Unbundling the power sector

  • Mudasir Ali
  • Publish Date: Oct 8 2018 3:21AM
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  • Updated Date: Oct 8 2018 3:26AM
Unbundling the power sectorRepresentational Pic

In 2006 the Jammu and Kashmir government signed a memorandum of understanding with union power ministry to unbundle state power development department as part of reform process to bring down the energy losses. During the next six years the power department tried at least three times to set the process rolling for unbundling the power sector. But each time the proposal was shelved owing to “political intervention”. In 2012 the department finally made its mind to go-ahead as the energy losses reached the highest among all states. The “political pressure”, recalled a senior PDD official, again forced the department to shelve the idea.

Twelve years later and after spending crores of rupees on several other reform initiatives to curb the transmission and distribution losses which are touching 60 percent, without any success, the government has finally decided to roll out the “much-needed” reform program after repeatedly cutting a sorry figure before the union power ministry.

 

 

 

Kick starting the process

 

On September 12, the commissioner/secretary power department Hirdesh Kumar issued an order announcing the government’s intent to unbundle and restructure the power department.

It gave a go-ahead to a proposal to operationalise state power trade company (Tradeco) and subsequent discontinuation of commercial and survey wing of the power department.

The official said the next step in the process was to establish power transmission company (Transco) followed by setting up of two distribution companies, one each in Kashmir and Jammu regions. “Despite spending crores of rupees of funding on reforms the department had struggled to bring down the losses, partly owing to lack of accountability in the department and partly owing to political intervention which stops us from making consumers accountable. Once the corporations are set up there will be ‘least political interference. We will be working independently and the officials at the higher level and the employees at the ground level will be accountable to meet the targets or quit,” said a senior PPD official.

He described the unbundling as a process to pave way for corporate culture where “you either perform or perish”.

While the Tradeco would be entrusted with the job of purchase and selling of the energy the transmission part will be taken care of Transco. The two Discoms would look after maintenance and other issues.

According to the official the government was under pressure from the union ministry to put a curb on growing Aggregate Technical and Commercial losses (AT&CL) transmission and distribution losses which are more than 58 percent. The aggregate of T&D losses and the losses which is attributed to non-recovery of tariffs sums up to the AC&TL. “The unbundling and restructuring will provide operational, managerial and functional autonomy to the utilities to operate on commercial lines,” the official said. Over the years the state government has even failed to meet the guidelines set by Union Power Ministry to bring down the losses by three percent annually.  

The official said a loss of 10% to 15% of energy during import from outside was a normal phenomenon. However owing to worn-out and poor Transmission and Distribution network across Jammu and Kashmir the state which has not been revamped for many years now, the intra-state energy losses are also surging.

 

 

The ‘benefits’

 

An official of the rank of chief engineer said at present, every proposal of PDD from administrative to financial has to be vetted by the government which is often cumbersome and lengthy and often results in the issue, at times important ones, getting shelved owing to “unnecessary” bureaucratic and political hurdles.

“There will be a major change on this front. A board of directors will be in a place like in corporate sector which will be taking the decisions,” said the official.

The official said the reforms to curb the losses could be put in place in a much better way. “Once we bring down our losses to the required level the energy rates will also come down. The government claims it provides subsidy on power supply but ultimately the burden comes on consumers not only in the power sector but other sectors as well, in one form or the other,” the official said.

Importantly, the department believes that it would save the department around Rs 600 crore annually. “If we raise the money from the market at present for different works from purchase of energy to departmental works we get it from financial agencies at 18 percent interest rate but in case of corporation this same loan is charged with just eight percent interest,” said the official. “In the long run we could be doing it at six percent and we will have annual saving of Rs 600 crore a year.”

But given the fate of some existing corporations like State Road Transport Corporation which have been struggling to earn enough to sustain its own human resource, will the power companies sustain after unbundling when they would be required to earn for themselves as well?

“Unlike the SRTC or other corporations the big advantage that we have is the monopoly we are enjoying in the sector and everybody needs energy,” said the official.

 

 

But apprehensions remain

 

Days after the government announced its plans to go ahead with unbundling different employees unions of the power department went on strike and threatened to go for an indefinite strike, asserting the move would ultimately pave way for privatization of the power sector.

These unions got emboldened when Kashmir Economic Alliance, an umbrella organisation of different business bodies across the Valley lend their support to them. The Alliance gave an ultimatum to the government to withdraw the order or face agitation.

As per the proposal once all the utilities are set up and the unbundling process is completed the entire human resource from the department will be shifted to these utilities/companies.

As per official data there are more than 22,000 employees working in the power department, considered to be one of the largest employment generation sector like water supplies and education departments.

Fearing setting up of the utilities would ultimately lead to privatization of the sector and hence result in axing of manpower, the unions asked the government to come clean on policy for securing jobs of the employees. Under pressure the government virtually shelved the plan and assured that it won’t go for unbundling of the transmission and distribution sectors “at present.”

“The unbundling process was limited to creation of trading company only and the government is not going for unbundling of transmission and distribution sections ‘at present’,” read the minutes of the meeting that was chaired by commissioner/secretary Power, and attended by representatives of different employees' unions of the power development department. “The question of privatisation doesn’t arise.” The meeting took place on 20 September at civil secretariat here.

According to the minutes, the commissioner/secretary assured the union representatives that in case the government proposes to go for unbundling of the transmission and distribution sectors, all the stakeholders would be taken on board first. “All the issues shall be discussed with them before giving a final shape to such a proposal,” the minutes read. The meeting also assured the employees that their rights would be fully protected and they would continue to be governed by J&K Service Rules and would be on deputation to Tradeco, which would be restricted to 100 employees at present.

 

Will unbundling alone work?

 

Aimed to arrest losses the unbundling won’t work alone unless a number of reforms taken by the government during past one and a half decade to arrest T&D losses but left half way are not completed, said a superintendent engineer, referring to initiatives like metering and Restructured-Accelerated Power Development and Reforms Program (R-APDRP), an ambitious reforms program, meant to bring down energy losses.

In the past four years, the power department completed just 15 to 20 percent work in Kashmir on R-APDRP, despite getting three extensions for its implementation.

The Rs 662-crore program was approved for the summer capital Srinagar and parts of some districts including Ganderbal, Pulwama and Budgam in 2014, to begin with. Similarly, the winter capital Jammu and some of its districts were to be covered under the program for which separate funding was allotted by the union power ministry.

Overall, two capital cities and 30 towns were to be covered under the reforms programme which would have helped to bring down transmission and distribution (T&D) losses to 15 percent from present over 55 percent. “But in Kashmir, the work completed is not more than 15 percent,” a source said.

The source said that while the devastating floods in 2014 and the summer uprising in 2016 hit the work “badly”, there has been hardly any progress on the program for past one year. The program was targeted for completion in March 2016.

 

The source said the executing agency walked out of the contract in Kashmir and the government is now planning to allot fresh bids for hiring new agency. In Jammu, the source said the performance was far better and more than 60 percent work has been completed under the program, though the project has also got delayed there.

The government had moved the proposal for 100 percent metering in the state almost a year ago. But after missing several deadlines there had been hardly any achievement made on this ambitious project. In August this year the state administrative council approved engagement of Rural Electricity Corporation Power Distribution Company Limited (RECPDCL) as project implementation agency (PIA) on nomination basis for procurement and installation of 9.25 lakh electronic meters in the rural and urban areas of the state, sanctioned under several centrally sponsored programs.

“State’s power requirement has grown up to 4000 MW. This year the state’s power purchase bill is expected to be Rs 6000 crore and we are expecting revenue realization of around Rs 2400 crore in form of tariffs, leaving a loss of Rs 3600 crore,” said the official. “To bring down the losses the key is to carry out the reforms simultaneously else we may end up nowhere.”

The reduction of AT&C losses, the official said, was not only essential for revenue realization but equally important for providing reliable and quality power to all categories of consumers. “The vision of government to accomplish 24x7 Power for all by 2019 in a time bound manner cannot be accomplished unless all these reforms are carried out simultaneously,” said the official.