Electric Supply Policy for Defence Stations in India

Abstract

The Indian defence forces with a strength of about 1.5 million rank fourth globally as per the numbers and fifth as per the expenditure. Though the Ministry of defence gets the maximum budget among all the ministries of the central government, yet the defence outlay has not been increasing in actual terms, as the increase in successive defence outlay has been barely able to cover the inflation and exchange rate changes. There is a perpetual challenge to meet the modernisation and upgradation need of the armed forces due to paucity of fund and the problem is compounded with the fact that only one third of the allotment is available for capital expenditure, since two thirds of the allotment is consumed in the revenue expenditure. It is thus prudent to identify the potential savings which can then be channelised into augmenting the availability of fund for defence modernisation and infrastructure upgradation. The Military Engineer Services (MES) Department of Ministry of Defence (MoD) is responsible for construction and maintenance of defence infrastructure for Army, Navy, Airforce, Coast Guard and Defence Research and Development Organisation (DRDO) spread over 600 stations throughout the country. MES has an annual budget of ₹ 13,000 Crores and out of this a major part of ₹ 2,600 Crores is spent on Electricity tariff payment only. To reduce the expenditure on purchase of electricity by the defence stations, various steps taken by MES to reduce consumption and save electricity have been covered in the report. Also, solar projects of 300 MW capacity in the defence sector have been sanctioned with support of ₹ 750 Crores from Ministry of New and Renewable Energy Sources, which will reduce electricity tariff payment to the DISCOMs. Out of these, 147 MW projects are under completion stage and once integrated with the grid, will result in saving of about ₹ 150 Crores per annum to MES by supplying 25.75 Crore units of electricity each year. The government of India enacted a new Electricity Act (EA) in the year 2003, which liberalised the electricity sector in the country. It deregulated the electricity generation sector and laid foundation for free trade of electricity by creating platforms for energy exchanges and also through direct MoUs or competitive bidding. The provision of deemed licensee was introduced for certain sectors, wherein these will be treated on par with the electricity distribution companies (DISCOMs) for sourcing of electricity and will be free to distribute it further in their areas of operations. The establishment of a central regulator namely Central Electricity Regulatory Commission and one regulator in each state i.e. State Electricity Regulatory Commission (SERC) for regulating the complete electricity sector has also been mandated in the EA 2003. The government of India, Ministry of Power vide letter dated 26 Jul 2004 has clearly stated that MES is a deemed licensee as per third proviso of Section 13 of the EA 2003. A comparison of Average Power Procurement Cost (APPC) of some states with the rates charged from MES by the discoms brought out that later is 36% – 39% higher than the APPC. It is felt that substantial savings in MES tariff payment for electricity is possible by operationalising its Deemed Licensee status in all the states of the country. Even with a conservative figure of 20% saving, the potential works out to be ₹ 520 Crores per annum. Though MES has been trying to get advantage of its deemed licensee system by appointing nodal officer in each of the state for the purpose, yet the progress has not been satisfactory till now. In only five states the SERCs have accorded deemed licensee status to MES, but even out of these five states only in Delhi the licensee status has been operationalised since Nov 2015 and it has yielded a saving of about 20% per annum since then. 5 The success in Delhi has been possible due to presence of an exclusive MES setup to deal with the Utilities and Electric Supply, being the largest Defence station of the country. However, in all other places the progress could not be achieved due to the reason that the existing setup is overburdened with the planning, execution and monitoring of the projects being monitored at the highest level due to operational needs of the defence forces. It has thus been proposed to establish an Energy Management Setup in the HQ MES, six Chief Engineers Commands and 31 Zonal Chief Engineer offices to guide, monitor and facilitate the operationalisation of the deemed licensee status for the MES in all the states of the country. The cost benefit analysis of the proposal has been carried out and it has been found that with an expenditure of only ₹ 21 Crores per annum, a saving of ₹ 520 Crores is possible to be achieved. Apart from working for the licensee status of the MES the proposed Energy Management Setup will deal with the issues of energy conservation, renewable energy projects, energy audit, electricity metering of the complete consumption, training and capacity building to deal with the dynamic energy market. The setup will also work for getting changes in defence accounting system so that the revenue realised in any station gets credited into the tariff head, so that the saving accrued may be channelised for project and maintenance work in the station as an incentive. Presently, the electricity revenue collected gets deposited in the central pool is not accounted towards budget reduction of electricity tariff. As filing application and getting deemed licensee status from SERC and subsequent activities for getting permissions from different stake holders, like generation companies, transmission companies, load dispatch centres, energy exchanges and power trading companies, for operationalisation of the deemed licensee status by procuring electricity directly after bypassing the DISCOM are very specialised and MES department does not have experience in the area as of now, the services of consultant may be hired for initial period of few years till the time the inhouse talent gets trained to undertake the activity post stabilisation of the process. The various options possible to deal with the situation have been identified and analysed and finally a solution has been selected which is a combination of two options namely to have a Energy Management Setup at higher headquarters of MES and engage consultants to help the department in getting the deemed licensee status sanctioned and operationalised by trading of electricity through energy exchanges or directly from independent power producers through power purchase agreements (PPA) or MoU or bidding process. Once the system stabilises in a period of three to five years, the inhouse staff trained in the process can take over the operations by the department only and the services of the consultant may not be required thereafter. The rolling out of the schemes has also been recommended to cover the biggest defence in each state and all the stations having annual electricity tariff payment exceeding ₹ 10 Crores per annum in the first phase and in the second phase all the stations to cover 80% of total tariff payment may be taken up. In balance of the cases, the progress be made after careful examination on case to case basis, as for very small loads going for deemed licensee status may not be cost effective.