Performance analysis of electricity distribution utilities in post reform period

Abstract

Electricity is the prime mover of growth and is vital to the sustenance of a modern economy. The Government of India enacted the Electricity Act, 2003 to embark on an ambitious mission - Power for All by 2012 - backed by extensive reforms to make the power sector commercially viable and more attractive to further investment. Unbundling of erstwhile State Electricity Boards have been provided to increase efficiencies, reduce the AT and C losses and improve the financial position of the state utilities. The review of literature indicated the absence of studies on understanding the variation in the performance of electricity distribution utilities after start of reform process with enactment of Electricity Act. There are 14 states which have unbundled their SEBs till March 2008 of which two states namely Orissa and Delhi have awarded their distribution circles to private players. To study and analyze the performances of electricity distribution utilities in India during post reform period, the data for fours years period from 2003-04 to 2006-07 for all the state electricity utilities in India (total 89 utilities for 2006-07) have been compiled. The analysis of trend of performance of state electricity utilities has been made on Financial, Technical and Commercial parameters. As per provisions of the Electricity Act 2003, till March 2008, 28 states in India (except Arunachal Pradesh) have either constituted or notified their State Electricity Regulatory Commissions and 23 have issued tariff orders in the direction of rationalizing tariffs. The performances of electricity distribution utilities are also dependent on decisions of Regulatory Commissions to a great extent. It has been observed that the overall performance of all the state electricity utilities in India has improved during the last 4 years from 2003-04 to 2006-07. The distribution segment of the Indian power sector, dominated by state government-sponsored utilities, has apparently undergone a transformation at the aggregate level, with an improvement in revenues and a reduction in technical and other losses in post reform period. State government fiscal burden on account of the power sector has eased by some measures, although it still continues to be high. However, there is wide variation in the performance of different states. The losses of some states are neutralizing the gains of other states. It has also been observed that nature of ownership does not make any significant effect on performance of the utility. It is basically the organisational efficiency and effectiveness along with its culture that influence its performance. Competition and market structure are more important than ownership for performance improvement. If the market is competitive, a public enterprise can operate as efficiently as a private enterprise and, if the market is a monopoly, privatization by itself will not bring about the expected benefits. Performance improvement can be made with reduction in AT and C loss, improvement in collection efficiency and removing the gap between ACS and ARR. Even 1% reduction/increase in AT and C loss can increase/reduce the profits of all Discoms in India by Rs. 1846.36 crore per year. Presently average AT and C loss on all India basis is about 33%, while Himachal Pradesh has achieved lowest AT and C loss at 13.18% during 2006-07 in India. So, if all Discoms achieve a loss level of say 15%, the additional revenue may be about Rs. 35186 crore. In other words, reduction in losses by Discoms is very important for financial viability of the sector.