By A K Verma, Shalabh Srivastava.
A vibrant and sustainable power sector is essential to invigorate Covid-19 ridden economy. Electricity distribution is more vital during a pandemic to run our healthcare systems and other economic activities. But the situation is alarming as financial losses of power distribution companies (DISCOMs) are increasing. The Ministry of Power intends to privatize DISCOMs, starting with Union Territories, as a key intervention to resurrect the power distribution business and thereby the overall Power sector. Selection of UTs as a starting point gives the advantage of quick start and also high chances of initial success as power distribution companies in UTs are better off. While the move pushes laudable sectoral reforms, the much-needed depth and preparedness amongst private sector players are missing. At present, private utilities are serving a mere 10% of consumers of India, across licensees and franchisees combined, mostly limited to the urban centres. Terms and conditions mentioned in the draft standard bidding document (SBD) require in-depth domain expertise for private players to truly comprehend and bid effectively, since they deal with complex issues like existing baskets of PPAs, asset transfer, treatment of dues and other legal issues. It promises to give the successor entity a clean balance sheet, hence treatment of the outstanding losses and debt needs elaboration to enlist states’ participation.
Power distribution in India is a combination of commercial business and public service, operating in a highly regulated environment. Many state-owned DISCOMs have improved their performance and reduced losses, like in Gujarat and Kanpur, while license privatization in Odisha and franchising in M.P. or Bihar did not work. Ownership per se does not matter as much as management style. From this crossroads of private vs state ownership, at least one road must lead to internal reforms from within the utilities itself.
Mismanagement of Utilities over time resulted in lack of accountability, distorted internal communication, role obscurity amongst employees, management apathy towards capacity building of staff, obsoleteness of technology and inefficiency in business processes. The biggest challenge is posed by missing linkage between performance and rewards/penalties, including monetary incentives which are often available to their private sector counterparts. An experiment, known as EMPOWER GAINS is under pilot operation in a high-loss Subdivision of Rajasthan, with the objective of empowering the staff to adopt best practices and turn around the Subdivision’s performance under a target-bound manner. The pilot may evolve into a scalable and replicable model. Reforming DISCOMs presupposes changes in mindset of decision makers, which should be founded on stable tenure of leadership cadre for accountable performance, autonomy in recruitment, procurement, operations, flexibility to introduce functional restructuring and empowered governance structure for taking long-term decisions. States like Gujarat adopted this management paradigm amongst its DISCOMs and became sustainable over time, with good customer satisfaction. Since 2009-10 Gujarat introduced a Performance Incentive scheme, where in electricity utilities paid 4% of additional salary as a matching contribution to incentivise and motivate employees for achieving higher targets.
Though it is the DISCOMs that bring back money for the upstreamGencos, fuel suppliers, Transcos, railways, financiers and others, they are the favourite whipping boys of the power family as risks and rewards are not equitably distributed through the power value chain. Sector-risks are automatically shifted to them as DISCOMs interface directly with consumers. While tariffs are approved in advance to recover permissible costs in the ensuing year, truing up of expenditure often fails to enable effective recovery of actual arrears. The problem of insufficient tariffs gets compounded with increase in power purchase cost leading to widening revenue gap and accumulated debts. Regulatory Asset and its monetization seldom address this financial burden fully, leading DISCOMs into a debt-trap. Proactive roles of regulators to provide full realistic and permissible cost well in time to DISCOMs should be integral to any sectoral reform.
Besides privatization, an import-dependent smart metering & renewables strategy in the post-2020 world is staring at the distribution sector. Indian industries must embrace the challenge to substitute the imports of smart meters, solar panels, and Lithium Ion batteries as a step towards Atmanirbhar Bharat. Since that may take some time, till then DISCOMs must adopt ways to turn around their performance without waiting for smart meters /prepaid meters but certainly improving their billing with full scale metering. None of the private sector Utilities in India had adopted smart metering during the foundational years of their turnaround journey, instead they used available data smartly, which is the prime purpose of smart meters! At present, the power distribution market has a few established private players with hands-on experience in turning around distribution utilities, but they cannot stretch to cover entire rural-urban electricity supply requirements of the country. New entrants could not pull off similar success stories in various parts of the country leaving consumers in lurch. Empowering employees or even employee ownership might lead to another option to get out of this quagmire; the country needs several innovative models to resurrect the flagging distribution sector.
Dr. A K Verma is a former IFS Officer who served in the Ministry of Power. Shalabh Srivastava is Country Director – India, Research Triangle Institute (RTI) and a Member on the Board of India Smart Grid Forum (ISGF). Views are personal.
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