Report on Restructuring of APDRP

8/13/2019 Report on Restructuring of APDRP

1/76


2/76


3/76


4/76


5/76

i

The availability of electricity and quality and reliability of supply is critical to the economic growth of the

country more so in the Indian context, where an eight to ten percent growth rate is expected in the coming

years. It is well known that mere availability of electricity is not sufficient but also a reliable supply of electricity

would accelerate economic growth and would help in achieving double digit growth in GDP.

This will require accelerated reform in the power sector to achieve commercial viability and high efficiency in

the distribution sector. A financially viable, robust electricity sector, which is also market sensitive and customer

oriented will form the platform for Indias drive to achieve economic greatness. This could be achieved, if

reform in the power sector are intensified, the sector is subjected to external oversight regularly, efficiency

and control of losses are achieved especially in the electricity distribution, the sector is restructured to

respond to the market process and if full cost recovery is allowed.

The electricity distribution is the most challenging task in the sector on account of the interface with a large

number of customers with varying needs and expectations and different proportionality to pay. It is in distribution

that more than eighty percent of the losses occur. The commercial viability of the sector will depend on the

reduction of these Aggregate Technical and Commercial (AT&C) losses. The Accelerated Power Developmentand Reform Programme is playing a vital role in this aspect and would continue to do so.

The programme provides much needed investment to the distribution sector. By way of incentivizing, it also

motivates the utilities to bring down their cash loss. Under the restructured APDRP, states will be required to

adopt reform to become eligible for APDRP as it was observed that states, which adopted reforms, performed

better.

The Task Force is of the view that mere strengthening of the distribution network will not be able to bring

down the losses. Utilities will have to take up commercial measures like energy accounting & auditing,

managerial initiatives for making the employees more accountable, adoption of Information Technology for

improving efficiency and enhance consumer satisfaction.

The Utilities should identify the priorities and prepare a roadmap for improving Key Performance Indicators

(KPIs), implement a business plan for early financial turnaround, initiate a programme to adopt best practices,

bring necessary process changes and modifications to ensure that the efficiencies are sustained.

I am extremely grateful to all the members of the Task Force for their valuable suggestions in arriving at the

recommendations contained in the report. I am also thankful to the staff of Ministry of Power, particularly

Shri Arvind Jadhav, Joint Secretary and Convenor of the Task Force and APDRP Cell, for their inputs,

contributions and help in finalization of the report.

(P. Abraham)

Former Secretary

Govt. of India

Ministry of Power

Chairman, Task Force

PREFACE


6/76

ii

Consumer Care Center

Meters after replacement


7/76

ii i

Page NoPreface iExecutive Summary v-ix

Abbreviations Used x-xii

CHAPTER 1: INTRODUCTION 1-21.1 Background 11.2 Terms of Reference 21.3 Scope and Intent of the Report 2

CHAPTER 2: REVIEW OF APDRP 3-92.1 Description of the Programme 32.2 Scheme Status 52.3 Review of APDRP 9

CHAPTER 3: VIEWS OF VARIOUS AGENCIES 11-233.1 Views of Planning Commission 113.2 Views of Advisor cum Consultants 113.3 Views of Utilities 133.4 Views of Evaluators 173.5 Views of Ministry of Power 183.6 Views of Central Electricity Authority 213.7 Views of Ministry of Finance 22

CHAPTER 4: OBSERVATIONS OF THE TASK FORCE 25-344.1 National Level Interventions 254.2 State Level Interventions 274.3 SEB Level Interventions 274.4 Town Level Interventions 294.5 Feeder Level Interventions 304.6 Consumer Level Interventions 304.7 APDRP Targets 304.8 APDRP Implementation 334.9 APDRP Incentive 334.10 General Observations 34

CHAPTER 5: RECOMMENDATIONS OF THE TASK FORCE 35-40

5.1 Continuation of APDRP 355.2 Eligibility Criteria for APDRP Assistance 355.3 APDRP Assistance to Private Utilities 365.4 Objectives of APDRP 375.5 Support under APDRP 375.6 Funding under APDRP 38

5.7 Implementation and Monitoring 39

CONTENTS


8/76

iv

ANNEXURES 41-60

Annexure - I Office Memorandum for Constitution of Task Force 41

Annexure II Status of APDRP Investment Component 43

Annexure III Status of Incentive Claims 44Annexure IV Sample Memorandum of Agreement under APDRP 45

Annexure V Status of Power Sector Reforms 55

Annexure VI Commercial loss of Power Utilities 56

Annexure VII 11 kV Feeder Metering Status 57

Annexure VIII Consumer Metering Status 58

Annexure IX AT&C Loss, Billing & Collection Efficiency of Distribution Utilities 59

List of Tables

Table 2.1 Allocation of APDRP Fund 5

Table 2.2 APDRP Sanctions and Implementation 8

Table 2.3 Profit / Loss of State Power Utilities 9Table 3.1 Major Delays in Transfer of APDRP Fund 14

Table 4.1 Loss of Utilities as Percentage of Turnover 32

List of Figures

Figure 4.1 Commercial loss of Power Utilities without Subsidy 28

Figure 4.2 Billing & Collection Efficiency and AT&C Loss 31

List of Boxes

Box 2.1 Main recommendations of Deepak Parikh Committee 4

Box 2.2 Key features of One Time Settlement Scheme 5

Box 2.3 Priority Items- Category A 6

Box 2.4 Priority Items- Category B 6

Box 2.5 Benchmarking of Performance Parameters at Utility level 7

Box 2.6 Benchmarking of Performance Parameters at Town level 7

Box 3.1 Suggestion of Utilities on Investment Needs in Distribution 17

Box 4.1 MOA Conditions 26

Box 4.2 Improvement in Commercial loss of the utilities 28

Box 4.3 Measures by States for Prevention of Theft of Electricity 29

Box 4.4 Reduction of AT&C loss below 15% in APDRP Towns 30

Box 4.5 Improvement in Billing & Collection Efficiency 32

Box 4.6 Main Reasons for Delay in APDRP project implementation 33


9/76

v

1.0 Background

The Government of India initiated various reforms in the Power Sector with an objective of bringing about

commercial viability to the State Power Utilities. It took various initiatives towards reforms and other policymeasures for helping the state power Utilities to bring improvement in their efficiency. However, these steps

were not sufficient to bring about commercial viability of SEBs. This called for a focussed attention to problems

afflicting the customer Utility inter-face, that is, the sphere of electricity distribution.

In order to achieve commercial viability, Ministry of Power formulated a six level intervention strategy and to

operationalise the strategy, Ministry launched Accelerated Power Development Programme in the year 2000-

01. The programme had investment component only. However, on recommendation of Deepak Parikh

Committee on State Specific Reforms, incentive component was also included with an emphasis and the

programme was rechristened as Accelerated Power Development and Reform Programme (APDRP) in

2002-03.

The Ministry of Power took up the evaluation of the programme through independent agencies. Whilerecommending the continuance of the APDRP beyond 10thPlan, the evaluators made certain suggestions

for incorporating in the programme for achieving better results. The utilities and the Planning Commission

had also proposed certain modifications in the programme. Considering this, the Ministry of Power constituted

a Task Force to assess and analyze the current efforts, suggestions made by various agencies and to

suggest restructuring of the programme to achieve the objectives of APDRP.

2.0 Scheme Status

The Government had approved the programme with a budget provision of Rs. 40,000 Crore during Xth

Plan, out of which Rs. 20,000 Crore was allocation under Investment component and Rs. 20,000 Crore

under Incentive component. However, the Government actually allocated only Rs. 12,322 Crore.

Under the investment component, Ministry so far sanctioned 583 projects with overall estimated outlay of

Rs. 19180.46 Crore. However, the Utilities were able to complete only about 50% work amounting to Rs.

9730.48 Crore.

Under incentive component of APDRP, 19 states submitted their incentive claims to the Ministry amounting

to Rs. 10,795.69 Crore, since launch of the programme. However, on scrutiny by independent evaluators,

only 8 states were found eligible for incentive. Total incentive amounting to Rs. 1536.62 Crore was released

among these states.

3.0 Views of Various Agencies

The Task Force considered the views of the Planning Commission, Advisor cum Consultants, CentralElectricity Authority, Ministry of Power and Ministry of Finance regarding their experience and suggestions

for improvement for making the programme more effective. Views of some Utilities were also taken into

consideration.

The Planning Commission had proposed bifurcation of feeders, automated metering of all distribution

transformers, and GIS mapping of all consumers for effective energy accounting and to incentivised staff for

EXECUTIVE SUMMARY


10/76

vi

efficiency improvement. They proposed for providing funds initially as debt to be later changed into grant

based on achievements.

The Advisor cum Consultants, Evaluators and the Ministry were of the view that the programme helped thedistribution Utilities in up-gradation of their old and overloaded networks, bringing in commercial approach

and accountability, up-gradation of skills and adopting best practices. They remarked that though there

have been considerable improvements in some of the Utilities, others were yet to show significant change

due to late start by them. They pointed out that the Utilities, which took the initiatives as prescribed in the

MoA showed better improvement.

The Utilities were of the view that the programme brought much needed investment to the distribution

sector, which helped them in building infrastructure, strengthening and up gradation of the network. This in

turn resulted in reduction of AT&C losses, DT failure rate, interruptions & outages and improvement in

customer satisfaction. They were of the view that the distribution infrastructure was weak and that infrastructure

building was required initially in the distribution and that modernization activities can be taken up only after

the existing network was brought to a certain level. Utilities expressed that for the first 3 years of the programmelittle would have been achieved, however from the third year onwards, a declining trend can be noticed,

which was in line with the Project Management Cycle. The new APDRP now needs to focus on furthering

this process so that a cascading effect can be achieved.

Ministry was of the view that the implementation of the schemes was in advanced stage in few states/towns

and the results can be expected from them only and not from the whole state or country. The Ministry

informed that AT&C Losses have been brought below 20 percent in 212 APDRP towns in the country of

which 169 towns have brought AT&C losses below 15 percent. It was mentioned that results would have

been better if State Departments were paying their electricity dues especially for water pumping and street

lighting. The overall commercial loss of the Utilities reduced from Rs. 29,331 Crore during 2001-02 to Rs.

22,129 Crore during 2004-05.

All the agencies pointed out certain bottlenecks faced during implementation of the schemes. The main

bottlenecks were poor response of states on reforms, delay in transfer of fund by the states, unrealistic

DPRs, delay in supply of equipments due to increased demand, heavy quantum of work, increase in price of

materials/equipments, poor response to turnkey offers, employees resistance to outsourcing and delay in

finalizing IT road map for the Utility.

While recommending continuation of APDRP, they suggested certain improvements to make the programme

more effective. The suggestions were mainly towards better planning, project management, direct release

of fund to the utilities, fixing of realistic targets, increased financial assistance, preparation of standard

guidelines & specification, flexibility in DPRs, adoption of Information Technology, HVDS and provision for

training etc.

4.0 Observations of the Task Force

The Task force observed that the Ministry had evolved a six level intervention strategy to bring about

commercial viability in the electricity distribution sector. Under the strategy, steps were required to be taken

at National, State, SEB, Circle/town, feeder and at Consumer levels.


11/76

vi i

The Task Force appreciated the initiatives taken by the Ministry at national level in respect of notification of

Electricity Act, National Electricity Policy, Tariff Policy and other policies and guidelines. It also appreciated

its efforts towards propagating best practices in the power distribution system for training of the Utility

employees. The Task Force also noted the efforts of AcCs in assisting the Utilities and the Ministry infinalization of the projects, implementation and monitoring.

At state level, Task Force observed that many of the states were yet to adopt reform path and that the

performance of the Utilities was much better in states where there was commitment for reforms in comparison

to other states. At SEB level, it was observed that there was mixed achievements on the proposed

interventions. Some of the Utilities adopted feeder manager approach to make the field level officer

accountable and through monitoring of their performance, achieved very good results in form of improvement

in all the KPIs. The monitoring of achievements has improved to great extent in many Utilities. However,

much was still desirable in some of the Utilities.

The Task Force observed that trend in increase in commercial losses of the Utilities has not only been

arrested but now it was on a downward trend at the National level. The reduction in theft and pilferage ofpower was an important activity Utilities had to undertake towards reducing AT&C loss and achieving the

commercial viability. The Task Force observed that some of the states were not able to deal effectively with

power theft cases.

At the town level, though reduction in AT&C losses and DT failure rate has been reported in most of the

towns, where APDRP work has been considerably completed, it was however observed that significant

reduction was only in few states.

Task Force noted that though about 96% of the feeders have been metered at national level, however,

energy auditing was at initial level. It was observed that such of the feeders, where augmentation has been

done and the energy accounting has started, outages have reduced and significant improvement has been

achieved in respect of AT&C losses and DT failure rate.

It was noted that the metering of agricultural consumers has not been taken up by most of the states. Task

Force was of the view that it will not be possible to reduce the technical as well as commercial losses without

metering each and every consumer, smaller or bigger, including agriculture.

The Task Force observed that AT&C losses of 5.06% was reduced at national level during three years, i.e.

1.68% reduction per year as against a target of 9% per year. The achievement can not be considered as

small as the actual implementation of the programme started quite late, though it could have been better.

The Task force observed that the improvement in billing and collection efficiency has taken place in most of

the Utilities. The trend of sell more lose more has reversed, which should be appreciated. While analyzing

the collection efficiency of the Utilities, Task Force did observe that payments of the electricity dues by

Government Departments/local bodies impacted the revenue collection by the Utilities.

It was observed by the Task Force that majority of the APDRP projects were sanctioned during 2002 and

2003. However, only few states took prompt action towards quick implementation of these projects. It was

observed that there has been delay in implementation of the APDRP projects. Though, there could be many

reasons for delay, the Task Force observed that most of these delays could have been avoided, if projects


12/76

viii

were prepared based on good planning through new technologies. Hence, there was a need of betterplanning, data management, project management and monitoring.

The Task Forces noted that some Utilities diverted funds under this scheme for their normal O&M work andit has felt that this should not be allowed. The Task Force observed that the Utilities, which executed CAT-Aschemes, derived better results, though, CAT-B schemes were also necessary.

The Task Force observed that incentive was a big motivating factor for the Utilities for reducing their lossesthrough efficiency improvements. It noted that some of the states, which took the incentives earlier, couldnot take up the incentive again. This would indicate that the Utilities are not consistent in their performancewhich needs to be analyzed and corrective measures taken. It was observed by the Task Force that thoughmany of the Utilities have reduced their commercial losses but only few of them achieved reduction in cashlosses. The main reasons for not achieving the cash losses reduction were for supplying free power foragriculture sector, inadequate subsidy in form of tariff compensation and increase in receivables.

The Task Force observed that the APDRP was still at initial stage and was of the view that the full benefits

of the programme can not be expected at this stage and that the assessment of benefits from the programmeshould be made after covering all the district headquarter towns at least and when sufficient work has beencompleted.

5.0 RecommendationsThe recommendations of the Task Force with regard to Restructuring of APDRP for supporting Reforms inthe State Power Utilities are summarized below:

a. APDRP may be continued with investment and incentive component beyond the Xth Plan

b. The conditions for availing assistance under the programme may be made more stringent with an

objective to make States/Utilities to adopt reforms. The primary conditions viz

i. Restructuring of SEB/Power Deptt.

ii. Constitution and operationalisation of SERC;

iii. Establishment and operationalization of special courts and police stations under anti-theft

provisions of the Electricity Act 2003.

as mentioned in the report will have to be fulfilled by the states for becoming eligible for the APDRP.

The states will also have to commit achievement of targets for secondary conditions viz

i. Finalization of Roadmap/Financial Restructuring Plan approved by the Regulator and State

Government;

ii. Adoption of Multi-Year Tariff;iii. 100% system metering up to 11 kV feeders;

iv. Energy accounting and auditing;

v. 100% metering of non-agriculture consumers in the Utility;

vi. 100% metering of consumers including agriculture consumers in the APDRP covered areas;


13/76

ix

vii. Establishment of consumer care centers in all the district towns.

as approved by the Ministry, which will be based on the present performance level of the Utilities.

c. The APDRP assistance, both investment and incentive component, may be extended to the PrivateDistribution Utilities also. The incentive for loss reduction by the private utilities may be given to theState instead of the utility.

d. The Task Force recommends following targets for reduction in AT&C losses by the Utilities:

i) Utilities having AT&C losses above 40%: Reduction by 4% per year;

ii) Utilities having AT&C losses between 30 & 40%: Reduction by 3% per year;

iii) Utilities having AT&C losses between 20 & 30%: Reduction by 2% per year;

iv) Utilities having AT&C losses below 20%: Reduction by 1% per year.

e. The projects taken up under the programme should be aimed at reducing AT&C losses, improvementin quality and reliability of power and improvement in consumer services.

f. Utilities should prepare a roadmap with priorities for works to be taken up under the investmentcomponent and execute the work by adopting best practices.

g. Each Distribution Company may be considered for calculation of incentive against cash loss reduction.Ministry may devise additional methods also for incentivizing Utility and Utility employees forimprovement in performance.

h. Under the investment component of the programme, the grant may be increased to 50% of the projectcost for the general category states.

i. In order to keep the focus of the states and Utilities towards reforms and the improvement in the

sector, Government should commit sufficient non-lapsable fund for the programme.

j. The programme may be converted into a Central scheme for speedy implementation.

k. The assistance under the programme should focus mainly on such activities, which will help in quickreduction of AT&C loss and improvement in customer services,

l. The programme should have a provision of 5% for training the Utility personnel, hiring consultants,undertaking studies, project evaluation etc.

m. The DPRs for the new projects should be made more realistic. The tender documents and specificationsshould be standardized by the AcCs in consultation with the Utilities. It should contain a quality planand also provisions for price variations during execution. A variation of plus or minus 10% to 15% maybe allowed in quantity or value of items within overall sanctioned cost of the scheme.

n. Execution of all the schemes should be on turnkey system only by adopting standard specifications,except in cases where approval of the Ministry is taken in advance.

o. Utilities, AcCs and Ministry of Power should closely monitor the implementation of APDRP projectsand progress of the Utilities towards achievement of the set targets.

***


14/76

x

ABC Arial Bunched Cable

AcC Advisor cum Consultant

ACS Average Cost of SupplyAEC Ahmedabad Electricity Company

AP Andhra Pradesh

APCPDCL Andhra Pradesh Central Power Distribution Co. Ltd.,

APDP Accelerated Power Development Programme

APDRP Accelerated Power Development & Reform Programme

APEPDCL Andhra Pradesh Eastern Power Distribution Co. Ltd.,

APNPDCL Andhra Pradesh Northern Power Distribution Co. Ltd.,

APSPDCL Andhra Pradesh Southern Power Distribution Co. Ltd.,ARR Average Revenue Realisation / Annual Revenue Return

ASCI Administrative Staff College of India

AT&C loss Aggregate Technical & Commercial loss

AVVNL Ajmer Vidyut Vitran Nigam Ltd.,

B.U. Billion Units

BESCOM Bangalore Electricity Supply Company

BEST The Brihan Mumbai Electric Supply & Transport Undertaking

BRPL BSES Rajdhani Power Ltd.,

BSEB Bihar State Electricity Board

BYPL BSES Yamuna Power Ltd.,

CARE Credit Analysis & Research Ltd.

CEA Central Electricity Authority

CEO Chief Executive Officer

CESCO Central Electricity Supply Company of Orissa

CIS Customer Information System

CMD Chairman & Managing Director

CPRI Central Power Research Institute

CPSU Central Public Sector Undertaking

D/S Distribution System

DHBVNL Dakshin Haryana Bijli Vitran Nigam Ltd.,

Abbreviations Used


15/76

xi

DISCOMs Distribution Companies

DPR Detailed Project Report

DRUM Distribution Reform Upgrade and ManagementDT Distribution Transformer

DVVNL Dakshinanchal Vidyut Vitran Nigam Ltd.,

GDP Gross Domestic Product

GEB Gujarat Electricity Board

GIS Geographical Information System

HESCOM Hubli Electricity Supply Company

HP Himachal Pradesh / Horse Power

HT High TensionHVDS High Voltage Distribution System

IIM Indian Institute of Management

IT Information Technology

J&K Jammu& Kashmir

JDVVNL Jodhpur Vidyut Vitran Nigam Ltd.,

JE Junior Engineer

JSEB Jharkhand State Electricity Board

JVVNL Jaipur Vidyut Vitran Nigam Ltd.,

KPI Key Performance Indicator

KPTCL Karnataka Power Transmission Company Ltd.,

LD Liquidated Damages

LT Lower Tension

MESCOM Mangalore Electricity Supply Company

MIS Management Information System

MOA Memorandum of Agreement

MOF Ministry of Finance

MOP Ministry of Power

MOU Memorandum of Understanding

MP Madhya Pradesh

MSEB Maharashtra State Electricity Board


16/76

1

1.1 BACKGROUND

1.1.1 The Government of India initiated various reforms in the Power Sector with an objective of bringing

about commercial viability to the State Power Utilities. The health of the State Power Utilities not only

affects the state power sector but it also affects the fiscal health of the states, the central generating &

transmission Utilities and the overall performance of the economy of the country. All the states have

also recognised the importance of the power sector and most of them have adopted the reform path.

1.1.2 The Ministry of Power took various initiatives towards reforms and other policy measures for helping

the state power Utilities to bring improvement in their efficiency towards bringing about commercial

viability in the power sector. Some of the major initiatives were establishment of regulatory mechanism

at central and state level, restructuring of the state power Utilities. However, these steps were not

sufficient to bring about commercial viability of SEBs, the lack of which has stymied power sector

reforms. This called for a focussed attention to problems afflicting the customer Utility inter-face,

that is, the sphere of electricity distribution.

1.1.3 In order to achieve commercial viability, Ministry of Power formulated a six level intervention strategythat encompasses initiatives at national level, state level, SEB/Utility level, distribution circle level,

feeder level and the consumer level. To operationalise the strategy, Ministry launched a national level

Accelerated Development Programme in 2001. The Accelerated Power Development Programme

(APDP) was introduced in the year 2000-01. The programme had only investment component under

which the Government was providing Additional Central Assistance to the states for strengthening and

up gradation of distribution network and also for Renovation & Modernization/Renovation & Up gradation

of thermal/ hydro power plants.

1.1.4 The Ministry also constituted an Expert Committee under Sh. Montek Singh Ahluwalia, the then Member

(Energy), Planning Commission, to recommend measures for one-time settlement of outstanding

dues of the SEBs towards Central Public Sector Undertakings and suggest a strategy for capital

restructuring of the SEBs. On the recommendations of the committee, Tri-Partite Agreements were

signed by all the states and their outstanding dues as on 30th September 2001 were securitized.

1.1.5 The Ministry also constituted an expert committee headed by Shri Deepak Parikh, Chairman, IDFC

Limited, to assist in developing state specific reforms programme to rapidly restore and sustain the

financial viability of the power sector and effectively harness the funds under the APDP and other

sources. On the recommendations of this Committee Incentive Component was also introduced in the

programme. The rechristened programmeAccelerated Power Development and Reform Programme

(APDRP) was sanctioned by the Government in March 2003. Earlier, the assistance was being

extended to the tune of 50% of the project cost, in the form of 25% as grant and 25% as loan for

general category states and 90% as grant and 10% as loan to the special category states. Since,

March 2003 a provision of Rs. 20,000 Crore budgetary allocation under Investment component andRs. 20,000 Crore under Incentive component was made under the scheme. The programme was

focused on high density urban areas for achieving quick results towards bringing about commercial

viability to the power Utilities.

1.1.6 In the process of bringing reforms in the power sector, Ministry also enacted Electricity Act 2003 and

has notified National Electricity Policy and Tariff Policy.

CHAPTER1: INTRODUCTION


17/76

2

1.1.7 Since launching of APDRP, the Ministry of Power progressively sanctioned 583 projects with an estimated

project outlay of Rs. 19180.46 Crore and released Rs. 6131.70 Crore in form of grant (Rs. 3857.47

Crore) and loan (Rs. 2274.23 Crore) under investment component. The Government stopped releasing

loan component w.e.f. the financial year 2005-06. The Utilities utilized Rs. 9730.48 Crore till May 2006,which included utilization of Rs. 4489 Crore of counterpart funds from FIS and other sources also.

1.1.8 The Ministry of Power took up an evaluation of the programme through independent agencies namely

IIM-Ahmedabad, Tata Consultancy Services, Administrative Staff College-Hyderabad, The Energy

Research Institute (TERI) and SBI CAPS during 2005. The evaluators observed that the APDRP had

been instrumental in helping the power Utilities in improving their efficiency, reducing AT&C loss,

improving quality and reliability of supply and improving the accountability. They also observed that the

programme was successful in bringing about a cultural change in the working of the Utilities and the

Utilities have started thinking on commercial lines, which did not exist earlier. The evaluators observed

that the improvement was of varying degree in different Utilities depending on their commitment towards

the improvement. While recommending the continuance of the APDRP beyond 10thPlan, the evaluators

recommended certain suggestions for incorporating in the programme for achieving better results.

1.1.9 In the Mid Term Appraisal of the APDRP, the Planning Commission also proposed certain modifications

in the programme either during the 11thPlan or in the last year of the 10thPlan.

1.1.10 Considering the proposed modifications from the evaluators and the Planning Commission, the Ministry

of Power constituted a task force for restructuring the APDRP.

1.2 TERMS OF REFERENCE

1.2.1 The terms of reference of the Task Force are as follows:

a) To assess the current efforts under APDRP;

b) Analyze the current reforms initiatives that are being pursued by the states withreference to the objectives of APDRP;

c) To assess the need for modifications in the light of independent evaluations and other feed

back;

d) Suggest measures to achieve the objectives of APDRP.

A copy of the office memorandum of Ministry for constitution of Task force with terms and conditions and list

of the members of the Task Force is provided atAnnexure-I.

1.3 SCOPE AND INTENT OF THE REPORT

1.3.1 The committee examined various reports of earlier committees set up by the Ministry of Power, reportof the Planning Commission, review proceedings of the Ministry, reports of evaluators, reports of

select Utilities representing various regions, MOUs / MoA signed by the states/Utilities and provisions

of Electricity Act 2003. The committee observed that it was too early to expect desired results from the

programme, as the implementation was still at initial stages, but was an appropriate time for reviewing

the programme and to take mid-term corrections.


18/76

3

2.1 Description of the Programme

2.1.1 In order to achieve commercial viability in the power sector, Ministry of Power formulated a six level

intervention strategy that encompasses initiatives at national level, state level, SEB/Utility level,distribution circle level, feeder level and the consumer level. This six level intervention strategy focussed

on accountability, deliverability and performance at all levels to rejuvenate the distribution sector, where

the maximum interface with the ultimate customers exists, the highest value addition occurs, and

eighty percent of total AT&C losses including nearly all the commercial losses take place in the distribution

sector. Improvement in distribution must result in greater accountability and higher revenue realization.

The strategy involved technical, commercial, financial and IT interventions, organizational and

restructuring measures and incentive mechanism for cash loss reduction.

2.1.2 To operationalise the strategy, APDP was launched in 2001 that would cover the entire country to

strengthen the sub-transmission and distribution network and to restructure Utilities at the distribution

circle level. As per the cabinet decision, the programme was to continue till 2012.

2.1.3 While adopting a project mode, this strategy in the first instance targeted to reduce outages and

interruptions and reduction of Aggregate Technical & Commercial (AT&C) losses to fifteen percent. To

achieve the above objectives, 63 distribution circles were identified to be developed as centres of

excellence through certain techno-commercial- organisational interventions. Ministry appointed NTPC

and POWERGRID as Advisor cum Consultant for capacity building of the State Electricity Boards and

also to supervise project implementation.

2.1.4 On the recommendations of the Expert Committee on State Specific Reforms headed by Shri Deepak

Parikh, Incentive Component was also introduced in the programme and the focus of the programme

was kept on high density urban and industrial areas for achieving quick results (See Box 2.1). The

rechristened programme Accelerated Power Development and Reform Programme (APDRP) was

sanctioned by the Government in March 2003.

2.1.5 The assistance for strengthening and up gradation of distribution network by the Utilities was considered

necessary as the condition of the distribution network was old and was responsible for high technical

and commercial losses, poor quality & reliability of power supply and required massive investments.

2.1.6 While seeking approval of Government of India on APDRP, following expected benefits of the programme

were listed:

i. Reduction of AT&C losses from the existing around 60% to around 15% in five years to begin

with in the urban areas and high density/ consumption areas. This means that reduction of

AT&C loss @ 9% per annum was targeted.

ii. Significant improvement in revenue realization leading to additional realization of Rs.20, 000

Crore approximately over a period of 4-5 years.

iii. Reduction of technical losses would result in additional energy of nearly 6,000 7,000 MW to

the system, avoiding the need of 9,000 to 11,000 MW of fresh capacity addition besides avoiding

investments to the tune of Rs.40,000 to Rs.60,000 Crore;

CHAPTER 2: REVIEW OF APDRP


19/76

4

iv. Quality of supply and reliable, interruption free power will encourage usage of energy efficient

equipments / appliances, which will further lead to improvement in availability of energy.

v. Reduction in cash losses on a permanent basis to the tune of Rs.15, 000 Crore.vi. Distribution reform as envisaged above will help the States to avoid heavy subsidies, which are

given to the SEBs by State Governments. They would be able to invest this amount for providing

basic services like Health, Education, and Drinking Water etc.

Box-2.1: Main recommendations of Deepak Parikh Commit tee

The Government should ex-ante commit to a level of funding

Access to assistance under APDRP subject to signing off on the SEB dues settlement

scheme

There would be two streams of support from the APDRP fund- Investment and Incentive

Investment component under APDRP be directed towards concentrated zones APDRP funds should also be accessible for private distribution Utilities subject to adequate

safeguards to ensure that these Utilities pass on the benefits arising out of such investment

to the end consumers.

SERCs may consider taking such steps as may be necessary to make the adoption of

multi-year approaches as soon as possible

Privatization of concentrated zones and the introduction of private participations in the

other areas, so as to enable harnessing of the private sectors focus of operational and

investment efficiency and viability of enterprise

State Government should take over all liabilities of SEBs and write off its own loans to the

SEB to enhance the credibil ity of the restructuring process

2.1.7 Under the investment component of the programme, funds are provided as Additional Central Assistance

to the state Utilities through respective state Governments. To make the programme more attractive,

the grant: loan ratio was improved as 50:50 against normal ratio of 70:30. In the beginning assistance

to the tune of 50% of the project cost was being extended in form of 25% grant and 25% loan. For

special category states the grant was 90% and balance 10% as loan. However, on the recommendations

of 12thFinance Commission the loan component was discontinued from 2005-06. Now only 25% grant

is being provided to the general category states and 90% to the special category states since April

2005. The allocation of fund to the states was not based on state quota but on the basis of their

preparedness towards reforms, preparation of projects and their implementation.

2.1.8 Assistance under Incentive component was introduced to motivate the Utilities to reduce their cash

loss as it was felt essential to integrate the investment programme in the distribution segment with an

incentive mechanism linked to efficiency improvement. It was envisaged that it will help the Utilities to

bring about commercial viability through improvement in billing and collection efficiency, which were

considerably low at the time of introduction of the programme.


20/76

5

Box- 2.2:Key features of One Time Settlement Scheme

For the state participating in the scheme, 60% of interest / surcharge on the delayed payments

as on 30thSeptember 2001 would be waived off.

The rest of the dues amounting to the full principle amount as well as the remaining 40% of the

interest/surcharge would be securitized through bonds issued by the respective State

Governments.

The bonds would be issued through RBI at a tax free interest rate of 8.5% per annum.

For ensuring timely payment of current dues in future, defaults in current payments for power

/ fuel would attract a graded reduction in the supply of power from central power stations and

in coal supplies.

Where such defaults exceed 90 days from the date of billing, the Ministry of Finance shall

recover these dues through adjustment against releases due to them from the centre.

CPSUs shall offer incentives to SEBs for compiling with the schemes.

Outstanding dues as on 30thSeptember 2001 would form the basis of the one time settlement.

2.2 Scheme Status

2.2.1 The Government had approved the programme with a budget provision of Rs. 40,000 Crore during X

Plan, out of which Rs. 20,000 Crore was allocation under Investment component and Rs. 20,000

Crore under Incentive component. However, the Government has allocated funds under APDRP (see

Table 2.1). In addition to the assistance by Government, the Utilities have drawn counterpart fund

amounting to Rs. 4560 Crore from Power Finance Corporation/Rural Electrification Corporation/other

sources.

Table 2.1: Allocation of APDRP Fund

(Rs. in Crore)Year BE RE Actual Expenditure

Investment Incentive Total

2002-03 3500.00 1089.00 1755.52 379.28 2134.80

2003-04 3500.00 3300.00 2356.51 503.30 2859.81

2004-05 3500.00 1700.00 1428.73 73.00 1501.73

2005-06 1172.00 1172.00 590.94 581.06 1172.00

2006-07 650.00 104.41 104.41

TOTAL 12322 7261 6236.11 1536.64 7772.75

a. Investment Component

i) Project Formulation: The Utilities were required to prepare Detailed Project Reports (DPRs)

for each of the high density areas in order of priority, which were to be vetted by AcCs before

approval by the Steering Committee. Implementation of various activities / interventions was to

be prioritized to ensure quick improvements in reliability and quality of power supply, reduction in


21/76

6

AT&C losses, and increase in revenues and reduction in outages. The focus was on 11 KV

feeders, Distribution transformers and the Consumers. The activities were prioritized by the

Ministry/AcC in consultation with the Ministry of Finance under category A and B (see Box 2.3

and 2.4).

ii) Procedure for sanction of Projects:Under the programme, Utilities prepare Detailed Project

Reports (DPR) and submit to the Advisor cum Consultants (AcCs). These reports are scrutinized

by the AcCs and after vetting of these DPRs, they recommend the DPRs to the Ministry for

sanction. These vetted DPRs are put up by the Ministry for the consideration of APDRP Steering

Committee.

The Steering Committee is headed by the Secretary (Power) and has the members from Planning

Commission, Ministry of Finance, NTPC, POWERGRID, Power Finance Corporation (PFC)

and Rural Electrification Corporation (REC). The committee sanctions the projects on merit

after reviewing the performance of the Utilities vis--vis earlier sanctioned schemes. The DPRs

contains the activities proposed to be implemented by the Utility, expected improvements in

respect of benchmark parameters in respect of loss reduction, improvement in the quality of

supply and consumer services and the cost-benefit analysis. Normally, these projects have a

pay back period of 3 to 4 years.

iii) Project Implementation: After the project is sanctioned, the Utilities take up the tendering

process and place the awards. Based on the recommendations of Technical Committee on

Distribution, Utilities were asked to implement sanctioned projects under this programme onturnkey basis to ensure quality and expeditious works. The Committee had also recommended

standardization of technical specifications of equipments. In spite of clear guidelines of the

Ministry for implementing the projects on turnkey basis and standardization of specifications by

AcCs, many of the Utilities did not adopt the same with the reasoning that the conventional

method of purchase and installation was effective and economically cheaper. This resulted in

the delay of completion of the projects.

BOX 2.3 Priorit y Items

Category A Items

Targeted to reduce commercial losses and

increase reliability by:

Feeder Metering

Distribution Transformer Metering

Sub-Station R&M

Capacitor Placement Distribution Transformer R&M

Service connection Improvement

IT enabling including Sub Station

Automation

BOX 2.4 Priority Items

Category B Items

Targeted to reduce technical losses and

capacity augmentation by

New Sub Stations

New Lines

Bifurcation of feeders Reconductoring


22/76

7

iv) Precedent Conditions : Considering that Distribution reforms require a structural change in the

existing set up of the SEBs and in order to enable them to manage distribution on a profit centre

approach and to improve their performance on the basis of certain benchmarks, it was decided

that funds under APDRP will be provided only to those State Govts. /SEBs which agree tocertain precedent conditions through an Agreement. The SEBs / State Distribution Utilities were

asked to execute a SEB/Utility-specific Memorandum of Agreement [MOA] with the Ministry of

Power agreeing for adopting administrative, technical and commercial activities and improvement

in certain Utility and town level benchmark parameters.

v) Accredi tation:Considering that the SEBs may or may not have adequate skills in the area and

in order to cover a large number of urban & industrial areas in the country, within 4 to 5 years, it

was felt appropriate to acquire the expertise and skills on an outsourcing basis. Therefore, it

was proposed to constitute a committee to accredit specialized agencies for the purposes of

energy audit & accounting, project formulation, turnkey implementation, project monitoring and

project evaluation. The same could not be done. However, the AcCs appointed by the Ministry

helped the Utilities in above areas.

vi) Capacity Building : It was also proposed to provide extensive training to the staff of SEBs /

Utilities at all levels to so as enable them to develop bankable project reports covering techno-

commercial activities for each circle and manage electricity distribution with a commercial

orientation. The training of about 1800 Utility personnel was provided through PMI (NTPC).

Training of about 25,000 Utility employees has been targeted under DRUM programme with the

assistance of USAID. About 6000 personnel have already received training under the programme.

Box: 2.5-Benchmarking of Performance

Parameters at Utility level

Input energy Vs metered energy sale

to consumers

T&D losses in MU

Gap between ARR and ACS per unit of

energy

Productivity

Improvement in PLF, heat rate and

auxiliary power consumption

Outstanding dues to CPSUs

Declared financial losses

Box 2.6 Benchmarking of Performance

Parameters at Circle level

Input energy Vs metered energy sale to

Consumers

T&D losses in MU

Gap between ARR and ACS per unit

of energy

Productivity

Billing cycle time

Feeder outages

Failure rate of DTs

Consumer complaints

Complaint disposal time

HT /LT Ratio Average Load factor on DT

Average Power Factor


23/76

8

vii) Appl ication of Informat ion Technology: It was proposed to have a technology mission for

customizing / development of cost effective and relevant solutions for consumer and control

point data communications, remote monitoring, operation and control, etc. for the distribution

network. Involvement of IT industries in this effort was envisaged. The Ministry constituted ITTask Force headed by Nandan Nilekani, CEO, Infosys, which prepared an IT roadmap for

distribution Utilities and identified short & long term areas for bringing higher efficiencies in the

sector.

The Ministry so far sanctioned 583 projects with overall estimated outlay of Rs. 19180.46 Crore.

The date wise sanction of the project and utilization against them is shown in Table-2 .2. However,

the Utilities were able to complete only 50% work amounting to Rs. 9730.48 Crore (as on May

2006). The state wise details are shown atAnnexure-II.

Table-2.2: APDRP Sanct ions and Implementation (Rs. Crore)

(As on 31/05/06)

S.N. Date of Sanction Project Cost Utilisation Work Completed (%)

a. 16/07/02 4214.39 2598.51 62%

b. 25/09/02 4064.35 2586.86 64%

c. 20/11/02 4780.38 3015.69 63%

d. 20/05/03 2003.44 732.90 37%

e. 28/11/03 767.40 238.93 31%

f. 20/09/04 1365.59 336.52 25%

g. 23/03/05 1688.04 222.31 13%

h 03/08/05 296.87 1.23 1%

COUNTRY TOTAL 19180.46 9732.95 51%

b. Incentive Component

Under this component of APDRP, the state Utilities are incentivised up to 50% of the actual cash loss

reduction by them as grant. The year 2000-01 has been fixed as the base year for calculating the reduction

of loss during subsequent years. Losses are calculated net of any subsidy & tariff compensation given by

the state Government both in base as well as during the subsequent years. The revenue is considered on

net realization basis only (increase in receivables is factored out). Incentive in the subsequent years is given

on the incremental loss reduction by the Utility. The calculation of loss is done on enterprise level. For the

states, where SEBs have been restructured, calculation for transmission and distribution Utilities is done forassessing reduction in cash loss. The Ministry appointed M/S CARE and M/S ICRA for independent scrutiny

of the claims of the Utilities. The Ministry arranged a workshop also in association with Ministry of Finance

for clarifying the procedures of incentive calculations to the Utilities. It was decided in the workshop that all

types of subsidies will be netted off and the auditors qualifications affecting the profit or loss for the period

under scrutiny will also be factored out.


24/76

9

Since launch of the programme, 19 states submitted their incentive claims to the Ministry amounting to Rs.

10,795.69 Crore. On scrutiny of the incentive claims received so far from the Utilities, CARE and ICRA have

shown cash loss reduction by the Utilities amounting to Rs. 4376.55 Crore and have recommended release

of Rs. 2188.77 Crore. Total incentive amounting to Rs. 1536.62 Crore has already been released. Thedetails of incentive claims received by the Ministry, reduction in cash loss and the incentive released to

various States is shown atAnnexure III.

2.3 Review of APDRP

The Task Force requested the Ministry of Power to present their view of APDRP and also to arrange

presentations from Advisor cum Consultants and few of the Utilities regarding their experience and suggestions

for improvement for making the programme more effective. Views expressed during these deliberations are

included in Chapter-4. A Round Table Conference on APDRP was also arranged by the Ministry of Power on

29thJuly 2006, which was attended by the representatives from Planning Commission, Ministry of Finance,

State Electricity Regulatory Commissions, Central Electricity Authority and State Power Utilities in additionto the members of the Task Force. The views expressed by them have also been considered by the Task

Force.

Table 2.3Profit/Loss of State Power Utiliti es (Rs. in Crore)

Particulars 2001-02 2002-03 2003-04 2004-05

Loss without depreciation, subsidy and tax (20,193) (10,889) (8,485) (10,446)

Depreciation 9,059 10,071 11,017 11,221

Loss (without subsidy and tax) (29,252) (20,960) (19,502) (21,667)

Subsidy Booked 14,595 13,670 10,430 11,016

Book Loss (14,736) (7,522) (9,292) (11,110)

Loss without Subsidy (29,331) (21,192) (19,722) (22,126)

Loss (without depreciation but on revenue (18,918) (4,846) (2,268) (3,438)

and subsidy realized basis)

Profit/ (Loss) (without depreciation (5,677) 2,621 1,790 329

***


25/76

10

DT Before R&M

DT After R&M


26/76

11

3.1 Views of Planning Commission

3.1.1 The Ministry brought to the notice of Task Force views of Planning Commission for making the

programme more effective. In the Mid Term Appraisal of the APDRP, the Planning Commission hadproposed the following restructuring of the programme either during the 11th Plan or in the last year of

the 10th Plan:

a. Introducing bifurcation of feeders, automated metering of all distribution transformers, and GIS

mapping of all consumers.

b. Preparation of base line data in respect of energy flow for each distribution transformers within

three months of completing the above.

c. Investment requirements for undertaking the above to be provided as 100% debt initially but,

based on timed outcomes, up to 50% of the debt to become eligible for conversion to grants.

d. Incentive for staff linked to specific measures of improvement.

e. Web-based transparency of performance at each distribution transformer level

including names of the staff responsible

f. Independent external audit to track and monitor outliers.

3.2 Views of Advisor cum Consultants (AcCs)

3.2.1 The Advisor cum Consultants were of the view that the programme helped the distribution Utilities in

up-gradation of their old and overloaded networks, bringing in commercial approach and accountability,

up-gradation of skills and adopting best practices. They remarked that though there have been

considerable improvements in some of the Utilities, others were yet to show significant change due to

late start by them.

3.2.2 The AcCs in their presentation pointed out that the MoA conditions were not implemented effectively

by the Utilities in general and therefore, desired results could not be achieved. The Utilities, which took

the initiatives as prescribed in the MoA showed better improvement. A sample copy of MOA is at

Annexure-IV. The delays in transferring the APDRP fund from state to the implementing Utilities, non

adoption of turnkey contract system, lack of project management etc. badly affected the completion

schedule of the sanctioned projects. Though most of the Utilities were not in favour of adopting turnkey

concept in the beginning, now many of them have adopted the concept after realizing the overall

effectiveness of the system in implementation of the schemes.

3.2.3 AcCs pointed out that though feeder and consumer metering have been completed to great extent bymajority of the Utilities, however reading of the meters and analysis of the data was an issue, without

which the desired results can not be achieved. AcCs observed that the Utilities were more focused on

implementing the Category-B items related to infrastructure development and less focused on Category-

A items, which were aimed at efficiency improvement. Main suggestions given by them were:

a. The funds should be given directly to the implementing agencies;

CHAPTER 3: VIEWS OF VARIOUS AGENCIES


27/76

12

b. The responsibility of execution should be entrusted to a third party as entrusted with Rural

Electrification Corporation in case of RGGVY or an SPV;

c. Turnkey execution should be made compulsory;d. Longer guarantee period to facilitate better quality of supplies;

e. Maintenance of the equipments by the turnkey contractor for 3 to 5 years as required level of

manpower was not available with the Utilities;

f. Standardization of tender documents and strict quality control;

g. Better role for Information Technology- building up an IT backbone based on GIS mapping

integrated with metering, billing, energy audit, consumer care etc.

h. Strict monitoring of the benchmark parameters by the Utilities.

3.2.4 The AcCs explained that the turnkey execution of the schemes has following advantages:

a. In turnkey execution, the contract was awarded to the single agency for supply as well as erection,

testing and Commissioning of the equipments. The owners responsibility was only towards

supervision of work and ensuring the quality of materials supplied by the vendor.

b. The progress of work was faster, which leads to reduction in cost and time overrun. The quality

of work was good because expert manpower from agency was available for implementation of

work.

c. As the agency was responsible for completion of work in a specific time period and delayed

completion would lead to levy of LD, normally turn key works were completed within stipulated

period, where as it was observed that departmental execution of projects take much longer

time.

3.2.5 AcCs observed that there was a notion of some Utilities that turnkey execution was costlier and proper

vendors were not available in country for execution. AcCs recommended to consider following points

during award of turnkey contract, which would lead to reduction of cost:

a. Proper terms of payment: where vendors shall be given progressive payment based on supply

of equipments, receipt and Commissioning of equipments instead of payment after taking over

of work by Utilities.

b. Splitting of supply and erection contract to avoid works contract tax which is legal as per Indian

taxation laws and already adopted by NTPC, POWERGRID etc.

c. To enforce sale in transit for the materials supplied by sub vendors and dispatched directly to

owners premises for erection.

d. The Utilities should also consider the overhead expenditure, storage cost and inventory carrying

cost while comparing the turn key execution cost vis--vis departmental execution cost


28/76

13

3.2.6 AcCs suggested that Utilities should pay attention on the followings points to increase the response of

vendors to turnkey contract:

a. The estimated cost of the works must not be less than 4 to 5 Crore so that quality bidders quotefor the work. To achieve this value the Utility can club similar type of works of number of schemes

together.

b. The payment terms of the contract must be attractive to the bidders in a way that there must be

a proper fund flow with progress of work.

3.3 Views of Util it ies

3.3.1 The power Utilities from the states of Andhra Pradesh, Assam, Gujarat, Karnataka, Maharashtra,

Punjab, Uttar Pradesh and West Bengal presented their experience of APDRP. All of them were of the

view that the programme brought much needed investment to the distribution sector, which helped

them in building infrastructure, strengthening and up gradation of the network. This in turn resulted inreduction of AT&C loss, DT failure rate, interruptions & outages and improvement in customer

satisfaction.

3.3.2 They were of the view that the distribution infrastructure was weak and that infrastructure building was

required initially in the distribution and that modernization activities can be taken up only after the

existing network was brought to a certain level. Utilities expressed that for the first 3 years of the

programme little would have been done, however from the third year onwards, a declining trend can

be noticed, which was in line with the Project Management Cycle. The new APDRP now needs to

focus on furthering this process so that a cascading effect can be achieved.

3.3.3 Further, APDRP also introduced reform in terms of new initiatives undertaken by various SEBs as also

unbundling of the Boards under the Act. Utilities pointed out that the APDRP was instrumental inimproving planning in the sector and that the thrust on the accountability brought commercial sense in

the working of the Util ities. The attempt through APDRP of setting up monitoring procedures through

MoAs and MoUs with the offices/officers of the SEBs has set a transparent process of monitoring of

the project site in place. This resulted in improvement in revenue collection, better quality of works

and reduced completion period for the schemes. The working culture had improved not only in the

towns covered under APDRP but enterprise wide as well.

3.3.4 The Utilities pointed out certain bottlenecks faced by them during implementation of the schemes. The

main bottlenecks were:

a. Delays in transfer of fund by the states- The Utilities were not able to get the required fund

timely creating a doubt on the availability of fund for making commitments. The delay rangedfrom months to more than a year (see table 3.1). This was a major cause for delay in taking up

the implementation process.

b. Unrealistic DPRs The DPRs prepared in the beginning were not realistic due to lack of

experience/poor planning. The DPRs were prepared hurriedly without proper studies. No flexibility

in the scope of scheme was kept and therefore, scopes could not be modified to suit the site

conditions during implementation;


29/76

14

c. Delay in supply of equipments due to increased demand- The demand of the equipments

and the contractors suddenly increased due to funding under APDRP for which industry was not

geared up. It created a big gap in demand and supply, which delayed the implementation of the

schemes. The launch of RGGVY also made the situation difficult. Now, the industry is betterprepared to meet the demand.

Table: 3.1 Major Delays in Transfer of APDRP Fund

State Release by GOI Transfer by State to Utility

Andhra Pradesh April 02 July 03

Assam April 02 March 03

January 03 March 04

Himachal Pradesh October 03 July 05

Jharkhand April 02 March 03March 04 February 05

Karnataka March 04 December 04

Madhya Pradesh January 03 December 03

October 03 February 05

March 05 Not Yet

Maharashtra October 03 October 04

March 04 January 06

Meghalaya October 03 August 04

Orissa April 02 March 04

March 03 May 04

Punjab January 04 January 05

Uttar Pradesh April 02 November 02

West Bengal April 02 February 03

d. Heavy quantum of work which Utilities were not geared up to handle- The Utilities were not

having sufficient manpower to handle the required quantum of work. The employees were also

not properly trained in the areas of project formulation, turnkey contracting, project management,

information technology etc.

e. Increase in price of materials/equipments- The increase in price of steel and cement resulted

in hike of prices of equipments, which delayed placement of awards.

f . Poor response to turnkey offers- The turnkey execution was generally not carried out in the

state Utilities earlier and therefore many turnkey contractors were not available in the distribution

sector. Therefore, the initial response was very poor. However, the situation was now better as

many turnkey contractors have developed during last 3 to 4 years.


30/76

15

g. Employees resistance to outsourcing- The Utility employees initially resisted outsourcing of

various activities feeling that it will result in privatization of the Utility. However, they realized later

on that only certain activities were being outsourced due to lack of manpower for increase

output.

h. Delay in final izing IT road map for the Uti li ty- The Utilities could not finalize IT roadmap for

long, which delayed taking up of IT related activities.

3.3.5 Responding on suggestion of Planning Commission, Utilities expressed:

a. That bifurcation of feeders was a fairly expensive project. While it has shown immediate results,

it would require that the component of funding for the project should go up substantially.

b. Baseline data preparation while it was of utmost necessity was not as readily available since

computerized systems were still under implementation and in very nascent form and will take

few to many years depending on the present stage in different Utilities.

c. Providing funds as debt to be later changed into grant may discourage most SEBs to take up

such projects and will cause confusion and adversely affect the motivation provided by the grant

component in the APDRP scheme. It may be better to begin with 50% debt and 50% grant (if at

all) and SEB benchmarks and evaluate performance at regular intervals. The grant component

should be increased based on enhanced performance.

3.3.6 The Utilities were of the view that the investment component of APDRP should be continued in the XI

Plan as it helped them in focusing on the need of strengthening and up gradation of their outdated

network besides bringing clarity towards need for efficiency improvement. However, they suggested

certain modifications in the programme for making it more effective. The main suggestions are

mentioned below:

a. More realistic targets may be fixed for reduction of AT&C loss. The targets should vary from

Utility to Utility depending upon their present status;

b. Utilities should indicate their detailed road map on achieving agreed benchmark parameters;

c. Utilities to finalize their business plan for the next 5 years;

d. Rural areas should also be covered under the programme. 25% of the investment fund may be

kept for rural areas.

e. The states may be classified in different categories on the basis of Rating Exercise and their

needs may be prioritized primarily in the areas of network expansion, system improvement &

strengthening and IT etc. and not as special/general category as at present.

f. States should reform in line with the objectives of APDRP.

g. The MoA for the restructured APDRP should be more realistic;

h. Monitoring may be done only on select Key Performance Parameters;


31/76

16

i. Maximum focus should be on reduction of AT&C loss, revenue realization, quality & reliability of

power through better customer service initiation;

j. The APDRP fund should be made available directly to the Utility;k. Grant should be increased from 25% to 50% for general category states and from 90% to 100%

for special category states;

l. Fund for strengthening and up gradation of the network should continue;

m. Preparation of guidelines for project formulation and standardization of technical specifications

at national level;

n. Real Time Remote Automated Metering for all HT and LT bulk consumers;

o. Metering and energy auditing at all distribution transformers;

p. Consumer meters should be provided outside the consumer premises/ pillar boxes;

q. Adoption of spot billing for consumers;

r. 100% computerization of billing;

s. Adoption of Information technology;

t. Installation of capacitors on LT side of DTC;

u. Segregation of agriculture feeders;

v. Adoption of HVDS and ABC cables for reduction of theft;

w. Utilities should have flexibility for changing the scope of work during implementation of the

scheme;

x. Turnkey execution of the schemes for bigger works and departmental execution for smaller

schemes;

y. Performing Utilities may be allowed flexibility to adopt departmental implementation;

z. Short listing of suppliers at national or state level with common technical specifications;

aa. AcCs should help Utilities in introducing new technologies & techniques;

bb. Provision in the programme for Capacity building of Utility personnel, hiring of consultant, project

evaluation, third party quality assurance, Third party energy audit etc.;

cc. Incentive criteria should be simple. Govt. subsidy/tariff compensation should not be netted off

during calculation of incentive.

dd. Incentive criteria may be based on improvement in key performance indices and evaluated

through some independent agency;

ee. Incentive to be used for loss reduction activities.


32/76

17

Box-3.1: Suggestion of Utilities on Investment Needs in the Distribution Sector

Network Expansion:Will be primarily required by Utilities having very weak financial conditions

resulting in inability to attract commercial funds on their own

Network & System improvement: To reduce losses and improve quality. Will be primarily required

for Utilities with high AT&C losses, so that they can focus on achieving quick wins and move

towards faster financial turnaround.

IT and other support systems: Primarily for states who can attract commercial funds for their

basic and day-to-day requirements but need funds to support investments in areas which provide

benefits in the longer term and may not be immediately attractive to commercial lenders.

3.4 Views of Evaluators

3.4.1 The Ministry decided to take up evaluation of the programme during the course of implementation so

that if any mid term correction was required can be incorporated in the programme. Only those projects,

where more than 50% utilization was completed by that time, were taken up for evaluation in the first

phase.

3.4.2 The Ministry appointed IIM Ahmedabad, The Energy Resource Institute (TERI), ASCI Hyderabad, Tata

Consultancy Services and SBI CAPS in 2005 for evaluation of ongoing APDRP schemes. The reports

submitted by the evaluators were examined and observations made by them were noted. The Task

Force appreciated the initiative of the Ministry in institutionalizing a mechanism of 3rdparty evaluation.

However, it felt that the evaluation report should be discussed with the Utilities and AcCs and their

feedback be used for making corrections in the DPRs, procedures of implementation and monitoring.

3.4.3 The evaluators observed that there were considerable improvements in the quality of DPR preparations,

awareness towards commercial aspects of the business, theft control and in respect of improvement

in metering, billing & collection efficiencies. However, they were of the opinion that there was scope of

further improvements. The evaluators recommended continuation of the programme beyond X Plan.

However, they suggested a number of conditions/initiatives, which may be made in the programme

and its guidelines, so that better results can be derived out of APDRP. The main suggestions were as

follows:

a. Direct release of APDRP fund to SEB / Utilities;

b. Concrete action plan with implementation strategy was required for the quick and fast

implementation of IT initiatives;

c. Adherence to reform conditions mentioned in the MoAs signed by the Utilities need to be further

defined in terms of specific milestones which must be strictly adhered to. Deadlines may be

chalked out for each milestone with the condition that funding would be stopped in case the

milestones were not met;


33/76

18

d. The DPR should be supported by historical data and reliable forecast of long term demand. This

will ensure that capacity planning was in line with expected load growth;

e. More attention needs to be paid to the preparation of realistic DPRs and these should be basedon proper system studies after looking at actual field conditions;

f. The Utilities may be given some flexibility to alter schemes;

g. There was need for providing detailed specification in the contracts / agreement to ensure quality

of material / equipment. Test certificates for major materials should be insisted and inspection of

equipment/ material has should be carried out at manufacturers works;

h. Undertake anti-theft measures more vigorously to curb commercial losses;

i. World class IT organizations should be Commissioned directly by MoP to drive the IT initiatives

in distribution sector;

j. Improving project management procedures reporting, risk management, project planning and

monitoring;

k. Outsourcing of project implementation on a turnkey basis to speed up implementation;

l. Improving the data quality and availability of MIS data in electronic format at the Circle offices;

m. Monitoring could be on fewer and more important parameters. Monitoring of APDRP should be

the key responsibility of SEBs / Utilities and not just the AcCs;

n. Third party assistance needs to be adopted for assessment of quality and progress;

o. Detailed audits need to be undertaken after completion of all the works to realistically assess

cost and time overruns (if any) and reasons for the same;

p. Cash incentive by the central government for better performing states should continue to motivate

them for improving their performance. However, calculation of the financial performance of

SEB/ Utilities should be simplified;

q. More emphasis on training of the Utility personnel.

3.5 Views of Ministry of Power

3.5.1 The Ministry of Power mentioned that APDRP was a part of six level intervention strategy and that a lot

of care was taken before launch of APDRP during 2002-03. The basic objective of the programme

was to provide much needed investment in the distribution sector with the expectation that it willreduce the technical and commercial loss in the system. Keeping in mind that only investment (technical

intervention) will not be able to reduce the loss, Ministry had asked the Utilities to take administrative

and commercial interventions also at Utility level, town level, feeder level and at the consumer level.

The state Utilities committed these interventions through signing of Memorandum of Agreements

(MoA) with the Ministry.


34/76

19

3.5.2 Under the technical interventions focus was mainly on improvement of the existing network with priority

on feeder and consumer metering for taking up the energy accounting & auditing, which will result in

reduction of technical and commercial loss. The addition of new substations and lines was given low

priority. However, considering that bringing infrastructure at some basic level was first necessary,many states decided to interchange the priority while implementing the schemes. Moreover, some of

the Utilities did not go for making use of the data available from the meters installed at various levels.

This though resulted in improvement in the quality and reliability of supply, however, the desired result

could not be achieved by such Utilities in respect of reduction in AT&C loss.

3.5.3 Under administrative interventions, Utilities were required to give more powers to the implementing

officers, make them more accountable and monitor the implementation of programme & benchmark

parameters. Some of the Utilities preferred not to change their working culture and were not able to

reap the benefits from these interventions adopted by states like Andhra Pradesh, Karnataka and

Gujarat etc. Close monitoring of the benchmark parameters like AT&C loss, average revenue realization,

and DT failure rate helped these states in overall efficiency improvement. The implementation of theAPDRP schemes was also faster in these Utilities due to close monitoring.

3.5.4 Under commercial interventions, Utilities were required to take up energy audits, adopt anti-theft

measures and adopt profit center approach. In accordance with the Electricity Act 2003, the states

were to establish special police stations and special courts to deal with electricity thefts. Only few

Utilities adopted these measures and they were able to get good results with degree of variance

depending on their efforts.

3.5.5 Ministry informed that the circle level projects were taken for implementation in the beginning of the

programme. However, based on Deepak Parikh Report for achieving quick results, the focus was

shifted to concentrated urban and industrial towns in the year 2003.

3.5.6 Ministry informed that 583 schemes were sanctioned under the programme progressively since 2002-

03. The implementation by many of the Utilities had been slow and very slow by few of them. States of

Andhra Pradesh, Delhi, Gujarat, Karnataka, Tamilnadu, Himachal Pradesh and Sikkim showed better

performance in implementation of the schemes and therefore, achieved better benefits.

3.5.6 The main reasons for the delay in implementation were the significant delay in transfer of fund by State

Government to the implementing Utilities, placement of orders, non-adoption of turnkey contracting,

lack in project management capabilities and poor monitoring by the Utilities. Poor response from the

suppliers/contractors also affected the progress in certain states specially NER states and J&K.

3.5.7 The Ministry had requested the Ministry of Finance for releasing of APDRP funds direct to the Utilities.

Ministry of Finance informed that APDRP being an Additional Central Assistance, funds can be released

only through the State. However, if the State agrees specifically, it may be done. Ministry took up the

matter with certain states, where the delay was significant, but they did not come forward for direct

release to the Utilities.

3.5.8 The Ministry was aware about the existing set up of procurement procedures of the Utilities and

therefore, it had asked the Utilities under MoA to set up separate organizational set up for APDRP

projects with increased powers with Superintending Engineers/ CEOs, to outsource certain activities


35/76

20

and to adopt turkey concept for implementation of APDRP schemes to facilitate timely and quality

implementation of the programme. However, most of the Utilities preferred not to amend their existing

system. However, after witnessing better implementation by some of the Utilities with turnkey system,

the adaptability of the turnkey concept increased with time and more Utilities switched over to part/fullimplementation of APDRP schemes on turnkey basis.

3.5.9 The adoption of reforms by the states and Utilities was a major factor in the success of the programme.

16 states were yet to restructure their power sector. Four states were even yet to constitute the regulatory

Commissions. Few states like Arunachal Pradesh, Bihar, Jharkhand, Manipur, Mizoram and Nagaland

were still having low feeder metering. Similarly consumer metering was at low level in the states of

Arunachal Pradesh, Bihar, Chattisgarh, J&K, Jharkhand, Karnataka, Madhya Pradesh, Maharashtra,

Manipur, Meghalaya, Nagaland, Orissa, Nagaland and Tamilnadu. Many Utilities were yet to take up

the metering of distribution transformers, which was essential for carrying effective energy accounting

& auditing.

3.5.10 Management Information System (MIS) was still at low level in many of the states. Ministry emphasizedthat the desired results can not be achieved through APDRP in isolation, as it was only a part of six

level intervention strategy. States should adopt reforms in right perspective for the desired results in

the sector.

3.5.11 Ministry was of the view that the implementation of the schemes was in advanced stage in few states/

towns and the results can be expected from them only and not from the whole state or country. Out of

583 projects sanctioned, work in 151 towns has been completed more than 75%. Additional 120 towns

have reported completion above 50%. Work in 97 towns was in between 30% and 50% and in 98

towns between 10% and 30%. 39 towns have reported utilization below 10%, while work on 78 schemes

was yet to take off.

3.5.12 The Ministry informed that AT&C Losses have been brought below 20 percent in 212 APDRP towns

(A.P.-96, T.N.-36, Karnataka-31, Punjab-11, Gujarat-11, Chattisgarh-2, H.P.-6, Maharashtra-8, Kerala-

4, Rajasthan-3, M.P.-1, Goa-1, Tripura-1) in the country of which 169 towns have brought AT&C losses

below 15 percent. It was mentioned that results would have been better if State Departments were

paying their electricity dues especially for water pumping and street lighting.

3.5.13Similarly DT failure rate below 5% has been reported by 215 towns, out of which 71 have reported up

to 1% (AP-28, Gujarat- 01, Karnataka-02, Kerala-27, MP-04, Maharashtra-01, Rajasthan-02, and

Tamilnadu-06).

3.5.14 The overall commercial loss (without subsidy) of the Utilities reduced from Rs. 29,331 Crore during

2001-02 to Rs. 22,129 Crore during 2004-05. Though, the major states reported reduction in commercial

losses during 2004-05, some of the sates namely Jharkhand, Assam, Haryana, Punjab, Rajasthan,

Tamilnadu and Uttar Pradesh reported heavy increase in the loss during the year.

3.5.15 The Ministry informed that these results were based on the data up to the financial year 2004-05 and

that better results were expected during 2005-06 for which the data was at compiling stage by the

Utilities as the implementation of APDRP schemes achieved significant progress during the previous

year. The Ministry observed that it was quite early to expect very high results from the programme as


36/76

21

only few of the schemes sanctioned under APDRP were at completion stage. Moreover, the results

from the programme can be expected from towns only where the schemes have been taken up and

not at Utility level especially in the light of states not adopting reforms and making the power free for

select categories. It will be better to review the programme only when considerable amount of fundwas utilized.

3.5.16 The Ministry observed that concept of AT&C loss was now embedded in the working of the Utilities.

They were now better prepared for project formulation, implementation of projects, project management

and monitoring of the benchmark parameters.

3.5.17Ministry observed that most of the suggestions as given by the evaluators and planning Commission

were already built in the programme. The question was the proper implementation of them by the

Utilities and desired support from the state Governments. There were some contradictory suggestions

also from various agencies like more flexibility/strictness in implementation of the schemes by the

Utilities. Utilities still feel that capacity augmentation should be given more priority in comparison to

loss reduction activities. Whereas, Ministry and the Planning Commission want that loss reductionmeasures should be given the priority. Ministry was of the view that grant provided by the Government

should be used only for the loss reduction measures and for measures towards improvement in

consumer satisfaction. The counterpart fund may be utilized for capacity augmentation.

3.5.18Responding on the availability of APDRP funds to the private Utilities, Ministry observed that the

investment assistance should be extended to them. In accordance with the APDRP conditions, all the

Utilities were to pass on the benefits received under the programme to the consumers through regulatory

mechanism. Better services to the consumer were one of the objectives of APDRP and that there

should not be any differentiation between consumers covered under public or private Utility. Ministry

also supported provision of the incentive against the cash loss reduction by the private Utilities. However,

it was of the view that the incentive should be given to the state and not to the utility. It will motivate thestates to privatize the distribution sector.

3.5.19Supporting the views of the AcCs, Ministry felt that the Utilities should prepare tenderable DPRs and

should be ready for issuing NITs as soon as the scheme was sanctioned by the Ministry. The scheme

implementation should be taken up on turnkey basis only. Utilities should have a quality assurance

programme in advance. Key Performance Indicators (KPIs) at initial level and targets should be identified

at the time of project preparation and should be clearly mentioned in the DPRs. These KPIs should be

monitored regularly at the Utility level and verifiable by third agency. If Utility fails to achieve the targeted

KPIs, the grant should be converted into loan.

3.6 Views of Central Electricity Authority

3.6.1 Investment assistance should be provided to the private sector as the assistance will get passed on to

the consumer and not remain with the utility itself. The assistance would be reflected in the Annual

Revenue Requirement of the Utility and the Regulators would be ensuring that the benefit of the same

is passed on the consumers of that Utility. It would not be justified to deprive the consumers of a

particular area just because Distribution Company supplying to them has been privatized.


37/76

22

3.6.2 The incentive component may not be provided for the Private Utility. In case incentive is to be given,

then it could be considered that the incentive component is given to the STU supplying to those

DISCO

Date post:	04-Jun-2018
Category:	Documents
Upload:	joydeepd3232
View:	217 times
Download:	0 times

Report on Restructuring of APDRP

Documents