At Power Line’s recent virtual conference on “Power Distribution in India”, Vishal Kapoor, joint secretary, Ministry of Power (MoP), outlined the government’s initiatives and perspective on the distribution sector and spoke at length on the new Revamped Distribution Sector Scheme (RDSS). Excerpts…
At the outset I must say that irrespective of the current state of affairs, discoms and the power departments of states have been doing pretty well in ensuring power supply to every nook and corner of the country, even in the unprecedented situation arising out of the Covid-19 pandemic. In my view, all agencies relating to essential services, including electricity, deserve a big round of applause as they continued their respective services relentlessly in the interest of the public at large, without bothering about the impact on themselves.
This also shows that the sector, in terms of the basic power supply infrastructure, has covered a long distance in the past few years to ensure electricity access to every village, habitation and almost every household in the country. The financial hardships faced by many discoms have affected their operational efficiency. The inefficiencies of the other subsectors, transmission and generation, are also getting passed on to distribution as it is at the bottom-most level of the ladder for revenue generation.
Many factors external to discoms have had an adverse impact on their overall performance – regulatory issues as well as state finances. Further, there have been certain real issues of discoms themselves, which have directly impacted their performance, that is corporate governance, professional management, deployment of adequate manpower, standard operating procedures for operations and maintenance, financial management and consumer services, including grievance redressal.
Financial sustainability is the greatest challenge for most of the state-owned discoms as they continue to post significant financial losses, to a varying degree. Among the major factors contributing to these financial losses have been inadequate tariffs vis-à-vis the cost of supply; operational inefficiencies in metering, billing, collection and theft prevention, leading to high aggregate technical and commercial (AT&C) losses; non-payment/delayed payment of declared subsidies by states as well as the state government department dues; and inefficiency in power procurement.
If one looks closely at these issues, at the core lies operational efficiency, that is, metering, billing, collection, theft prevention and power procurement. Collection efficiency today stands at 94 per cent, but it should be much better. In fact, we have seen an erosion in collection efficiency in the past one or two years, even though there has been significant improvement in billing efficiency. We have been consistently bringing down AT&C losses, which stand at 20-21 per cent right now. In view of the present level of per capita consumption in the country, which is a third of the world’s average, the sector’s growth is much desired and distribution infrastructure needs to be built. There is a need for the creation of significant and adequate capacities by strengthening and augmenting the sub-transmission and distribution sector. Large-scale capital investment needs to be infused and greater opportunities would be available to the industry in the short, medium and long terms, in areas including strengthening and augmenting of the sub-transmission sector, loss reduction, smart metering, consumer metering, system metering and associated energy accounting system.
The Bureau of Energy Efficiency has recently come out with statutory energy accounting guidelines and mandates discoms to prepare three-monthly energy accounts. The new RDSS also provides for the implementation of smart metering works in the TOTEX (capital expenditure + operational expenditure) mode through a public-private partnership arrangement. Metering is being envisaged as a service rather than a commodity that has to be procured. The expansion of IT-OT solutions – supervisory control and data acquisition (SCADA) system, distribution management system, enterprise resource planning – is also being done. The focus has also been brought to artificial intelligence (AI) and machine learning (ML) solutions, especially in the area of loss reduction, and we, in the process, are also planning to set up an incubator specifically focused on AI and ML solutions, which will encourage existing businesses as well as start-ups in this space. The Smart Grid Knowledge Centre at Powergrid is also being developed as an innovation park. An online innovation park is also in the offing, which we should be launching soon.
On the supply side, I think the industry will need to gear up to absorb such large-scale investments and build up their capacities to deliver, in terms of manufacturing, supply and even installation. Hence, the industry needs to join up with the government to ensure the availability of adequate skilled manpower to take up all these works. The government, on its part, is working on these lines, but we would require partnership from the industry. “Make in India” is another aspect on which the government is focusing, looking at maximum made in India products in the electricity sector. There are some other initiatives that we are planning, including privatisation of distribution in the union territories. We are also looking at other options of ploughing in the asset monetisation proceeds into the distribution sector.
Revamped Distribution Sector Scheme (RDSS)
Coming to the RDSS, we have been regularly supplementing the resources of state power departments through various central sector schemes, primarily focused on providing capital investment for infrastructure works. Moving slightly away from the traditional way of infusing funds for infrastructure creation, the government has now launched this new reforms-based results-linked scheme, with the objective of improving the quality and reliability of power supply to consumers through a financially sustainable and operationally efficient distribution sector. The fund release in this scheme is tied to the achievement of results and initiation of reforms. We have an outlay of over Rs 3 trillion in the scheme, which also envisages a significant amount of private investment.
This scheme is different from the previous ones on two counts. Here, we are not envisaging a one-size-fits-all approach. Discoms will have flexibility to draw up plans for improvement, action plans and detailed project reports (DPRs), keeping in mind their own specific conditions, but that will be subject to the central government establishing the adequacy and sufficiency of the measures being undertaken. The financial assistance is conditional on the adoption of reforms and showing results on various operational and financial performance parameters.
Under the earlier schemes, the objective was to increase last-mile connectivity, which has now been accomplished. We have, however, underperformed on the twin aspects of financial and operational efficiency. To be specific, operational efficiency has shown more improvement than financial efficiency. Earlier, there used to be different schemes being dealt with by REC and the Power Finance Corporation (PFC). Now, we have brought all the schemes under a single umbrella of the RDSS. This brings the elements of reform, perform, transform and create together in one thread. More importantly, the conditional release of funds by the government ensures stringent emphasis on performance and target achievement. Broadly, reforms expected under the scheme pertain to fiscal discipline and regulatory simplicity on the part of the central government, state governments and discoms.
Smart metering contracts under the RDSS are envisaged as TOTEX contracts and therefore the developer will have to design, build, finance, operate and transfer smart meter assets. Once meters are installed and the first prepaid billing cycle is completed, around 15 per cent will be transferred by the government. Similarly, we have envisaged the installation of another 100 million smart meters by December 2023. States that meet the meter installation targets will be given another 50 per cent grant of the 15 per cent already given. An investment of Rs 1.5 trillion is geared towards strengthening infrastructure, including government funding of Rs 700 billion-Rs 730 billion. We are focusing on two areas – around 50 per cent of the investment will be directed towards loss reduction and the other half towards modernisation and augmentation of distribution infrastructure.
Operational guidelines of the scheme were released on June 27, 2021 and the MoP and its nodal agencies, PFC and REC, have been organising workshops to sensitise states and discoms on preparing their action plans and DPRs. States and discoms have already initiated the process and we expect that by December 2021 all the states would be coming in with their action plans, some even earlier. To ease the process, we are also envisaging several other measures. We have already prepared smart metering standard bidding or model bidding guidelines for the selection of AMI system providers for rolling out smart meters. We are also preparing standard bidding documents for infrastructure work, SCADA and other things. We expect that approvals for these projects will be in place by the fourth quarter of the financial year 2021-22 and projects will start hitting the ground by year-end.