Unbundling power

As the J&K cabinet has approved plans of carving out four different companies from the huge power department to professionalize the basic service, will the change lead to the reduction in tariffs, improved services, reduced corruption and increased accountability? R S Gull reports the broad contours of the unbundling process

There were two distinct developments in the energy deficit state’s power sector in the last year. Firstly, the state government was permitted to utilize the water usage charges (so far Rs 1000 crore) that various power generating companies had deposited after J&K started charging through State Water Resources Regulatory Authority (SWRRA) under a new law. Secondly, the Baglihar-I has started earning and the State Power Development Corporation (SPDC) is anticipated to make a profit of Rs 400 crore in 2012-13 for the first time ever since it was constituted in 1995. This has added to the confidence of the state policymakers that they should take a call on something very crucial – the unbundling of the power sector.

PricewaterhouseCoopers (PwC), one of the world’s respected consulting agencies, had offered the J&K government some basic ideas of what could happen in unbundling. Last week, a detailed note was sent to the cabinet and, as expected, it was approved. It will take a long time to implement the decisions especially since these could impact the public perception at a time when the incumbent government is gearing to face polls in 2014. But professionalizing the sector (serviced by more than 32000 employees) has remained one of the major demands that the central government was seeking, especially the distribution part of it.

The J&K has a wholly stated owned Genco (Generation Corporation) that has actually taken off. SPDC is in the process of drafting its balance sheet and clearing the accounts in backlog so that it can go public as early as possible. Within the next three years, its generation would double. So would its turnover. By the end of the first decade, it is aimed at making more profit than J&K Bank, currently the state’s only listed company. It is opening its profit account by an impressive Rs 400 crore this fiscal.

The cabinet approved plan envisages setting up of four fully owned companies – one for transmission of energy (Transco), one for the trading of energy that will be a holding company and two distribution companies (discoms) – one each for Srinagar and Jammu. A third discom may be set up for Ladakh later that will see enough of energy by the end of next fiscal when two NHPC project will get into generation mode.

Apparently, it will be repacking the status quo. Explains an engineer: “The division of labour already exists in the power development department. We have a procurement wing, a system operation set up and M&RE that distributes power which are headed by chief engineers who will automatically become MDs once the corporations are set up.”

But the state’s power commissioner, Sudhanshu Panday, says that is too simplistic. “There is a clear lack of accountability and absence of proper energy auditing,” Panday said. “The new set up will effectively alter the scenario and, most importantly, it will help the new autonomous entities to generate resources strictly as per their requirements. They will no more be solely dependent on the paltry funding from the state’s planning and finance departments because the existing systems make them ineligible from raising resource from the market.” Nobody is singularly responsible for the aggregate technical and commercial (AT&C) losses which we have somehow reduced from 74% to 67%, Panday added.

Insiders expect the state power trading corporation will be instantly in profit because it has well-identified resource and less requirement of infrastructure investment. “For all these years, the 12% of the free power that would go into the energy pool would never be accounted for as it was automatically getting converted into overall subsidy and would disappear,” Panday said. “This energy will come to the new corporation at no cost.” Its only liability, apart from its staff, would be part of the inter-state loses (pool losses) which are usually being accepted at 4%.

This company that will purchase and sell energy will have a huge order to manage. In 2011-12, for instance, J&K consumed 10972 million units of energy worth Rs 2949 crore. A part of this energy comes from the energy allocations of various CPSU projects in which J&K is a declared beneficiary state and the balance of the overall deficit is being purchased from the Northern Grid. This holding company, however, will not be arbitrarily deciding the tariff and it will have to go to the SERC with its case and justify the costs it seeks to recover from the discoms to which it will sell power.

The SPDC, the state’s wholly-owned corporation, interestingly, has already set up a trading muscle for selling power. Managing Director, SPDC, Basharat Ahmad said the corporation is in the process of inking an agreement with the power trading corporation of India so that SPDC becomes an affiliate member of the national power exchange. After understanding the nitty-gritty of the energy trading, Basharat said, they will seek a full-fledged membership and become autonomous in handling power trading. The experience and the utility can extend its help to the independent power producers (IPPs) who lack resources and access to the market for selling their generation. This, however, will not be in conflict with the proposed trading corporation of the state government.

The proposed Transco will take over the entire high voltage transmission network that the state power development department currently owns, runs and operates. The entire network above 133 Kv will go to this utility.  It will have state load dispatch centre (SLDC) separately ring-fenced within it for handling system operations in the state.

PDD owns six 220-kv double circuit power transmission lines with a cumulative length of 373.13 kms offering a total circuit connectivity of more than 622 kms. Besides, it also owns 34 lines of 132-kv capacity across the state that wheel energy in the length and breadth of the state by covering 1621.12 kms. Being out of date, the PDD is using the heritage 132 kv Chenaini-Srinagar line to manage the local load on the highway. It is unlikely that the new utility will get the ownership of 400 kv double circuit transmission line that evacuates energy from SPDC owned 450- MW Baglihar-I but transmission lines of all older projects are expected to be handed over to this utility only.

Transmission is a major opportunity in the energy sector. At one point of time, it was being planned to set up Transco after the passage of a law that will prevent any power producer (read NHPC) from having its own transmission system. This would have enabled PDD to lay the transmission systems and mint money for wheeling the energy. Energy is a state subject.

Currently, it is PGCIL that is evacuating energy from all the NHPC projects across the state to the Northern Grid. PGCIL is making good money in the state because it owns the main energy artery – the gigantic 184 km long 400 kv, double circuit transmission line – connecting Wagoora in Srinagar with Kishanpur in Jammu, that it commissioned in November 2006.

The new Transco, however, will possibly get the ownership of the new 375 km long 220-kv transmission line that is being laid between Srinagar and Leh. The most modern line that will pass through an 8.50 km tunnel to avoid Zoji La would cost more than Rs 750 crore and will be implemented shortly.

Even in this case, Transco will have to take its case to the SERC for deciding the wheeling charges. Once set up, it will have to assess its assets and decide its depreciated value. As the government usually manages the capital component of major projects, this utility will have least liabilities except sharing the inter-state transmission losses.

But the real challenge would be tackled by the twin discoms because they will have to sell the energy to the consumer and raise the tariff. These companies will face two challenges. Firstly, repairing and renovating the distribution network that includes the entire rundown low tension supply lines (60446.375 km), grid interfaces and the local transforming.

For an infrastructure that might have taken Rs 10, 000 crore so far, an officer explains, there should have been a repairing and upgrading budget of at least three per cent- Rs 300 crore a year. “But it is not the case as we have only Rs 80 crore available for managing and maintaining this huge set up in a year,” he said. “Once we are a company, we will go to the market, raise money, invest, earn and return the amount and the customer will get proper service.” For all this, the consumer will have to pay because no commercial ventures charitably take the hit. They just pass the losses to the consumer.

Once these discoms come into being, the central projects like Restructured Accelerated Power Development and Reforms Programme (R-APDRP) and Rajiv Gandhi Grameen Vidyutikaran Yojana (RGGVY) will be shifted to them. Panday said they have already spent Rs 160 crore under R-APDRP as overall allocations under RGGSY stand at Rs 862 crore.  Secondly, they will have to plug the theft which is huge. PDD is collecting tariff which is barely half of the actual amount invested in the power purchase. In 2011-12, for instance, when J&K consumed electricity worth Rs 3000 crore, the actual tariff realization was Rs 1203 crore only, leaving an overall deficit of about Rs 1900 crore. For the current financial year, indications suggest the overall requirement on energy front would cost the state government Rs 3400 crore.

Though the discoms would again go to the SERC for fixing the tariff but it will be a huge challenge for the discoms to collect the tariff while plugging loopholes, or otherwise those who are paying, will have to pay for the energy thieves as well. These discoms will actually be getting most of the staff that is currently with the PDD and part of it may require a lot of re-orientation and hectic monitoring to help them change for good.

If every consumer pays for the energy they consume, the tariffs could become rational, though not cheap, experts say. If the energy theft stays the way it exists, energy will be the new gold in making in J&K. “There are three corporations between the generation and the consumption and every one of them has to struggle for profit which could shoot up the costs,” an engineer said. “If AT&C are controlled to a reasonable level and more consumers start paying, it might offer an ideal way out.” Panday says the government is working with a Scenario-II in mind. Good luck.

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