulatory Commissions Act, 1998 of the 

Government of India. The prime objectives of UPERC are: 

• To create a regulatory environment to promote transparency, efficiency and 

economy in the operations and management of the power utilities; and 

• To encourage competition and help the State to attract private capital for the power 

sector development while appropriately safeguarding the interests of the consumers. 

In the first phase of restructuring, following the notification of the First Transfer Scheme 

on 14 January, 2000, the generation, transmission and distribution functions of UPSEB 

were transferred to the following three corporate entities (corporations registered under 

the Companies Act, 1956) based on functional specialisation, namely: 

(a) UPRVUNL, which owns and operates the existing thermal power stations of 

UPSEB; 

(b) UPJVNL which, in addition to its own small hydro power houses, owns and 

operates the existing and under construction hydro power stations of UPSEB; and 

(c) UPPCL, which is responsible for transmission and distribution of electricity in 

Uttar Pradesh. 

Another Transfer Scheme for restructuring of distribution undertaking of Kanpur 

Electricity Supply Authority (KESA) of UPPCL and transfer of its assets, liabilities and 

personnel to KESCO, a company registered under the Companies Act, 1956 was made 

effective on 15 January 2000. 

The State of Uttaranchal came into existence on 9 November 2000 in accordance with 

the provisions of the Uttar Pradesh Reorganisation Act, 2000 (Act 29 of 2000). All assets 

of UPPCL, pertaining to generation, transmission and distribution located within the 

State of Uttaranchal, were transferred to the newly carved out State. 

7.8

Uttar Pradesh 

In the second phase of restructuring, UPPCL was further divided into five successor 

Companies, in pursuance of Government of UP Notification dated 12 August 2003, with 

UPPCL as the transmission company and four successor DISCOMs were created as 

follows: 

(a) Paschimanchal Vidyut Vitaran Nigam Limited, Meerut; 

(b) Dakshinanchal Vidyut Vitaran Nigam Limited, Agra; 

(c) Madhyanchal Vidyut Vitaran Nigam Limited, Lucknow 

(d) Poorvanchal Vidyut Vitran Nigam Limited, Varanasi. 

DEMAND-SUPPLY SITUATION IN UTTAR PRADESH 

The State had been facing huge energy and peak shortages at the time of reform of the 

sector as indicated in the table below. The peak load deficit prevailing in the State was in 

excess of 30 per cent up to 1998-99, which came down to 23 per cent during 2000-01. 

However, the deficit continues to be in the vicinity of 30 per cent from 2003-04 onwards. 

The energy deficit hovered around 15 per cent during the pre-reform years, deteriorating 

further to 20 per cent from 2003-04 onwards. 

Table : Demand-Supply Position 

Year before Restructuring Year after Restructuring 

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 

Assessed total 

demand (MW) 

6993 7162 6816 7064 7217 7411 7598 6850 7368 

Peak Load met 

(MW) 

4803 4867 4531 5189 5525 5641 6508 4820 5403 

Peak Load 

shortage (MW) 

2190 2295 2285 1875 1692 1720 1090 2030 1965 

Peak load deficit (%) 31 32 34 27 23 23 14 30 27 

Energy met average 

per day (MU) 

98.6 102.4 104 110.2 112 115.2 125.7 107.1 116.9 

Energy shortage 

average per day (MU) 

14.7 18.4 18.2 15.6 19.8 20.4 15.9 26.8 22.9 

Extent of Load 

Shedding (MU) 

6.7 10.2 8.2 5.6 9.8 11 8.1 19.6 16.2 

Energy deficit (%) 13.0 15.2 14.9 12.4 15 15.0 11.2 20.0 16.4 

The peak demand in the State has consistently outstripped installed capacity by a 

considerable margin even after restructuring of the power sector. Lack of any generation 

capacity additions in the State has mainly contributed to this bleak situation, while the 

peak demand and energy demand have been witnessing robust growth over the years. 

7.9



The graphic below indicates the peak demand in the State vis-à-vis the peak load met 

across the years. It may be seen that the peak load met has not shown any appreciable 

improvement during the post-reform period 

MW 

8000 

7000 

6000 

5000 

4000 

3000 

2000 

1000 

0 

1995- 

96 

1996- 

97 

1997- 

98 

1998- 

99 

1999- 

2000 

7.10 

2000- 

01 

2001- 

02 

Peak Demand (MW) Peak load met (MW) 

The figure below reiterates the fact that energy deficit situation has worsened from 2003- 

04 onwards in comparison to the pre-reform years, while the peak deficit has come down 

marginally. While on the one hand, there has not been any generation capacity additions 

in the State over the years, the State had to forego considerable hydro capacity to 

Uttaranchal in 2002-03, subsequent to its formation as a separate State. Further, the 

Tanda Thermal Power Station of 440 MW capacity was also transferred to NTPC in 

2000-01. 

40% 

35% 

30% 

25% 

20% 

15% 

10% 

5% 

0% 

31% 

13.0% 

32% 

34% 

15.2% 14.9% 

Peak load deficit (%) Energy deficit 

27% 

12.4% 

23% 23% 

15.0% 15.0% 

14% 

11.2% 

2002- 

03 

2003- 

04 

30% 

20.0% 

27% 

16.4% 

1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 

Figure: Peak Load Deficit and Energy Deficit (%) 1995-96 to 2003-04

Uttar Pradesh 

GENERATION SECTOR 

OVERVIEW OF INSTALLED CAPACITY 

The installed capacity of the State owned generating stations during the past years up to 

2004-05, for which data is currently available, is as follows: 

Table : Installed Capacity of State-Owned Generating Stations 

Year Before Restructuring Year After Restructuring 

Particulars 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

Hydel** 1504.8 1504.8 1504.8 1501.4 1501.4 1520.8 522.5 522.5 522.5 

Thermal 4271 4271 4271 4381 

4349/ 

3909* 

3909 3909 3909 3909 

*Denotes the thermal capacity including Tanda Thermal Power Station (TPS) 4349 MW and excluding Tanda TPS 

3909 MW (transferred to NTPC) with effect from 15-01-2000. 

**Hydro generating capacity of undivided Uttar Pradesh is shown up to 2000-2001 only. 

MW 

5000 

4000 

3000 

2000 

1000 

0 

Thermal and Hydel installed capacity in UP 

1995- 

96 

1996- 

97 

1997- 

98 

1998- 

99 

7.11 

1999- 

2000 

2000- 

01 

Hydel Thermal 

2001- 

02 

2002- 

03 

2003- 

04 

It is evident from the above graphic that from the year 1999-2000, no capacity addition 

has taken place in the State. The State has, in fact, lost installed hydel capacity of about 

1,000 MW to Uttaranchal, consequent to its formation as a separate State in 2002-03. 

Similarly, the State has transferred 440 MW of thermal capacity in Tanda to NTPC in 

2001-02. The State has not put in place any compensating capacity addition to restore the 

demand-supply balance, leading to deterioration of supply parameters to the consumers. 

However, plans are afoot to install new generation capacity in the State to remedy the 

prevailing dismal situation of demand-supply deficit. M/s Reliance Energy Limited has 

also proposed a gas-based station at Dadri in excess of 3,500 MW with major share to 

Uttar Pradesh. The State is also slated to receive its share from the Tehri Hydel station,



being developed in the joint sector. However, the new capacities in the State would only 

become available towards the end of the Eleventh Plan and the State is likely to face 

considerable strain in supply till that period. The State also needs to ensure that the 

proposed capacity additions get realised at the earliest possible. 

A break-up of the installed capacity in the State sector, in terms of station-wise capacity, 

at the end of 2004-05 is indicated below: 

UPRVUNL Stations Anpara A Anpara B Paricha Panki Harduaganj Obra A Obra B Total 

Capacity (MW) 630 1,000 220 242 375 442 1,000 3,909 

UPJVNL Stations Khara Rihand Matatila Obra UGC EYC Total 

Capacity (MW) 72 300 30 99 16 6 523 

Among UPJVNL plants, about 15 per cent generation in Rihand and 33 per cent 

generation in Matatila is the share of Madhya Pradesh. Further, there is entitlement of 

Himachal Pradesh in Yamuna Projects. 

Besides the above, generation from captive generating units of Renu Power Project and 

Kanoria Power Station is also being fed into the system. The State is also a major 

producer of sugarcane in India and there are numerous co-generation plants set up by 

sugar industries located across the State, feeding energy into the grid system. 

The installed generating capacity in the ‘State Sector’ accounts for more than 60 per cent 

of the total generating capacity available in the State. The share of the State from the 

Central Generating stations is as follows: 

7.12

Uttar Pradesh 

CGS Stations Capacity (MW) 

NTPC 

Singrauli 754 

Auriya 209 

Rihand 326 

Anta Gas 91 

Dadri Thermal 84 

Dadri Gas 242 

Unchahar I 250 

Unchahar II 129 

Tanda 440 

NHPC 

Salal 48 

Tanakpur 21 

Chamera 109 

Uri 96 

NPC 

NAPP 138 

RAPP 43 

Total 2,980 

OPERATIONAL PERFORMANCE IN GENERATION 

UPRVUNL has taken initiatives to improve the operational performance of the existing 

generating stations during the post-reform period. The trend of the key generation 

parameters is indicated in the table and the chart below: 

Particulars 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 

PLF (%) 47.48 49.24 49.13 49.14 50.55 57.19 59.76 61.18 60.13 

Oil consumption 

(ml/kWh) 

4.98 3.86 4.51 5.89 5.3 2.69 2.3 2.24 2.07 

Auxiliary 

consumption (%) 

9.64 9.75 10.22 9.86 10.36 10.31 10.23 10.31 10.22 

Plant Availability (%) 64.89 72.07 74.03 73.28 

After restructuring, there is a consistent improvement in PLF of the generating plants. 

The PLF has increased by 10 percentage point from the year 1999-2000 (year just prior 

to restructuring) to 2003-04. One of the reasons for improvement in the operating 

parameters is the transfer of old and poor performing stations like Tanda (440 MW) to 

NTPC and emphasis on R&M of the other older stations. 

7.13 

Composition of Installed Capacity (MW) 

7412 MW 

Share in 

CPSUs, 

2980, 40% 

UPJVNL, 

523, 7% 

UPRVUNL, 

3909, 53%

PLF % 

65 

60 

55 

50 

45 

40 

FY 

1996 

FY 

1997 

FY 

1998 

FY 

1999 



7.14 

FY 

2000 

FY 

2001 

FY 

2002 

FY 

2003 

FY 

2004 

Chart: Plant Load Factor (Thermal Stations) 

As indicated in the graphic below, the generation from the thermal power stations has 

improved by more than 10 per cent compared to the pre-reform period. 

MU 

25000 

20000 

15000 

10000 

5000 

0 

Year Wise Generation (MU) by Power Generating 

Companies of UP 

1995- 

96 

1996- 

97 

1997- 

98 

1998- 

99 

1999- 

2000 

2000- 

01 

Hydel Thermal 

2001- 

02 

2002- 

03 

2003- 

04 

Consistent improvement has also been observed in respect of oil consumption. The 

specific oil consumption has fallen sharply during the post-reform period and is close to 

the CERC approved norm of 2 ml/kWh. There has been 61 per cent reduction in average 

oil consumption per unit generation from the year 1999-2000 (year just prior to 

restructuring) to 2003-04.

Uttar Pradesh 

Sec. Oil Consumption (ml/kWh) 

10 

8 

6 

4 

2 

0 

FY 

1996 

FY 

1997 

FY 

1998 

FY 

1999 

7.15 

FY 

2000 

FY 

2001 

FY 

2002 

FY 

2003 

Chart: Secondary Oil Consumption 

The plant availability has improved to 73.28 per cent in 2003-04 from 64.89 per cent in 

the first year of restructuring (2000-01). However, there is a scope for reduction of 

auxiliary consumption; the present level of auxiliary consumption of 10.2 to 10.3 per 

cent is certainly on the higher side when compared to the CERC norm of 9 per cent. 

Aux. consumption (%) 

12 

10 

8 

FY 

1996 

FY 

1997 

FY 

1998 

FY 

1999 

This shows an urgent need for undertaking R&M of the ageing plants and adoption of 

better O&M methods. The investment made on new capacity additions as well as on 

R&M of the plants is presently very low and needs to be accorded a much higher 

priority. Till date, only about Rs 200 crore have been spent during the post-reform period 

up to 2004-05 on this important activity due to the persistent cash-crunch in the State. 

In its response to the questionnaire of the Group of Experts, UPRVUNL has highlighted 

the following major risks perceived by the generating company in descending order of 

priority: 

FY 

2000 

FY 

2001 

FY 

2002 

FY 

2003 

FY 

2004 

FY 

2004

(a) Old and depleted generating units; 

(b) Non-availability of quality coal; 

(c) Extreme shortage of executives and supervisory staff; 



(d) Lack of standardised system, viz., contract and material system, etc.; 

(e) Payment defaults; and 

(f) Surplus non-executive and non-supervisory staff. 

Mitigation of these risks would require focussed interventions, investments and action 

plans to improve commercial viability of the Utility. 

7.16

Uttar Pradesh 

TRANSMISSION AND DISTRIBUTION SECTOR 

Consequent to restructuring of the power sector in the State, UPPCL was made 

responsible for the transmission and bulk supply of electricity to the DISCOMs. In the 

single buyer model (SBM), the transmission company was entrusted with the bulk supply 

business. UPPCL is currently responsible for the transmission network and system 

operations and also for planning for strengthening of the transmission and subtransmission 

system in the State. In addition, it is also responsible for wheeling of power, 

purchase and sale of power in accordance with the policies and guidelines issued by the 

State Government from time to time. 

The distribution operations are being looked after by four DISCOMs carved out of the 

erstwhile UPPCL, as discussed earlier in the Report. 

INVESTMENTS IN THE TRANSMISSION SECTOR 

There have been no focussed initiatives to improve transmission infrastructure through 

investments, to improve quality of supply and for reduction of losses. The table below 

indicates details about transmission lines energised in the State sector in the past two 

decades. It is evident that the pace of investments in this area has not picked up 

consequent to restructuring. In fact, the momentum has slowed down after 2000-01. 

Although the State system has made investments in adding 800 kV network for select 

routes, it is understood that even this is running heavily under-utilised due to lack of 

supporting investments in the downstream network. 

Transmission Lines Energised (ckt km) 

Year 800 kV 400 kV 220 kV 132 kV Total 

1985-86 - 1,867 4,829 9,178 15,874 

1986-87 - 1,867 5,106 9,401 16,374 

1987-88 - 1,877 5,190 9,450 16,517 

1988-89 - 1,877 5,359 9,550 16,786 

1989-90 - 1,877 5,539 9,613 17,029 

1990-91 - 1,877 5,539 9,716 17,132 

1991-92 - 1,877 5,539 9,856 17,272 

1992-93 - 1,877 5,717 9,944 17,538 

1993-94 - 2,049 5,815 10,091 17,955 

1994-95 - 2,049 5,867 10,147 18,063 

1995-96 - 2,139 5,917 10,232 18,288 

1996-97 - 2,139 6,036 10,270 18,445 

1997-98 - 2,139 6,038 10,270 18,447 

1998-99 - 2,819 6,131 10,453 19,403 

1999-2000 - 2,819 6,131 10,538 19,488 

7.17



Year 800 kV 400 kV 220 kV 132 kV Total 

2000-01 409 3,555 6,144 10,628 20,326 

2001-02 409 3,555 6,144 10,734 20,842 

2002-03 409 3,555 6,261 10,926 21,150 

2003-04 409 3,555 6,351 11,178 21,493 

CAGR (%) 5.0 1.8 1.2 2.0 

UPPCL has, however, fared better in terms of improvement of tranformation capacity at 

grid sub-stations. UPPCL has at least been able to sustain the growth momentum on this 

aspect during the post-restructuring period. Details of transformation capacity for various 

voltage ratios during each of these years is provided at Annexure-I. 

INVESTMENTS IN THE DISTRIBUTION SECTOR 

The data provided in the table below on distribution lines energised during the past two 

decades indicates clear initiatives to expand the 33 kV network from 1998-99 onwards to 

relieve overloading and facilitate de-congestion. However, there are no corresponding 

investments in the 11 kV network. 

Year 66 kV 

Distribution Lines Energized (ckt km) 

44,375 

and 33kV 

7.18 

11,6, and 

3.3kV 

400/220 

Volts 

Total 

1985-86 3024 21882 150147 163804 338857 

1986-87 3024 22122 156239 173319 357404 

1987-88 3024 22362 160619 180146 366151 

1988-89 3024 22628 164612 186890 377154 

1989-90 3027 23024 168522 193360 387933 

1990-91 3027 23304 172606 200413 399350 

1991-92 3027 23605 175437 207078 409147 

1992-93 3,027 23,934 178,009 210,697 415,667 

1993-94 3,139 24,100 180,455 214496 422,690 

1994-95 3,139 24,345 182,492 217480 427,456 

1995-96 3,139 24,693 184,404 220190 432,426 

1996-97 3,139 24,952 187,195 224781 440,067 

1997-98 3,139 25,286 190,430 228119 446,974 

1998-99 3,139 25,902 194,216 232043 455300 

1999-2000 3,139 26,575 194,973 233041 457728 

2000-01 3,139 27,109 195,554 233789 459591 

2001-02 3,139 27,740 196,313 234624 461816 

2002-03 3,139 28,325 198,812 236217 466493 

2003-04 3,139 28,680 199,612 236655 468086 

CAGR(%) 0.2 1.7 1.8 2.5 2.1 

As is evident from the table, there has not been any noticeable growth in the 11 

kV and LT network reach and capacity, while the load and consumer growth have

Uttar Pradesh 

been increasing consistently during this period. This has had an adverse impact on 

the quality of supply and service to the consumers. 

There has also been a marginal decrease in the failure rates of DTs in recent years 

especially in the capacities of 250 kVA and above. However, the percentage 

failure rate in 25 kVA and 63 kVA transformers still continues to be around 20 

per cent, which is certainly high for any distribution system. 

It is also ironical that when most of the States are installing capacitor banks at LT 

level in order to improve tail end power factor and thereby curb losses, UPPCL 

has failed to maintain even the already installed capacitor banks at 33/11 kV level, 

leave aside the compensation on LT side. 

There has been an inadequacy of the reactive compensation in transmission 

system of UPPCL. The situation regarding transformation capacity and available 

reactive compensation (at the end of 2003-04) is as under: 

Aggregate secondary transformation capacity 12,000 MVA (approx.) 


Installed capacity of capacitor banks 4501 MVAR 

Capacitors in working order 3,309 MVAR, i.e., about 73 per cent 

of the installed capacity. 

Such a highly under-compensated system not only leads to low power factor and 

low voltage but it also puts additional strain on the system. Details regarding the 

position of capacitors is at Annexure-II. 

Most of the investment parameters indicate that resources have not been allocated 

optimally and the transmission and distribution system has faced immense 

neglect. The table below indicates the investments made in the distribution system 

during the pre and post-restructuring period. It would be evident that investments 

have dried up further after restructuring. 

Distribution 

system 

investments 

(Rs crore) 

Year before restructuring Year After Restructuring 

1996- 

97 

1997-98 

1998- 

99 

1999- 

00 

7.19 

2000- 

01 

2001- 

02 

2002- 

03 

2003- 

04 

1,596.35 288 516.23 332.48 216.68 210.36 202.77 156.02

CONSUMER METERING 



The financial health of the power sector is critically dependent on an accurate assessment 

of revenue and its subsequent realisation. Failure to cover even the cost of supply has 

led to mounting commercial losses for UPPCL. The recovery of cost of supply through 

tariff has declined from about 71 to 63 per cent in the last five years ending 2003-04. 

Thus every additional unit sold by the UPPCL adds to its losses. In such a scenario, the 

need for proper metering and energy audit needs no emphasis. But the sheer physical 

magnitude of the task, coupled with organisational and financial constraints has resulted 

in the progress of metering being very slow. Although, meters have been installed on all 

11 kV and above voltage level feeders, at the retail consumers level out of a total of 8.2 

million consumer connections, only 4.6 million, that is, about 56 per cent are metered. 

The position regarding metering as a proportion of total connections (in per cent ) is 

shown in the table below: 

Consumer Category-wise Metering (%) 

Category 2001-02 2002-03 2003-04 2004-05 

Agriculture 2 2 2 3 

Domestic 49 50 53 54 

Industrial Large HT 100 100 100 100 

Industrial Small LT 100 100 100 100 

Commercial LT 91 93 93 93 

Metering in the agricultural sector is almost negligible and in the domestic sector, it is 

about 50 per cent. In view of this, it is obvious that the figures of consumption and 

consequently loss figures as indicated by the utilities may not be realistic. 

Considering that capacity additions in generation are likely to come only towards the end 

of the Eleventh Plan, the State sector needs to undertake urgent steps to relieve the 

demand deficit through improving energy accounting and reducing T&D losses through 

consumer indexing and feeder level monitoring. The State has a particularly high 

component of unmetered energy being supplied to rural domestic and agricultural 

sectors, heavily contributing to its commercial losses due to lack of accountability, 

theft/pilferage and poor operating efficiencies of agricultural pumpsets. 

UPERC has consistently disputed the figures of energy consumption to the unmetered 

categories furnished by UPPCL and has been approving the consumption in these 

categories on normative basis, based on Tyagi Committee recommendations. This restatement 

of consumption in the unmetered categories has also led to considerable 

diversity in the system loss estimation between the Utility and UPERC. 

7.20

Uttar Pradesh 

The State should also undertake Demand Side Management (DSM) measures in right 

earnest to bring down the peak and energy deficits in the face of slow pace of generating 

capacity additions. 

AVERAGE HOURS OF SUPPLY 

Because there is a shortage of power, the supply is not adequate to meet the peak 

demand. Load shedding of 10 hours in rural areas and 6 hours in urban areas has been 

officially indicated, while informal feedback indicates an even worse position. This 

clearly shows a dismal performance of the power position in the State. Standards of 

power quality and performance/reliability standards even if these exist or are prescribed 

by UPERC cannot be complied with in such a scenario. The average hours of supply per 

day in the State is indicated in the table below: 

Average Hours of Supply Per Day 

Area 2001-02 20 02-03 2003-04 

Rural 8.45 10.13 9.08 

Tehsil 16.55 18.03 9.43 

District (H.Q.) 18.51 20.05 16.5 

Commissionery 20.53 21.58 18.1 

Mahanagar 22.17 22.51 20.5 

Supply to Industries 22.3 22.3 23.4 

(Source: UPPCL) 

It is clear from the above table that, with the exception of industries and Mahanagar 

areas, electricity supply during 2003-04 has been severely restricted as compared to the 

previous year. The supply restrictions are largely attributable to the curtailment of power 

purchase by UPPCL, consequent to the signing of the tripartite agreement for payment of 

dues to central generating stations (CGS) and operationalisation of the availability based 

tariff (ABT) regime. This deterioration in supply hours has resulted in net reduction in 

electricity consumption. 

RURAL ELECTRIFICATION 

The access to electricity and quality of supply parameters for rural areas is a matter of 

concern for the State. As per the data available with the Ministry of Power, 42 per cent of 

the villages of the State are yet to be electrified. Further, the access of electricity to rural 

households is at a dismal 19.84 per cent (2001 Census) as against a national average of 

more than 40 per cent. It is clear that the State has to cover considerable ground in terms 

of providing access to electricity to its rural households, apart from providing quality 

power to its existing consumers. 

7.21



The State has already taken some significant initiatives in creating a rural distribution 

infrastructure under RGGVY scheme. However, the benefits of the investments made 

under the scheme would be more discernable only when there is adequate power in the 

system to cater to the increased demand from the newly electrified rural areas. 

OPERATIONAL PERFORMANCE 

Transmission Losses 

Losses in the transmission system are made up of inter-State and intra-State transmission 

of electricity. The inter-State losses are external to UPPCL system in the Northern Grid, 

while procuring power from the Central generating stations. The power actually available 

to UPPCL at its transmission system periphery is net of these external losses. The 

estimate of these losses is maintained by the Northern Region Power Committee (NRPC) 

in respect of each beneficiary for the entire power purchased by the beneficiary during a 

period. 

While the inter-State losses are around 1.45 per cent, the intra-State losses are being 

maintained between 5-6 per cent, as shown as under: 

Particulars 

Year Before Restructuring 

1997-98 1998-99 1999-00 

Year After Restructuring 

2000-01 2001-02 2002-03 2003-04 

Energy available at the State 

transmission periphery (MU) 

40,659.4 42,049.7 43,470 37,493 39,867.8 36,338.1 40,570.2 

Energy delivered to 

distribution system (MU) 

38,626.4 39,947.2 41,079.1 35,430.9 37,675.4 34,188.3 38,269.1 

Transmission Losses (%) 5.1 5.1 5.6 5.6 5.4 5.8 5.6 

The level of transmission losses is comparable to that of transmission utilities in other 

States. 

Distribution Losses 

The trend of distribution losses during the pre-reform and post-reform periods is 

indicated as under: 

Trend of Distribution Losses ( %) 

Years before Restructuring Years after Restructuring 

Distribution 

Losses (%) 

1995 

-96 

1996 

-97 

1997 

-98 

1998 

-99 

7.22 

1999 

-2000 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

25 25 26 27 40 38 37 32 31

Uttar Pradesh 

The figures of distribution losses shown during the pre-reform period does not appear to 

be realistic as there has been a signficant correction in the subsequent years, as has been 

the case in respect of other States. 

The distribution losses still remains a significant area of concern and account for loss of 

more than 30 per cent of the power available for sale at the distribution interface level. 

There is a reduction in the level of losses since 2000-01 (as per UPPCL estimates). 

However, the numbers in the Tariff Orders of UPERC reveal a different picture. The 

high level of distribution losses has also negated the limited benefits of efficiency 

improvements achieved in generation and transmission to percolate down to consumers 

in the form of lower tariffs. 

Aggregate Technical and Commercial Losses 

The level of T&D losses does not reveal the complete picture of efficient operations in 

the distribution chain as there are often large discrepancies between the amounts billed to 

the consumers and the actual revenue collections. This section deals with the level of 

Aggregate Technical and Commercial (AT&C) losses for the system, including the 

impact of collection efficiency on the T&D losses. 

The collection efficiency statistics for the State is provided in the following table. It can 

be seen that the collection level have gone down even further during the post-reform 

period: 

Billing and Collection Efficiency 

1998-99 1999-00 2000-01 2001-02 2002-03 

Billing 

Government 590.43 645.71 677.88 785.27 804.34 

Non-Government 4,462.06 4,953.73 5,355.74 5,911.25 5,730.16 

Total Billing 

Collection 

5,052.49 5,599.44 6,033.62 6,696.52 6,534.50 

Government 435.6 334.69 592.84 331.58 418.36 

Non-Government 3,889.20 4,259.79 4,484.22 4,909.07 4,679.43 

Total Collections 


4,324.80 4,594.48 5,077.06 5,240.65 5,097.79 

Government (%) 73.78 51.83 87.46 42.22 52.01 

Non Govt. (%) 87.16 85.99 83.73 83.25 81.66 

Overall Collection 

Efficiency (%) 

85.60 82.05 84.15 78.26 78.01 

Excessive Government interference in organisational and operational matters has often 

undermined least cost procurement, led to unwise investment decisions, prevented 

rationalisation of tariff, and promoted excessive staffing. These shortcomings, combined 

7.23



with weak planning and demand forecasting, inefficient running of operations, low 

emphasis on maintenance and poor financial monitoring and control, have led to high 

losses and poor revenue collections. The AT&C loss levels have been computed for the 

period 2001-02 and 2002-03. These present a very grim picture of the State power sector 

with the level of AT&C losses at more than 50 per cent. 

Particulars 2001-02 2002-03 

Energy Input (MU) 37491 39940 

Energy Sales (MU) 22851 25070 

T&D loss (%) 40.2 37.3 

Average Cost (Rs/kWh) 2.83 2.64 

Sales (Rs crore) 6470 6618 

Collection Efficiency (%) 78.3 78.0 

Revenue Collected (Rs crore) 5063 5030 

Average Realisation (Rs/kWh) 2.22 2.00 

Equivalent Units of Revenue Collected (MU) 17881 19053 

AT&C losses (%) 52.3 52.2 

Similarly, the trend of losses for the subsequent years is indicated in the following graph. 

The reduction during 2003-04 has been considerably good and indicates good 

performance by the DISCOMs. However, the sustainability of such a reducing trend 

during the ensuing years needs to be seen before commending the companies for their 

performance. 

60 

50 

40 

30 

20 

10 

0 

AT&C loss (%) 

2000-01 2001-02 2002-03 2003-04 

7.24

Uttar Pradesh 

SUBSIDY SUPPORT FROM THE STATE GOVERNMENT 

The State Government has been provding subsidy for the agricultural and domestic 

consumers. The extent of support provided over the years is indicated in the following 

graph: 

2500 

2000 

1500 

1000 

500 

0 

Subsidy Provided by State Govt. (Rs Crores) 

1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 

The subsidy support has been maintained at below Rs 1,000 crore level due to 

financial constraints, while the need for subsidy has been mounting in the wake of 

increased consumption from the subsidised categories. The revenue forgone 

claimed by the Utility from the two categories is indicated in the following graph: 

3000 

2500 

2000 

1500 

1000 

500 

0 

Revenue Foregone Through Concessional Tariffs 

(Rs crores) 

2000- 2001- 2002- 2003- 

7.25 

Domesti 

Agricultura



RECEIVABLES POSITION 

The arrears and bad debt position in respect of the power utilities of Uttar Pradesh is 

indicated below. It may be noticed that the bad debt situation has started to rise again in 

the sector despite massive write-offs undertaken during the restrcuturing process. 

7.26 

(Rs crore) 

Particulars 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 

Arrears 2,389 3,010 3,737 4,742 5,699 7,155 7,541 6,321 7,272 

Bad Debt 16,160 18,346 20,525 22,805 25,810 2,994 3,385 4,754 3,400 

30000 

25000 

20000 

15000 

10000 

5000 

0 

Arrears and Bad debt position of UPPCL 

1995- 

96 

1996- 

97 

1997- 

98 

1998- 

99 

1999- 

2000 

2000- 

01 

2001- 

02 

2002- 

03 

Arrears (Rs Crore) Bad Debt (Rs Crore) 

2003- 

04 

An analysis of the arrears position indicates that the Government departments also 

account for a considerable part of these receivables. 

Arrears and Realisation 

Category Arrears Assessment Realisation Realisation (%) 

As on 31 March 2003 

Govt. 1,913.05 742.18 317.64 42.80 

Non-Govt. 4,835.72 5,381.61 4,088.56 75.97 

Total 6,748.77 6,123.79 4,406.20 71.95 

Govt. 1,824.03 720.67 314.36 43.62 

Non-Govt. 4,715.06 5,195.20 4,005.62 77.10 

Total 6,539.09 5,915.87 4,319.98 73.02 

Similarly, there has been very little progress in recovering the amounts locked up in 

disputes. The utilities need to address this issue on priority.

Uttar Pradesh 

2500 

2000 

1500 

1000 

500 

0 

1995- 

96 

Amount Locked up in Dispute (Rs Crore) 

1996- 

97 

1997- 

98 

1998- 

99 

7.27 

1999- 

2000 

2000- 

01 

Domestic cases Industrial 

2001- 

02 

2002- 

03 

2003- 

04



ACCUMULATED FINANCIAL LOSSES 

As part of the restructuring process, the State Government, has undertaken considerable 

settlement of the liabilities of UPSEB as indicated below: 

Government of UP loan and accrued interest written off Rs. 20,116 crore 

Adjustments for transfer of Unchahar Plant to NTPC Rs. 919 crore 

CPSU liabilities retained by Government of UP Rs. 2,515 crore 

The financial commitment taken by the Government during the restructuring of UPSEB 

is further indicated below: 

Terminal liabilities retained by the Government Rs. 6,176 crores. 

GPF liabilities Rs. 1,634 crores. 

Despite such massive write-offs, the State power utilities are proceeding on the same 

path of mounting losses in their books. This is due to a variety of reasons including 

operational performance, losses, tariff and recoveries from consumers. The average 

recovery per unit of electricity is indicated as under: 

Average Recovery Per Unit of Electricity 

Consumer Category 2001-02 2002-03 2003-04 

Domestic (%) 51 48 50 

Agricultural (%) 22 26 25 

Commercial (%) 106 117 116 

Industrial (%) 108 123 124 

Others (%) 56 50 62 

Total (%) 69 72 73 

Simiarly, the cash gap indicators, excerpted from the UPERC order of 2003-04 are 

provided in the following table: 

Cash Gap per Unit to Cover Cost 

Performance indicators 2000-01 2001-02 2002-03 

Collection per unit power input (Rs/ kWh) 1.21 1.26 1.39 

Cost of power purchase per unit of input (Rs/ kWh) 1.59 1.57 1.81 

Cash Gap to cover power purchase 0.38 0.31 0.42 

Cost per unit of power purchase (Rs/ kWh) 2.06 2.04 2.53 

Cash gap per unit to cover total cost 0.85 0.78 1.14 

Thus, the cash gap in the system is leading to accumulation of losses in the books 

of the utilities. The following are the key financial parameters of the utilities 

during the pre-reform and post-reform periods: 

7.28

Uttar Pradesh 

Particulars 

Financial and Commercial Performance Indicators 

(Rs crore) 

Year before Restructuring Year after Restructuring 

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 

Turnover 5,652 5,808 6,928 7,792 6,366 6,909 7,686 7,460 7,941 

PBT 22 171 292 411 (132) (2,211) (1,400) (1,319) (1,690) 

PAT 22 171 292 411 (132) (2,211) (1,400) (1,319) (1,690) 

Interest paid 1,377 1,462 1,602 1,529 1,471 403 480 487 474 

Wages and 

766 938 1,083 1,161 1,196 956 963 865 884 

salaries 

Equity 4,426 4,961 5,005 10,684 

Debt outstanding 16,160 18,346 20,525 22,805 25,810 2,994 3,385 4,754 3,400 

Networth 290 482 786 4206 1081 4,426 4,961 5,005 10,684 

Return on net 

worth (%) 

8 35 37 34 -12 -50 -28 -26 -16 

Govt. subsidy 1517 1557 1840 2157 1656 240 862 849 935 

7.29



CONCLUSIONS 

INDEPENDENCE OF OPERATIONS OF UTILITIES 

The vertically integrated monolithic structure of UPSEB has been dismantled into 

separate functions of generation, transmission and distribution. The generation segment 

has further been separated into thermal and hydel categories while the distribution one 

has now been separated into four entities. 

This segregation would be expected to lead to focussed interventions in each of the 

individual functions to improve operational and financial performance, identify 

investment requirements and improve quality of supply to the consumers. The horizontal 

segregation of distribution function into smaller and more manageable geographical 

areas was in fact a critical imperative to reduce losses, improve collections and quality of 

power supply and ensure better access of electricity in rural areas. These individual 

distribution entities would also be expected to encourage positive competitive spirit 

among these companies in improving operational efficiencies. However, to foster such 

competitive environment and to allow the benefit of collective wisdom to the State, the 

entities need to be functionally independent from each other. 

However, in Uttar Pradesh, most of the entities are still being headed by a single CMD. 

This has considerably negated the benefits of restructuring to the individual companies 

and the situation at present, as evident from the data provided in this report, is no better 

than that of the erstwhile UPSEB. 

CAPACITY BUILDING 

The State Government should ensure that these corporations have independent 

functioning and follow the principle of one-man-one-post to foster a competitive 

environment in operations and facilitate the benefits accruing from unbundling and 

reforms to percolate down to the consumers in terms of higher efficiencies and quality 

service at affordable cost as stated in the Mission Statement of UP Power Sector Reform 

Programme. 

The State Government also needs to ensure that the individual entities also have the right 

institutional arrangements, which promote efficiency and improvement, both in terms of 

cost reduction and increase in collection. The corporations need substantial institutional 

strengthening and operational planning. They lack trained technical, financial and 

managerial manpower at all levels. This is evident from the fact that the corporations, 

7.30

Uttar Pradesh 

created under the first transfer scheme, had only one company secretary and a common 

finance director. It is, therefore, extremely important that the Government assist these 

corporations in quickly strengthening the management structure and facilitate 

independent operations. 

ENERGY ACCOUNTING 

The DISCOMs are required to maintain their separate funds and to work independently. 

However, in practice such freedom/autonomy is not being experienced at present. The 

fund flow is from DISCOMs to UPPCL and is again redistributed among the DISCOMs. 

This way even a better performing DISCOM may not get its proper share and has to 

compensate from its share to the other DISCOMs, whose performance is relatively poor 

but needs are more. This spirit discourages the real ability to perform better. This should 

be discontinued and each DISCOM should be made accountable for its energy handled, 

sold, asset-management and revenue matters. In fact, what emerges is that the transfer of 

assets among different entities of the power sector may require a review from the 

management and ownership point of view. 

A robust energy audit measurement infrastructure considerably assists in pin-pointing the 

problem areas in distribution and increasing accountability. Consumer indexing and 

feeder level monitoring of supplies is a critical part of this efficiency chain. Considerable 

financial assistance is available from the Central Government in the form of APDRP 

loans and grants to improve the energy audit system of the DISCOMs. 

COLLECTIONS FROM GOVERNMENT DEPARTMENTS/INSTITUTIONS 

The problem of mounting arrears in the books of the DISCOMs is an area of concern. 

Poor collections from Government departments/institutions form a considerable part of 

the total arrears. 

The poor collection levels, coupled with the high level of T&D losses, is pushing the 

State power sector into a severe financial crisis so much so that the companies are not 

able to pay for adequate power purchase to Central utilities and State generation entities. 

This, in turn, is leading to financial un-viability of the generation sector as well. 

The State Government, therefore, needs to institute requisite mechanism to ensure timely 

recovery of the power dues from such Government Departments/Institutions. 

7.31

AUGMENTATION OF SUPPLY 



Uttar Pradesh is facing a severe power shortage. The quality of supply throughout the 

State is extremely erratic and pitiful. The poor supply situation is choking industrial and 

commercial growth in the State, and in turn, affecting economic development of the 

State. 

The State needs to augment its generation capacity urgently, to improve supply 

conditions. This is even more critical in view of the State taking considerable initiatives 

in creating a rural distribution infrastructure under the RGGVY. The benefits of the 

investments made under the scheme would not be clearly known unless there is adequate 

power in the system to cater to the increased demand in the State from the newly 

electrified rural areas. 

The 1,000 MW Anpara-C power project has been awarded to a private enterprise. There 

are also talks of considerable capacity creation by Reliance Energy in the State. Uttar 

Pradesh needs to ensure that such capacity creation gets off the ground at the earliest 

possible to meet the National Electricity Plan target of Power for all by 2012. 

REFERENCES 

Considerable information was sought in requisite formats from the State utilities of Uttar 

Pradesh for compilation of this report. However, the response of the utilities has not been 

upto expected levels. This has hampered deriving clear trends of operating and financial 

efficiencies of the restructured entities in comparison to the erstwhile vertically 

integrated UPSEB. The Study has, therefore, heavily relied on information available 

from the tariff orders of UPERC issued from time to time, CEA and other sources. 

7.32

Transformation Capacity at Grid Sub-Stations (132 kV, 220 kV & 400 kV) 

7.33 

Annexure I 

Voltage Ratio 31.3.94 31.3.95 31.3.96 31.3.97 31.3.98 31.3.99 31.3.2000 31.3.01 31.3.02 31.3.03* 31.3.04* 

400/220 3,600 3,915 3,915 3,915 3,990 4,935 5,375 6,205 6,520 5,640 5640 

400/132 200 200 200 200 200 200 200 9770 10260 

220/132 6,600 6,800 7,420 7,420 7,520 8,420 8,620 8,805 9,215 400 400 

220/33 125 125 125 125 125 125 125 160 220 

132/66 505 505 505 505 505 505 505 12443.5 12815 350 350 

132/37.5& 33 8,180 8,535 8,847 9,115 9,495 9,995 10,383 11602 12115 

132/25 158 158 158 158 158 158 158 163 163 

132/11 588 575 575 575 575 597 610 485 485 

132/6.6 160 160 160 160 160 160 160 100 100 

66/37.5&33 60 60 60 60 60 60 60 144 196 32 32 

66/11 133 140 140 140 140 140 140 147.5 147.5 

66/6.6 10 10 10 10 10 10 10 10 10 

37.5&33/11 1,135 1,135 1,135 1,135 1,135 1,135 1135 1135 1149 1049 1049 

Total 21454 22,318 23,250 23,518 24,073 26,433 27,481 28,732.5 29,895 29,908.5 30971.5

Year 

Installed capacitors 

at the end of year 

Year-wise capacity of Capacitors up to 31 March 2004 

Defective capacitors 


7.34 

Total working capacitors 


Annexure II 

132 KV 33 KV 11 KV Total 132 KV 33 KV 11 KV Total 132 KV 33 KV 11 KV Total 

1989-90 - 915 793 1,709 - 100 122 222 - 815 672 1487 

1990-91 - 1,270 948 2,218 - 113 150 263 - 1158 797 1955 

1991-92 - 1,375 983 2,358 - 292 172 464 - 1083 811 1894 

1992-93 - 1,610 1,011 2,621 - 276 318 594 - 1335 693 2028 

1993-94 240 1,606 1,050 2,896 - 137 303 440 240 1468 748 2456 

1994-95 640 1,636 1,137 3,413 - 312 327 638 640 1324 810 2774 

1995-96 840 1,646 1,227 3,712 - 205 501 706 840 1440 726 3006 

1996-97 880 1,646 1,254 3,780 - 276 528 803 880 1370 726 2977 

1997-98 880 1,646 1,277 3,802 40 212 575 827 840 1434 702 2975 

1998-99 880 1,665 1,279 3,824 - 206 573 780 880 1457 706 3044 

1999-00 880 1,705 1,296 3,881 - 432 782 1214 880 1273 85514 2667 

2000-01 880 1,912 1,236 4,028 80 606 730 1415 800 1307 506 2613 

2001-02 960 2,317 1,241 4,518 60 682 730 1,472 900 1,635 511 3046 

2002-03 1,160 2,997 767 4,324 40 792 409 1,241 1,120 1,605 359 3083 

2003-04 1,280 2,427 793 4,501 60 804 327 1,192 1,220 1,623 466 3309

GROUP-1 STATES 

SYNOPSIS OF 

STATE REPORTS 

Contents 

Page Nos. 

1. Andhra Pradesh 1 - 12 

2. Haryana 13 - 24 

3. Karnataka 25 - 34 

4. Madhya Pradesh 35 - 48 

5. Orissa 49 - 63 

6. Rajasthan 65 - 76 

7. Uttar Pradesh 77 - 88 


8. Assam 89 - 95 

9. Gujarat 97 - 104 

10. Maharashtra 105 - 112 


11. Tamil Nadu 113 - 118 

12. West Bengal 119 - 126


CHAPTER - 1 

ANDHRA PRADESH 

Andhra Pradesh State Electricity Board (APSEB) was one of the largest and 

most efficiently run power Utilities in the country. The State witnessed 

phenomenal growth in the power sector after the formation of APSEB in 1959. 

The following figures indicate the achievements of APSEB during its existence 

of about four decades. 

Table 1.1: Achievements of APSEB Since 1959 

Particulars 1959-60 1997-98 

Installed generation capacity (MW) 213 7,276 

No. of villages electrified 2,496 26,565 (100%) 

No. of consumers (lakh) 2 100 

No. of agricultural connections (lakh) 0.13 20 

APSEB was earning three per cent rate of return (ROR) on net fixed assets 

consistently till the late 1980s. The financial strain started from 1989-90 and 

the situation continued to worsen over the years. By the end of the year 1997- 

98, the outstanding dues of APSEB were of the order of Rs 2,600 crore. The 

major causes for the worsening financial position of APSEB were: 

• Increased capital investments; 

• Increased operational costs; 

• Increased burden of debt servicing; 

• Lack of timely tariff adjustments to match the growing cost of supply; 

• Increase in consumption by the subsidised agricultural sector; 

• No flow of cash subsidy from the State Government; and 

• Rising T&D losses. 

APSEB, therefore, was not in a position to raise funds for capital investments 

in the power sector. The financial institutions started insisting on reform and 

restructuring of APSEB as a pre-condition for lending capital support for

Synopsis of State Reports (Vol.-IV) 


investments. Realising the gravity of the situation, the State Government 

decided to restructure APSEB. 

1.2 RESTRUCTURING EXERCISE 

Government of Andhra Pradesh appointed a High Level Committee headed by 

Shri Hiten Bhaya, former Member Planning Commission, in January 1995 to 

study and report on the issues relating to restructuring the power sector. The 

Committee carried out a comprehensive study and submitted its 

recommendations to the Government in April 1995. One of the major 

recommendations of the Committee was to restructure the power sector by 

separating generation, transmission and distribution functions. The reform 

initiatives were started by the Government in April 1997 with the issue of a 

policy statement clearly stating the objectives of the reforms and the strategy to 

be followed in implementing them. Restructuring the APSEB, establishment of 

an independent Electricity Regulatory Commission and tariff reform were part 

of the reform strategy. 

1.2.1 Reform Implementation Process 

The reform and restructuring exercise in Andhra Pradesh power sector started 

in June 1997 with the creation a Reform Cell headed by an officer of the rank 

of Chief Engineer. Officers, with requisite skills and experience (serving as 

well as retired) were selected and drafted to the Reform Cell. Ten working 

groups were formed and each group was entrusted with a specific activity. Data 

required was collected and analysed by the groups with the active participation 

and advice of consultants. The reports prepared were presented to APSEB for 

appropriate decisions. Active involvement of the Members of the Board in the 

reform exercise was evident from the fact that weekly meetings were held at 

Board level to review the progress of reform activities. Secretary (Energy), 

Government of Andhra Pradesh, also took part in these review meetings. The 

process followed greatly helped in implementation of the restructuring process. 

1.2.2 Milestone Events 

The following achievements greatly contributed to the smooth and successful 

implementation of reforms in Andhra Pradesh: 

• Carrying out negotiations with the Employees’ Associations and Unions 

and entering into Tripartite Agreements, involving the State Government, 

APSEB and the Employees’ Associations/Unions; 

2



• Carrying out intensive publicity campaign on the need for reforms; and 

• Enactment of Andhra Pradesh Electricity Reform Act, 1998. 

1.2.3 Consultancy Support 

The World Bank provided loan assistance for consultancy services in the initial 

stages. The major part of resources for the consultancy support was secured in 

the form of grants from the Canadian International Development Agency 

(CIDA) and the Department for International Development (DFID) of UK. 

1.2.4 Restructuring of APSEB 

(a) The restructuring exercise started with the reorganisation of the 

vertically integrated APSEB into Andhra Pradesh Power Generation 

Corporation Limited (APGENCO) for generation function and 

Transmission Corporation of Andhra Pradesh Limited (APTRANSCO) 

for transmission and distribution functions. 

(b) The First Transfer Scheme, vesting the assets, liabilities, personnel, etc., 

with APGENCO and APTRANSCO, was implemented w.e.f. 1 February 

1999. The Andhra Pradesh Electricity Regulatory Commission came into 

existence in April 1999. 

(c) The distribution function was subsequently separated from APTRANSCO 

with the creation of the following area based DISCOMs: 

Table 1.2: Distribution Companies 

DISCOM 

Location of 

Headquarters 

Eastern Power Distribution Company Ltd. of AP (APEPDCL) Vishakapatnam 

Northern Power Distribution Company Ltd. of AP (APNPDCL) Warangal 

Central Power Distribution Company Ltd. of AP (APCPDCL) Hyderabad 

Southern Power Distribution Company Ltd. of AP (APSPDCL) Tirupati 

(d) The Second Transfer Scheme, vesting the distribution assets, liabilities, 

personnel, etc., with the four DISCOMs came into existence in April 

2000. 

(e) The bulk supply trading was initially under the control of APTRANSCO. 

In line with the provisions of the EA, 2003, the bulk supply trading 

function was transferred from APTRANSCO and vested with the 

DISCOMs, through a Third Transfer Scheme w.e.f. 10 June 2005. Under 

3



this multi-buyer model, the DISCOMs are now purchasing power required 

by them directly from the generating companies. 

1.3 IMPACT OF ELECTRICITY REGULATORY COMMISSION 

Andhra Pradesh Electricity Regulatory Commission (APERC) has played a key 

role in the successful implementation of power sector reforms in the State. The 

Commission has not only come up with the regular tariff orders annually on 

time since 2000-01, but also notified several regulations, codes and guidelines 

for effective functioning of the Utilities. The Commission has facilitated 

improved performance of the Utilities in both operational and customer-care 

matters. The standards of performance (SOP) are fixed and regulations framed 

for implementation. Consumer grievance redressal forums have been 

established in the DISCOMs and the Ombudsman appointed to deal with 

appeals. 

There is a gradual reduction in the T&D losses on account of the regulatory 

control mechanism and the companies have started making profits since 2004- 

05. The performance gains of the power Utilities have their impact on the retail 

tariffs, which have not increased in the last three years. In fact, there has been a 

reduction in the retail tariffs in respect of the subsidising categories of 

consumers (industrial and non-domestic commercial categories). 

The Commission has introduced the Multi-Year Tariff (MYT) framework. The 

first control period for MYT has been fixed as three years, covering the period 

from 2006-07 to 2008-09. Subsequent control periods are for five-years 

duration. The tariff orders for the year 2006-07 have been issued by the 

APERC under the MYT framework. The Commission has ensured regular flow 

of cash subsidies to the restructured companies. The Regulatory Commission is 

functioning quite independently in the State, as there is practically no 

interference from the Government. 

1.4 PERFORMANCE OF THE UTILITIES 

All the restructured Utilities have achieved commercial viability in a span of 

five years. The company-wise achievements are analysed hereunder: 

1.4.1 Generation Company 

At the time of restructuring, APGENCO was vested with the assets and 

liabilities of the generation wing of the erstwhile APSEB. The performance of 

4



the generation segment in the APSEB set-up was also good even before the 

restructuring. The performance has further improved after restructuring due to 

concreted efforts made by the new company. 

Capacity Additions 

(a) Capacity addition made by APGENCO under the State sector in the first 

six years is 970 MW. During this period, the State achieved total 

generation capacity additions of 3,776 MW from all sources as indicated 

below: 

Table 1.3: Capacity Addition (1999-2005) 

Sector 

Capacity 

Addition (MW) 

State Sector (APGENCO) 970 

Central Sector 1,686 

Private Sector 575 

Non-conventional and Other Sources 545 

Total 3,776 

(b) APGENCO’s total installed capacity at the end of 2004-05 was 6,581 

MW. Further, APGENCO has taken up the following projects, which are 

under various stages of execution: 

Table 1.4: Programme of Capacity Addition 

Project 

Capacity 

MW 

Schedule of 

Completion 

RTPP-II Stage 2 x 210 2006-07 

VTPS-IV Stage 1 x 500 2008-09 

KTPS-VI Stage 1 x 500 2009-10 

Bhupalapalli Thermal Station 1 x 500 2008-09 

Jurala Hydel Station 

1 x 39 

5 x 39 

2006-07 

2008-09 

Nagarjunasagar Tailpond Hydel Station 2 x 25 2008-09 

Pochampad Hydel Station Unit-4 1 x 9 2008-09 

Total 2,213 

(c) About 1,500 MW capacity gas-based thermal stations under the private 

sector are in an advanced stage of completion. 

5

Operational Efficiency 



The efficiency improvements, after restructuring, are as under: 

• Plant load factor (PLF) of thermal power stations improved from 77.6 to 

89.7 per cent; 

• Plant availability has improved from 84.8 to 92.5 per cent; 

• Secondary oil consumption level has come down from 1.7 ml/kWh to 0.50 

ml/kWh; 

• Auxiliary consumption in thermal power stations has come down from 

9.17 to 9.09 per cent; 

• Annual electricity generation has increased from 27,000 MU to 29,000 

MU; and 

• APGENCO has been registering profits right from its inception. The profit 

after tax (PAT) for 2002-03, 2003-04 and 2004-05 have been Rs 55.73 

crore, Rs 10.46 crore and Rs 51.64 crore respectively. 

During 2003-04, the profit came down on account of the poor inflows into the 

Srisailam and Nagarjuna Sagar reservoirs. 

1.4.2 Transmission Company 

APTRANSCO is one of the best performing transmission companies in the 

country. It has made sizeable investments to strengthen the transmission 

network. 

Network Expansion 

After restructuring, there has been a substantial growth in the transmission 

network, as can be seen from the table below: 

Table 1.5: Growth of Transmission Network 

Particulars 

At the end of the Year 

1998-99 2004-05 

Total 

Increase 

Average 

Annual 

Increase 

400 kV lines (ckt km) - 2,033 2,033 339 

220 kV lines (ckt km) 8,203 11,462 3,259 543 

132 kV lines (ckt km) 10,634 13,351 2,717 453 

400 kV sub-stations (No.) - 3 3 1 



6



After restructuring, there was an increased flow of funds in the transmission 

sector. Consequently, significant growth in the transmission network has been 

noticed. The details of investments from 1995-96 to 2004-05 are as under: 

Table 1.6: Details of Investments (Rs crore) 

Prior to restructuring After restructuring 

Year Investment Year Investment 

1995-96 99.57 1999-2000 424.19 

1996-97 60.96 2000-01 420.14 

1997-98 115.29 2001-02 459.11 

1998-99 205.00 2002-03 362.62 

2003-04 248.01 

2004-05 415.38 

Operational Improvements 

Key performance improvements of APTRANSCO are as under: 

• Transmission losses have come down from 8.98 per cent (1999-2000) to 

4.91 per cent (2004-05) - a reduction of 4.07 percentage points in five 

years; 

• The maximum and minimum voltages at 132 kV level have improved 

from 129 kV and 92 kV (1999–2000) to 140 kV and 121 kV respectively 

by 2004-05; 

• The system frequency has improved from 51.12 Hz (maximum) and 47.80 

Hz (minimum) in 1999-2000 to 50.84 Hz (maximum) and 48.62 Hz 

(minimum) in 2004-05. It would be seen that both the maximum and 

minimum frequencies have been brought closer to the standard power 

frequency of 50 Hz; 

• Transmission system availability is ranging between 99.35 and 99.85 per 

cent; and 

• The cost recovery of the transmission system has improved from around 

65 per cent in 1998-99 to more than 100 per cent from 2002-03 onwards. 


With the separation of distribution function from APTRANSCO, four 

DISCOMs came into existence from the year 2000. Several improvements have 

7



been noticed in the performance of the Utilities after the restructuring. The 

same are analysed hereunder: 

(a) Power Supply Position: There were severe peak demand shortages 

(ranging from 800 to 1,100 MW) and energy shortages (ranging from 560 

to 2,300 MU) in APSEB before 1998-99. This resulted in load sheddings, 

leading to load restrictions on industrial consumers in addition to 

unscheduled interruptions. The situation has largely improved in view of 

the scaling down of the peak demand and energy shortages by way of 

capacity additions and improved plant performance. In the postrestructuring 

scenario, peak demand shortages range from 4 to 110 MW 

and energy shortages from 25 to 500 MU in different years. 

(b) Distribution Losses: The DISCOMs have achieved considerable 

reduction in distribution losses (both technical and commercial). The 

losses for the years 2001-02 to 2004-05 are shown in Table below. 

Table 1.7: Reduction in Distribution Losses 

DISCOM 


2001-02 2004-05 

SPDCL 21.31 18.12 

NPDCL 26.81 19.20 

CPDCL 27.10 20.17 

EPDCL 17.90 15.30 

(c) Transformer Failures: There is substantial reduction in the failure rate of 

DTs after the restructured Utilities came into existence. The position is 


Table 1.8: Distribution Transformers Failure Rate 

DISCOM 

Distribution Transformers Failure Rate (%) 

2001-02 2002-03 2003-04 2004-05 

SPDCL 14.16 9.26 8.45 7.01 

NPDCL 24.42 18.83 15.81 11.72 

CPDCL N.A. 16.27 11.87 9.48 

EPDCL 13.87 9.48 7.25 N.A. 

Since a large number of DTs have been added in the system and High 

Voltage Distribution System (HVDS) has also been adopted, the failure 

rate is likely to go down further. Addition of new DTs will also result in 

relieving the overloaded DTs. 

8



(d) Metering: The improvements made in metering by the DISCOMs are: 

• The percentage of metered services in all categories, other than 

agricultural, is almost 100 per cent; 

• Metering of agricultural services is 21 per cent in SPDCL, 8 per cent 

in EPDCL and 2 per cent in the other two DISCOMs; 

• The metered electricity consumption has increased from 38 per cent 

in 1999-2000 to 52.4 per cent by 2004-05; 

• All industrial and high value services are provided with electronic 

meters; 

• All 33 kV and 11 kV feeders have been metered; and 

• Metering has been completed in respect of about 36,300 DTs. 

(e) Billing and Collection: There are marked improvements in the billing 

and collection of revenue after the restructuring. The position is given 

below: 

• Billing demand has improved from Rs 4,841 crore (1999-2000) to Rs 

8,817 crore (2004-05); 

• The overall collection efficiency in the post-reform period is ranging 

from 96.52 to 102.87 per cent as compared to 92.74 per cent in 1999- 

2000; and 

• Though the receivables are increasing, the percentage of receivables 

over the billing demand is reducing year after year. The percentage 

of receivables at the end of 2003-04 stood at 21.5 per cent of the 

demand. 

(f) Subsidy: Prior to restructuring, no cash subsidy was provided by the State 

Government, though there were accounting adjustments like conversion of 

loan into equity, etc. Consequent to restructuring, the Government has 

provided revenue subsidy in cash as required in the tariff orders of the 

Commission. The year-wise revenue subsidy provided is as follows: 

9



Table 1.9: Revenue Subsidy 

Year Subsidy (Rs crore) 

2000-01 1,626 

2001-02 1,561 

2002-03 1,509 

2003-04 1,515 

2004-05 1,303 

Due to the improved performance of the Utilities, the subsidy component 

is gradually coming down. 

The cross-subsidy component in the tariff has also gradually decreased 

from 24.35 per cent in 2000-01 to 16.39 percent in 2004-05. There has 

also been a reduction in the retail tariffs in respect of the subsidising 

category of consumers (i.e., industrial and commercial) over the years. 

(g) Financial Performance: The turnover of the DISCOMs has increased 

year by year and the companies have achieved turnaround from lossmaking 

to profit earning entities. EPDCL is registering profits from 2002- 

03 onwards. SPDCL and NPDCL achieved turnaround by 2003-04, while 

CPDCL achieved that in 2004-05. Thus all the six restructured power 

Utilities in the State are registering profits since 2004-05. 

(h) Consumer Service: In APSEB, adequate attention was not paid to 

consumer care. APERC has not only fixed the standards of performance 

but also monitored their implementation. As a result, there is a marked 

improvement in consumer service. Consumer grievance redressal forums 

have been established in each DISCOM to handle consumer complaints. 

Ombudsman has also been appointed. Even with these measures in place, 

there is scope for further improvement in the area of consumer care. 

1.5 ISSUES AND WAY FORWARD 

Restructuring of SEBs was an important component of power sector reforms. 

However, much more needs to be done to attain the end goal of creating a 

vibrant and viable power sector, which would provide quality power to the end 

users at reasonable rates. To achieve this, the sector needs continued support 

from the Government. In this connection, the following issues need to be 

addressed: 

10



• The restructured power Utilities have improved their performance over the 

years. They, however, need to pursue the reform initiatives to further 

improve their performance on a sustainable basis. 

• At present, the Directors on the Boards of the companies are on full time 

basis. There is need to strengthen the Boards by inducting professionals 

with experience and expertise from the fields of Power Engineering, 

Management, and Finance, etc., as non-functional directors. 

• The Reforms Cell, originally created to pursue the reform initiatives in the 

power sector, has been closed and the Chief Engineer (Regulatory Affairs) 

has been entrusted with the responsibility of looking after the residual 

activities. There is a need to establish a high level planning and 

monitoring agency at Government level to oversee the implementation of 

reforms. The agency must have the support of an expert group, comprising 

of experienced professionals. 

• Action needs to be taken to develop competent cadre of professionals to 

hold senior positions in the Utilities. Till such time, outside personnel, 

with adequate experience, can be inducted on contract basis to the top 

level positions relating to Finance, Human Resources, Information 

Technology, etc. 

• The selection of the personnel to hold the positions of directors in the 

Utilities is generally guided by political considerations. There is a need to 

establish a clear and transparent selection process so that competent 

professionals, having adequate experience, are inducted to these vital 

positions. 

• The functional directors in the Board need to be given autonomy to 

operate and take decisions independently on the subjects allotted to them. 

Only policy issues need to be brought before the Board. 

• There is need to delegate authority and responsibility to the 

managers/officers at all levels. This would help in fixing accountability 

and also enhance the scope for developing managerial skills. It is an 

essential ingredient of an institution-building process. 

• The DISCOMs have not been granted full autonomy. Though separated 

from APTRANSCO more than five years ago, these are still operating 

under the directions and guidance of APTRANCO. These DISCOMs are 

11



required to function independently, guided by their own boards of 

directors. 

• After restructuring, engineering professionals, with adequate experience 

from the power sector, were appointed as CMDs for five out of the six 

Utilities. At present, only one DISCOM is headed by an engineering 

professional. The power sector management needs the services of experts 

with extensive knowledge of intricate problems of the power sector. The 

need of the hour is to choose competent persons with knowledge, 

experience and expertise in the relevant field for heading the power 

Utilities. Adequate avenues should be created so that competent and 

deserving professionals from the Utilities get an opportunity to rise to 

head the utilities. 

• The functioning of the Utilities is more or less akin to that of the erstwhile 

APSEB. There is need to infuse professionalism and a commercial 

approach in the functioning of the Utilities. Training courses, specially 

designed to change the mindset and impart the methods of corporate 

governance, should be conducted for the managers/officers to improve the 

existing work culture. 

12

CHAPTER - 2 

HARYANA 

2.1 FACTORS LEADING TO REFORMS 

Haryana adopted the restructuring model, based on a study of its power sector 

in 1995-96. The study recommended comprehensive reforms of the electricity 

sector in the State. In order to undertake power sector reforms, the State 

enacted the Haryana Electricity Reforms Act, 1997. The aims and objectives of 

the said Act included the following: 

(a) Creating a financially viable electricity sector; 

(b) Creating an environment to attract private investment; 

(c) Promoting competition; and 

(d) Over all development of the electricity sector in an efficient, economical 

and competitive manner. 

The need for comprehensive reforms was felt since the Haryana State 

Electricity Board (HSEB) was finding it increasingly difficult to meet the 

demand for power. The State witnessed a peak shortage of 11 per cent and 

energy deficit of around 25 per cent in 1997. No generation capacity was added 

in the State. Consequently, the State remained increasingly dependent on power 

imported from outside sources. 

The situation further deteriorated due to lack of adequate funds for expansion 

of generation, transmission and distribution systems, as HSEB could not 

control the cumulative effect of inefficiencies and mounting commercial losses. 

By March 1998, the accumulated financial losses reached Rs 16,076 million. 

These continued to grow on account of non-compensatory tariffs, poor revenue 

collection and high technical and non-technical losses. 

In this background, the State Government initiated the reform process by 

restructuring the vertically integrated HSEB. The chronology of events in the 

reorganisation process is as follows:

2.1.1 Chronology of Restructuring 



HSEB was carved out from PSEB in 1967. Haryana Electricity Reforms Act, 

1997 was enacted in August 1998. HSEB was restructured into Haryana Power 

Generation Corporation Limited (HPGCL) and Haryana Vidyut Prasaran 

Nigam Limited (HVPNL). Subsequently, through the Second Transfer Scheme 

(notified in July 1999), two DISCOMs, viz., (i) Uttar Haryana Bijli Vitran 

Nigam Limited (UHBVNL) and (ii) Dakhshin Haryana Bijli Vitaran Nigam 

Limited (DHBVNL) were incorporated by transferring distribution assets, 

liabilities and personnel of HVPNL to them. 

2.1.2 Power Purchase and Trading 

Under the Transfer Scheme of 1998, HVPNL was entrusted with the function 

of bulk purchase and supply of power to the DISCOMs under the single buyer 

model (SBM). After the enactment of the EA, 2003, Government of Haryana 

was required to separate the functions relating to power purchase and trading 

from HVPNL. Accordingly, these functions were transferred to HPGCL. Under 

the EA, 2003, HPGCL has also been issued separate license for trading and 

supply of power in the State by the Haryana Electricity Regulatory 

Commission (HERC). 

2.2. REFORM PROCESS 

2.2.1 Generation 

Key Positives 

One of the objectives of reforms was to increase generation capacity since it 

had not been possible to obtain the required resources due to the poor financial 

position of the erstwhile HSEB. At the time of restructuring, in 1998, the 

capacity under HPGCL was only 863 MW, mostly thermal (65%). The State 

had been facing energy deficit of 25 to 33 per cent, prior to restructuring. One 

of the key challenges for the GENCO was to take up massive capacity addition 

programme in the State. After restructuring, HPGCL has added around 724 

MW in a period of six years. The State now has a total installed capacity of 

1,587.40 MW. 

The State has formulated a strategy for capacity addition in the State sector as 

well as through participation of independent power producers (IPP). At present, 

a generating station of 600 MW capacity is under construction at Yamuna 

14



Nagar (Deen Bandhu Chhotu Ram Thermal Power Project-II). During the 

Eleventh Plan, the capacity addition target in the State is about 1,600-1,800 

MW. 

Key Concerns 

The demand for power in the State is increasing considerably with the rapid 

developments taking place in the National Capital Region (NCR), a substantial 

part of which falls within the State. Haryana is facing acute power shortage, as 

the peak demand is the same both for the mornings and evenings. As per the 

draft Seventeenth Electric Power Survey, demand forecast indicates that the 

State would have 7,611 MW of peak demand by 2010-11 and the required 

capacity would be more than 10,000 MW. The peak demand is likely to exceed 

even these forecasts, going by the actual demand witnessed during 2004-05 and 

further fuelled by the growth in services, urban and real estate development in 

the State. Therefore, greater focus on concrete programmes, both in the short 

and medium term, for additional generation capacity would be needed to 

overcome the existing peaking shortages and fully meeting the increased 

demand for the next five years. 

2.2.2 Capacity Addition Through IPPs 

The State Government has been endeavouring to promote IPPs to bridge the 

demand-supply gap. However, owing to the uncertainty in availability of gas, 

their funding and implementation is still on paper only. In view of the above, it 

is also not certain whether the IPPs would be making any significant addition 

to the generation capacity in the State in the near future. 

2.2.3 Technical Performance of HPGCL 

Key Positives 

HPGCL has improved operating performance levels of the existing generating 

stations during the post-reform period. Apart from the addition in generating 

capacity, there is a substantial improvement in the PLF of these stations. The 

average plant availability has improved from 31.96 per cent in 1998-99 to 

78.11 percent in 2004-05. HPGCL has brought down the coal and the 

secondary oil consumption by about 8 per cent and 6.7 per cent respectively. 

Since 2000-01, HPGCL’s thermal plants have also been consistently bringing 

down the level of auxiliary consumption. 

15

2.2.4 Financial Parameters 

Key Concerns 



The variable cost of generation is increasing rapidly for HPGCL plants. While 

the variable component was 67 per cent of the total cost of generation in 1999- 

2000, the same was 72 per cent in 2004-05. The generation cost per unit has 

increased from Rs 2.14 in 2001-02 to Rs 2.67 in 2004-05. 

Since HPGCL was supplying power to HVPNL, HERC has allowed only the 

operational expenses as pass through. It is only after enactment of the 

Electricity Act, 2003, that HPGCL was subjected to tariff approval by HERC. 

HPGCL has a substantial loan portfolio from the new projects 

undertaken/planned by it. As on April 2006, HPGCL loans are of the order of 

Rs 3,200 crore of which secured loans are Rs 665 crore only. As regard losses, 

though the position has not deteriorated, HPGCL has not turned into a profitmaking 

company. Now it is time for HPGCL to ask for return on equity and get 

the admissible return, so that, in course of time, it is transformed into a profitmaking 

entity. 

2.3 TRANSMISSION 

2.3.1 Transmission Network 

Key positives 

HVPNL has a transmission network of about 5,596 ckt km consisting of 220 

kV, 132 kV and 66 kV lines. Prior to restructuring, the transmission system 

comprised mainly of 66 kV and 132 kV transmission lines and sub-stations. 

HVPNL has added a significant number of sub-stations and the associated lines 

to augment and expand the transmission network within the State. The 

transmission system augmentation is being planned over 132 kV and 66 kV 

systems and 220 kV for more efficient operations and to increase the voltage 

level for transmission, which, in turn, would reduce the losses in the network. 

The trend shows that the number of sub-stations have increased as under: 

• 220 kV substations by around 50 per cent; 

• 132 kV by 56 per cent; and 

• 66 kV by 41 per cent. 

16



In the post-reform period, marked improvements have been noticed in the 

network expansion, operational efficiency and increased investments in the 

sector. 

2.3.2 Operational Parameters 

Availability of most of the transmission network in HVPNL is in the range of 

98 to 99 per cent. There has been a reduction in the overall losses in the 

transmission system in the State. The inter-State losses are around 1.45 per 

cent, even the intra-State losses have come down and are at the level of 3 to 4 

per cent. There was a significant saving on account of outages to the extent of 

about 466 hrs on 220 kV lines because of hotline maintenance carried out by 

the Utility staff. 

2.3.3 Capital Investment in Transmission Sector 

There has been a quantum jump in the planned investment in the transmission 

sector in Haryana. The investments increased by about 100 per cent in 2004-05 

over 2001-02 on network augmentation. During 1998-99 to 2005-06, the total 

expenditure incurred/planned in the transmission sector in the State has been of 

the order of the Rs 1,453.58 crore. 

2.3.4 Future Investments 

HPVNL has set an optimistic investment plan of about Rs 684 crore for 2006- 

07 and Rs 5,194 crore for the Eleventh Plan for new sub-stations, and 

augmentations of the transmission system. The sources of funds to be deployed 

in the investment plan and actual allocations are subject to prudence check and 

approval by the Commission. 

The impact of restructuring in the transmission sector has been positive and if 

the trend is maintained, the transmission network would be resilient to work 

seamlessly with the National Grid and to provide Open Access and introduce 

ABT regime in the State in a reasonable timeframe. 

2.4 DISTRIBUTION SYSTEM - KEY CONCERNS: 

Haryana has a widespread distribution system, which came up when the State 

became the first in the country to achieve 100 per cent village electrification in 

the 1970s. The distribution network is mostly on 11 kV running into 1,12,131 

17



ckt km and 1,47,466 DTs. The network of lower voltage lines continues to be 

the backbone of the distribution system even today. 

2.4.1 Operational Parameters 

Reliability and Quality of Power 

Both the DISCOMs shed around 25 to 30 MUs on a daily basis due to power 

shortage in the Northern Grid and to maintain grid discipline. Besides the 

planned load shedding, the duration of unscheduled load shedding remained 30 

minutes to 1½ hrs for three or four times a day in 2005-06 across all categories 

of consumers. The number of interruptions has shown a marked increase since 

2001-02 for both the DISCOMs. The annual interruption level per line has 

decreased for DHBVNL, from 75 in 2000-01 to 57 in 2004-05, but the average 

duration of interruption hrs/line have almost doubled. This is a negative trend. 

Failure rate of DTs continues to be high after some good results in the 

reduction of failure rate from 33 per cent in 1997-98 to 15.68 per cent in 2002- 

03. However, there was a reversal in trend in 2003-04 when the DT failure rate 

increased to 16.15 per cent and further to 16.3 per cent in 2004-05. 

Losses in the Distribution System 

The losses in the distribution system have shown an increasing trend in the 

post-restructuring period. AT&C losses of the DISCOMs in 2004-05 have been 

as high as 38.26 per cent and 42.59 per cent respectively for DHBVNL and 

UHBVNL, because of poor collection efficiency. In 2004-05, the quantum of 

losses suffered on account of AT&C losses, was around Rs 821 crore for 

DHBVNL and Rs 668 crore for UHBVNL. 

2.4.2 Subsidy Support by the State Government 

The State Government has been providing subsidy to bridge the revenue gap in 

the annual revenue requirement of the DISCOMs on account of concessional 

tariff being provided for the agricultural sector in the State. Agricultural 

consumption contributes around 33 per cent of the total sales of the DISCOMs 

and out of that only 30 per cent was metered as in 2005-06. There exists a 

difference in the estimates of DISCOMs and HERC on the consumption in 

respect of agricultural pumpsets in the State. For the sales to metered and 

unmetered agricultural pumpset consumers, HERC had worked out a criterion 

in its tariff order of 2000-01. Subsidy by the State Government is available 

only for the agricultural consumers. The past years have seen a progressive 

18



increase in the subsidy provided by the State Government. From Rs 532 crore 

in 1999-2000, the subsidy support has grown three-fold and reached a level of 

Rs 1,686 crore in 2006-07. 

2.4.3 Commercial Viability 

Receivables 

The amount of receivables has been increasing substantially for both the 

DISCOMs. While it was pegged at around Rs 1,119 crore for the two 

DISCOMs as on 31 March 2000, it shot up to Rs 2,852 crore by 31 March, 

2005. The disturbing trend in the matter of receivables of UHBVNL is that 

agricultural and domestic categories together accounted for about 82 per cent 

of the total arrears that got accumulated in this period. 

Financial Gap in Distribution Sector 

While the ARR is met through revenue from sale of power and subsidy 

available from the Government, however, under-performance by the DISCOMs 

to recover the revenue billed leaves a huge gap in the sector. The financial gap 

in the distribution sector on subsidy received and revenue realised basis has 

almost doubled from 16 paise per unit in 2002-03 to 25 paise per unit in 2004- 

05 for DHBVNL and from 17 paise to 48 paise for UHBVNL during the same 

period. 

Financial Position of the DISCOMs 

The financial position of the DISCOMs has not improved even after the full 

cost of service tariffs has been allowed by the Commission and full subsidy 

amount provided by the State Government. However, in an isolated instance 

(2003-04), the DISCOMs had shown a profit of Rs 70 crore. This was partly 

attributed to the truing up of power purchase cost from Faridabad Gas Power 

Station, which led to a refund from NTPC of the already paid cost by the 

consumers. The overall trend shows that the losses of DISCOMs have 

increased to as high as Rs 396 crore. The distributions sector, even after 

investments of more than Rs 1,150 crore in the last six years, has still to show 

any significant achievement in any of the key areas. The customers have also 

not got a better deal. Consumer Grievance Redressal Forums too have not been 

set up in the State. 

19

Anti Theft Measures 



For checking and prevention of theft of energy, the DISCOMs with the help of 

the State Government undertook some measures. The number of preventive 

raids were intensified during 2001-02 and 2002-03, but declined during 2003- 

04. The drive against theft has not been maintained by the DISCOMs. Setting 

up of special courts for speedy trial of electricity theft cases is delayed in the 

State. 

There is an urgent need for the State Government to provide support to the 

DISCOMs to check theft of electricity. The DISCOMs need to undertake 

concrete measures like: strengthening of the vigilance squads and replacing 

bare LT conductors by armored cables/HT lines; etc. 

2.5 Regulatory Process 

HERC was established in August 1998. Though the regulatory process is well 

developed, its effectiveness has been limited due to non-compliance of some of 

its directives issued in the interest of stakeholders. 

2.5.1 Tariff Revision 

Since its inception, the Commission has issued seven orders on ARR for 

Distribution and Retail Supply (D&RS) functions of the DISCOMs. However, 

the distribution and retail supply tariff have been revised only thrice during the 

last seven years. This is in spite of the increase in power purchase expenses of 

the DISCOMs. In the tariff setting philosophy of the Commission, it was 

envisaged that the tariff shall move towards cost to serve and cross-subsidy 

shall be gradually removed. While there is no subsidy to domestic consumers, 

tariff for industrial and commercial categories have remained the same. 

Agricultural tariffs were reduced instead of being progressively increased 

towards the cost to serve. This is a matter of concern since it is a deviation 

from the basic principle of reforms and tariff rationalisation and phasing out of 

cross-subsidies. The gap between ACS and ARR prevails primarily on account 

of agricultural consumers. The realisation attained for the domestic consumers 

is at 86 per cent of the average cost to serve and for the rest of the categories, 

except the agricultural consumers, the revenue realised is more than the ACS. 

20

Open Access 



The Regulations for Open Access have been notified by HERC. HVPNL, 

which acts as the nodal agency, has finalised the norms and procedures for the 

application of short-term Open Access. The Open Access has been allowed 

w.e.f. 1 October 2006 for consumers with contract demand of 15 MVA and 

above. The surcharge to be levied by the DISCOMs is yet to be specified and 

this will delay the implementation of Open Access and introduction of 

competition in distribution and retail supply of electricity. 

2.6. RECOMMENDATIONS AND WAY FORWARD 

2.6.1 State Government and Governance Issues 

Support of the State Government is essential for the success of power sector 

reforms. There should be an unequivocal commitment to change so that the 

reforms undertaken succeed. The Government support, in the transition period, 

should not only be in terms of handholding for providing equity support and 

financial support for subsidy but also for defining the roles and accountabilities 

of various stakeholders in the reform process. 

Imperatives of the reforms demand focussed attention on keeping the reforms 

on course with positive support by the State Government. The gradualism in 

the approach to reforms has given space to those who are opposed to reforms or 

those who perceive a threat to their vested interests. An effective strategy 

should be designed and implemented meticulously to counter the opposition to 

reforms and accelerate the pace of reforms in the distribution sector. 

The encouragement to civil society and closer involvement of advocacy groups 

in the reform process will help in bringing better understanding of the issues 

and problems specific to the power sector of Haryana. An effective 

communication strategy will greatly help in creating a positive atmosphere for 

the reform process and to bring about wider public support for the same. 

Ideally, the Government’s approach should be to facilitate the corporate 

organisational structure of the Utilities with adequate financial and functional 

autonomy. Also, the Government nominees on the Boards of the Utilities 

should be kept to the minimum and they must have sufficient experience in the 

power sector. 

21



In the present scenario, it is unlikely that Government would withdraw 

completely from the power sector. The way forward would be for the 

Government and the Utilities, to have mutually agreed areas relating to 

managerial and financial autonomy and accountability to achieve targets and 

goals of efficiencies/performance over a defined period. It should be on the 

lines of MoUs/MoAs, which are in vogue in some CPSUs. 

At the time of restructuring, unfunded liabilities, on account of pensions and 

provident fund bonds, stood at Rs 673 crore and Rs 376 crore for HVPNL and 

HPGCL respectively. Such unfunded liabilities should have been retained by 

the State Government as was done in other States, which had restructured their 

SEBs. Due to the burden of unfunded liabilities, the above Utilities have been 

denied the opportunity of commencing their operations on a clean slate and on 

a sound financial base. 

There is a need to reconsider FRPs for the Utilities, which would provide for 

specific flow of any additional revenue support to the Utilities and meeting the 

obligations to achieve the targeted AT&C loss levels. This would obviate the 

occasional ad-hoc support that the State has been providing in the form of 

waiver scheme, etc. 

Government agencies owe huge amounts to the DISCOMs for the electricity 

consumed by them. Thus there is a need for a separate budget provision, so that 

the DISCOMs receive their dues. The same should be reflected in the State 

budget sub-head, with a clear provision that the funds provided for such a 

purpose shall not be diverted for some other purpose. 

For improving the ageing network infrastructure in rural areas of Haryana, 

which were created as early as in 1970s for achieving 100 per cent rural 

electrification, the funds under the Rajiv Gandhi Gramin Vidyutikaran Yojana 

(RGGVY) should be tapped. This would help in stabilisation of retail tariffs 

and reduce the burden of cross-subsidisation on other category of consumers. 

This may have to be taken up by the State Government so that the benefit of 

this scheme gets extended to the DISCOMs in the State. 

The DISCOMs depend for support of the State machinery for enforcement 

measures to curb the theft of electricity, which is endemic. The experience of 

AT&C loss reduction in States like Andhra Pradesh shows that enforcement 

measures with State support produce positive results. The State should have a 

22



risk-sharing role through agreement for AT&C loss reduction in a joint 

endeavour and the shortfall, if any, should be shared by the Government. 

Through such an arrangement, the State Government would receive benefits in 

the long run, possibly by way of reduction of subsidy amount. 

The growing subsidy burden may call for rethinking on the existing low tariffs 

for certain categories of consumers, since this is adversely impacting the 

financial health of DISCOMs. 

2.6.2 Regulatory Issues 

Encouraging consumer advocacy groups and dissemination of information by 

the Commission would create a more conducive participative atmosphere and 

lead to a better understanding of regulatory process by the civil society at large. 

The role of the media, particularly the electronic media, has generally been to 

downplay the serious issues in the sector. It has not attempted to highlight 

performance/underperformance on various aspects of deliverables of the 

Utilities. 

The Commission should formulate as early as possible the MYT framework 

and prescribe the control period for bringing in efficiencies in the operation of 

the Utilities and also for the reduction of AT&C losses. 

2.6.3 Promotion of Competition 

The Electricity Act, 2003 provides for promotion of competition and 

introduction of Open Access in the distribution sector. The Commission has 

formulated regulations for Open Access. An enabling environment is necessary 

to facilitate Open Access. Clarity regarding principles for determining 

surcharge to be levied for Open Access is overdue and requires intervention by 

the Ministry of Power. 

HERC is expected to play a vital role in promoting competition and efficiency 

across the value chain in the power sector. Its composition with personnel 

having domain expertise and experience can inspire confidence in the 

stakeholders. HERC is at present facing manpower shortage at different levels. 

Keeping in view the key role of HERC, personnel with relevant expertise need 

to be inducted into the Commission. 

23



The EA, 2003 has provided for establishment of a separate regulatory fund, to 

be constituted by the State Government. This would ensure greater financial 

autonomy to the Commission. 

In order to foster competition and bring about greater efficiency improvements 

and better customer relations’ management (CRM), there is a need to introduce 

suitable incentives for the MDs and other personnel of the DISCOMs as an 

annual feature. 

Promotion of energy conservation measures, both from the Utility side as well 

as at the utilisation-end and promoting the use of energy efficient pumpsets in 

the agricultural sector and introducing tradable incentives such as interest 

subsidy on purchase of energy efficient pumpsets would also go a long way in 

improving the financial health of the power Utilities in the State. 

24


CHAPTER - 3 

KARNATAKA 

The Government of Karnataka initiated the power sector reforms in 1997. The 

objectives included improvement of the financial stability of the sector and 

increased customer satisfaction. The reform policy also aimed to attract private 

sector investments, establishing a regulatory mechanism to promote 

competition, improved operational efficiency and cost reduction, and 

encourage energy conservation. The policy professed the restructuring of the 

Karnataka Electricity Board (KEB) into one transmission and several 

distribution companies and redeployment of the staff so as to improve 

operational efficiency and increase customer satisfaction. The policy was very 

objective and focussed in its approach and spelt out the Government’s resolve 

to implement the sector reform on a sustainable basis. 

Karnataka was one of the first States (1971) to establish a separate company for 

generation of electricity, Karnataka Power Corporation Limited (KPCL), which 

accounts for about 56 per cent of the installed capacity in the State. 


The total installed capacity in Karnataka, including central allocations and 

private sector, is 8,355 MW, of which 3,673 comes from hydel sources. The 

coal-based project of KPCL at Raichur has seven units and a total capacity of 

1,470 MW. Another Government undertaking, Visweswarayya Vidyut Nigama 

Limited (VVNL), has an installed capacity of 354.32 MW, including from its 

diesel generators at Yelahanka near Bangalore (127.92 MW) and hydropower 

resources (226.40 MW). About 21 per cent of the total installed capacity is in 

the private sector. Total energy available for transmission and energy delivered 

during 2004-05 were 33,110 MU and 31,711 MU respectively. The 

transmission loss was only 4.18 per cent during that year. Distribution losses 

were estimated at 26.57 per cent. The AT&C losses were 36.65 per cent.



The details of transmission lines are as follows: 

Table 3.1: Length of Transmission Lines 

(ckt km) 

Voltage 

level (kV) 

2002-03 

2003-04 2004-05 

400 1,976.346 1,976.846 1,977.846 

220 7,835.745 8,281.795 8,351.115 

110 6,529.680 6,891.310 7,182.690 

66 6,645.819 7,073.319 7,347.989 

33 6,968.740 7,071.740 7,175.620 

Total 29,956.330 31,295.010 32,035.260 

The total customer base came to 1,16,65,992 with 76 per cent being in the 

domestic category. Metered agricultural connections were 11 per cent, with the 

rest accounted under industry, commercial and others. However, about 44 per 

cent of the total consumption was by the agriculture sector, which gives the 

lowest revenue, followed by industry at 22 per cent and domestic 20 per cent. 

The State depends heavily on hydropower to meet its requirements, which, in 

turn, is weather-dependent. The thermal plant at Raichur has been working at a 

high PLF and has a reputation for efficiency. 

The State Government had to pay subsidies ranging from Rs 1,246 crore in 

2000-01 to Rs 1,569 crore in 2004-05 to the power sector. In the Budget 

estimates for 2006-07, an amount of Rs 2,373 crore has been provided as 

subsidy to the sector, which comes to about seven per cent of the total revenue 

expenditure of the Government and exceeds the total capital budget deficit for 

the year by Rs 866 crore. 

3.3 PERFORMANCE OF THE STATE ELECTRICITY BOARD 

KEB was dissolved on 31 May 1999 when Karnataka Power Transmission 

Corporation Limited (KPTCL) was formed as part of the First Transfer 

Scheme. During 1998-99, KEB’s total generation was 17,066 MU and the total 

electricity available for sale was 22,746 MU. Against this, however, the actual 

sale accounted was only 15,909 MU, which worked out to 70 per cent only. 

The T&D losses in 1998-99 were 30.2 per cent. 

KEB received a subsidy of Rs 913.89 crore in 1998-99, which helped it to 

return a surplus of Rs 67 crore. But for the subsidy, the year would have closed 

with a shortfall in income of Rs 846.90 crore. The total loans outstanding in the 

26



books of KEB were of the order of Rs 2,242.04 crore, the accumulated 

depreciation came to Rs 1,333.76 crore and the gross fixed assets came to Rs 

4,063.98 crore. 

The Board had a staff strength of 45,982, and spent about 19.25 per cent of its 

total income on establishment expenditure. 

3.4 Electricity Reform Act, 1999 (First Transfer Scheme) 

The Administrative Staff College of India (ASCI) carried out a sector study in 

1997, and brought out the need for restructuring KEB into one transmission 

company, and four or five DISCOMs. Subsequently, in pursuance of the policy 

statement issued by the Government of Karnataka, the Karnataka Power Sector 

Reform Act, 1999 was enacted. This Act provided for the establishment of the 

Karnataka Electricity Regulatory Commission (KERC). It also resulted in the 

creation of the KPTCL to carry out all functions of the KEB, which was 

dissolved, pending formation of four DISCOMs. The generation units of KEB 

were transferred to a new company called VVNL. VVNL is presently 

undergoing the process of merger with KPCL. Government of Karnataka also 

gave significant financial relief to the sector by taking over loan liabilities of 

Rs 1,050 crore, writing off bad and doubtful debts, amounting to Rs 866 crore, 

and took over the terminal and pension liabilities of the KEB/KPTCL staff till 

the date of restructuring. The process followed by Government of Karnataka 

for restructuring of KEB was transparent and demonstrated its political 

commitment and support for the reform. 

3.5 RESTRUCTURING EXERCISE (SECOND TRANSFER SCHEME) 

Based on competent professional advice from reputed consultants, Government 

of Karnataka established four DISCOMs (BESCOM, HESCOM, GESCOM 

and MESCOM), which started functioning as independent Utilities from June 

2002. The new companies were formed with a combined urban–rural mix 

jurisdiction. Subsequently, in 2004-05, Government of Karnataka established 

one more DISCOM, namely CESCOM, by carving out five districts from 

MESCOM, apparently based on political considerations. 

3.6 DETAILED POLICY STATEMENT 

The Detailed Policy Statement (DPS), issued by the Government of Karnataka 

in the year 2001, aimed at the following: 

27



• Providing equitable access to basic and reasonably priced electricity service 

to all by year 2010; 

• Meeting the entire electricity requirements of commercial and industrial 

sectors so as to accelerate economic growth; 

• Promotion of environment-friendly energy usage; 

• Accelerated reform process; 

• Disinvestment of the shares in KPCL; and 

• Maximum autonomy to the DISCOMs to manage their business along 

commercial lines, and freedom to frame their own service conditions and 

recruitment procedures without jeopardising the interests of the transferred 

employees. 

3.7 INDEPENDENT POWER PRODUCERS POLICY 

An IPP Policy was also issued in 2001. The policy envisaged additional 

capacity addition of 3,500 to 4,000 MW, strengthening of the transmission 

network correspondingly at a cost of Rs 13,500 crore, and reduction of T&D 

losses to 14 per cent by 2010. The policy stated that Government of Karnataka 

would not provide escrow cover or other forms of guarantees to IPPs in future; 

that all future thermal capacity additions should come from private generators, 

and that encouragement would be given to provide about 10 per cent of the 

total installed capacity from non-conventional energy sources. The policy 

sought to prioritise the projects on transparent considerations such as least tariff 

criteria, synchronisation with evacuation arrangements, etc. 

3.8 FINANCIAL DEVELOPMENT PLAN 

The consultants appointed by Government of Karnataka to frame the Financial 

Development Plan (FDP) proposed the instrument of ‘Distribution Margin’ 

(DM). This strategy inter-alia had the following elements: 

• Government of Karnataka was to share substantial risks, mainly related to 

regulatory and governmental discretionary issues with the successful 

bidders for the DISCOMs during a transition period of five years; and 

• Investors themselves would mainly bear the risks of operating costs, 

capex, etc., and pay penalty for their own unsatisfactory performance, 

which included billing and collection. 

28



3.9 INTEGRATION/REDEPLOYMENT OF THE STAFF OF KEB 

Even though the transfer schemes provided for permanent absorption of the 

staff in the various new companies, the Government of Karnataka could not 

make it effective so far because of litigation by certain interested employees. 

The DISCOMs have been in operation for four years now, but the staff of the 

former KEB continues to be borne on the cadre of KPTCL and are placed on 

secondment to the DISCOMs on need basis. As a result of the failure to 

integrate the staff with the respective DISCOM, there have been no attitudinal 

changes among the employees, nor the essential build up of motivation and 

morale. The DISCOM staff is yet to inculcate an appropriate corporate culture, 

with little perceptible reform impact on them. Moreover, instead of being a net 

contributor to the State’s treasury, the restructured companies continue to 

depend heavily on Government subsidy. 

3.10 REGULATORY COMMISSION 

The Karnataka State Electricity Regulatory Commission (KERC) has been 

playing a major role in the sector reform efforts. Apart from approving three 

tariff revisions so far, KERC has also approved ‘Open Access’, though, in view 

of the high surcharge, only one consumer has shown interest in availing the 

facility. MYT is under consideration. Several standards and codes have been 

issued, all of which have been instrumental in improving the performance of 

the restructured companies. 

The relations between KERC and the Utilities have not been smooth in the 

State, probably because the managements of the restructured companies 

consider that the Commission’s decisions are tilted more in favour of the 

consumers. They also consider that the Commission at times tries to micromanage 

their affairs, and, in one instance, objected that the frequent meetings 

and public hearings called by the Commission affected the normal working of 

the Utility. In turn, the Chairman of the Commission has termed the 

restructuring of the KEB a failure, since the new companies do not have 

adequate autonomy and financial independence. 

29

3.11 ACHIEVEMENTS OF THE NEW COMPANIES 

Year 



The most notable achievements of the restructured Utilities are: 

• Substantial reduction in transmission losses by KPTCL and bringing it to 

the level of 4.18 per cent (which is regarded as one of the best in the 

country); 

• Generating capacity addition from KPCL and other sources; 

• Gradual reduction of T&D and AT&C losses by the DISCOMs; 

• General progress in metering, billing and collection for all categories 

except for the agricultural segment; 

• Increasing investments to improve the overall quality of power supply; 

and 

• Better customer care with a grievance redressal mechanism and higher 

level of satisfaction. 

The restructured companies are also more viable units for managerial control 

and efficiency. During the past three years from 2002-03 to 2004-05, the 

general financial performance of the DISCOMs has shown some improvement, 

in terms of profit after tax and cash profit, as shown in Table 3.2. However, 

two of these companies, namely, HESCOM and GESCOM, which have larger 

agricultural consumers, are receiving huge subsidies for their survival, and 

need to be monitored closely. Another area of concern is the heavy arrears in 

revenue, which also needs close attention. 

PAT 

(accrual 

basis) 

Table 3.2: General Financial Performance 


(accrual, excl. 

depreciation and 

write-offs) 


(subsidy 

received 

30 

basis) 


(revenue & 

subsidy on 


(Rs crore) 

Loss 

without 

subsidy 

2002-03 340 943 849 103 (1,599) 

2003-04 310 1,034 689 412 (1,315) 

2004-05 462 1,259 1,092 621 (1,107) 

Total 1,112 3,236 2,630 1,136 (4,021) 

(Source: PFC) 

On the downside, however, they have not succeeded in key areas such as 

universal metering (especially for irrigation pumpsets), billing and collection



from the agricultural sector, achieving more significant reductions in AT&C 

losses, etc. Most of these failures could be attributed to lack of political 

support, inadequate managerial and functional autonomy, non-integration of 

the staff with the new companies and the continuing KEB work culture, and the 

omission of the Government to grant the required corporate independence to 

the DISCOMs. In particular, a factor responsible for the deceleration in the 

reform efforts was the lack of political commitment and support to take 

forward the sector reform after the initial phase. This is attributed to changes in 

Government and consequent changes in policies and priorities. 

In order to achieve the objectives of restructuring KEB there is a need to 

reorient the reform policy and accelerate the reform process. Further, the 

DISCOMs need to be made more autonomous by delegating additional powers 

to them, distancing them from (political) interferences and influences, and by 

reconstituting their boards of directors. There is also need to expeditiously 

integrate the staff of KEB, now working on the rolls of KPTCL, with each 

DISCOM. 

3.12 LESSONS LEARNT FROM THE KARNATAKA EXPERIENCE 

The most relevant lesson arising from the Karnataka experience is that political 

commitment is the most important driver for reforms. In its absence, there are 

very little chances for a drastic turnaround in the politically sensitive power 

sector. Even as the policy evolved by the State Government for the reform was 

focussed and efficient and the procedure adopted was transparent and well 

planned, the final results achieved so far have been sub-optimal. This could 

mostly be attributed to lack of political will and commitment once the 

restructuring was carried out, but before the new Utilities reached a stage of 

stabilisation. Political commitment and support would have to be sustained till 

the reform objectives are fully achieved. 

Another lesson arising from the review is that there must be one or more strong 

and dedicated champions for the reform at the top level in the Government, 

who must act as major catalysts for the reform efforts. Like in the case of 

political commitment, the support of the champions for the reform has also to 

be enduring. 

Yet another important lesson is the need to get the ‘buy-in’ of the staff of the 

organisation to implement the reform. Unfortunately, Government of 

31



Karnataka does not appear to have paid sufficient attention to this aspect, 

which has resulted in continuation of the work culture as was existing prior to 

the restructuring. The delay in integrating the staff with the new companies 

also has adversely impacted the morale and motivation of the staff. 

On the positive side, there have been several gains from the restructuring 

exercise. These include: 

• Financially viable and more competent organisational pattern of the 

Utilities in place of the monolithic KEB; 

• Increasing managerial supervision and control in areas like T&D losses 

reduction; 

• Decrease in cases of electricity theft; 

• Progress in metering and billing (except for the agricultural sector); 

• Improved consumer care and grievance redressal mechanism; and 

• Additional investments for strengthening the network. 

On the whole, the restructuring exercise in Karnataka could be regarded as a 

success, both in terms of the process adopted as well as in terms of gains and 

achievements made subsequent to the restructuring. But there is a need to take 

forward the reform process further, by accelerating its pace of implementation. 

3.13 WAY FORWARD FOR THE REFORM PROCESS 

The most important factors required to accelerate the reform efforts in 

Karnataka include the following: 

A) Restoring the political commitment to the sector reform, for which 

Ministry of Power must take the initiative. A national political 

commitment on an acceptable power sector reform policy and agreement 

on a Minimum Action Programme, to be implemented according to a time 

schedule, should be in place. 

B) The main reason for the poor financial performance of the DISCOMs is 

the unmetered and unbilled power supply to the agricultural sector. This 

issue needs to be tackled at the national level. There is also a need to 

recover a reasonable tariff for the supply of electricity to the agricultural 

sector, as determined by the KERC, without governmental interferences. 

In particular, the creamy layer among the farmers must be required to 

32



pay for the power consumed by them; the possibility of linking the 

‘support price mechanism’ and Government procurement of grains, etc., 

with mandatory metering and payment for the electricity consumed, might 

be considered in this regard. 

C) Partial divestment of Government’s shares in the restructured 

companies, as also in KPCL, say 26 per cent, to the public with a small 

portion reserved for the interested employees of these companies, will 

bring in better corporate culture and accountability. A strategy for this 

must be carefully and expeditiously worked out. 

D) A Human Resources Development (HRD) Plan for the integration of the 

KEB/KPTCL staff with the new companies and for their career 

advancement (with adequate incentives to opt for the new companies) 

must be implemented early. The restructured companies must have the 

freedom to evolve their own performance-linked wage structures within 

the overall policy guidance of the State Government. Staff norms must be 

revised and shortages of technical and managerial staff must be overcome 

by appropriate measures. 

E) There is a need to re-establish a powerful and innovative communication 

strategy to educate all stakeholders, especially the public, all categories of 

consumers including the farmers, and the staff of the companies, about the 

essentiality and overall benefits of the reform. 

F) The restructured companies must be granted full functional and financial 

autonomy required for managing their affairs on commercial lines. The 

practice of appointing the managing director of KPTCL as the common 

chairman of DISCOMs must be discontinued. 

G) Action must be taken to develop a competent cadre of professionals to 

man senior positions in the restructured companies. Meanwhile, suitable 

outside personnel may be inducted at top levels of the restructured 

companies on contract basis, including from CPSUs, if available. 

H) A policy must be established for the appointment of 50 per cent 

independent directors on the boards of directors of the Utilities by 

professionals with wide experience and expertise in the fields of power 

33



engineering, management, finance, etc. The practice of having political 

appointees on the boards (KPCL) must be discontinued. 

I) The State Government must establish a high-level planning and 

monitoring agency to oversee the reforms. This should have the support 

of an expert group comprising of highly experienced professional experts. 

J) A detailed financial action plan with a specific programme to 

discontinue the subsidy over the medium term must be established. The 

financially weaker DISCOMs (HESCOM and GESCOM) must have 

specially designed targets and goals to improve their finances. 

K) The new companies must be required to sign annual performance 

agreements with specific targets and goals related to all areas of their 

performance based on their business plans, which must be monitored 

closely. In return, they must be granted the required autonomy and 

support to carry out their tasks with efficiency. 

L) Public participation to promote the objectives of the reform, especially 

on matters such as prevention of theft of electricity, universal metering, 

energy conservation, etc., must be secured through the participation of 

civil society organisations, and innovative programmes like “Akshay 

Prakash Yojana”, which has proved to be successful in Maharashtra. 

M) DISCOMs must be encouraged to continue with and expand their 

outsourcing policy for key areas of billing and collection, etc., subject to 

the institution of appropriate checks and controls. 

N) The reform cell in the Secretariat must play a more proactive role in the 

reform process. For this, it must be strengthened by inducting adequate 

number of senior and committed officials. 

34

CHAPTER - 4 

MADHYA PRADESH 

4.1 FACTORS LEADING TO REFORMS AND BACKGROUND OF THE 

REFORM PROCESS 

Factors Leading to Reforms 

Madhya Pradesh had the distinction of being one of the few States, with an 

efficient SEB in terms of creating good generation capacity in the State sector, 

well-organised network of transmission and sub-transmission system and 

having relatively low level of T&D losses. However, the working of the SEB 

started deteriorating on account of inefficiencies because of its monolithic 

structure, distortions in tariffs, defaults in payment to CPSUs and other 

suppliers, increasing gap between demand and supply and high level of 

receivables. The State Government was compelled to heavily subsidise its 

power sector. As a result, the State’s fiscal resources were severely strained. 

The State Government had little option but to go in for the comprehensive 


The process of reform and restructuring was initiated in the State in 1996. 

However, it was only in 1998 that the State Government took decisive steps to 

bring reforms in the power sector. Memorandum of Understanding (MOU) was 

entered into between the Government of Madhya Pradesh and Government of 

India on 16 May 2000, wherein the State Government committed itself to a 

time-bound reform and restructuring programme of the power sector in the 

State. The Government of MP enacted the “Madhya Pradesh Vidyut Sudhar 

Adhiniyam, 2000” on 20 February 2001 and was made effective from 3 July 

2001. 

4.1.1 Reform Act, 2000 

The “Madhya Pradesh Vidyut Sudhar Adhiniyam, 2000”, was enacted on 20 

February 2001. However, in the meanwhile, in November 2000, the erstwhile 

State of Madhya Pradesh was bifurcated into two separate States, i.e., now 

existing Madhya Pradesh and the newly created State of Chhattisgarh. After 

reorganisation of the State, 33 per cent of the installed generating capacity was 

transferred to the State of Chhattisgarh, whereas the level of consumption was 

only 21 per cent of the total consumption of undivided Madhya Pradesh. With



the limited generation assets and high agricultural consumer mix, this division 

led to an inverted structure of power sector and consumer mix in the State. 

4.1.2 Restructuring of MPSEB 

The State Government adopted a reform model for restructuring of the MPSEB 

on functional basis. The vertically integrated electricity sector was restructured 

into separate Utilities. Accordingly, one generation, one transmission and three 

distribution companies were incorporated in July 2002. In the reform model, a 

certain role has been assigned to the MPSEB. The new Utilities initially started 

functioning under O&M agreement with MPSEB from 1 July 2002. Even 

though all the five companies have been made independent entities to conduct 

their respective business w.e.f. 31 May 2005, in this model MPSEB will 

exercise control over the revenues from business of the five companies, which 

shall be utilised in the special mechanism (described in Para 4.1.6.). It has been 

indicated that this arrangement is intended to last during the transition period. 

4.1.3 State Government Role and Structural Financial Support 

The Financial Restructuring Plan (FRP) was prepared by MPSEB and updated 

in November 2005. However, this has not been formally approved by the State 

Cabinet. The important assumptions used in financial projections were that the 

AT&C losses will be reduced from 51.6 per cent in 2004-05 to 32.5 per cent in 

2011-12, collection efficiency would increase from 85 per cent to 96 per cent 

and capital investments to the tune of Rs 18,825 crore would be made in the 

sector during this period. The AT&C loss reduction targets were on a 

conservative basis. Also, there shall be a regular year on year increase in the 

retail tariff. Implementation of the proposed FRP is expected to turn around 

MPSEB by 2011-12. The State Government’s commitment to a total cash 

outflow would be approximately Rs 6,881 crore during the seven-year period 

of FRP. However, there would be an inflow of around Rs 8,623 crore to the 

State Government from MPSEB, resulting in a net outflow of around Rs 1,741 

crore to the Government. 

4.1.4 Role of MPSEB 

The reform model provides for a unique functional role for MPSEB after the 

restructuring. MPSEB has transferred all functions including assets of the 

erstwhile MPEB vide Madhya Pradesh Electricity Reforms Transfer Scheme 

Rules, 2006 to the respective Utilities. It has retained two principal functions, 

36



the first, relating to the cash management during the transition period and the 

second, to act as principal employer till the staff gets allocated amongst the 

Utilities. Although, MPSEB will be the principal employer, full powers relating 

to punishments, dismissals, etc., have been vested with the CMDs of the 

respective Utilities. The State Government officials feel that this arrangement 

was also necessary because of the dispute over the assets and liabilities 

pertaining to the erstwhile Board of the undivided Madhya Pradesh. 

4.1.5 Formation of TRADECo 

Government of MP notified the “Madhya Pradesh Electricity Reforms Transfer 

Scheme Rules, 2006” on 3 June 2006. Under these rules a new company called 

MP Power Trading Company (TRADECO) came into existence. The power 

purchase function, which was being performed by MPSEB, now stands 

transferred to TRADECO. 

4.1.6 Cash Flow Mechanism of MPSEB 

The Cash Flow Mechanism (CFM) adopted by MPSEB has been defined in the 

“Madhya Pradesh Electricity Reforms Transfer Scheme Rules, 2006”. The 

salient features of the scheme are: 

i) All the six restructured companies, including TRADECO, shall issue 

Powers of Attorney or authorisation in favour of MPSEB, inter-alia, 

authorising it to “own, collect and distribute” cash on behalf of each of the 

companies; 

ii) All the cash collected by the DISCOMs, through Regional Accounting 

Offices (RAOs), shall be transferred to MPSEB account as per the 

existing arrangement; 

iii) All letter of credits, escrow comforts and working capital shall continue to 

be maintained by MPSEB on behalf of the companies as MPSEB has first 

charge over entire revenue of DISCOMs from sale of power, subject to 

escrow agreements, as per the existing arrangements, duly supported by 

authorisations from the companies; 

iv) MPSEB shall allocate cash among companies, based on a predetermined 

priority, for payment of expenses as detailed below: 

(a) Statutory payments including those arising out of various Court 

orders; 

37



(b) Employees costs which include salary, contribution towards PF, 

terminal benefits, etc.; 

(c) Coal/oil supply payments of GENCO, including freight charges; 

(d) Payment towards purchase of power including Unscheduled 

Interchange (UI) and wheeling charges and debt servicing to PFC; 

(e) Essential administrative and general (A&G) expenses of the 

companies; 

(f) Essential operation and maintenance (O&M) expenses of the 

companies; 

(g) Essential capital expenses; 

(h) Debt servicing other than PFC; and 

(i) Any other payments; 

v) The companies shall authorise MPSEB to decide priority of payments as 

per availability of cash; and 

vi) MPSEB shall continue to service the debt liabilities, including generic 

loans on behalf of all companies. 

The CFM, as devised above, involves transfer of a part of the responsibility of 

the distribution licensees to MPSEB. There is an apparent conflict with the 

spirit of Section 17(3) and (4) of the Act, which says that any such assignment 

of revenue of the DISCOMs to MPSEB shall require prior approval of the 

MPERC. This aspect needs to be examined by the Ministry of Power. 

4.1.6.1 Validity of the Cash Flow Mechanism 

The CFM will be valid till: 

• The cash deficit in the revenue earnings and expenditure requirements is 

resolved to the satisfaction of all the companies, or 

• Issue of further directives from the State Government. 

Once the DISCOMs are in a position to meet all their expenses including power 

purchase, pooling of the revenue earnings with MPSEB will not be required and 

the State Government, by an order, will terminate this mechanism. 

38

4.1.7 Reorganisation of the State 



The State Government believes that while 12 per cent of the generic and 

project related liabilities were transferred to Chhattisgarh and 88 per cent of 

this burden was put on MPSEB, which according to them was grossly unfair 

and has resulted in undue burden on the restructured Utilities of Madhya 

Pradesh. 

4.1.8 Liabilities Taken Over by Government of Madhya Pradesh 

Based on the recommendations of Montek Singh Ahluwalia Committee, the 

Government of Madhya Pradesh has already issued bonds worth Rs 2,663.89 

crore for one-time settlement of dues to NTPC, PGCIL, NPCIL, WCL and 

SECL. It was reported that, in addition to the above, the State Government took 

over liabilities of MPSEB to the tune of Rs 4,431 crore. However, this 

additional liability of the State Government does not appear to be part of the 

transfer scheme assets and taking over of liabilities. 

4.1.9 Government Subsidy 

MPSEB is heavily dependent on subsidy support from the State Government. 

The amount of subsidy was around Rs 794 crore in 2004-05 (about 15 per cent 

of the revenue earned by the DISCOMs from sale of power). This dependence 

is expected to increase, as the State Government would provide subsidy to 

agricultural consumers of MPSEB as well as for meeting the revenue deficit of 

the DISCOMs under the FRP. However, the additional subsidy burden could be 

a constraint on the State’s finances. 

4.2 CURRENT STATUS Of REFORM PROCESS 

4.2.1 Generation 

Key Positives 

On the technical side, MPPGCL has been able to improve the PLF of its 

generating stations from 46 to 66 per cent during the period 1992-93 to 1997- 

98 to a level of 70 to 73 per cent, from 1998-99 onwards. Similarly, the 

availability of generating stations has increased from the level of 75 per cent in 

1995-96 to 87 per cent during 2004-05. There has also been a reduction in the 

specific oil consumption in thermal power stations. The consumption has come 

down from 4.57 ml/kWh in 2001-02 to 2.44 ml/kWh in 2004-05. The auxiliary 

39



consumption has also reduced from 10.8 per cent in 1998-99 to around 9.9 per 

cent in 2004-05 

Key Concerns 

Power Shortages: The deficit has been as high as 28 per cent for peak demand 

and 23 per cent for the energy shortages in April 2006. The State is highly 

dependent on the allocation from central sector power projects and sources 

around 35 per cent of their requirements from them. MPEB had a capacity of 

about 4,260 MW in 1999-2000. After reorganisation of the State, installed 

generating capacity left in the State was about 2,940 MW. There was only a 

marginal increase of about 50 MW hydro capacity. However, with regard to the 

thermal capacity, there has been no further addition since 2002-03. Projects 

with a total capacity of 770 MW are under construction and are likely to be 

commissioned by the end of Tenth Plan. Government of MP has set-up an 

ambitious target to eliminate power shortages by 2008-09. The State is likely to 

get the benefit of capacity addition of 2,890 MW during the Eleventh Plan. 

This would entail investments to the tune of Rs 13,000 crore. It is, however, not 

clear as to how these resources would be raised by the Utilities or the State 

Government. 

Loans from Financial Institutions: MPGENCO is finding it difficult to obtain 

loans from FIs and PFC. Future loans are being linked to the performance of 

the DISCOMs. The State Pollution Control Board has imposed restrictions on 

some of MPGENCO’s existing units due to high level of emissions; which the 

MPGENCo feels is attributable to poor quality of coal and limitation of space 

for extension of Electrostatic Precipitator fields. 

R&M Programme: More than 60 per cent of the generating stations in the 

State have served for a period of 25 years or more. The generating stations 

need overhaul and are in urgent need of renovation and modernisation (R&M). 

In case of joint venture projects like Satpura Power House, the need for 

obtaining the consent of the partner State has delayed the taking up of R&M 

activities. This and similar other issues, relating to pollution control, would 

require intervention and coordination of the concerned Central Ministries. 

The SERC has taken serious note of under-utilisation of the approved funds 

allowed in the ARRs. The Commission has refrained from clawing back the 

amount retained and not utilised for R&M purposes in the previous years. It is 

40



observed that, in the past, the GENCO had spent a very little amount on R&M 

activities as compared to the amount approved by the Commission under this 

head. The Commission, in its tariff order dated 10 December 2004, had 

allowed Rs 140.31 crore under R&M of generating stations, but the GENCo 

failed to utilise the approved amount. For 2005-06, the Commission had 

approved Rs 131.91 crore under this head. But the repeated failure to utilise the 

funds approved for the much-needed R&M activities is baffling when it is 

urgently needed to increase generation and improve the PLF. 

4.2.2 Transmission Network 

Key Positives 

Transmission Loss Reduction: There was an increase in the quantum of 

energy handled by the TRANSCo by about seven per cent in the year 2004-05 

over 2003-04. However, the overall losses in the transmission system for the 

year 2004-05 have come down to 5.62 per cent from 6.12 per cent in the year 

2003-04. 

The State Load Despatch Centre (SDLC) is well connected to the Western 

Regional Load Despatch Centre for efficient and integrated operation of the grid. 

There has been no failure of power transformers during the years 2003-04 and 

2004-05. MPPTCL has also claimed that there were no grid disturbances or 

major breakdowns during the year 2004-05. Also, there has been an increase in 

the transmission availability from 97.59 per cent in 2000-01 to 99.53 percent in 

2003-04. 

This shows that, after restructuring, the TRANSCO has achieved significant 

efficiency gains in the transmission network. 

Table 4.1: Failure Rate of Power Transformers (%) 

1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 

3.16 3.04 3.58 2.89 3.28 3.78 3.00 0.00 0.00 

41 


Investments: From 1998-99 to 2001-02, the level of investment made towards 

new capacity addition and strengthening of transmission system has been very



low. The investment significantly increased to Rs 130 crore in 2003-04 and to 

Rs 264 crore in 2004-05 from Rs 27 crore in 2001-02. 


Under Operation and Management Agreement with MPSEB, the three 

DISCOMs were to manage the distribution assets, planning and maintenance 

operation within their respective areas. The DISCOMs have started their 

independent operations from 1 June 2005. Hence, for the purpose of analysis of 

distribution sector in Madhya Pradesh, consolidated data for MPSEB has been 

considered up to 2004-05 and, thereafter, individual DISCOM-wise data has 

been analysed. 

Key Concerns 

Power and Energy Shortages: The State has been facing acute peak demand as 

well as energy shortages. The peak power deficit and energy shortages have 

been as high as 28 and 23 per cent respectively in April 2006. The scenario 

indicates that the State is likely to face a shortfall of around 20 per cent for 

peak demand and energy requirements by the end of the Tenth Plan. 

DTs Failure: The failure rate of DTs in the MPSEB system has increased by 

4.75 percentage points (from about 18.13 per cent in 2001-02 to 22.88 per cent 

in 2004-05). The failure rate of DTs for the individual DISCOMs also reveals a 

similar trend with the failure rate as high as 22 per cent for Poorv Kshetra and 

16 per cent for Paschim Kshetra. 

Consumer Metering: There is a significant increase in percentage of metered 

agriculture consumers from less than 1 per cent in 2000-01 to 30 per cent in 

2004-05. However, the percentage of metered domestic consumers has come 

down from 84 per cent in 2000-01 to 81 per cent in 2004-05, which is a 

disturbing trend. A huge backlog of unmetered domestic and agricultural 

consumers in the system is indicative of high quantum of losses being suffered 

by the Utilities and warrants serious attention. 

Collection Efficiency: The collection efficiency in respect of agricultural and 

domestic consumer categories has suffered after the restructuring. In the case of 

agricultural consumers, the collection efficiency has deteriorated progressively 

from 88 per cent in 2000-01 to as low as 21 per cent in 2004-05. It is equally 

poor for the domestic consumers and have come down from as high as 95 per 

42



cent in 2000-01 to 79 per cent in 2004-05. Even, the collection efficiency for 

industrial and commercial categories of consumers is showing a declining 

trend. 

T&D/AT&C Losses: The percentage T&D losses from 1995-96 to 1998-99 

were shown to be in the range of 19 to 21 per cent before restructuring. After 

restructuring, the losses were revised to 31.94 per cent in 1999-2000 and 47.18 

per cent in 2000-01. The reduction in the loss levels after restructuring has been 

slow and losses dropped only by less than 3 per cent in four years (43.48 per 

cent in 2004-05). MPERC has fixed higher targets for loss reduction in its tariff 

order of 31 March 2006 by 26 to 27 per cent, in respect of the three DISCOMs 

by 2008-09, as indicated in Table 4.2. 

DISCOM 

Table 4.2: Level of AT&C losses in DISCOMs (%) 

Prescribed By the Commission Indicated by the DISCOMs 

2005-06 2006-07 2007-08 2008-09 2005-06 2006-07 

Poorv Kshetra 35.5 32.5 29.5 26.5 38.73 35.88 




Target for AT&C Losses (%) in 2005-06, as prescribed by the Commission, 

has been achieved by Paschim Kshetra and Madhya Kshetra DISCOMs, 

whereas the same has not been achieved by the Poorv Kshetra DISCOM. 

It appears that, after restructuring, the loss levels as being indicated have been 

revisited to get a realistic figure of losses in power systems. 

The targets of AT&C losses given in the FRP are not in conformity with those 

prescribed by MPERC. The targets prescribed by the Commission are aimed at 

bringing these losses closer to the level of 15 per cent (as mandated in the 

National Tariff Policy). In view of the above, there is a fresh need to look at the 

targets set for AT&C losses in FRP, so that these are in conformity with those 

fixed by the Commission. 

Anti Theft Measures: For checking and prevention of theft of electricity, 

Madhya Pradesh Urja Adhiniyam was notified by the State Government on 17 

April 2001. Several administrative measures, undertaken by the companies to 

check power theft, include: strengthening of the Vigilance Squads, replacing 

43



bare LT conductors by armoured cables/HT lines, setting up of 92 special 

courts for speedy trial of electricity theft cases. 

However, enforcement measures for elimination of theft of electricity have 

slowed down in the State. During 2002-03, 3700 FIRs were lodged and an 

amount of Rs 61.33 crore was realised. These preventive measures seem to 

have resulted in creating an impact, but subsequently, the number of FIRs 

lodged has come down with 1,607 FIRs in 2003-04 and 522 FIRs in 2004-05 

and the recovery towards the cases involved in theft declined from 78 to 75.8 

per cent of the demand raised. 

Recovery of Cost of supply: The average annual cost to supply (ACS) and 

average revenue realised (ARR) across various categories of consumers in the 

State depict that the ACS is increasing at an annual rate of around 10 per cent 

taking 1998-99 as the base year. While the Commission, in its tariff order for 

2006-07, has projected a marginal gap of around Rs 9.51 crore (for the three 

DISCOMs combined), the ARR-ACS analysis for MPSEB for the year 2003- 

04 indicates a revenue gap of around 96 paise per unit. This would call for 

further rebalancing of the tariffs and/or greater thrust on anti-theft measures 

and AT&C loss reduction efforts by the DISCOMs. 

Capital Expenditure: The level of investments, post reforms, in the distribution 

sector have picked up since 2001-02. The investments have increased from Rs 

124 crore in 2001-02 to Rs 302 crore in 2004-05. 

Information Technology Initiatives: IT initiatives in the DISCOMs have 

remained limited, which has been attributed to financial crunch and shortage of 

technical staff and modern office equipment to manage the IT applications. It is 

imperative that Utilities encourage the adoption of IT in the field of 

Geographical Information Systems (GIS) and Consumer Indexing, metering, 

data acquisition and management, assets management and customer services. It 

has developed in-house IT enabled Revenue Management System (RMS), 

which is being introduced in phases and, in the first instance, IT enabled RMS 

package has been implemented in 27 divisions of 7 regional headquarter cities 

(called priority divisions). The progress made in this direction is slow as 

compared to that in States like Andhra Pradesh, Karnataka and Maharashtra. 

44

4.2.4 Structural Issues 



The State support for the reform process has been positive. But to take forward 

the reform process further, some structural issues and the role of the MPSEB 

for cash management of Utilities would need to be addressed. Considering the 

changing market scenario of ‘Open Access’, there is need for an intra-State 

ABT and competitive power procurement. For this, the Utilities would require 

more functional as well as financial autonomy. 

FRP and CFM 

The State Government’s commitment for the reform is demonstrated by the 

FRP, which stipulates the total transition cost involved for the power sector in 

the State. For the DISCOMs, the State Government is providing financial 

support to the tune of Rs 6,881 crore. The role of the MPSEB has some 

advantages but, in actual practice, it amounts to concentration of decisionmaking 

with MPSEB in several areas, which are normally in the jurisdiction of 

the DISCOMs. Since MPSEB is not a licensee now and, therefore, not 

answerable to MPERC, there is a likelihood of conflict with the objectives and 

spirit of the EA, 2003. The objectives of the CFM and the FRP could be 

achieved through a holistic approach, which guarantees prior consultation with 

the MPERC and control and responsibilities on the DISCOMs for 

implementation of the goals and targets of the FRP. 

The FRP has been revised to cover the period from 2006-07 to 2012-13. The 

FRP provides for the reduction of AT&C losses from 50 per cent to 32.5 per 

cent in a seven years period, i.e., around 2 per cent on a yearly basis, which 

appears to be low. It also provides for financial support to the Utilities for the 

revenue foregone by way of concessional tariffs and also for meeting the 

operational deficit of the Utilities. 

Key Areas for Support by State Government 

Functional autonomy for the restructured Utilities may have to be defined 

within the framework of the reform model adopted by the State Government to 

make the Utilities more accountable. Equally important is the effectiveness of 

the Commission by giving it support for financial autonomy and capacity 

building. 

45



The encouragement to civil society and closer involvement of advocacy groups 

in the reform process will help in understanding the issues and problems 

specific to the power sector of Madhya Pradesh. An effective communication 

strategy will be crucial for creating a positive atmosphere for reform and to 

enlist wider public support for the same. 

4.2.5 Regulatory Process 

MPERC was established in August 1998 and started functioning from January 

1999. Since its inception, MPERC has issued five tariff orders with a view to 

gradually reduce cross-subsidies. Besides, the Commission has also issued the 

‘supply code’ for ensuring better and quality service to the consumers. 

Tariff Revision 

The gap between ACS and ARR prevails primarily because of agricultural 

pumpset consumers and is nearing the cost to supply for the domestic category. 

The realisation attained for the domestic consumers is at 86 per cent of the 

average cost to serve and for the rest of the categories, the revenue realised is 

more than the ACS. 

The State Electricity Regulatory Commission has been quite effective in 

rationalisation of tariff in the State and in meeting the stipulation of ‘MP 

Vidyut Sudhar Adhiniyam’, i.e., to eliminate cross-subsidisation in the tariff. 

The provision stipulates that tariff to any class of consumers should reflect a 

level of at least 75 per cent of the cost of supply to that particular class of 

consumers within the next five years. 

Directives Issued by the Commission 

The Commission has so far issued about 25 final/draft regulations on several 

issues. From time to time, the Commission has also been issuing concept 

papers and relevant directives. The Commission has played a proactive role in 

making the process of reform a success. However, the DISCOMs have not been 

able to fully comply with the directives issued by the Commission. It is 

apparent that non-compliance with the Commission’s directives is affecting the 

DISCOMs themselves. 

46

4.2.6 Implementation of Present Issues Under the EA, 2003 

Open Access 



Open Access regulation has been notified by MPERC on 24 June 2005. Open 

Access to users of non-conventional energy sources and captive generating 

plants of conventional energy is provided with immediate effect. Accordingly, 

Open Access to users, other than non-conventional energy sources and captive 

generating plants of conventional energy, has been provided as per the load 

profile of consumers effective from October 2005. For non-discriminatory 

Open Access, applicable surcharge has not been fixed as yet. 

MYT and ‘Open Access’ 

The SERC has notified the Open Access regulations in the State and has 

introduced the MYT framework. Following the directives of MPERC, GENCO 

and TRANSCO have submitted their ARR for MYT in 2006-07. The MYT 

framework is envisaged for a control period of three years starting from 1 April 

2006. 

4.3 RECOMMENDATIONS 

(a) The DISCOMs are carrying a sizeable component of generic loan 

liabilities of pre- reform period. Amounts of Rs 252 crore, Rs 494 crore 

and Rs 316 crore has been shown against the DISCOMs of Poorv Kshetra, 

Paschim Kshetra and Madhya Kshetra respectively. In regard to these 

generic loans shown in the opening balance sheet of DISCOMs, the 

Commission has said that unless full details are provided to the 

Commission and it is proved that these loans have been utilised towards 

creating assets, the Commission will consider them as working capital 

loans and will allow interest to the extent of normative working capital 

requirements. Unless there is a clear understanding about the rationale for 

these loan liabilities, the legitimate claim for expenses, etc., of the 

DISCOMs may defy a practical solution. 

(b) There are outstanding issues relating to transfer of assets, liabilities and 

staff, which have not been resolved as yet. It is not easy for the Madhya 

Pradesh Government to come to a settlement unless there is equally a 

positive response from the Chhattisgarh Government. Since these are 

post-reorganisation matters between the two States, it would require 

47



intervention by the Central Government to bring about an amicable 


(c) The aim of the reform could be achieved by improving the technical and 

commercial performance of the distribution sector. Most of APDRP 

funding provided by Ministry of Power shall be harnessed for 

strengthening and improvement of sub-transmission and distribution 

systems and its commercial health. Similar other funding arrangements 

can also be considered to accelerate the reform process. 

(d) Involving the public at large in controlling local electricity thefts through 

social awareness can further strengthen the reform process. The same can 

be implemented by providing incentives like discounts in the electricity 

bills of the consumers either on an area or feeder basis that helps the 

Utilities in controlling/eliminating thefts. It would help in creating a better 

public consciousness about the need for cultivating social responsibility. 

(e) Imperatives of reforms demand focussed attention and positive support by 

the State Government. The gradualism in the approach to reforms has 

given a space to those who are opposed to reforms or those who perceive 

threat to their vested interests. An effective strategy should be designed to 

counter the opposition to reforms and accelerate the pace of reforms in the 

distribution sector, which is the most vital component of the power sector. 

(f) It is heartening to note that the Government of Madhya Pradesh has 

totally committed itself to restructure the power sector and also to provide 

the requisite financial support during the transition period to make the 

Utilities turnaround. Alternative strategies should be evolved for 

improving the financial and operational efficiencies through publicprivate-partnerships 

in network management activities, SCADA, 

REMS/DMS application, customer relation management (CRM), etc. 

(g) There should be an annual incentives for the MDs and the other staff of 

the distribution Utilities for standout performances. 

(h) Promotion of energy conservation measures, both from the Utility side as 

well as at utilisation end and promoting the use of energy efficient 

pumpsets in agricultural sector and introducing the tradable incentives 

such as interest subsidy on purchase of energy efficient pump sets would 

also go a long way in improving the financial health of the power Utilities 

in the State. 

48

CHAPTER - 5 

ORISSA 

5.1 BACKGROUND, OBJECTIVE AND FACTORS LEADING TO 

REFORMS 

5.1.1 Power Sector Scenario Prior to Reform and Restructuring: 

• Weak technical/network system. 

• Lack of capital. 

• Very high T&D losses – between 43 and 44 per cent as against the 

declared level of 32 per cent. 

• Low commercial efficiency, which resulted in accumulating unrealistic 

receivables on the books. 

• AT&C losses – around 55 per cent. 

• Manual accounting system and lack of control and checks on billing, 

hardware and software. 

• Unreliable power supply and lack of consumer services support. Prolonged 

load shedding. 

• Subsidy/grant from Government of Orissa (In 1996, this amounted to Rs 

250 crore). 

• The revenue gap was constantly increasing from year to year and became 

unsustainable. 

All this resulted in huge revenue losses to OSEB. In November 1993, a decision 

was taken by the Government of Orissa to undertake a process of reform and 

restructuring of the power sector in the State. 

The restructuring process contemplated the following actions: 

Restructuring 

By reorganisation of generation, transmission and distribution 

functions. 

Private sector 

participation 

Through private sector participation in generation and distribution 

activities, as it was no longer possible to fund these through the State 

exchequer. 

By transparent and independent Regulatory body, which would 

Regulation 

address the problems of the power sector, Government decided to 

distance itself from the power sector except for issuing policy 

directives. 

Tariff By tariff reforms at bulk transmission and retail levels.

5.2 METHODOLOGY ADOPTED 



All the major steps in the restructuring process were taken as envisaged under 

the reform scheme: 

i) OSEB was restructured and corporatised into Grid Corporation of Orissa 

(GRIDCO) and Orissa Hydro Power Corporation (OHPC) with effect from 

1 April 1996. 

ii) The Orissa Regulatory Commission (OERC) was established on 1 April 

1996 and became functional from 1 August 1996. 

iii) 49 per cent stake of Orissa Power Generation Corporation (OPGC) was 

disinvested and management control was transferred to a private company, 

M/s AES, in January 1999. 

Second Phase of Reforms 

Private Sector Participation in Distribution Segment 

Pursuant to the Orissa Electricity Reform (Transfer of Assets, Liabilities 

Proceedings and Personnel of GRIDCO to Distribution Companies) Rules, 

1998, the Government of Orissa transferred the distribution assets, properties 

and personnel of GRIDCO to the four DISCOMs with effect from 26 

November 1998. These DISCOMs, namely CESCO, NESCO, WESCO and 

SOUTHCO, continued to function as subsidiaries of GRIDCO up-to 31 

November 1999 and thereafter functioned under the distribution and retail 

supply license obtained from OERC. 

In line with the objectives of power sector reform in the State, private sector 

participation was allowed in the distribution segment. After considering various 

options available for private sector participation, the State Government decided 

to adopt the joint sector/joint venture route. The sequence agreed was that the 

four distribution zones, which were functioning under GRIDCO, would be 

converted into four DISCOMs as fully owned subsidiaries of GRIDCO in the 

first stage. Thereafter, disinvestment of these DISCOMs was to be taken up. 

It may be mentioned here that no asset sale had actually taken place. The assets 

have only been assigned to the respective companies. 51 per cent of the share 

capital of the distribution segment has been sold, at a premium, to the private 

investors. 

50



Major stake (51%) in the four DISCOMs were transferred to private operators. 

Three of these DISCOMs namely NESCO, WESCO and SOUTHCO, were 

acquired by M/s BSES [now Reliance Energy Limited (REL)] in April 1999 

and the fourth, namely CESCO, by M/s AES in September 1999. GRIDCO 

continues to hold 39 per cent share and 10 per cent is with the Employees 

Welfare Trust. 

The new structure of the electricity sector in Orissa at that time was as follows: 

i) The power generating sources like NTPC, OHPC, OPGC, IPPs and CPPs 

were in existence. 

ii) GRIDCO purchased power under PPAs from the generating companies 

and supplied bulk-power to DISCOMs at a bulk-supply price called BST, 

fixed by OERC. 

Trading and transmission functions of GRIDCO have been separated with 

effect from 1 April 2005, with GRIDCO looking after trading and Orissa 

Power Transmission Corporation Limited (OPTCL) looking after transmission 

functions. 

Privatisation of State Sector Generating Company 

In January 1999, 49 per cent share capital of Orissa Power Generation 

Corporation (OPGC), with 420 MW thermal generation capacity having face 

value of Rs 240.21 crore (approximately), was sold to AES Transpower along 

with management control at a cost of Rs 603.20 crore. Another State sector 

power generation concern, Talcher Thermal Power Station (TTPS), with a 

generation capacity of 460 MW, was sold to NTPC in 1995. 

The entire generation of TTPS and OPGC is dedicated to the State of Orissa. 

5.3 CURRENT STATUS 

Benefits of Power Sector Reforms 

I. General 

i) T&D losses have been brought down from 50.67 per cent in 1995-96 to 

about 41.40 per cent in 2004-05, consequent to restructuring of OSEB. 

ii) Tariff is determined by OERC, after a process of public hearing. Although 

there was some increase in retail tariff in the initial years of reform, the 

51



increase was much less compared to the hike in the pre-reform period. 

There has been no revision in tariff since 1 February 2001. The tariff in 

Orissa is one of the lowest in the country. 

iii) The power deficit scenario has undergone a sea-change. From 1996-97 

onwards, Orissa has become a power surplus State. It is selling power to 

other States through the Power Trading Corporation (PTC) and NTPC 

Vidyut Vyapar Nigam. 

iv) Prior to restructuring, the State Government was providing huge amount 

of subsidy to OSEB every year. This has been stopped since 1 April 1996. 

v) Consequent to restructuring, the State power Utilities have been able to 

mobilise substantial resources from FIs. Upper Indravati Hydro Electric 

Project, with a capacity of 600 MW, was commissioned in 1999-2000 

with loan assistance from the PFC. 

vi) Three DISCOMs, viz., WESCO, NESCO and SOUTHCO, have been able 

to pay monthly BST dues in full for the last three years. The fourth 

DISCOM, namely CESCO, is paying the monthly BST in full from April 

2005 onwards. 

vii) Disinvestment of 49 per cent of Government share in OPGC has unlocked 

a substantial amount of funds, which could be utilised for development in 

other sectors. 

viii) OPGC, being exclusively in charge of thermal power generation of the 

State sector, has consistently maintained a high PLF (above 80%). This 

performance level is comparable to that of NTPC’s thermal power 

stations. After reorganisation, it has paid dividends amounting to Rs 

467.76 crore from 1999-2000 till 2004-2005 to the State Government. 

ix) OHPC, being exclusively in charge of Hydro Power Stations of the State 

sector, was able to give adequate attention to its own business and bring 

back the two units at Burla to operation, after necessary renovation. It is 

now running at a profit. GRIDCO is gradually liquidating its arrears to 

OHPC. The process needs to be hastened. 

x) TTPS after being taken over by NTPC in 1995 is now operating at a PLF 

of 75.1 per cent, whereas prior to restructuring, it never operated beyond 

30 per cent PLF. 

52



xi) Orissa is one of the few States where 24 hours power supply has been 

maintained in most of the electrified areas. 

II. Stabilisation of GRIDCO 

GRIDCO, a State PSU, has achieved financial turnaround. The salient features 

are as follows: 

i) GRIDCO has earned a profit of Rs 417.77 crore in 2003-04 and Rs 357.38 

crore during 2004-05. 

ii) GRIDCO has traded power worth Rs 638 crore and Rs 1,130 crore during 

2003-04 and 2004-05 respectively. 

iii) GRIDCO has paid the current dues to the generating companies and FIs in 

full from October 2003 till date. It has saved interest to the tune of Rs 80 

crore per annum through swapping of high cost debt. 

III. Stabilisation of Distribution Companies 

The DISCOMs have stabilised and the following features are worth 

mentioning: 

i) The DISCOMs have streamlined billing function and installed more than 

6.5 lakh consumer meters. Meter cubicles, XLPE cables and check meters 

have been installed to arrest theft of electricity in HT category. Security 

guards have been appointed for vigilance duty. 

ii) 33 kV and 11 kV feeder metering has been completed. Metering of 33/11 

kV sub-stations and DTs is in progress. 

iii) DISCOMs have formed squads for collection of outstanding dues from 

consumers and for de-hooking. They have introduced spot billing and 

enhanced vigilance activities. Energy audit has been initiated. . 

iv) Through measures like establishment of Consumer Care Centres and 

creation of Consumer Grievance Redressal Forums, better consumer 

services are being provided. 

Central Electricity Supply Company of Orissa Limited 

While acquiring CESCO, AES was assured that GRIDCO would allow CESCO 

cash accommodation up-to Rs 174 crore. This amount, along with interest, was 

to be repaid after 1 September 2002. There was a dispute between AES and the 

State Government over financing the required working capital over and above 

53



this amount. AES provided a letter of comfort to GRIDCO promising 

assistance to the CESCO management in raising funds for its working capital, 

which never happened. Since M/s AES did not honour its commitment, 

GRIDCO took CESCO to court for violation of escrow arrangements as 

CESCO was diverting part of the amount towards payment of salaries, instead 

of paying fully for the bulk supply bill. The OERC intervened and directed 

CESCO to do its job of electricity distribution properly. In July 2001, AES 

sought GRIDCO’S permission to sell its stake in CESCO to a third party or to 

GRIDCO. However, this was against the Shareholders’ Agreement, which 

provided for a lock-in period of five years ending on 31 March 2004. CESCO’s 

overdues to GRIDCO have reached Rs 577 crore including the initial cash 

accommodation of Rs 174 crore. AES management abandoned its 

responsibility from CESCO and disappeared. OERC appointed an 

Administrator to run CESCO. A similar arrangement continues till date. OERC 

is trying to induct a new management and is hopeful of succeeding. 

CESCO is now able to pay for the BST dues to GRIDCO. The situation will 

now worsen as the OERC has revised BST upwards by 15 per cent but has not 

allowed any enhancement of retail tariff. 

CESCO has to take relaxation of escrow norms from GRIDCO for paying 

salaries and interest on past dues. It is improving steadily, but still has a long 

way to go. 

5.4 LESSONS LEARNT 

Post-Reform Difficulties Faced 

• Upvaluation of assets by over Rs 2,000 crore (128%) resulted in increase 

in BST by 24 paise per unit – cumulative financial impact Rs 590 crore. 

• Unrealistic determination of distribution loss level targets in retail tariff 

structuring. Retail tariff was set at 32 per cent distribution loss level 

against actual loss level of 42 per cent - cumulative financial impact Rs 

358 crore. 

• Non-recognition of collection efficiency. Retail tariff was set without 

taking AT&C losses into consideration. 

• Retail tariff set with negative clear profit for seven consecutive years, 

which resulted in financial sickness of DISCOMs. 

54



• Billing to ghost consumers and bogus receivables, a legacy from OSEB 

days. 

• Excessive manpower and inadequately qualified staff. 

• Withdrawal of subsidy support of Rs 250 crore per annum, without 

transition management, beyond 1 April 1996, unlike in the case of Delhi. 

• Non-payment of dues by Government departments/PSUs – outstanding 

amount of more than Rs 170 crore. 

• Delay in receipt of World Bank funds aggregating Rs 326 crore – led to 

non-achievement of desired results for reduction in technical losses. 

• Delay in receipt of funds under APDRP for Capex. 

• Non-existence of special courts as envisaged in the EA, 2003. 

• No retail tariff hike for the last six years, which resulted in absorbing 

inflation and other rise in costs of DISCOMs. There has always been a 

paucity of funds for O&M expenditure of DISCOMs. 

Concern and Issues of Privatisation 

i) The shareholders’ agreement between the M/s BSES Limited (now 

Reliance Energy Limited) and GRIDCO has expired in March 2004. In 

spite of persistent reminders by GRIDCO and the State Government, 

Reliance Energy Limited has not come forward to extend the 

shareholders’ agreement beyond March 2004. One of the clauses in the 

shareholder’s agreement provided that the investor should endeavour to 

obtain further finances to meet the financial requirements of the 

DISCOMs. Due to non-signing of the shareholders’ agreement, there is no 

obligation on the part of the major shareholder, namely Reliance Energy 

Limited, to bring in additional finance to support the DISCOMs under its 

management. 

ii) The repair and maintenance activities of the DISCOMs leave much to be 

desired. Although the Regulatory Commission allows 5.4 per cent of the 

gross fixed assets (at the beginning of the year) to be recovered through 

tariff, towards O&M expenses, the DISCOMs did not spend the required 

sum under O&M. This has resulted in non-maintenance of lines and substations. 

This is a serious matter. 

55



iii) In the Business Plan, the Regulatory Commission has fixed a benchmark 

for the DISCOMs for reduction of distribution losses by 3 per cent every 

year till 2007-08. In the event of failure by the DISCOMs to achieve this 

loss reduction, the investor should come forward to provide necessary 

fallback arrangement/arrange necessary funds to pay to GRIDCO towards 

BST dues and other loan repayments. This has not happened because the 

investor has been found unwilling to invest any fresh capital in the sector. 

As on 31 March 2005, the liabilities of the DISCOMs towards GRIDCO 

were as under: 

Amount On Account of Remarks 

Rs 1,291.99 crore Outstanding BST dues 

Rs 1,535.63 crore 

Loan repayment of 

PFC, REC, etc. 

56 

These are related to 

commitments associated with 

the distribution assets 

transferred to the DISCOMs 

iv) GRIDCO, being a commercial entity, is unable to find ways and means 

for making payments to suppliers like NTPC, OHPC, etc., and repayment 

of loans taken from financial institutions. The investor should have 

arranged funds to ensure liquidation of arrear liabilities of the DISCOMs 

to GRIDCO as they are unable to repay the dues of GRIDCO from their 

own resources. 

v) During the super cyclone in 1999, there has been substantial damage to 

the distribution system in the State, especially in the coastal areas. There 

was inordinate delay in restoring the distribution system in the affected 

villages. Even today, electricity has not yet been restored in 75 such 

villages of the State. This has led to adverse criticism from all concerned 

about the working of the DISCOMs as well as the reform process. 

Unfortunately, no funds were sanctioned from the Calamities Relief Fund, 

although the assets belonged to the State Government (assets were not 

transferred to private companies and only transfer of shares had taken 

place). 

vi) There is reduction of only 10.16 per cent in AT&C losses between 2000- 

01 and 2004-05 by the DISCOMs, which is not quite satisfactory. 

vii) The entire funding of distribution business has been financed through 

default in repayment of loans to GRIDCO. In the process, GRIDCO’s



financial position had deteriorated substantially, till it was able to make 

profits through sale of surplus power outside the State. Injection of capital 

to strengthen the distribution system, launching a special drive to collect 

arrear dues, introducing energy audit at all levels are the crying needs of 

the hour. 

Action Taken on the Kanungo Committee’s Report 

Government of Orissa had constituted a Committee of independent experts to 

review power sector reforms in Orissa on 30 May 2001. This Committee, 

known as the Kanungo Committee, submitted its report on 2 November 2001. 

After considering the recommendations of the Kanungo Committee and also 

the correctives suggested by OERC, the State Government issued orders on 29 

January 2003. The salient points are as follows: 

i) The effect of up-valuation of assets of OHPC and GRIDCO, indicated in 

Notification No. 5210, dated 1 April 1996 and No. 5207, dated 1 April 

1996, would be kept in abeyance from 2001-02 prospectively till 2005-06 

or till the sector turns around, whichever is earlier, to avoid redetermination 

of tariff for past years and also re-determination of assets of 

various DISCOMs. For this purpose, depreciation would be calculated at 

pre-1992 norms notified by Government of India. 

ii) Moratorium on debt servicing by GRIDCO and OHPC to the State 

Government would be allowed from 2001-02 till 2005-06, except for the 

amount in respect of loans from the World Bank to the extent the State 

Government is required to pay to the Government of India. 

iii) The outstanding dues, payable to OHPC by GRIDCO till 31 March 2001, 

on account of power purchase would be securitised through issue of 

power bonds by GRIDCO to OHPC. 

iv) GRIDCO and OHPC shall not be entitled to any Return on Equity (ROE) 

till the sector becomes viable on cash basis or by 2005-06, whichever is 

earlier. 

v) The State becomes power surplus under conditions of normal hydro 

availability. GRIDCO may take steps for export of power and to procure 

cheap power from CPPs like NALCO and ICCL. OHPC and OPGC may 

be allowed to undertake third party sale outside the State, subject to 

permission from the appropriate authorities. 

57



vi) OERC should consider MYT schedule, which would help the Utilities like 

generating companies, GRIDCO and DISCOMs to embark upon longterm 

business plan. 

vii) World Bank loan would be passed on by the State Government to 

GRIDCO and DISCOMs as 70 per cent loan @ 13 per cent interest per 

annum and the balance 30 per cent would be as grant. 

viii) Tax-free bonds @ 8.5 per cent interest would be guaranteed by the 

Government of Orissa for PFC, REC loans. 

ix) There shall be 5 per cent overall reduction of distribution losses every 

year starting from 2002-03 to 2005-06 (benchmarking the distribution loss 

level of 42.21 per cent in the year 2001-02). 

x) Collection efficiency of revenue to be calculated at 85 per cent for 2001- 

02 reaching 95 per cent in 2005-06. 

xi) Aggressive feeder metering in LV side of DTs should be made within 12- 

18 months to identify loss-prone areas. OERC would be requested for 

compliance from DISCOMs. 

xii) Swapping of Government dues from GRIDCO against its dues from 

Government and balance receivables, if any, to be settled. 

xiii) Suitable budgetary provisions are made after actual verification for 

payment in full of electricity dues of GRIDCO/DISCOMs against various 

Departments of the State Government. 

xiv) Government would exempt water cess on the volume of water used by 

OHPC for generation of electricity. 

These decisions have had the desired effect on the health of the DISCOMs and 

also GRIDCO. 

5.5 SPECIAL AND UNIQUE FEATURES OF THE REFORMS PROCESS 

Reforms Process in Two States – Comparison Between Delhi and Orissa 

Delhi could avoid the pitfalls as it had taken note of the Orissa experience. 

In Orissa, the Government stopped supporting the power sector as soon as 

privatisation took place. In Delhi, the Government remained committed to the 

success of reforms with a five-year commitment support of Rs 3,450 crore. 

58



In Orissa, the loss levels were not realistically assessed. In Delhi, the concept 

of AT&C losses reduced the scope of base line data errors. Realistic loss 

figures, duly approved by the Commission, provided comfort to the investors. 

In Orissa, there was absolutely no support from the financial institutions. The 

promoter companies, namely: AES and Reliance Energy Limited, refused to 

pump in even the working capital. In the case of Delhi, there is fund assurance 

under APDRP and from the PFC. The bidding structure assured guaranteed 

returns, which facilitated commercial loan availability. 

In Delhi, the non-serviceable liabilities were retained in the holding company. 

Only the serviceable liabilities were transferred to the DISCOMs. 

In Orissa, the receivables were very high. Unfortunately, in the absence of 

audited data, the State Electricity Regulatory Commission did not allow bad 

debts. In Delhi, the past receivables were to the account of the holding 

company. DISCOMs were given an incentive of 20 per cent for collecting these 

receivables. (In Orissa, it is 50 per cent but DISCOMs have not been able to 

collect these.) 

There was no regulatory involvement in Orissa, whereas in Delhi there was full 

involvement, leading to greater practical orientation in decision-making. 

There have been problems due to non-availability of audited accounts both in 

the case of Orissa and Delhi. However, in Delhi, clear balance sheets were 

assured to the DISCOMs. The business valuation approach mitigated the risk of 

asset valuation. 

In Orissa, the assets were revalued at high levels prior to the bidding process. 

This created serious problems, which the Kanungo Committee report sought to 

remedy. The State Government agreed to keep the revaluation in abeyance till 

2005-06, in pursuance of the recommendations of the Kanungo Committee. 

In Delhi, the assets were valued through business valuation process, based on 

revenue earning potential. This ensured a sustainable level of liabilities. 

59

5.6 OERC and the DISCOMs 



Orissa has four DISCOMs. CESCO, abandoned by the AES, is going to be 

handed over to a new investor company. OERC is on the job of locating the 

suitable investor. 

As regards the other three DISCOMs, namely NESCO, WESCO and 

SOUTHCO, which are with Reliance Energy Limited, OERC has issued show 

cause notices to them as to why their distribution license should not be 

suspended. This is because of the refusal of the promoter company, Reliance 

Energy Limited, to bring in investments required for system improvement in 

distribution. The three DISCOMs have also been resisting renewing the 

shareholders’ agreement. It is understood that the DISCOMs have gone in 

appeal to the Appellate Tribunal in Delhi. Thus, the entire distribution business 

in Orissa is mired in uncertainty. 

All the DISCOMs have shown considerable improvement in their functioning. 

Some progress has been made in metering, billing and collection. They are 

paying the BST bill of GRIDCO and are also able to pay salaries to their 

employees. But they are yet to clear Rs 1,000 crore of loans and about Rs 1,200 

crore of old electricity dues. 

There has been no tariff revision during the last five years. Only recently, BST 

has been revised upwards by 15 per cent but no increase has been allowed by 

the OERC in retail tariff. The OERC apparently thinks that the DISCOMs 

should collect old arrears to the tune of Rs 2,000 crore (one per cent reduction 

of T&D loss indicates additional collection of Rs 43 crore) and also reduce the 

losses. It is interesting to note that the State Government has not opposed 

revision of tariff. If the tariff is not immediately revised, all the four DISCOMs 

will become terminally sick. 

A special collection drive needs to be undertaken throughout the State. Onetime 

settlement through Bijli Adalats could be taken up. Penal dues could be 

written off for those who pay their arrears at one go. 

Although T&D losses have come down from more than 50 per cent to around 

40 per cent, which is much above the permissible limit. T&D losses can be 

brought down to the prescribed level only if fresh investments are made by the 

DISCOMs. 

60

5.7 WAY FORWARD AND RECOMMENDATIONS 



• Orissa was the first State in the country to go in for reforms in the 

electricity sector. OERC was the first Regulatory Commission. 

Restructuring of the sector was taken up in right earnest. The results have 

been generally positive. 

• Assets were over-valued by the Government of Orissa. This situation was 

corrected by the Kanungo Committee by postponing the revaluation of 

assets by five years, which is just over. Such revaluation should be 

postponed by another five years, as recommended by the OERC. 

• DISCOMs have project-related liabilities to the tune of Rs 660 crore. 

They are not making any payment to GRIDCO in this regard. They will 

have to do it by increasing their collection efficiency. Arrear receivables 

of Rs 1,500 crore including Delayed Payment Surcharge remain payable 

by the DISCOMs. If they collect old dues, they can retain 50 per cent and 

the rest will have to be paid to GRIDCO. If all bills are scrutinised, a lot 

of bogus and uncollectable dues would be found This can be written off. 

For revised billing, no Delayed Payment Surcharge should be charged. 

• The super-cyclone of 1999 caused severe damage to the electricity 

distribution infrastructure in the coastal areas of the State. Had there been 

no privatisation, the Government would have paid the cost of restoration 

of the infrastructure. But nothing was paid to the DISCOMs from the 

Calamities Relief Fund. In quite a few villages, even restoration work has 

not been undertaken. A lot of dues relating to the coastal districts will 

have to be written off after proper scrutiny. 

• Orissa is prone to natural calamities. Hence, the State will have to support 

the power sector in restoring assets to the pre-calamity levels 

• The four DISCOMs should arrange funds from the financial institutions, 

duly guaranteed by the promoter companies, in order to take up system 

improvement works. Once they undertake such improvement works, they 

would be able to avail of APDRP benefits. At present, only CESCO is 

doing it. 

• Dues of the State Government to PSUs amount to Rs 250 crore. A special 

reconciliation drive should be undertaken with the initiative of the State 

Government and prompt payment made. Government dues should be paid 

directly to OHPC, leading to accounting adjustments between GRIDCO 

61



and OHPC on the one hand and between the DISCOMs and the GRIDCO 

on the other. Government and its parastatals cannot and should not be 

routine defaulters. 

• For the last five years, there has been no revision in tariff because the cost 

of electricity came down as a result of the postponement of asset 

revaluation and because of the CERC’s tariff orders relating to NTPC. It 

is time to go in for revised tariff particularly when bulk supply tariff of 

GRIDCO has been revised by 15 per cent recently. 

• Depreciation calculations should be on the basis of the life of the assets, 

which will have a favourable impact on the tariff. This should be done in 

preference to calculating depreciation for recovery of 90 per cent of the 

total investment in 12 years. 

• Government of India should ease the norms for raising loans from PFC 

and REC by the privatised DISCOMs. Second mortgage of assets should 

be permitted. 

• Special courts are yet to be set-up for trying electricity theft cases. Only 

three special police stations have been set up as against the requirement of 

30. The State Government should undertake both responsibilities 

immediately. The OERC has also permitted the cost of setting up of 

special courts at an estimated cost of Rs 8 crore and allowed the same as 

pass through in to the tariff. This is indeed commendable. The State 

Government has to do its bit. 

• In case of hydro failure, GRIDCO is required to purchase high-cost power 

from other sources. This should be subsidised from the Calamities Relief 

Fund. The problem arose in 2002-03 when GRIDCO had to spend an 

additional amount of Rs 600 crore on purchase of alternative power. 

• The Government of Orissa has decided to pass on the World Bank loans 

to GRIDCO and DISCOMs as 70 per cent loan (at 13 per cent interest) 

and 30 per cent grant, but this decision is yet to be implemented. This 

should be done immediately. 

• The Deepak Parekh Committee had recommended setting up of a Power 

Sector Reform Fund (PSRF). The OERC also has recommended setting 

up of such a fund. Last year, the State had a record collection of Rs 320 

crore of electricity duty. Over a period of time all such duty collected 

62



could be credited to this Fund. Money raised through disinvestment of the 

State’s shares in power Utilities should also be credited to this Fund. 

• OHPC should be encouraged to take up new projects like Sindhol-I, II and 

III as run-of-the river schemes on the Mahanadi. A pump storage project 

should be set up below the Indravati Dam. NHPC could collaborate with 

OHPC. In order to maximise peak-time availability, Orissa’s hydropower 

potential should be fully utilised. 

• OHPC’s dues should be cleared by GRIDCO. With an improved balance 

sheet, OHPC can be partially disinvested, generating substantial funds for 

further investment. 

• The State Government’s share in the OPGC should be brought down from 

51 per cent to 26 per cent. The proceeds from such a disinvestment can be 

ploughed back into the power sector. 

• Consumer grievance redressal mechanism should be strengthened in all 

the four DISCOMs. 

• There is acute shortage of technical manpower at all levels. This situation 

should be promptly remedied by GRIDCO, OHPC and all the DISCOMs. 

63

CHAPTER - 6 

RAJASTHAN 

6.1 BACKGROUND, OBJECTIVES AND METHODOLOGY ADOPTED 

Rajasthan Power Sector Reforms Bill, 1999 was passed by the State Legislature 

on 25 September 1999. The Act has been brought in force w.e.f. 1 June 2000. 

With the notification of the Rajasthan Power Sector Reforms Transfer Scheme 

2000 on 19 July 2000, the assets, liabilities and personnel of the Rajasthan 

State Electricity Board (RSEB) were transferred to the newly-formed five 

companies namely a generation Company (RRVUNL) a transmission company 

(RRVPNL) and three DISCOMs, viz., Jaipur VVNL, Ajmer VVNL, and 

Jodhpur Vidyut Vitaran Nigam Limited (VVNL). With this, Rajasthan became 

the first State in the country to have completely separated all the three 

functions, hitherto carried out by the integrated State Electricity Board, in a 

single stage. These companies have been incorporated under the Companies 

Act, 1956. 

Chronology of major events in the process is as under: 

Table: Chronology of Events 

Reform Policy Statement May 1999 

Reform Bill passed September 1999 

Regulatory Commission set up January 2000 

Single Stage Restructuring (GENCO, TRANSCO and 3 

DISCOMs) 

July 2000 

First set of Tariff Orders by RERC March 2001 

MoU signed between Ministry of Power, Government of India 

March 2001 

and Government of Rajasthan 

Revised Financial Restructuring Plan (FRP) approved August 2003 

Updation of revised FRP November 2005 

Generation and Transmission 

The generation wing in Rajasthan has all along performed very well even 

during the pre-restructuring period. Its performance has also been recognised at 

the national level. Bronze and silver medals were awarded to Kota Thermal 

Power Station (KTPS) during the pre-restructuring period also. For excellent 

performance, Gold shield was awarded on 24 August 2004 to KTPS and 

Suratgarh Thermal Power Station (STPS).



The plant load factor (PLF) of Kota and Suratgarh thermal power stations was 

among the top in the category of thermal power stations in the country. Time 

and again, these plants have won awards at the national level. After 

restructuring also, the tempo has been maintained, rather it has been further 

improved and the generation capacity, which was 1,299.53 MW in 1999-2000, 

has reached 2,569.35 MW in 2003-04, which means a near 100 per cent 

increase. 

In Rajasthan, the cost of transporting coal to STPS and KTPS is more than that 

of coal. Instead of being attracted with the location of power plants within the 

State, a time has come when different States may like to collaborate in setting 

up of the power plants as pithead power stations. Wheeling of power is 

relatively cheaper than transportation of coal over very long distances. 

NTPC might like to prepare a shelf of projects based on pithead thermal power 

stations. It could invite willing States to join. Of course, tactically the State 

where the power generating plant is to be located should also be persuaded to 

join as a partner State. Once the alternative of pithead power stations becomes 

viable and tariff turns out to be attractive, the States might prefer not to set up 

thermal power stations at locations far off from the coalmines. 

The transmission wing of RSEB has performed very well during the prerestructuring 

period. RRVPNL has been maintaining this level of performance. 

Mathania Solar Project 

Rajasthan has maximum solar insolation in the country and much needs to be 

done on this front. Unfortunately the progress of the Mathania solar project 

particularly in its shifting fuel choices is rather intriguing. In a 140 MW plant, 

with solar component being only 35 MW, it is difficult to term it as a solar 

plant. The Rajasthan authorities perhaps would do well to concentrate on the 

solar component of the project instead of trying to make it a hybrid plant. 

Distribution System 

Table 6.1: Distribution Losses (%) 

Pre-Restructuring Post-Restructuring 

1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 

28.31 24.93 26.46 29.43 42.00 38.36 37.66 39.83 41.5 

66



Distribution losses in the State have ranged between 37.66 and 42 per cent. 

More significantly, the losses in 2001-02 (37.66%) increased to 39.83 per cent 

in 2002-03 and further to 41.5 per cent in 2003-04. The State Electricity 

Regulatory Commission has, from time to time, expressed its strong 

displeasure over virtually no progress being achieved on this front despite huge 

investments for system improvement. A firm determination to tackle the 

politically sensitive issue of electricity theft appears to be lacking. The 

vertically integrated Electricity Boards had the advantage of having very senior 

officials as their Chairmen. After restructuring, comparatively junior level 

officers are posted as MDs of the DISCOMs. Inevitably the Government 

influence increases in their working and very often they are unable to resist 

undue Government pressure. 

6.2 COMMERCIAL 

Table 6.2: Consumer Metering Status (%) 

Years Before Restructuring Years After Restructuring 

Particulars 1995 1996 1997 1998 1999- 2000 2001 2002 2003 

-96 -97 -98 -99 2000 -01 -02 -03 -04 

Agriculture 29.2 30.1 31.56 32.22 35.3 36.54 51.06 53.27 61.32 

Other 100 100 100 100 100 100 100 100 100 

Even during the pre-restructuring period, all the categories except agricultural 

had 100 per cent metering. That trend continues even now. Rajasthan was 

amongst the first States in the country to introduce electronic meters in the prerestructuring 

period even for domestic consumers in a big way. For the last 

many years, only electronic meters have been purchased by the RSEB and later 

by the DISCOMs. In the agricultural sector, by 2003-04, only 61 per cent 

metering has been achieved. A large number of agricultural consumers have 

not allowed the meters to function properly in the past. 

Mere symbolic installation of meters for agricultural consumers is not enough. 

The entire chain needs to be reviewed. So long as, non-operational meters are 

considered a ‘paying proposition’ by such consumers, they would not allow 

installation of foolproof meters. The SERC may explore the possibility of 

fixing the minimum charges, etc., in such a way that the agricultural consumers 

themselves start insisting for meters. (The minimum charges in respect of 

defective/non-functional meters may be higher than the average consumption 

67



by the consumers, so that the consumers are discouraged from attempting to 

damage and tamper with the meters). 

After paying their bill of metered connection, they could be allowed a cash 

refund on presentation of the bills. This can break the resistance of the farmers 

to meters. Psychologically this can also highlight the extent of subsidy, which 

the Government is providing to the agricultural consumers. 

Table 6.4: Billing and Collection Efficiency (%) 


1995 1996 1997 1998 1999 2000 2001 2002 2003 

-96 -97 -98 -99 -00 -01 -02 -03 -04 

Billing Efficiency 

Domestic 100 100 100 100 100 100 100 100 100 

Industrial 100 100 100 100 100 100 100 100 100 

Agricultural 100 100 100 100 100 100 100 100 100 


Domestic NA NA 96.49 95.86 95.24 96.86 99.28 97.67 97.14 

Industrial NA NA 101.17 100.84 99.66 100.06 101.08 100.63 99.76 

Agricultural NA NA 99.94 100.78 96.00 93.15 99.49 93.08 96.00 

Even during the pre-restructuring period, 100 per cent billing of all the 

categories was ensured. That system continues even now. The collection 

efficiency level is ranging between 97 to 99 per cent in respect of domestic 

consumers and 99 to 100 per cent from industrial consumers. In the prerestructuring 

period also, collection efficiency ranged between 99 to 101 per 

cent. In the case of agricultural consumers, the collection efficiency has ranged 

from 98 to 100 per cent in the past. This percentage has somewhat declined in 

the post-restructuring period. Out of four years, the collection efficiency was 

93 per cent in two years, 96 per cent in one year and 99 per cent in another. 

This is again reflective of the soft approach of the State Government, 

particularly towards the agricultural consumers. 

It appears that the State Government has also issued oral directions (November 

2002) for suspension of recovery of minimum charges from agriculturalmetered 

consumers. This concession is continuing since then. The financial 

burden on the DISCOMs due to this oral direction is estimated to be more than 

Rs 300 crore annually. If such a methodology becomes a precedent, it would 

open the floodgates for populist decisions by the Government in tariff matters 

without any financial liability on the Government. 

68

Preventive 

raids (No.) 

Demand 

raised 

Penalty 

amount 

Prosecuted/ 

compounded 

(No.) 

1995 

-96 



Table 6.5: Preventive Action and Prosecution for Theft 

1996 

-97 


1997 

-98 

1998 

-99 

1999 

-2000 

69 

2001 

-02 

2002 

-03 

2003 

-04 

2004 

-05 

(Rs lakh) 

2005 

-06 

84173 74637 70864 78730 100729 106825 106300 81195 74164 103220 

2384.69 3294.47 4666.76 3541.47 4669.67 6364.36 6022.26 4507.14 4580.20 5690 

1524.08 204494 2689.17 2747.64 3601.06 3546.68 3202.74 2530.86 2306.43 2924.4 

1861 8672 13356 17055 22977 1639 1036 518 218 1222 

The State Government has notified the creation of 34 Anti-power theft police 

stations. 15 Anti-power theft police stations have started w.e.f. 1 April 2006. 

In the post-restructuring period, the number of raids to detect cases of 

electricity theft has significantly come down year after year except during 

2005-06. The number of such raids was 74,164 in 2004-05. This figure was 

achieved eight years back in 1996-97 (74,637). Similarly, during the previous 

five years, the penalty amount increased substantially every year, so much so 

that from a recovery of Rs 15.24 crore in the year 1995-96, it had jumped to Rs 

36.01 crore in 1999-2000. This is more than 100 per cent increase. During the 

post-restructuring period, the penalty amount realised has constantly declined, 

year after year, so much so that the penalty amount of Rs 35.46 crore in 2001- 

02 has come down to Rs 23.06 crore in 2004-05. In the matter of 

prosecutions/compounding, the record is also not very encouraging. During the 

pre-restructuring period, the figure had gone up from 1,861 in 1995-96 to 

22,977 in 1999-2000. The figure has increased every year during those five 

years. After restructuring, the figure has come down drastically. From a figure 

of 22,977 prosecutions/compounding in 1999-2000, in the very first year of 

restructuring, (in 2001-02), the figure has decreased to 1,639. The next four 

years have maintained this trend of drastic reduction in the number of 

prosecutions. The total prosecutions/compounding of cases of electricity theft 

during the last three years, i.e., 2002-03 to 2004-05 were 1,772 while in 1995- 

96, in a single year alone, the prosecutions/compounding were 1,861.



It appears that the State Government has not encouraged conducting of raids 

for detecting cases of electricity theft. DISCOMs too seem to have displayed 

indifference on this front, which was showing excellent results during the prerestructuring 

period. During that time, it was a practice to post the best officers 

to the Vigilance Wing and they were encouraged in every way. Unfortunately, 

this does not seem to be the situation now. 

6.3 FINANCIAL 

Table: Financial Performance 

70 

(Rs crore) 

Pre-Restructuring (RSEB) Post-Restructuring (Sector as a whole) 

Particulars 1995 1996 1997 1998 1999 2001 2002 2003 2004 

-96 -97 -98 -99 -2000 -02 -03 -04 -05 

Turnover 

PBT/(Loss) 

2092 2513 3118 3034 3587 4501 4665 4772 5269 

(without 

subvention) 

Debt outstanding 

(Including short 

(430) (498) (640) (1041) (1678) (1291) (1582) (1754) (2014) 

term loans, 

excluding State 

Government loans) 

3,755 4318 3371 4354 5606 8684 10356 11384 12577 

Net worth 799 1051 1945 2154 2299 2491.95 3111.31 3726.53 4464.24 

There is an increasing trend of losses in the post-restructuring period. The 

accumulated losses from 1996-97 to 1999-2000 were Rs 3,857 crore while in 

the post-restructuring period, the losses in the first four years were Rs 6,641 

crore. Inevitably such heavy losses are bound to adversely affect the net worth. 

However, for cosmetic purposes, the DISCOMs are claiming that subvention is 

“expected” from the Government. Hence, according to them, their net worth 

has not been eroded. 

Table 6.7: Revenue From Industrial Consumers (% of Total Revenue) 

Particulars 

Revenue (%)from 

industrial consumers 

Change in % points as 

compared to previous 

year 

1995 

-96 

1996 

-97 

1997 

-98 

1998 

-99 

1999 

-2000 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

2004 

-05 

71 69 69 65 63 58 53 52 51 51 

- -2 0 -4 -2 -5 -5 -1 -1 0 

The revenue from industrial consumers, which used to be 71 per cent in 1995- 

96, had reduced to barely 58 per cent by 2000-01. After restructuring, there has

1993 

-94 



been a further reduction by 5 per cent. By 2004-05, the revenue percentage has 

come down to 51 per cent. The DISCOMs did not display any proactive 

approach in arresting this declining trend. Even though industrial consumers 

contribute substantially to the revenues of the DISCOMs, not much seems to 

have been done to attract and retain this category of consumers. 

1994 

-95 

1995 

-96 

1996 

-97 

Table 6.8: Per Unit Deficit (paise) 

1997 

-98 

1998 

-99 

71 

1999 

-2000 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

2004 

-05 

31 33 32 35 42 64 100 102 87 103 114 117 

The deficit per unit is relentlessly increasing, leading to heavy losses. 

Revenue Collection (%) 

Revenue collection has been traditionally very good in Rajasthan. During the 

four years preceding the restructuring, the percentage of revenue collection 

ranged from 98 to 100 per cent. In the post-restructuring period, for two years 

while maintaining the tempo, the increase was marginal. However, in the 

subsequent years, there has been a slight decline. In 2002, the Government had 

directed the DISCOMs not to recover the increased minimum charges in rural 

areas. 

Deficit (Without Subsidy) 

1995 

-96 

1996 

-97 

Table 6.9: The deficit without subsidy (Rs crore) 

1997 

-98 

1998 

-99 

1999 

-00 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

2004 

-05 

430 498 639 1,041 1,678 1,578 1,291 1,582 1,754 2,014 

The deficit has been continuously increasing year after year. Immediately after 

the restructuring, due to the cleaning up of the balance sheets, etc., the deficit 

recorded some reduction but after that it is on the increase.

Particulars 1996 

-97 

Long-term 

loan 

Short-term 

loan 



Table 6.10: Year-wise Position of Loans Raised (Rs in crore) 


1997 

-98 

1998 

-99 

1999 

-00 

72 

2000 

-01 

2001 

-02 

2002 

-03 

2003 

-04 

2004 

-05 

837.88 942.62 1,025.78 1,160.02 1,459.00 1,584 1,923 1,001 1,218 

- 50.00 348.00 810.00 1,085.00 1,725 2,233 2,681 2,681 

Total 837.88 992.62 1,373.78 1,970.02 2,544.00 3,309 4,156 3,682 3,899 

Both the Long-term and short-term loans in the post-restructuring period have 

been found to be substantially higher than those in the pre-restructuring era. 

With rising T&D losses and increasing cases of electricity theft, financial 

losses are showing an increasing trend. During the four-year period of prerestructuring, 

total loans obtained by RSEB amounted to Rs 5,175 crore. Shortterm 

loans are rising faster than the long-term loans. Long-term loans can be 

justified for capital investment and asset creation but short-term loans are 

merely indicative of deficit funding. Very often, funds are borrowed merely to 

repay previous loans. This is not a positive trend. 

6.4 DEBT SERVICING 

The burden of debt servicing is indeed staggering. From a figure of Rs 2,015 

crore at the time of restructuring, the debt servicing liability has reached Rs 

4,559 crore. 

6.5 REDRESSAL OF CONSUMER GRIEVANCES 

The grievance redressal mechanism, except the Settlement Committees, is very 

weak. Purely internal committees of the DISCOMs may not inspire confidence 

among the consumers. Since Section 42, of the EA, 2003 lays down that prior 

to approaching the Ombudsman, the channel of internal committee must be 

exhausted; this provision has tended to minimise the role of the institution of 

Ombudsman. Out of three Ombudsman appointed in Rajasthan, one 

Ombudsman has not handled any case and another Ombudsman has decided 

just one case and the third Ombudsman has decided only four cases so far. 

There should be only one channel to be crossed before the consumer can 

approach the Ombudsman. In order to check deliberate delays at the level of



DISCOMs, it should be clearly laid down that if the matter is not resolved 

within 30 days from the submission of grievance, the Ombudsman can directly 

take cognisance of such matters. In emergent cases, particularly where the 

disputed amount is substantially high (say, Rs one lakh and above), the 

consumer should have the right to seek a stay order from the Ombudsman 

directly. Necessary steps should be initiated to streamline the grievance 

redressal mechanism. 

6.6 COMMERCIAL VIABILITY 

In many other States, even while restructuring, the common seniority of 

officers was maintained so that there could be inter-posting of officers as per 

requirement from time to time. However, in Rajasthan such an arrangement is 

not in place. A larger number of officers opted for some of the wings, whereas 

for others, sufficient number of officers did not opt. The result was that faster 

promotions took place in some of the companies because the number of 

officers was limited while there has been stagnation in some other companies. 

It is demoralising for the officers who have enjoyed common seniority for 

decades to suddenly find that officers much junior to them have been promoted 

in sister companies while their own chances of promotion are bleak. If it is not 

possible to have common seniority for officers in all the five companies, at 

least the three DISCOMs could have a common seniority roster. 

6.7 PERFORMANCE IMPROVEMENT OF RESTRUCTURED UNITS 

Performance of DISCOMs does not appear to have improved significantly in 

the post-restructuring period. T&D losses, as also the cases of electricity theft, 

have increased. In matters of agricultural connections, the DISCOM 

management is unable to resist undue pressure from the Government. The 

administrative control of the top management has slackened with the greater 

involvement of the Government in the day-to-day management of the power 

companies. With frequent changes, the top officials including the MDs are 

unable to take a long-term perspective. A lot of funds have been pumped in the 

system but the outcome does not seem to be commensurate with the investment 

made. The establishment cost has gone up after restructuring. There is a lot of 

duplicacy of work. Instead of a single tender being floated by RSEB, now the 

five companies issue tenders separately, despatch separate teams for inspection 

and place separate orders. The specialisation, which was developed for various 

activities like material management, commercial management, litigation, rural 

73



electrification, etc., in the past, is not evident to that degree now. In the unified 

Utility, what was being done by a team headed by a Chief Engineer is now 

being done by a Superintending Engineer or may be by an even below ranked 

official. The problems of the power companies with almost 65 lakh consumers 

are basically field level ones, which require field level solutions. 

6.8 GENERAL FINDINGS AND LESSONS LEARNT 

(a) Reforms can be sustainable only with political commitment, not merely at 

the top level but right down the line. Unless the political level is duly 

sensitised, reforms cannot take deep roots. So long as reforms appear to 

them to be a direct threat to their continuance in power, they would not 

allow the reforms to stabilise. Through a sustained media blitz, they will 

have to be convinced that subsidies are no substitutes for financially 

strong Utilities and that financially viable Utilities can serve the farmers 

better than the bankrupt ones. Hence, it is in the larger interest of the 

farmers themselves to strengthen the Utilities; 

(b) Without proper orientation, agricultural consumers may tend to oppose 

power sector reforms. Intensive orientation programmes should be 

organised for public representatives. Without this basic groundwork, the 

reform process will not proceed at the desired pace; 

(c) The RSEB was a giant organisation and its top management including the 

Chairman used to be very effective. The Chairman, very often of the rank 

of the Chief Secretary, by sheer seniority was able to resist some of the 

populist measures. He could secure much support from the District 

administration. Relatively junior officers were posted as MDs in the 

restructured entities; and 

(d) Rajasthan had long back taken the lead in the rationalisation of 

agricultural tariff. An out-of-turn scheme called Nursery Scheme was 

introduced for agricultural connections. Earlier, the average waiting time 

for obtaining service connections used to be around 13 years but instant 

connections were provided under the Nursery Scheme. The initial 

charges were roughly 10 times higher and the applicable tariff was 

100 per cent higher. Yet the scheme was a roaring success and 

thousands of connections were released under this category. The 

scheme exploded the myth that agricultural tariff is a holy cow. The 

74



RSEB had succeeded in phenomenally raising the agricultural tariff under 

the garb of optional scheme and thousands of farmers opted for this 

scheme. The Planning Commission of India and World Bank had 

profusely appreciated the scheme. Unfortunately, the scheme was diluted 

gradually due to political considerations, which the DISCOMs could not 

resist. 

6.9 WAY FORWARD AND RECOMMENDATIONS - DISTRIBUTION 

(a) Professional Directors 

In order to professionalise the Boards of the power companies, it is felt 

that there should be 50 per cent independent directors who could be 

professionals in various fields. Presently, the Boards of all the five 

companies are manned by Government nominees only. It is felt that 

Power Finance Corporation, Rural Electrification Corporation and 

Commercial Banks, from whom the power companies have borrowed 

heavily, should be empowered to nominate their nominees as directors. In 

many of the Government undertakings, non-officials have been appointed 

as directors but the power sector companies do not have even a single 

director from outside the Government. 

(b) Agricultural Connections 

i) There is a need for gradually restricting the subsidies among the 

agricultural consumers only to those who really deserve. Through the 

Nursery Scheme during the RSEB period, broadly a distinction could 

be made between the haves and have-nots. The haves have opted for 

the nursery scheme (instant connections) and willingly paid higher 

charges – both capital cost and tariff. The have-nots, who were left 

out, were provided connections under the ordinary category. 

ii) The newly adopted annual targets of 40,000 agricultural connections 

are counter-productive and not sustainable in the long run. The 

traditional target of 25,000 agricultural connections should be 

restored. Out of this, 50 per cent connections should be released 

under the out-of-turn scheme so that the DISCOMs do not have to 

subsidise the affluent farmers. 

75

(c) Captive Plants and Open Access 



As mentioned earlier, minimum charges for captive plants, Open Access 

consumers and industrial units connected to the system of DISCOMs 

should be substantially reduced, if not waived off because they are 

connected to the DISCOMs’ system only for emergencies. Otherwise, the 

captive plants have to shut down every month, in order to consume power 

equal to the minimum charges. It would be in the national interest if the 

CPPs are encouraged to run round the clock. 

(d) Control of Electricity Theft 

Theft control is one of the biggest challenges faced by the power sectors. 

DISCOMs alone cannot handle this problem unless there is active support 

from the district administration. The Government should issue special 

directives to the Collectors and SPs to actively involve themselves in 

organising raids to detect cases of electricity theft. Substantial rewards 

could be provided to the district administration for outstanding work on 

this front. 

(e) Outsourcing 

There are a large number of vacancies in the power companies. 

Spontaneously the demand comes for filling up the vacancies. The time 

has come when more and more activities should be outsourced so that 

there is lesser permanent liability on the power companies. This would 

lead to greater efficiency since staff engaged on contractual basis cannot 

afford to be indifferent in performance. 

76

CHAPTER - 7 

UTTAR PRADESH 


Power serves as a vial input for economic development of the State. It is, 

therefore, imperative that the sector remains financially viable and 

commercially sustainable at all times. Uttar Pradesh, one of the largest States in 

the country, is well endowed with natural resources. The State has, however, 

lagged behind in economic development. Lack of quality and reliable power at 

competitive rates to commercial and industrial consumers to meet their 

growing needs is one of the key factors hampering its economic development 

during the last two decades. The vertically integrated Uttar Pradesh State 

Electricity Board (UPSEB) had been managing all the three functions of 

generation, transmission and distribution in the State. UPSEB was facing 

problems like: 

• Poor energy accounting systems; 

• High technical and commercial losses; 

• High proportion of unmetered consumption; 

• Inadequate cost coverage through tariffs; and 

• Undue interference in determination of tariff by the Government. 

The poor operating practices prevailing in UPSEB consistently eroded its net 

worth, leading to inadequate capacity addition in generation and poor 

maintenance of transmission and distribution (T&D) infrastructure. The tariffs 

for commercial and industrial consumers were heavily subsidising the 

consumption of domestic and agricultural consumers and reached unsustainable 

levels. This was resulting in poor growth in the consumption of subsidising 

categories while the consumption in the subsidised categories was increasing at 

a rapid pace. This led to consistent deterioration of financial condition of 

UPSEB through the 1980s and early 1990s. This needed massive financial 

support from the Government and appropriate interventions for its operations. 

During the late 1990s, the State Government initiated the process of power 

sector reforms in the State.

7.2 Objectives of Reform 



The State Government declared its Revised Energy Policy in 1999 with a clear 

road map for restructuring of the State power sector. The objective of the 

policy was to restore the credit-worthiness of the power sector and to create an 

environment, which would attract private investments, promote competition 

and efficiency and facilitate sustainable development of the sector. The main 

principle of the reform programme was to have commercially operated Utilities 

functioning in a competitive and appropriately regulated power market. In this 

framework, the State Government declared “UP Power Sector Reform Act, 

1999”. The mission statement of UP power sector restructuring programme 

included the following: 

• Electricity to be supplied under the most efficient conditions in terms of 

cost and quality to support the economic development of the State; 

• The power sector would cease to be a burden on the State's finances and 

eventually become a net generator of financial resources; and 

• Protection of consumers’ interests. 

The power sector reform aimed to achieve the following: 

(a) Restructuring of UP State Electricity Board by segregating generation, 

transmission and distribution functions into autonomous and separately 

accountable entities, through transfer of assets, liabilities and personnel; 

(b) Corporatisation and commercialisation of the resultant entities in a phased 

manner; 

(c) Establishment of an independent Regulatory Body; 

(d) Promoting private sector participation in power generation and 

distribution; and 

(e) Rationalisation of tariff towards full cost recovery and reduction of cross 

subsidies. 

7.3 Methodology Adopted by the State Government 

The Government of Uttar Pradesh, vide its Notification dated 14 January 2000, 

brought into effect the Uttar Pradesh Electricity Reforms Act, 1999 and the 

Uttar Pradesh Electricity Reforms Transfer Scheme, 2000. 

78



The Uttar Pradesh Electricity Regulatory Commission (UPERC) was 

established in September 1998 under Electricity Regulatory Commissions Act, 

1998 of Government of India. The prime objectives of UPERC are: 

• To create a regulatory environment that would promote transparency, 

efficiency and economy in the operations and management of the power 

Utilities; and 

• To encourage competition and help the State to attract private investment 

for the power sector development while appropriately safeguarding the 

interests of the consumers. 

In the first phase of restructuring, through the First Transfer Scheme, the 

generation, transmission and distribution functions of UPSEB were transferred 

to the following three corporate entities (corporations registered under the 

Companies Act, 1956) based on functional specialisation, namely: 

• Uttar Pradesh Rajya Vidyut Utpadan Nigam Limited (UPRVUNL), which 

owns and operates the existing thermal power stations of UPSEB. 

• Uttar Pradesh Jal Vidyut Nigam Limited (UPJVNL) which in addition to 

its own small hydro power houses, owns and operates the existing and 

under construction hydro power stations of UPSEB; and 

• Uttar Pradesh Power Corporation Limited (UPPCL), which is responsible 

for transmission and distribution of electricity in Uttar Pradesh. 

Another Transfer Scheme for restructuring of distribution undertaking of 

Kanpur Electricity Supply Authority (KESA) of UPPCL and transfer of its 

assets, liabilities and personnel to Kanpur Electricity Supply Company 

(KESCO), a company registered under the Companies Act, 1956 was made 

effective on 15 January 2000. 

The State of Uttaranchal came into existence on 9 November 2000. All assets 

pertaining to generation, transmission and distribution located within the State 

of Uttaranchal, were transferred to the newly carved out State. 

In the second phase of restructuring, UPPCL was further divided into five 

successor companies. In pursuance of Government of UP Notification dated 12 

August .2003, UPPCL was designated as the transmission company 

79



(TRANSCO) and the following four distribution companies (DISCOMs) were 

created: 

• Paschimanchal Vidyut Vitaran Nigam Limited, Meerut 

• Dakshinanchal Vidyut Vitaran Nigam Limited, Agra 

• Madhyanchal Vidyut Vitaran Nigam Limited, Lucknow 

• Poorvanchal Vidyut Vitaran Nigam Limited, Varanasi 

The Central Government set in motion the reform process in the power sector 

in the States by notifying the Electricity Regulatory Commissions Act, 1998, in 

July of that year. The Uttar Pradesh Electricity Regulatory Commission 

(UPERC) was established under the provisions of this Central Act in 

September 1998. 

To enable the newly carved out entities to start on a clean slate, the State 

Government wrote off/assumed massive liabilities of more than Rs 31,300 

crore as indicated below: 

• Government of UP loan and accrued interest written off Rs 20,116 crore 

• Adjustments for transfer of Unchahar Plant to NTPC Rs 919 crore 

• CPSU liabilities retained by Government of UP Rs 2,515 crore 

Further, the financial commitments taken over by the State Government during 

the restructuring of UPSEB are indicated below: 

• Terminal liabilities retained by Government Rs 6,176 crore 

• GPF liabilities Rs 1,634 crore 

7.4 Current Status of Reforms 

The restructuring of power entities was expected to lead to focussed 

interventions in each of the individual functions to improve operational and 

financial performance, encourage investments and improve quality of supply to 

the consumers. The performance of these restructured entities from 2000-01 

onwards on key performance indicators is briefly summarised below: 

Demand-Supply Deficit: The State had been facing huge energy and peak 

shortages at the time of reform of the sector. The peak load deficit prevailing in 

the State was in excess of 30 per cent up to 1998-99. However, the peak deficit 

80



continues to be in the vicinity of 30 per cent from 2003-04 onwards. The 

energy deficit hovered around 15 per cent during the pre-reform years, 

deteriorating further to 20 per cent from 2003-04 onwards from the year 1999- 

2000 as shown in the diagram below. Even after restructuring of the State 

power sector, peak demand has consistently outstripped availability. The State 

had an installed capacity of more than 7,400 MW. Lack of any generation 

capacity additions in the State in the recent past has chiefly contributed to this 

dismal situation. While the demand has been witnessing robust growth over the 

years, the poor financial health of the State has not permitted it to contract 

more power from other States. The graph below indicates the peak and energy 

deficit position in the State: 

40% 

35% 

30% 

25% 

20% 

15% 

10% 

5% 

0% 

31% 

13.0% 

32% 

34% 

15.2% 14.9% 

Peak load deficit (%) Energy deficit 

27% 

12.4% 

81 

23% 23% 

15.0% 15.0% 

14% 

11.2% 

30% 

20.0% 

27% 

16.4% 

1995-96 1996-97 1997-98 1998-99 1999-2000 2000-01 2001-02 2002-03 2003-04 

Operational Performance in Generation: It is evident from the graphic 

below that from the year 1999-2000, no capacity addition has taken place in the 

State. The State has in fact, lost installed hydel capacity of about 1,000 MW to 

Uttaranchal, consequent to its formation as a separate State in the year 2000. 

Similarly, the State has transferred 440 MW of generating capacity of Tanda 

Thermal Power Station to NTPC in 2001-02. In the past, the State has not put 

in place any compensating capacity addition programme to restore the demandsupply 

balance. This has resulted in deterioration of power supply to 

consumers.

MW 

5000 

4000 

3000 

2000 

1000 

0 

Thermal and Hydel installed capacity in UP 

1995- 

96 

1996- 

97 

1997- 

98 

1998- 

99 



1999- 

2000 

82 

2000- 

01 

Hydel Thermal 

2001- 

02 

2002- 

03 

2003- 

04 

It is, however, heartening to note that plans now are afoot to install new 

generating capacity in the State to remedy the prevailing situation of demandsupply 

deficit. Anpara-C (1,000 MW) Thermal Power Project has been 

awarded to M/s LANCO Power on the basis of competitive bidding. M/s 

Reliance Energy has also proposed a gas-based station at Dadri in excess of 

3,500 MW with considerable share for Uttar Pradesh. The State has also started 

to receive its part-share from the Tehri Hydel station being developed in the 

joint sector. However, the new capacities in the State would only be realised 

towards the end of the Eleventh Plan and the State is likely to face considerable 

strain in supply till that period. The State also needs to ensure that the proposed 

capacity additions get off the ground to the implementation stage at the earliest 

possible. 

UPRVUNL has made initiatives to improve operating perfromance levels at the 

existing generating stations during the post-reform period as shown in the table 

below: 

Table: Improvements in Operating Performance Levels: Generating Stations 

Particulars 95-96 96-97 97-98 98-99 99-00 00-01 01-02 02-03 03-04 

PLF (%) 47.48 49.24 49.13 49.14 50.55 57.19 59.76 61.18 60.13 

Oil Consump- 

4.98 3.86 4.51 5.89 5.3 2.69 2.3 2.24 2.07 

tion (ml/kWh) 

Auxiliary Con- 

sumption (%) 

Plant 

Availability (%) 

9.64 9.75 10.22 9.86 10.36 10.31 10.23 10.31 10.22 

64.89 72.07 74.03 73.28



After restructuring, there is a consistent improvement in PLF of the thermal 

power generating plants. During the period 1999-2000 to 2003-04 the PLF has 

increased by 10 percentage points. The specific oil consumption has also fallen 

sharply during the post-reform period and is close to the CERC approved norm 

of 2 ml/kWh. The plant availability has improved to 73.28 per cent in 2003-04 

from 64.89 per cent in the first year of restructuring (2000-01). However, there 

is a scope for reduction in respect of auxiliary consumption. The present level 

of auxiliary consumption of 10.3 per cent is certainly on the higher side in 

comparison to the CERC norm of 9 per cent. 

The investments made on Renovation and Modernisation (R&M) of the 

existing plants are presently very low despite the considerable potential of 

these plants which could contribute towards reducing the energy deficit in the 

State. Till date, only about Rs 200 crore have been spent during the post- 

restructuring period upto 2004-05 on R&M of the ageing plants due to the 

persistent cash-crunch in the State. 

Investment in Transmission and Distribution : No focussed initiatives have 

been taken to improve transmission infrastructure through investments, to 

augment quality of supply and reduction of losses. The pace of investments in 

transmission has in fact, slowed down after 2000-01. It has, however, fared 

better in terms of improvement of tranformation capacity at grid sub-stations 

and has been able to sustain the growth momentum during the postrestructuring 

period, as shown in the graphic below: 

Transformation Capacity 

(MVA) 

35000 

30000 

25000 

20000 

15000 

10000 

5000 

0 

FY 

1995 

FY 

1996 

FY 

1997 

FY 

1998 

FY 

1999 

83 

FY 

2000 

FY 

2001 

FY 

2002 

FY 

2003 

Transformer Capacity Yearly growth 

FY 

2004 

12.0% 

10.0% 

8.0% 

6.0% 

4.0% 

2.0% 

0.0% 

Growth %



There has also been no noticeable growth in the 11 kV and LT network reach 

and capacity, while the load and number of consumers have been growing 

consistently during this period. Consequently, this has adversely impacted the 

quality of supply and service to the consumers. 

There has been inadequacy in the reactive compensation in transmission system 

of UPPCL. The situation regarding transformation capacity and available 

reactive compensation (at the end of 2004-05 is as under): 

Aggregate secondary transformation 

capacity 

12,000 MVA (approx.) 


Installed capacity of capacitor banks 4,501 MVAR 

Capacitors in working order 

3,309 MVAR i.e. about 73 per cent of 

the installed capacity. 

Such a highly under-compensated system not only leads to low power factor 

and low voltage but it also puts additional strain on the system. 

Consumer Metering: At the retail consumers’ level, out of a total of 8.2 

million consumer connections, only 4.6 million (about 56%) are metered at 

present. Metering in the agricultural sector is almost negligible and in the 

domestic sector, it is about 50 per cent. In view of this, it is clear that the 

figures of consumption and consequently loss figures are not realistic. This has 

also led to considerable difference of opinion between UPERC and the Utility 

on the assessment of unmetered consumption and consequently, the distribution 

losses. UPERC has been consistently restating the level of losses in the State on 

account of its approved norms for the unmetered consumption. 

Rural Electrification: As per the data available with the Ministry of Power, 42 

per cent of the villages of the State are yet to be electrified. Further, the access 

of electricity to rural households, as per 2001 Census, is at a dismal 19.84 per 

cent against a national average of more than 40 per cent. The State sector has 

however taken initiatives recently to improve rural distribution infrastructure 

under the RGGVY. However, with considerable prevailing capacity shortages 

even to meet the deficit in the urban areas, merely extending the electricity 

lines to rural areas would not address the problem. The State would also need 

to encourage the setting up of various generation schemes to derive real 

benefits of these investments. 

84



Losses: Transmission losses are being maintained between 5-6 per cent and are 

comparable to that of Utilities in other States. Distribution losses still remain a 

significant area of concern and account for loss of more than 30 per cent of the 

electricity available. The AT&C loss level, standing at more than 50 per cent 

during early reform years, has come down to about 40 per cent as per the 

Utility data. This aspect would indicate considerably good performance on the 

part of the DISCOMs if the same is also ratified by UPERC. 

The collection efficiency statistics for the State is indicated in the table below. 

It would be seen that the collection levels have gone down even further during 

the post-reform period: 

Particulars 

Table: Billing and Collection Scenario 

1998- 

99 

85 

(Rs crore) 

1999-2000 2000-01 2001-02 2002-03 

Government 590.43 

Billing 

645.71 677.88 785.27 804.34 

Non Government 4,462.06 4,953.73 5,355.74 5,911.25 5,730.16 

Total Billing 5,052.49 5,599.44 

Collection 

6,033.62 6,696.52 6,534.50 

Government 435.6 334.69 592.84 331.58 418.36 

Non Government 3,889.20 4,259.79 4,484.22 4,909.07 4,679.43 

Total Collections 4,324.80 4,594.48 5,077.06 5,240.65 5,097.79 


Government 73.78 51.83 87.46 42.22 52.01 

Non-Government 87.16 85.99 83.73 83.25 81.66 

Overall Collection 

Efficiency 

85.60 82.05 84.15 78.26 78.01 

Excessive Government interference in organisational and operational matters 

has often undermined least cost procurement, led to unwise investment 

decisions, prevented tariffs from being raised to an efficient level, and 

promoted excessive staffing. These shortcomings, combined with weak 

planning and demand forecasting, inefficient running of operations, low 

emphasis on maintenance and poor financial monitoring and control, have led 

to high losses and poor revenue collection. 

The trend of AT&C losses is indicated in the graphic below and shows a 

downward trend. There has been considerable reduction during 2003-04,



which indicates good performance by the DISCOMs. However, the 

sustainability of this performance during the ensuing years needs to be seen 

before commending the companies for their performance. 

60 

50 

40 

30 

20 

10 

0 

AT&C loss (%) 

2000-01 2001-02 2002-03 2003-04 

Financial position : The subsidy support from the State Government has been 

maintained at below Rs 1,000 crore due to its financial constraints, while the 

need for subsidy has been mounting in the wake of increased consumption 

from the subsidised categories. The arrears and bad debt position for the Utility 

is indicated in the graphic below. It may be noticed that the outstanding 

receivables and bad debt situation has started to rise again in the sector despite 

massive write-offs undertaken during the restructuring process. 

Table:Arrears/Bad Debt Position : 1995-96 to 2003-04 

Particulars 1995- 1996- 1997- 1998- 1999- 

(Rs Crore) 

2000- 2001- 2002- 2003- 

96 97 98 99 2000 01 02 03 04 

Arrears 2389 3010 3737 4742 5699 7155 7541 6321 7272 

Bad Debt 16160 18346 20525 22805 25810 2994 3385 4754 3400 

30000 

25000 

20000 

15000 

10000 

5000 

0 

Arrears and Bad debt position of UPPCL 

1995- 

96 

1996- 

97 

1997- 

98 

1998- 

99 

86 

1999- 

2000 

2000- 

01 

2001- 

02 

2002- 

03 

Arrears (Rs Crore) Bad Debt (Rs Crore) 

2003- 

04



An analysis of the arrears position indicates that the Government departments 

also account for a considerable part of these receivables.. The cash gap in the 

system is leading to accumulation of losses in the books of the Utilities. The 

losses for 2003-04 stood at about Rs 1,700 crore as against Rs 132 crore 

during 2000-01, which reveals a worsening situation of the Utilities. 

7.5 Way forward and Recommendations 

Considering the prevailing situation in the State, the following 

recommendations are made: 

Independence of Operations: Most of the restructured entities are still being 

headed by a common Chairman, Director (Finance), etc. This has considerably 

negated the benefit of restructuring to the individual companies and the 

situation is no better than that of the erstwhile UPSEB. The State Government 

should ensure that these Utilities have an independent functioning and follow 

the principle of one-man-one-post to foster a competitive environment in 

operations and facilitate the benefits accruing from restructuring and reforms to 

percolate down to the consumers. 

Capacity Building: The State Government also need to ensure that the 

individual entities also have the right institutional arrangements, which 

promote efficiency and improvement both in terms of cost reduction and 

increase in collection. The Corporations need substantial institutional 

strengthening and operational planning. They lack trained technical, financial 

and managerial manpower at all levels. It is, therefore, extremely important that 

the Government assists these Corporations in quickly strengthening the 

management structure and enable independent operations. 

Energy Accounting: A robust energy audit measurement infrastructure 

considerably assists in pinpointing the problem areas in distribution and 

increasing accountability. Consumer indexing and feeder level monitoring of 

supplies is a critical part of this efficiency chain. Considerable financial 

assistance is available from the Central Government in the form of APDRP 

loans and grants to improve the energy audit system of distribution Utilities. 

Collections from Government Department/Institutions: The problem of 

mounting arrears in the books of the DISCOMs is an area of concern. The 

heavy electricity dues from the State Government Departments/Institutions are 

also leading to the poor financial health of the DISCOMs. The low collection 

87



levels, coupled with the high level of T&D losses is pushing the State power 

sector into a severe financial crisis, so much so, that the companies are unable 

to pay for adequate power purchased from Central Utilities and State 

generation entities. This, in turn, is leading to financial un-viability of the 

generation sector as well. Hence, the State Government needs to institute 

requisite mechanisms to ensure timely settlement of these dues. 

Augmentation of Supply: The State is facing a severe supply shortage. The 

quality of supply throughout the State is extremely erratic and pitiful. The poor 

supply situation is adversely affecting industrial and commercial growth in the 

State, and in turn, hampering economic development of the State. The State 

needs to augment its generation capacity urgently, to improve the supply 

position. This is even more vital in view of the State taking considerable 

initiatives in creating a rural distribution infrastructure under the RGGVY. The 

benefits of investments made under the RGGVY would not be visible until 

there is adequate power in the system to cater to the increased demand in the 

State from the newly electrified rural areas. PPA in respect of 1,000 MW 

Anpara-C Expansion Project has recently been signed with M/s LANCO 

Power. There are also talks of considerable capacity creation by M/s Reliance 

Energy Limited in the State. The State needs to ensure that such capacity 

creation gets off the ground at the earliest possible to meet the National plan 

target of power for all by 2012. 

88

CHAPTER - 8 

ASSAM 

8.1 BACKGROUND, OBJECTIVES AND FACTORS LEADING TO 

REFORMS 

Assam has an area of 78438 sq km with a population of about 2.66 crore. The 

State is largely agrarian with 87 per cent of its population residing in rural areas 

and about 63 per cent engaged in agricultural activities and on tea plantation. 

The population is spread over a large geographical area. 

The Assam State Electricity Board (ASEB) was established in 1958 under the 

Electricity (Supply) Act, 1948. The power sector has grown on the State’s 

natural resources of oil, natural gas, and hydropower in the northeast. It has 

been facing problems of inadequate capacity, inadequate investments and 

operational problems due to poor maintenance and lack of fuel leading to poor 

delivery of electricity service to about one million consumers. 

The installed generating capacity of ASEB is 575 MW, out of which 300 MW 

is thermal, 273 gas based and 2 MW hydel. However, effective capacity is 

about 150 MW and operational capacity is 100 MW only. Assam has, however, 

a share of 546 MW in the central power stations owned by NEEPCO and 

NHPC. The AT&C losses in the ASEB system were about 45 per cent in 2004- 

05. The electricity distribution system is over-extended. The transmission loss 

was about 9 per cent and the system does not have sufficient capability to meet 

ASEB’s demand though it has a network of 4,129 ckt km. Strategic 

transmission links had to be developed to avail of the energy from the Central 

Sector generation projects coming up in the region. Energy available was 3,302 

MU and sold was 2,037 MU. Losses of the Board, without subsidy, were Rs 

1,088 crore in 2004-05. Net worth has been eroded and is in negative at Rs 

3,584 crore. 

ASEB has not been able to meet its operational requirements due to high 

losses, poor bill collection and un-remunerative tariffs, resulting in poor 

creditworthiness. The continuing cash shortfall has led to insufficient and 

inadequate maintenance of the existing system. The State’s budgetary resources 

were no longer available to support the operation of the power sector as 

hitherto.



In the above background, the State Government realised that the process of 

reform would require restructuring of the power sector and should involve a 

long-term commitment to the reform process. In January 2003, Government of 

Assam announced a power policy for reform and restructuring of power sector 

in the State. 

8.2 OBJECTIVES 

The power policy, brought out by the Government of Assam, has the following 

objectives, among others: 

(i) To enable supply of electricity in an efficient and cost-effective manner to 

various consumers; 

(ii) To restore the financial viability of the State power sector without 

burdening the State budget; 

(iii) To provide accountability and responsibility for all entities through 

corporatisation; 

(iv) To set-up an independent Regulator to determine commercially viable 

tariff structure in a transparent manner; and 

(v) To enable private investment in the sector and promote competition for 

efficiency. 

A general strategy of how these objectives were to be achieved was also clearly 

stated in the policy. Restructuring of ASEB was to be done with functional 

specialisation. In the transition period, these restructured entities were to 

function under a holding company. The new entities were to be incorporated 

under the Companies Act, 1956. Financial restructuring of the present structure 

was to be done and a transfer scheme enabling transfer of assets and liabilities 

of the ASEB to new successor entities done in a manner so that the companies 

become financially viable. The policy went into some important details of 

financial restructuring under which accumulated losses of ASEB were to be 

set-off against Government’s equity and loans. Provision was also made for 

unfunded liabilities relating to pensionary and other retirement dues of the 

staff. A single-member Regulatory Commission was set-up in 2001 under the 

Electricity Regulatory Commissions (ERC) Act, 1998 and was made a fullfledged 

multi-member Commission subsequently. 

90



The Assam Electricity Bill to provide for restructuring of the power sector was 

passed by the Assam Legislature but was not enacted since the EA, 2003 came 

into effect in June 2003. 

The Government of Assam had sought the assistance of ADB to address the 

major issues of the power sector. In the wake of the Policy for Reform, issued 

in January 2003, a team from the ADB held discussions in August/September 

2003 for the loan appraisal of Assam Power Sector Development Programme 

and recommended a loan of US$ 250 million with a component of $150 million 

for restructuring and US$ 100 million for project component of transmission 

and distribution system strengthening and also ‘technical assistance’ of $1.5 

million for the cost of consultants. ADB loan was sanctioned on 11 December 

2003 and the first tranche of US$ 90 million was released on 12 December 

2003 and the second tranche of US$ 60 million, on 28 June 2005. 

On 30 September 2003, the Government of Assam approved the new power 

sector structure of the formation of the following five companies: 

(a) Assam Power Generation Corporation Limited (APGCL) 

(b) Assam Electricity Grid Corporation Limited (AEGCL) 

(c) Upper Assam Electricity Distribution Corporation Limited (UAEDCL) 

(d) Lower Assam Electricity Distribution Corporation Limited (LAEDCL) 

(e) Central Assam Electricity Distribution Corporation Limited (CAEDCL). 

These companies were incorporated under the Companies Act, 1956 on 23 

October 2003. The Financial Reconstruction Plan (FRP) Order was issued by 

the Government of Assam on 28 October 2003, indicating how the crossliabilities 

between the Government of Assam and ASEB would be settled. An 

MOU was signed between the Government of Assam and ASEB in November 

2003. The financial adjustments were as follows: 

• Amounts owed to ASEB by Government of Assam: Rs 5,389 crore 

• Amounts owed by ASEB to Government of Assam: Rs 4,560 crore 

The Government of Assam agreed to provide for the cash deficit of the 

successor companies in the transition period of the order of Rs 338 crore, 

including Rs 103 crore for 2003-04. A key event in the restructuring process 

was the issue of Assam Electricity Reforms First Transfer Scheme, 2004 on 10 

91



December 2004, vesting of properties, etc., from ASEB to the State 

Government and re-vesting the same in the new companies, and transfer of 

personnel. The opening balance sheets of the five companies were attached to 

the Transfer Scheme order. 

Key stakeholders in the reform process were staff, engineers and their unions 

and associations. A Tripartite Agreement between Government of Assam, 

ASEB and the recognised unions was signed on 9 December 2004. On 31 

March 2005, all the existing employees, who had given option, were 

transferred to the five new companies. Managing Directors of the new 

companies were appointed in February 2005. It was a vital step in which the 

willingness and positive response of the employees was obtained. There was an 

assurance there would be no retrenchment; terms and conditions on transfer to 

new companies would not be inferior to their existing conditions and payment 

in respect of pension and retirement benefits committed. The Government took 

over the unfunded liabilities of terminal benefits and GPF of about Rs 1,470 

crore on its net present value. 

ASEB functioned like a holding company and its chairman was the chairman of 

the new companies also. It made bulk purchases of electricity from outside 

Assam as well as from APGCL and supplied to DISCOMs. 

The Government of Assam constituted the multi-member Commission with a 

chairman and two members in February 2005. 

8.3 CURRENT STATUS 

The restructured entities are in a period of transition and 2005-06 was really the 

first year of their independent operation. The commercial and financial 

functions have not yet become independent due to shortage of qualified 

personnel. There is a common head of the accounts department. Tariff 

submissions to the Regulatory Commission had been mostly made with the 

help of consultants. 

The companies have prepared their plans for capacity addition, in generation, 

transmission and augmentation in distribution areas. R&M scheme financed by 

PFC of Lakwa (Units 2 and 5) and Namrup TPS (Units 3 and 4) may add a 

capacity of 93 MW in about a year’s time. Assam has a share of 300 MW in the 

500 MW Bongaigaon TPS of NTPC expected in Eleventh Plan. 

92



In 2004-05, the energy available for transmission was 3,431 MU and that 

delivered was and 3,137 MU. These figures represent the best performance in 

terms of energy handled over the years. Investments of Rs 36.43 crore (2004- 

05) and Rs 70.38 crore (2005-06) were, made in strengthening the transmission 

system. These were substantially higher than those made in any of the past 

years. An amount of Rs 171.55 crore has been utilised under APDRP. 

However, there has not been any noticeable impact on reduction of AT&C 

losses. For the financial commitments made in FRP, Government of Assam has 

made the following payments/provision: 

Year 

Commitments Made in FRP 

Amount 

2003-04 Rs 141 crore (against defaulted bonds) 

2004-05 Rs 529 crore 

2005-06 Rs 372.62 crore (provision made) 

AERC has issued four tariff orders up to 2005-06. Modest increases have been 

allowed in tariffs. The Commission has been functioning independently 

without any interference. The companies have filed petitions for 2006-07 but 

the decision was held back because of the State Assembly Elections. MYT is 

being considered. The Commission has notified 16 Regulations under the EA, 

2003. 

Most of the officers and staff in the Commission are on deputation from ASEB. 

About 1.6 lakh BPL category consumers have been given subsidy. Crosssubsidy 

still exists. AERC has come out with regulations allowing Open 

Access in distribution system to be completed in a phased manner. ABT is yet 

to be introduced. 

8.4 SPECIAL FEATURES OF THE REFORM PROCESS 

Assam was the first State, in which the Electricity Board was restructured after 

the enactment of the EA, 2003 in June 2003. A lot of preparatory work had 

been done by analysing the problem of the State’s power sector and 

announcing a power policy on Reforms and Restructuring in January 2003. A 

clear road map was laid out in the policy. Financial assistance of US$ 250 

million from the ADB became a key factor in clearing up the books of ASEB 

and starting the new companies. Consultants, appointed from the special 

financial assistance of ADB, helped in designing the financial projections of 

the new companies and preparing the opening balance sheets. M/S P.A. 

93



Consultancy International, M/s PricewaterhouseCoopers, M/s SMEC of 

Australia in association with M/s TCS had been involved in the management 

structures, training of personnel, human resources assessment and accounting 

and financial support of the new companies. 

Cross-liabilities between Government of Assam and ASEB were settled 

through a Financial Restructuring Plan and the Government fulfilled its 

commitments. The Government also took a policy decision for taking over the 

unfunded liabilities of terminal benefits and GPF. The Government also 

realised the importance of involving the unions and staff associations in the 

restructuring process and a Tripartite Agreement was signed in December 

2004. The concerns of the employees were taken care of. Restructuring was 

implemented very methodically without any major hitches. ASEB was retained 

as a holding company in the transition period for trading of power to be 

supplied to the DISCOMs and giving support to the newly formed companies. 


A study of the reforms and the restructuring gone through by Assam brings out 

the following key points: 

(a) A strong political commitment to carry through the process of reforms is 

the primary driver for initiating and completing the process; 

(b) A road map of the reform and restructuring in the form of policy, 

objectives, strategy and proposed steps including financial restructuring 

is necessary to give a clear vision as to how the various reforms 

processes have to be taken up; 

(c) If the new entities have to be financially viable, they should be enabled 

to start on a clean slate; 

(d) Funding needs to be provided for the cross-liabilities between SEB and 

the Government with a clear provision of how the shortfall in the initial 

years of operation will be met; 

(e) Dialogue and agreements with the employees’ unions and engineers’ 

associations needs to be done carefully so that the employees become 

willing partners in the reform process. 

(f) The expertise, experience and advice of competent consultants, 

particularly in the areas of corporatisation, organisational set-up, 

94



training of staff and financial and accounting activities can be of great 

help in setting up the new processes. 

(g) Funding from international institutions like World Bank, ADB, etc., can 

assist the State Utilities in meeting the needed investments in the areas 

of transmission and distribution. The rigorous examination and laying 

down the series of steps to be taken would also bind the Utilities in 

concrete terms to the targets to be achieved. 

(h) The number of consumers in Assam is about one million and there are 

over 17,000 employees. Employees - consumers ratio is 1:57. The 

number of DISCOMs and other restructured entities is five against the 

single integrated SEB in the pre-reform period. There is shortage of 

technical and qualified staff for many new positions to be manned 

particularly in finance, commercial and HR functions. The justification 

for creating three DISCOMs may be reviewed and combined into one or 

two DISCOMs. This will reduce the administrative difficulties in 

manning the new companies. 

(i) Loss estimation and loss reduction is a key area for the DISCOMs. As a 

pilot study is being done by the consultants M/s, 

PricewaterhouseCoopers, the staff of the DISCOMs could be 

extensively involved in the above exercise and imparted training in 

segregating technical and commercial losses as well as investigating 

causes for commercial losses. 

(j) The restructuring experience is unique in any organisation. It is, 

therefore, important that the top personnel in the Government as well as 

in the Utilities level are not shifted too frequently and are retained for a 

reasonable period in their positions so that there is stability in the 

process. The independence in their functioning is to be respected. The 

Government need not expect quick results in the post-reform period. On 

the other hand, mechanisms need to be designed to hold the hands of 

those who are venturing in the new path of accountability and resultoriented 

performance. 

(k) Experience of Assam has shown that the schemes of franchisees in rural 

electrification can take off, creating more revenues and employment 

opportunities. 

95


CHAPTER - 9 

GUJARAT 

Till the year 1998, Gujarat Electricity Board (GEB) was a profit making SEB 

and one of the better run Boards in the country. It had made significant 

progress in setting up of 4,861MW generating capacity comprising of thermal, 

gas and hydro stations owned by GEB and Gujarat Electricity Generating 

Company and extensive T&D network covering the entire State. Gujarat 

ranked high among the highly industrialised States in the country. One of the 

important contributing factors for this achievement was the comfortable power 

supply position in the State. 


From the year 1998 onwards however, due to various circumstances, some 

beyond the control of GEB, it started incurring losses year after year and the 

total losses reached a staggering figure of Rs 6,233 crore by the end of 2002- 

03. It became clear to the Government of Gujarat and GEB that such huge loss 

levels were unsustainable. The quality of power supply and customer 

satisfaction levels had also gone down. To remedy this situation, it became 

necessary to restructure the GEB and to achieve turnaround of the electricity 

sector in the State and ensure its sustainability. 

9.3 OBJECTIVES OF REFORM 

The main objective of reforms was to meet the growing demand of electricity 

in the State and improve the quality of supply in an efficient and cost effective 

manner by improving the financial health of the GEB and the standard of 

service to consumers 

9.4 Methodology Adopted 

Introduction 

Way back in the 1990s, the erstwhile GEB had realised that it would become 

more and more difficult for it to generate funds required for its expansion plans 

nor could it depend totally on the Government of Gujarat and that it would be 

necessary to source the required funds from the market. It was clear that for 

this purpose, it would be necessary to create suitable corporate structures as a



first step. With this in view, a generating company named ‘Gujarat State 

Electricity Corporation Limited’ (GSECL) was incorporated by GEB in August 

1993 under the Companies Act, 1956. To start with, construction of GEB’s 

Wanakbori Unit No 7 and Gandhinagar Unit No. 5 was taken over by this 

company. The company could raise around Rs 800 crore from the market. The 

company was able to repay all its debts and became a profit-making company. 

The assets/liabilities of the remaining generating stations of the GEB were 

transferred to this company after the restructuring of GEB. 

Thereafter, as a part of an agreement reached with the Asian Development 

Bank (ADB), while negotiating the Gujarat Power Sector Development 

Programme Loan, in May 1999, Government of Gujarat incorporated ‘Gujarat 

Energy Transmission Corporation Limited (GETCL) under the Companies Act, 

1956. Unlike GSECL, GETCL did not have any assets transferred to it from 

GEB at the time of incorporation. GETCL has acquired all assets/liabilities of 

GEB pertaining to transmission, only after restructuring of GEB. 

From the above, it would be noted that corporate structures for generation of 

electricity and for transmission of energy were in place for quite some time 

even before GEB was restructured. 


The major events associated with the restructuring process are noted below. 

Besides these, a number of supporting actions were taken by Government of 

Gujarat and GEB to ensure that the programme of restructuring of GEB was 

carried out smoothly without any obstructions. 

Promulgation of Gujarat Electricity Industry (Reorganisation & 

Regulation) Act 2003 

May 2003 

Government of Gujarat directs GEB to form Four DISCOMs August 2003 

Signing of Tripartite Agreement between Government of Gujarat, GEB 

and six recognised Unions and Associations in GEB 

October 2003 

Government of Gujarat notifies Scheme of Transfer of Assets to 

GSECL, GETCL, Four DISCOMs and the Residual GEB 

October 2003 

FRP submitted to Government of Gujarat. A new Company named December 

‘Gujarat Urja Vikas Nigam Ltd’ (GUVNL) was formed and provisional 2004 to 

opening balance sheets of all companies notified. 

March 2005 

Formation of Committee for FRP and operationalisation of companies April 2005 

Government of Gujarat approves the FRP 

December 

2005 

Government of Gujarat notifies the final balance sheets of all the 

companies 

May 2006 

98



In achieving the above schedule, the role of Government of Gujarat/GEB was 

very positive and proactive. The important milestones, as well as other 

important supporting actions taken in the intervening period, are explained 

below: 

9.5 Promulgation of Gujarat Electricity Industry (Reorganisation and 

Regulation) Act, 2003 

On 12 May 2003, Government of Gujarat promulgated the Gujarat Electricity 

Industry (Reorganisation and Regulation) Act, 2003, which, inter-alia, paved 

the way for the Government of Gujarat to restructure the GEB. Specific 

provisions relating to staff welfare issues, after their transfer, were incorporated 

in the Act. These included emoluments, continuation of services and benefits of 

accrued services after the transfer. Within three months of the promulgation of 

the Act, Government of Gujarat ordered formation of four DISCOMs under the 

Companies Act, 1956 to take over the electricity distribution activities in the 

State. 

9.6 Signing of Tripartite Agreement 

The most noteworthy feature of the exercise is the total and active support GEB 

could muster from its staff for its restructuring. With reform agenda of 

Government of Gujarat and the enactment of Gujarat Electricity Industry 

(Reorganisation and Regulation) Act, 2003, Unions and Associations in GEB 

expressed apprehensions that if their services were privatised, there would be 

an adverse impact on their service conditions, and likely retrenchments, 

resulting in loss of employment. Government of Gujarat/GEB had, from time 

to time, declared that such apprehensions were unfounded. However, with a 

view to ensure smooth implementation of the policy and allay fears of the 

employees, in the early stages of restructuring (in October 2003), Government 

of Gujarat, GEB and six recognised unions and associations of GEB signed a 

Tripartite Agreement which addressed the concerns of the staff to their 

satisfaction. This resulted in active participation of the staff in the restructuring 

process. The Tripartite Agreement is the cornerstone of smooth and seamless 

transformation of GEB into seven distinct corporate entities 

Effective Communication Strategy 

GEB adopted an effective communication strategy in reaching all employees 

and making them aware of the need for reforming the sector, aims and 

99



objectives of the reforms, efficiency improvement agenda, etc. The Chairman 

sent a personal communication to all employees highlighting related issues and 

the importance of their whole-hearted and active participation in the process. A 

set of champions and trainers were created from amongst the staff to spread the 

message to their colleagues. Structured meetings were held with 

unions/associations regularly to sort out misunderstandings, if any. These 

efforts also helped in no small measure in the smooth restructuring of GEB. 

9.7 CURRENT STATUS OF RESTRUCTURING 

The assets of the erstwhile GEB were transferred to six companies, namely: 

Gujarat Electricity Generation Corporation Limited (for all generating station 

assets), Gujarat Energy Transmission Corporation Limited (for all transmission 

assets), and four DISCOMs: Dakshin Gujarat Vij Company Limited (DGVCL), 

Madhya Gujarat Vij Company Limited (MGVCL), Paschim Gujarat Vij 

Company Limited (PGVCL) and Uttar Gujarat Vij Company Limited 

(UGVCL). 

As per the initial transfer scheme, the residual GEB was to retain certain 

functions in respect of bulk purchase of electricity and sale to DISCOMs, 

residual assets pertaining to Load Despatch Centre and those that had remained 

after the transfer to other entities. Since trading of electricity is a licensed 

activity under the EA, 2003, it became necessary to transfer this function from 

the residual GEB to a corporate entity. Therefore, in December 2004, 

Government of Gujarat decided to establish a new company under the 

Companies Act, 1956 with the name ‘Gujarat Urja Vikas Nigam Limited’ 

(GUVNL) and transfer all functions/assets, earlier proposed to be kept with the 

residual GEB, except the assets pertaining to Load Despatch Centre, which 

were transferred to GETCL in the meantime. 

9.8 FORMULATION OF FINANCIAL RESTRUCTURING PLAN 

The Financial Restructuring Plan (FRP) is one of the most important 

components of the reform agenda. It defines a detailed road map for the 

successor entities in their effort in achieving turnaround in the period till the 

year 2011 with improvements in their efficiency parameters and support from 

Government of Gujarat in subsidies and capital infusion. 

The commitments from Government of Gujarat for the period 2006 to 2011 

translate into: 

100

Item Amount Remarks 

A total Revenue support Rs 9,498 crore 

A total Capital support Rs 5,854 crore 

Total Rs 15,352 crore 



101 

An average of Rs 2,558 

crore per year. 

The restructured entities have to improve their efficiency parameters like 

reduction in power purchase costs, fuel costs, general purchase costs, interest 

costs, aggressive reduction in T&D losses, and improvement in generation 

efficiency, etc. It is proposed to bring down T&D losses from 29.79 to 18.5 per 

cent and improve overall generation efficiency from 72 to 76 per cent. These 

measures are expected to lead to savings of Rs 10,909 crore for the above 

period i.e average Rs 1,818 crore per year. 

The FRP was approved by Government of Gujarat in December 2005. 

Government of Gujarat has approved the final opening balance sheets of the 

restructured companies as on 1 April 2005 and the companies have become 

fully operational from this date. The companies have prepared their Long- 

Term Business Plans and have started showing reductions in their operational 

and other costs besides improvement in performance parameters. All the 

companies have submitted their respective ARRs. These have been approved 

by the GERC for the year 2006-07. Reputed professionals from outside have 

been appointed as independent directors on GSECL and GETCL. Similar 

action in respect of other Companies is under way. 

9.9 Initiatives in Information Technology 

e-Urja Project 

e-urja, an end-to-end ERP based IT solution, is one of the major IT initiatives 

in the power sector being pursued by the State Government. This project 

envisages substantial reduction in paper work through online documentation 

and approval process. Initially the project has been taken up as a pilot project, 

and later on the same is to be extended to other locations. 

The benefits likely to accrue are: 

• Integrated system covering major areas of each of the companies; 

• Streamlined and improved business processes; 

• On-time accurate MIS;

• Workflow based approvals and notifications; and 

• Centralised Database- single source of truth 




After the decision to restructure the sector was taken at political level, the 

Government of Gujarat and GEB took a number of proactive decisions, 

followed by timely supporting actions, to ensure a smooth make over from a 

large monolithic vertically integrated organisation of GEB into seven distinct 

corporate entities. The staff actively supported the process. The efforts of the 

entire staff in the intervening period from the decision to restructure and actual 

restructuring continued to remain productive. If one were to summarise the 

restructuring exercise followed by Government of Gujarat/GEB, with full and 

active support of GEB’s staff, in one word, it would be ‘harmony’. It is an 

object lesson, worthy of emulation by other SEBs who are either in the process 

of restructuring their SEBs or yet to commence the exercise. 

The important lesson learnt from the restructuring of GEB is that it requires a 

great deal of commitment from the political level, the State Government, the 

SEB and the staff to achieve success. 

9.11 UNIQUE FEATURE OF THE REFORM PROCESS 

The most noteworthy feature of this exercise was the immediate inclusion of 

representatives of the unions and associations of the staff in the restructuring 

process, right from initial stage after deciding on reforming the sector. The 

signing of a Tripartite Agreement between Government of Gujarat, GEB and 

six recognised unions and associations of GEB convinced the staff that 

Government of Gujarat/GEB management were not pursuing any hidden 

agenda. This helped to build high trust and confidence about the aims and 

objectives of reforms and the process proposed to be followed to achieve these. 

The subsequent actions in respect of dealing with requests of employees have 

confirmed that the faith of the employees in the management was not 

misplaced as can be noted from the fact that in deciding requests for permanent 

absorption, more than 95 per cent cases were decided as per the choice of the 

employees. 

The communication strategy adopted by GEB has also greatly contributed to 

the success of the process. Finalisation of a FRP, detailing support of the State 

102



Government, as well as the improvement targets to be achieved by the 

restructured companies, over a long-term period, has also been a unique feature 

of the reform process. 

9.12 WAY FORWARD 

GUVNL’s functions of purchasing bulk power from the generating companies 

and selling in bulk to the DISCOMs at differential tariff, arranging loans from 

the market for other restructured companies, and coordination on behalf of 

these companies with the State Government could leave little room for 

individual companies in terms of operational freedom, deployment of 

innovative ideas, etc. Fortunately, GUVNL is aware of this possibility and has 

already signed separate individual agreements with each of the companies. 

However these structures need to be formalised on a long-term basis. Also, 

long-term agreements on similar lines of FRP need to be finalised with each 

company. 

GSECL has proposed to carry out Life Extension R&M works of about 1,860 

MW of generating capacity in the next six years which is almost equal to the 

proposed new capacity addition. Obtaining assured level of performance of 

these machines after R&M is extremely important from considerations of 

achieving expected savings in fuel costs agreed to in FRP. This aspect needs to 

be carefully looked into. 

GSECL will need to carefully mitigate risks of non-availability of the required 

quantity and quality of coal for its generating plants. In future, the company 

may be required to own and operate coalmines and coal washeries. Also, longterm 

contracts may have to be entered into for imported coal for running its 

stations. These aspects need to be looked into carefully and suitable actions 

taken in time. 

Presently, a large number of interconnection metering points have been 

identified for introducing ABT operation. This is because of a single 66 kV 

meshed network for the entire State and a number of 66 kV lines traversing 

between the areas of operation of individual DISCOMs needing provision of 

meters at interconnections. 

In order to simplify ABT operation, efforts should now be made to plan the 66 

kV network in such a manner that the interconnection of transmission lines 

103



between networks of different DISCOMs is only at voltages higher than 66 kV 

(i.e., 132 kV, 220 kV or 400 kV) and a single 66 kV meshed network in the 

State gets replaced by four individual 66 kV meshed networks each dedicated 

to the individual DISCOM. This will reduce the interconnection points and 

help simplify ABT operation. 


Completion of Jyoti Gram Yojana (JGY) has opened new opportunities to 

aggressively pursue energy accounting and energy audit to help reduce 

distribution losses. With exclusive feeders for serving agricultural loads, 

consumption of energy used by agricultural pumps will get metered at the 

feeder end and need no longer be assessed. As a result the distribution losses 

could be accurately worked out. 

Also, the consumption of energy per HP of connected load of agricultural 

pumps could be worked out correctly. HP based agricultural tariff could be 

innovatively designed in such a way that it is lower where the energy 

consumed is lower per HP of connected load and goes on increasing as the 

consumption increases. 

The load served by each agricultural feeder could be staggered in two or three 

groups and each group provided supply at a time. With this, the peak load and 

hence the losses on agricultural feeder could be reduced. This will lead to 

reduced kWh/HP of connected load on the feeder and consequent reduction of 

tariff to agricultural consumers. Participation of agricultural consumers in such 

programmes could be developed on similar lines as in ‘Akshay Prakash Yojna’ 

in Maharashtra. 

Aggressive energy accounting could be resorted to by providing energy meters 

on DTs and taking concerted vigilance action in areas connected to DTs where 

losses are high. 

GUVNL could share its experience and help the restructured companies in 

other States as well as other SEBs in the country in setting up of the ‘e-Urja’ 

project. 

104

10.1 Background 

CHAPTER - 10 

MAHARASHTRA 

Till a decade back, Maharashtra was rated amongst the highly industrialised 

States in the country. One of the important contributing factors for this 

achievement was the comfortable power supply position in the State. With 

adequate generating capacity and extensive transmission and distribution 

(T&D) network, Maharashtra State Electricity Board (MSEB) not only 

provided 24 hours power supply to all consumers, but also assisted the needy 

neighbouring States. To meet the growing demand of electricity in the State, 

Government of Maharashtra and MSEB embarked on setting up of a largest 

private sector generating plant at Dabhol. From the beginning, it ran into a 

number of controversies and after commissioning of the first stage, the project 

was abandoned midway. A period of inaction in taking required steps to 

augment generating capacity followed. As a result, there was no significant 

generating capacity addition in the State during the period 2000-05 and the 

consumers had to face hardships due to load shedding. 

In the year 2002, the State had a total of 14,420 MW of installed generating 

capacity comprising of 9,771 MW of MSEB, 1,774 MW of Tata Power 

Company, 500 MW of BSES Limited (now Reliance Energy Limited) and the 

State’s share of 2,375 MW in the Central sector generating stations. Besides, 

captive generating plants in the State had a capacity of about 641 MW. 

Demand for electricity was continuously growing. Even though MSEB needed 

more funds for carrying out the expansion of the sector, financial assistance 

from the State Government was reducing year by year. For instance, this was 

38 per cent in 1992-93, which came down to 13 per cent in 2001-02 as a 

percentage of MSEB’s annual plan outlay. 

MSEB’s financial health had deteriorated considerably since its average sale 

price per kWh remained lower than its expenses by 51 paise in 1999-2000 and 

73 paise in 2000-01. Consequently, it suffered losses of Rs 1,681 crore and Rs 

2,842 crore respectively in these years. The T&D loss in MSEB stood at 39.4 

per cent and arrears of revenue were Rs 7,114 crore.




To rectify this situation, it was necessary to set up additional generating 

capacity and strengthen the T&D network to meet the anticipated growth in 

demand in the next ten years, requiring an estimated investment of over Rs 

30,475 crore. Considering the financial health of MSEB and the necessity of 

huge investments in the sector, it was clear that the State would have to 

approach the Central Government and FIs to provide necessary funds. 

Government of India had also taken the initiative to evolve a national 

consensus for reforms in the power sector. From the deliberations and decisions 

taken in the conferences of Chief Ministers of States, it had become clear that 

Central Government and FIs would be helping only those SEBs, which 

embarked on a reform agenda. It was thus clear that for sustaining growth of 

the power sector in the State and ensuring its financial viability, it was 

necessary to reform the sector. 

10.3 OBJECTIVES OF REFORM 

Government of Maharashtra decided to reform the electricity sector to meet the 

following objectives: 

(i) To promote development of an efficient, commercially viable and 

competitive power sector; 

(ii) To provide reliable quality and uninterrupted power supply at reasonable 

rates to all consumer categories; and 

(iii) To ensure that social and environmental aspects are fully taken into 

consideration. 

10.4 METHODOLOGY ADOPTED BY FOR REFORMS 

Government of Maharashtra had constituted the State Electricity Regulatory 

Commission in 1999. In February 2001, the State Government constituted an 

Energy Review Committee (ERC) to review the power situation in the State 

and suggest the broad future course for reforms of the power sector in the State. 

As a part of process of building consensus for reforms of MSEB, Government 

of Maharashtra decided to issue a White Paper on the proposed reforms in the 

power sector. In April 2002, Government of Maharashtra released 

advertisements in leading newspapers, inviting responses on three documents, 

106



namely ERC Report, Maharashtra Electricity Reform Report (draft) and 

Government of India’s Electricity Bill, 2001 for preparation of the White 

Paper. Officials from MSEB visited the States that had undertaken reforms and 

gave their suggestions. The Minister in-charge of Energy held wide-ranging 

discussions with various stakeholders. As a result of these efforts, the following 

options of reforms emerged: 

i) SEB to retain its existing identity with generation, transmission and 

distribution to be run as profit centres. 

ii) Corporatisation of MSEB without restructuring. 

iii) Restructuring and corporatisation of the reorganised entities of MSEB. 

iv) Restructuring and corporatisation of the reorganised entities of MSEB, 

followed by privatisation of distribution entities. 

Government of Maharashtra presented the White Paper in the State Legislature 

in August 2002. It highlighted the condition of the power sector in the State 

and the urgent need of reforming MSEB. It also spelt the Government’s 

strategy for reform in the power sector, aimed at meeting consumer interests 

while addressing concerns of the employees. Government of Maharashtra 

promised not to totally withdraw from the sector but to bring efficiencies in the 

sector to enable it to become self-sustaining. 

10.5 MEASURES OUTLINED IN THE WHITE PAPER 

The reform process proposed in the White Paper incorporated the following 

major elements: 

i) Internal Reforms: This included development of human resources, 

reduction of T&D losses, prevention of theft of electricity, energy audit 

and metering, demand side management, redressal of consumers’ 

complaints and improvement of consumer services; 

ii) Independent Regulatory Framework: Government should withdraw from 

regulation and operation of the power sector and eventually from the 

ownership of certain segments of the sector; 

iii) Restructuring of MSEB into generation, transmission and DISCOMs and 

establishment of a holding company (under the ownership of the State); 

iv) Continued Government support to poorer sections in rural areas; and 

107



v) Government to continue to extend fiscal support during the transition 

period, expected to be of five year duration, till the electricity sector 

became financially self-sustaining. 

Besides the above, the time frame for achieving certain key milestones in 

regard to legislative action, restructuring and efficiency improvement was 

indicated in the White Paper. Restructuring of MSEB was expected to be taken 

up in the year 2003. 

10.6 CURRENT STATUS OF RESTRUCTURING 

The above schedule for restructuring of MSEB, however, could not be adhered 

to. MSEB was subsequently restructured in June 2005 into four companies, 

which were incorporated under the Companies Act, 1956. These were: 

• A generating company: Maharashtra State Power Generation Company 

Limited (MAHAGENCO); 

• A transmission company: Maharashtra State Electricity Transmission 

Company Limited (MSETCL); 

• A distribution company: Maharashtra State Electricity Distribution 

Company Limited (MSEDCL); and 

• A holding company: MSEB Holding Company Limited holding 

Government’s equity in these three companies. 

The following was the chronology of events: 

October 2003 Government of Maharashtra appoints M/s 

PricewaterhouseCoopers (PwC) as reform consultants. 

PwC makes several presentations on various alternatives 

of industry structures to various stakeholders including 

MSEB, Government of Maharashtra, etc. 

September 2004 MERC advises on restructuring of MSEB. 

October 2004 MSEB forms an 18 member working group along with 

consultants to focus on restructuring requirements in 

different areas. 

January 2005 Maharashtra Cabinet decides on restructuring MSEB into 

four companies. 

June 2005 Government of Maharashtra restructures MSEB into four 

companies and notifies the Transfer Scheme. 

108



Restructuring has been done on the basis of a provisional Transfer Scheme 

wherein the valuation of assets is based on book value of assets. Government of 

Maharashtra’s Resolution of January 2005, states that the valuation of the 

assets of MSEB to be transferred to the companies should finally be based on 

revenue potential of the assets transferred. The assets would be revalued within 

a period of one year and this revaluation would be effective retrospectively 

from the date of transfer. The financial restructuring, after revaluation, was to 

be determined in such a manner that the consumers would face minimum 

increase in tariff. 


It is observed that as early as in 2002 (when the White Paper was published), 

the State Government was convinced about the need to reform the sector. This 

was much earlier to the promulgation of the EA, 2003. In spite of this, the 

restructuring of MSEB could only be done much later i.e., before the expiry of 

the extended period set by the Government of India. Also, it is noted that till 

the date of restructuring, the attitude of the staff was not supportive. These 

aspects reveal a lack of political will to follow the widely debated and accepted 

reform agenda and also failure in communicating with the staff and winning 

their support for the restructuring exercise. 

As a consequence, at the time of actual restructuring, neither the Government 

of Maharashtra was in a position to set any targets and deadlines for 

performance improvements by the restructured entities nor was the long-term 

financial support by the Government of Maharashtra to the new entities 

defined. In the absence of such a long-term plan, the sector was left to face the 

uncertainties of policies that would be adopted by Government of Maharashtra 

in future. This period of two years of uncertainty led to further deterioration of 

the sector, as no major investments were forthcoming for system 

improvements. 

For the reforms to succeed, the wholehearted support of the Government and 

the employees is very important. 

10.8 UNIQUE FEATURE OF THE REFORM PROCESS 

A unique feature of the reform process was the very early realisation of the 

need to reform the sector. Government of Maharashtra had taken steps to set up 

an Energy Review Committee to review the power situation in the State and 

109



suggest the broad future course for bringing in necessary reforms. As a part of 

building consensus, in April 2002 itself, Government of Maharashtra had 

initiated public discussions/dialogue with all stakeholders on the ERC Report, 

Maharashtra Electricity Reform Report (draft) and Government of India’s 

Electricity Bill, 2001. The Minister in charge of Energy held wide-ranging 

discussions with officials and staff unions of MSEB. After such a detailed 

journey, the White Paper highlighting the reform agenda was published. 

This process was thus unique and cannot be faulted. Had the Government not 

dithered, and the process taken to its logical conclusion in the year 2003 by 

winning the support of the staff along with, it could have been successful. 

10.9 WAY FORWARD 

The single most important task ahead of the State Government and the 

restructured companies is to take immediate steps to identify the extent of 

capacity additions in generation, transmission and distribution sectors on a 

long-term basis and set-up action plans to implement the same in a time-bound 

manner. 

It will be necessary to clearly specify the role expected to be played by each 

entity to ensure operational freedom from each other, free of interference, to 

achieve desired results. 


10.10.1 Capacity Planning 

As a first step, it is necessary that all above named entities review the financial 

needs of the sector in the period till the year 2012 and agree on the support that 

will be extended by the State Government in terms of equity funding, grants, 

long term loans, RE subsidy, etc., and the funds required to be sourced from the 

market. The companies will have to give an assurance about estimated financial 

gains by savings in expenses, improvements in performance parameters in 

terms of PLF, reduction in AT&C losses, improvement in services to 

consumers, etc. A plan of funding could then be firmed up for implementation. 

This exercise should be completed as soon as possible so that each entity is 

aware about the support it can expect from the others and can take suitable 

actions to supplement its remaining requirements. The companies will have to 

110



prioritise investments that can result in faster pay back period and can be 

checked for efficacy against assessable targets. 

10.10.2 Nurturing Participative Spirit of Villagers 

The distribution company will need to nurture the participative spirit displayed 

by the villages in meeting the objective of effective Demand Side Management 

in Akshay Prakash Yojana (APY) with constant dialogue with the concerned 

villagers and solving genuine problems faced by them, however, insignificant 

these appear to be from the point of view of the Utility. In future, all fiscal 

incentives and rewards could be made applicable to consumers from these 

villages either exclusively or at least ahead of others. 

10.10.3 Formation of More Distribution Companies 

Presently, only one DISCOM has been formed to look after the distribution 

sector of the entire State. A single DISCOM in the State with over 69,000 

employees is quite unwieldy for efficient management. Also, with a view to 

derive gains by fostering positive competition in this important sector, it may 

be necessary to split this large monolithic entity into three or four independent 

companies. It will also enable both the consumers and the staff to easily 

approach the higher decision-making levels in these companies. These would 

also result in quicker redressal of grievances both of the consumers and the 

staff and also in implementing innovative solutions proposed by the staff. 

10.10.4 Professional Management of Companies 

The restructured companies have to be totally independent in their functioning. 

These should, therefore, be manned by professional directors. A fixed tenure 

could be specified for these directors for achieving set targets. No political 

person should be appointed on the Boards of the restructured companies. 

10.10.5 Setting up of a Computerised Information System 

The restructured companies will benefit if they take immediate action in setting 

up a computerised information system to input/store/handle data pertaining to 

all fields of their operations as well as information about the status and 

progress of the projects undertaken by them for implementation. This will 

ensure efficient and quick decision-making, besides resulting in economies in 

operation. 

111



10.10.6 Aggressive Effort in Energy Accounting and Audit 

All companies have to aggressively pursue proper energy accounting and 

auditing procedures. This aspect is very important as it would lead to huge 

savings in costs and can help to bring about financial improvements in the 

company in a very short period. The procedure followed hitherto will need to 

be modified and strengthened in such a manner that, as far as possible, data is 

collected without any manipulation and the effort is distributed at all working 

levels to derive maximum benefit. This aspect may also be suitably 

incorporated in the Annual Confidential Reports (ACRs) of the staff and made 

an important area of consideration while deciding on promotions to the higher 

levels. 

112

Background 

CHAPTER - 11 

TAMIL NADU 

11.1 The Tamil Nadu Electricity Board (TNEB), one of the well-run Electricity 

Boards in the country, is however, lagging behind most others in the reform 

process. It still functions as a monolithic Board performing all the traditional 

functions of an Electricity Board, namely, generation, transmission and 

distribution. Its generation capacity is 5,400 MW out of which is 1,987 MW is 

hydel, 2,970 MW is thermal and 424 MW is gas-powered. Since most of its 

hydel stations are rain-dependent, they generate power of some significance only 

during the monsoon season, and the Board uses the stored energy at other times 

to meet the peak shortages. The Board has four thermal power stations with a 

total installed capacity of 2,970 MW. Since Tamil Nadu does not have any 

thermal coal resources, the board has to transport it from far-off coalfields 

through a rail-cum-ship-cum-rail route. Transport of coal is a logistical 

nightmare and also involves transport of huge quantity of ash over long distances 

and its disposal later on at a huge cost with many environmental ramifications. 

The board also purchases substantial power from the Central Power Utilities. 

Five Independent Power Projects (IPPs), which have been commissioned in the 

State, are also contributing to the financial woes of the Board. The Board has a 

good and highly reliable transmission system (over 99%). Its distribution system 

is quite large, covering the entire state of Tamil Nadu. The Board has electrified 

94.90 per cent of villages in the State (As on 31 March 2006), and household 

electrification is also very high (71.18%) due to the Board’s commitment to give 

connection to all those who apply for it and the Government’s policy of free hut 

service connection. The performance of the Board in this respect has been driven 

by the political commitment of successive Governments. The State is highly 

industrialised with nearly 70 per cent of its revenue coming from industries. 

While the Board has been able to sustain the industrialisation of the State, the 

industries too have been sustaining the Board by their major contribution to the 

Board’s income. The quality and reliability of power to industries is not a major 

concern, but the cost is, which is driving industries to go in for alternatives such 

as wind energy, captive generation, etc.

Performance of the Board 



11.2 The performance of the generation wing of the Board can be rated as very good 

under all parameters. The PLF of the thermal stations has been increasing over 

the years, along with improvements in other parameters, as could be seen from 

the table given below: 

Performance Parameters of Thermal Power Stations 

Particulars 1999-2000 2000-01 2001-02 2002-03 2003-04 2004-05 

PLF (%) 72.29 74.81 78.13 81.02 78.31 76.89 

Heat Rate (kcal/kWh) 2,705 2,735 2,762 2,713 2,705 2,688 

Oil Consumption (ml/kWh) 7.44 4.77 3,666 2.13 1.92 1.37 

Auxiliary Consumption (%) 8.98 8.46 8.50 8.47 8.48 8.67 

Plant Availability (%) 78.45 74.4 80.3 83.58 77.55 75.9 

Unscheduled Breakdowns 

in terms of MWH 26,58150 8,99,910 27,23,490 24,68,070 29,70,000 36,73,890 


11.3 The financial position of the Board is seriously affected by the free power to the 

agricultural sector on Government directive and the highly subsidised power to 

the domestic sector. Although the Government is mandated to compensate the 

Board for its losses, it has not been able to do so because of its own financial 

difficulties. 

This has naturally led to continued losses despite its good technical performance 

as could be seen from the details given below: 

Financial Position of the Board 

(Rs crore) 

Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 

Turnover 7,578.10 8,222.47 9,515.74 11,508.21 12,703.65 

PBT (-) 1,055.34 (-) 2,201.79 112.57 -1,110.13 -1,176.77 

PAT (-) 1055.34 (-) 2,201.79 112.57 -1,110.13 -1,176.77 

Interest paid 643.60 647.68 783.06 887.81 942.19 

Equity 100.00 200.00 225.00 425.00 510.00 

Debt outstanding 5,524.58 6,492.45 7,096.82 8,694.85 9,070.92 

Net worth 3,146.10 1,258.28 1,727.01 1,284.26 603.06 

Return on net worth (%) -0.34 -1.75 0.07 -0.86 -1.95 

Budget subsidy 250.00 322.50 2,212.14 250.00 924.50 

114



11.4 Another reason for the poor finances of the Board is the huge power purchase 

cost it has to pay to the IPPs. Most of the IPPs use petroleum-based fuel with a 

pass-through clause. With high petroleum prices, the cost of such power is 

naturally prohibitive. Under the Power Purchase Agreement (PPA), the Board 

has to purchase the power or pay ‘take-or-pay’ charges. The possibility of such a 

sharp hike in fuel prices was not visualised at the time these projects were 

negotiated. 

11.5 The main drag on the finances of the Board, however, is the free power provided 

to the agricultural sector, closely followed by the domestic sector with a slab 

system. Although the State Government has to compensate the Board for these 

losses, it is unable to do so, and the Board, as an instrument of the State, is 

helpless in demanding it from the State Government. The following table gives 

the tariff structure of the Board that penalises the industrial and commercial 

consumers and favours the agricultural and domestic consumers: 

Table: Revenue foregone by TNEB due to Free and Subsidised Power 

(Rs crore) 

Particulars 2000-01 2001-02 2002-03 2003-04 2004-05 

Domestic 757.00 1,136.00 1,251.00 1,181.00 1170.00 

Agriculture 2,408.61 2,876.38 2,864.77 2,975.60 3,062.76 

The obvious question is whether the Government had been adequately 

compensating the Board for these losses. The position is given in the following 

table: 

Table: Compensation given by the State Government 

(Rs crore) 

00-01 2001-02 2002-03 2003-04 2004-05 

Domestic 

Agricultural 250 250.00 322.50 196.00 

Subsidy (others) 1,962.14* 250.00 16.00** 

Compensation as % 

Of revenue foregone 

7.9 55.1 7.8 6.0 5.0 

* Securitisation of outstanding dues owing to CPSUs ** Subsidy for huts 

The amount provided by the State Government is nowhere near the actual 

losses suffered by the Board; and the Board has been meeting these losses 

through borrowings, which had gone up from Rs 5,524 crore in 2000-01 to Rs 

9,091 crore in 2004-05. Needless to say, the Board is now burdened with the 

additional interest cost, and this situation cannot be sustained for a long period. 

115

Weaknesses of the Board 



11.6 Despite several strengths, TNEB suffers due to some of the policies of the State 

Government. Free power to the agricultural sector is not only a financial drain on 

the Board and the Government, but also an energy drain. Farmers do not seem to 

be bothered about energy conservation; they have no incentive to install energyefficient 

motors or energy-saving devices or to go in for water-saving crops. 

Also, the Board incurs further losses due to the low power factor of the rural 

loads in addition to the huge cost it has to incur on capital expenditure to lay long 

lines in remote areas. This policy has led to lowering the water table in the State. 

Another major weakness of the Board is that it is bloated with a huge staff. 

However, in recent years the Board has taken concerted steps to reduce the 

number of employees. The system of employing contract workers and the 

constant demand to regularise their services later have added to the staff cost 

considerably in the past. Further, employees who have become redundant thanks 

to system changes are still in position, and they should be re-trained and used 

productively. Work norms for various categories of employees have been 

liberally fixed – so liberal are the norms that the thermal stations are three-times 

over-staffed as compared to that of the NTPC’s stations. Although employees are 

individually convinced of the need for reform in this area, unions are resisting 

any change, and successive managements have been unable to convince them 

and bring about sharp reduction in employee cost. 

Major Achievements of the Board 

11.7 The Board could take pride for 100 per cent consumer metering, billing and 

collection, thanks to its long-established systems. In addition, it has many 

achievements to its credit, some of which are listed below: 

• Implementing energy audit in all the 22/11 kV feeders, having line losses 

of more than 10 per cent; 

• 100 per cent metering of 11 kV feeders; 

• Special focus on energy conservation; 

• Computerisation of inventory management; 

• Computerisation of LT and HT billing; 

• A focus on consumers through call centres and a web-enabled consumer 

redressal system; 

• An excellent system for monitoring interruptions in supply; 

116



• Installation of high quality meters; 

• Installation of capacitors both in substations and in consumer premises to 

improve the system power factor; 

• Close monitoring of billing, collection and disconnections; 

• High level of PLF of thermal power stations by better maintenance and 

management; and 

• Efficient use of the hydel storage to mitigate the peak-hour shortages. 

Reform Measures 

11.8 Despite many achievements, TNEB has been lagging behind in the reform 

process. Except for the setting up of the SERC and issue of tariff orders by it, not 

much progress is seen in the State. The tariff revision of 2003 has also been put 

back by the Government on account of drought; but the Government has not 

been compensating TNEB fully. Even though SERC is functioning and issuing 

tariff orders, the Government could modify the tariff merely with a promise of 

compensation. TNEB, being fully owned by Government, will find it difficult to 

collect the dues from the Government. Power sector reform can succeed only if 

all players are convinced of the need for such a reform and cooperate with one 

another in achieving results. This is a national level issue and a consensus on this 

is vital. The decision to reduce the cross-subsidy over a fixed timeframe is a case 

in point. Perhaps, it is time a legal solution is found. 

It appears from the reply given by the Board that the State Government is no 

longer keen on restructuring of TNEB. Instead of restructuring the Board, it is 

considering the profit centre concept, as recommended by its consultant M/s 

CRISIL Infrastructure Advisory, Mumbai. It is possible that the Board had taken 

this decision because of the resistance from the Employees Unions. However, the 

State Government had requested Ministry of Power to grant an extension for 

restructuring of TNEB till December 2006, which was granted. 

Way Forward 

11.9 It appears that the thinking of the Board and its Employees Unions is that 

efficiency gains of reform have already been achieved by the Board and hence 

there is no need for restructuring. However, it must be remembered that further 

efficiency gains will be possible only by restructuring. Restructuring, offers 

tremendous scope for further efficiency gains and improvements. With smaller 

117



management units, improvements in management and cost control will be a lot 

easier and more feasible. No doubt, the Board will not be able to escape from its 

obligation to supply free power to farmers in the near future. It is also clear that it 

is not going to get adequate compensation for this burden either. The only option 

for the Board therefore is to focus on efficiency gains from within. 

Profit Centre concept was relevant five years back, but will not serve any 

purpose now. With globalisation and the sustained growth of the economy, rapid 

power sector reform is a must so that our industries get the benefit of cheaper 

power like our competitors in other countries. The skewed tariff structure needs 

to be corrected and cross-subsidy eliminated over a period. The first step in this 

effort is to have a restructured Utility focussed on efficient functioning. Also, the 

present structure of TNEB is really unwieldy with about 79,000 employees 

spread over the entire State. Restructuring will certainly lead to a competitive 

environment in which performance of restructured units could be more 

accurately measured, making them more responsible and accountable. 

The first step that the TNEB should take is to restructure itself into a 

transmission, generation, and at least three distribution Utilities, with each 

restructured Utility functioning as a separate corporate entity. Three distribution 

entities have been recommended, as one will be too large and it will preclude a 

competitive environment. A close supervision by the SERC too will be necessary 

to realise such gains. By accurately fixing the tariff compensation to the 

restructured distribution Utilities, the SERC can hope to unleash the forces of 

competition on a level-playing field. 

Tamil Nadu has an excellent manufacturing base, and Chennai is emerging as an 

important automobile and IT centre. Good quality power at competitive rates is 

essential to attract industries to the State. Because of intense competition arising 

out of globalisation, industries migrate to areas, which have a sound 

infrastructure. Power is a vital infrastructure for investment and also for the 

growth and well being of the people of the area, and therefore, TNEB has a 

major role to play in the development of the State. For this, the reform process 

has to be speeded up. Status quo will lead to lowered efficiency, as is evidenced 

by frequent supply interruptions and increased consumer complaints. There is, 

therefore, no alternative to taking up reform in right earnest while addressing the 

issue of tariff distortion. 

118

12.1 SALIENT FEATURES 

CHAPTER - 12 

WEST BENGAL 

The salient features of the power sector in West Bengal are as follows: 

i) The installed capacity of 5,772 MW comprising of 4,660 MW in the State 

Sector, 312 MW from the DVC plus Central Allocation of 600 MW. 

ii) The length of transmission and distribution lines is 1,96,012 ckt km. 

iii) The transformer Capacity is 38,408 MVA. 

iv) 84.97 per cent of the villages have so far been electrified. Number of 

pumpsets energised is about 1.15 lakh. 

v) Number of consumers is 7.3 million. 

vi) Power demand in the State is 26,783 MU. Export outside the State was 

3,171 MU in 2004-05. The energy sale pattern in 2004-05 was 29.51 per 

cent domestic, 45.10 per cent industrial, 12.04 per cent commercial, 4.36 

per cent agricultural, 3.32 per cent public service, 4.34 per cent traction 

and others 1.32 per cent. 

vii) The Plant Load Factor (PLF) of the State sector thermal power was 66 per 

cent in 2004-05 with average availability at 80 per cent. The AT&C losses 

for WBSEB were 37 per cent, whereas the T&D losses for the whole State 

were 25 per cent. 

viii) During 2005-06, the peak load was estimated as 4,694 MW with 

availability of 3,981 MW. For the current year (2006-07), the peak load is 

estimated to rise to 4,892 MW with availability increasing to 4,376 MW. 

The State is planning to bridge this gap during this year itself. The 

projections for 2011-12 are 5,832 MW of peak load with availability 

increasing to 6,990 MW. In 2005-06, availability was 29,678 MU, 

whereas energy demand was 27,600 MU. During the current year, the 

energy demand is likely to rise to 29,010 MU, whereas the availability is 

likely to rise to 31,094 MU. Projections for 2011-12 are 48,545 MU of 

availability with the energy demand rising to 37,020 MU. 

12.2 CONCLUSIONS 

The State Electricity Regulatory Commission came into being in 1999 and is 

issuing tariff orders. The Government of West Bengal is going to finalise its



strategy on reforms shortly. They have already received the report from M/s 

PricewaterhouseCoopers and have consulted the stakeholders. Restructuring of 

the sector is attracting their attention. The Kolkata Metropolitan area and the 

industrial area contribute to the bulk of the revenue. The other areas, with the 

exception of the Durgapur belt, may not be able to sustain separate DISCOMs. 

The State Government wants to make West Bengal Power Development 

Corporation Limited (WPDCL) a commercially viable entity, attracting some 

private capital. Durgapur Projects Limited (DPL) is going to be restructured. 

The WBSEB has really achieved turnaround, pending reorganisation of its 

functions, and pending its restructuring. However, the restructuring process 

needs to be expedited for improving its performance further. 

Commendable work has been done in the State in the matter of metering, 

billing and collection. The quality of service has also improved significantly. 

Conscious attempts have been made to reduce theft of electricity. The State 

Government is already thinking of creating a separate transmission company, 

which would also be in-charge of load dispatch. A new distribution company 

will be set-up having strategic business units, which would act as a profit 

centre. In course of time, creating separate companies can be thought of. In the 

peculiar context of West Bengal, this appears to be a sensible strategy. 

The State is yet to finalise its policy regarding attracting private capital for 

power generation. But has an ambitious Eleventh Plan target. It would be a 

good idea to set up joint ventures in West Bengal, as it may not be possible for 

the State to pump in adequate equity. 

The responses of West Bengal State Government to IIPA questionnaire are 

given in the Appendix attached. All the questions raised in the questionnaire 

are in ‘italics’. The responses from the Government/utilities are in ‘regular 

font’. 

120



121 

Appendix 

Responses from Government of West Bengal to IIPA Questionnaire 

Government of West Bengal 

Department of Power & NES 

Q.1. Please provide a brief summary of the electricity reform agenda of the 

Government. This may include mission statement, specific goals or 

milestones, medium and long-term strategy for achieving the same. 

Answer - In West Bengal, the State-owned West Bengal State Electricity Board 

(WBSEB), West Bengal Power Development Corporation (WBPDCL) 

and Durgapur Projects Limited (DPL), are key State power sector 

Utilities in view of their overall importance, the large scale of their 

operation and provision of major services to domestic, commercial and 

industrial consumers. In addition, the Calcutta Electric Supply 

Corporation (CESC) and the Dishergarh Power Supply Company 

(DPSC) operate in the private sector. These Utilities in both public and 

private domains generate, transmit and distribute power against the State 

system’s demand. The WBSEB is engaged in the generation of hydel 

power and in the transmission and distribution of power in five zones 

throughout the State; DPL is engaged in the generation and distribution 

of power within the city of Durgapur and WBPDCL is engaged in the 

generation of thermal power. The three State-owned power Utilities 

have turned around in their current financial performance and are 

generating commercial profits. 

The West Bengal Electricity Regulatory Commission was constituted in 

1999 under the Electricity Regulatory Commissions Act, 1998 and has 

been determining tariff for the sectoral Utilities in West Bengal, since 

2000-01. 

The State Government has determined the necessity of restructuring the 

State-owned power Utilities to facilitate their increasing commercial 

efficiency and providing higher levels of customer services, within the 

framework of the EA, 2003. This, in essence, constitutes the sectoral 

reform agenda of State Government.



Q.2. When was the process of restructuring initiated? Please provide 

chronological history. (Major events such as policy announcement, law 

enactment, relevant notification, restructuring of SEB). 

Answer - When EA, 2003 (Act) came into force on 10 June 2003, the functions of 

West Bengal State Electricity Board were (a) Generation of electricity in 

Hydel sector, (b) Transmission of electricity. (c) Function of State Load 

Despatch Centre, and (d) Trading of electricity. Section 39 of the Act 

required formation of a State transmission Utility, which shall not 

engage in the business of trading in electricity. As per requirement of the 

Act, in restructuring the State Electricity Board, in July 2003, the 

Government of West Bengal constituted a Committee, namely the State 

Level Committee on Restructuring of Distribution System in the Power 

Sector, for recommending the process of the restructuring. Advice for 

WBERC was sought for as per Section 86(2) (iii) of the Act in the 

matter of reorganisation and restructuring of the electricity industry in 

the State. The State Level Committee submitted its report in December 

2003. Decision by State Government on the report was kept pending for 

some time. In the meantime, it was decided to broaden the restructuring 

agenda for the State and bring WBPDCL (Government company for 

thermal generation) and DPL (Government company engaged in 

generation and distribution in Durgapur area) in the restructuring fold. 

Accordingly, Expression of Interest for advisory services was sought for 

through advertisement for comprehensive restructuring of Government 

power Utilities against Terms of Reforms for the study prepared in 

consultation with energy specialists of World Bank and DFID. Finally, 

M/s. PricewaterhouseCoopers was engaged as the consultant. 

Q.3. Was there any policy statement of the State Government before 

embarking on reforms? Please provide copies of the policy statement. 

Answer - The restructuring of the State-owned power Utilities has been taken up 

under the State Government’s policy for the restructuring of its PSUs 

that evolved over 2003-05. This was formally announced by Chief 

Minister in a National Workshop on PSU Restructuring in Kolkata on 

18 May 2005. No separate policy statement was issued in this respect. 

122



The thrust of State Government’s reform initiatives is based on the 

Medium Term Fiscal Reform Programme that it concluded with 

Government of India in 2000-01. 

Q.4. Was the policy reviewed/modified midway? Reasons for modification 

and changes carried out may please be provided. 

Answer - State Government’s policy for the restructuring of its PSUs has not yet 

been reviewed. The policy is sufficiently dynamic and necessary 

modifications have been incorporated in Action Plans as they have 

evolved. 

Q.5. The progress in reforms made so far. Is the progress of implementation 

as planned? If not what are the reasons for slippages? What is the 

implementation schedule – Promised, Planned and Actuals? Reasons for 

shortfalls? What is being done to speedup implementation? 

Answer - The power sector reform agenda of the State Government, envisaged the 

consultative evolution of recommendations for: 

(a) The optimal industry structure in respect of the three power 

Utilities, keeping in view the changed business environment 

in the context of the EA, 2003; 

(b) Resolving, at least cost, the critical financial problems of the 

sector including the financial restructuring measures 

necessary to start the new entities on a path of financial 

viability, keeping in view their investment plans, potential 

revenue earning capabilities and liabilities, including loan 

liabilities; 

(c) Framing of business optimisation plans for the Utilities 

concerned (including power trading activities of the 

WBSEB and coke-oven and other non-power activities of 

the (DPL) so that they may achieve a zero-loss position by 

the year 2006-07 and thereafter consistently earn suitable 

return on investments on a sustainable basis while ensuring 

better services to their customers; and 

(d) Critical governance initiatives that will best realise 

short/medium-term business projections and lead to the 

restructured Utilities achieving higher commercial 

123



efficiency and customer service levels, on a sustainable 

basis. 

The State Government has with support of the Department for 

International Development of the Government of the United Kingdom, 

commissioned a study in respect of the three State-owned power 

Utilities in end-October 2005, to result in the definition of an 

Implementation Plan that will cause the three power Utilities to become 

more responsive to the changed environment and to result in a 

qualitative improvement in services to their consumers. The Plan will 

define short, medium and longer-term priority actions and identify the 

respective agencies/organisations that will take the lead or support each 

stage of its implementation. The Plan will also identify how these 

agencies will be resourced and held accountable for its implementation. 

Following a publicly notified search, Consultants, M/s Pricewaterhouse 

Coopers (PwC) have been appointed by State Government to undertake 

this study in three distinct phases as below, and to submit 

recommendations: 

(a) Phase I – Rapid diagnostic (30 days) 

(b) Phase II – Industry Structure, Financial Restructuring and 

Governance-related initiatives (60 days) 

(c) Phase III – Implementation Plan recommendations (30 days) 

Following an intensive stakeholder consultation process, the consultants 

have submitted Reports/Recommendations under Phases I and II of this 

exercise that are awaiting ‘in principle’ approval to Power Department 

recommendations based on that submitted by Consultants in respect of 

Industry Structure, Financial Restructuring and Governance-related 

options and ‘go ahead’ clearances to take up the preparation of 

commensurate implementation plans. 

Recognising the necessity of addressing specific implementation issues 

such as preparation of provisional/final asset transfer schemes and 

putting in place commercial agreements to regulate the working among 

the successor/restructured Utilities, a search has been launched to find 

appropriate Consultants to advise these issues. These tasks will be taken 

124



up in tandem with Phase III tasks in order that specific outcomes are 

available along with the implementation plan in order that the latter can 

be out into operation smoothly. 

Additionally, key learnings from the experience of sector reform 

initiatives in other States have led to the formulation of a strategy based 

on a phased approach to deciding final structural configurations in order 

that transition issues can be adequately addressed with the support of 

capacity building initiatives while initially, complying with the 

structural requirements of the EA, 2003. This strategy has also required 

State Government to seek to launch ‘capacity building’ initiatives for the 

successor/restructured Utilities at the commencement of the 

restructuring effort and to last over a three-year transition period. This 

will facilitate a gradual accretion of skill levels and capacity within the 

restructured Utilities to provide a stronger foundation to final 

determination of business structures. 

Q.6. Whether restructuring was done based on any consultants' report? If 

yes, enclose a copy. 

Answer - State Government’s restructuring initiatives in respect of its three power 

Utilities will be based on recommendations of professional advisors. 

Their reports (for Phases I and II) are presently under presently 

consideration for appropriate approvals. 

Q.7. What, in your opinion, are the main drivers of power sector reforms (in 

order of priority) - 

Answer 

(a) Statutory requirement of segregation of transmission function from trading 

in integrated Utilities; 

(b) Build a strong foundation for sustainable commercial viability and higher 

levels of services; and 

(c) Empower power Utilities to raise resources on competitive terms for 

modernisation investments. 

Q.8. What, in your view are the desired outcomes and deliverables of the reforms? (In 

order of priority) 

125

Answer 

(a) Better and sustainable service quality for customers; 

(b) More affordable access to electricity for customers; 

(c) Improvement in Government fiscal position; and 

(d) Redefining the role of public sector; 

Q.9. How was financial restructuring implemented? 



Answer - The implementation of FRPs for the Utilities under restructuring is yet to be 

decided upon. 

Q.10. How were the existing liabilities of SEB settled (written off, settled by 

budgetary support, carried on to the books of new entities)? 


decided upon. 

Q.11. What is the amount of financial commitment taken by Government in 

restructuring? (Rs crore) 


decided upon. 

Q.12. Modalities of Government support: 

Answer - The modalities of Government support will be finalised upon approval of 

the FRPs for the Utilities under restructuring. 

Q.13. Was any road map prepared and publicised for implementation of reforms? 

If so extent to which it has been adhered to and reasons for slippages, if 

any? 

Answer The evolution of State Government’s policy for restructuring its PSUs has 

evolved over 2003-05. The restructuring of State-owned power Utilities has 

been taken up in the context of this policy framework that is adequately 

flexible to allow the incorporation of innovative modifications on a 

necessity basis. 

126 

Principal Secretary

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