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					   “Delhi Power:
From Privatization to
   Competition”



    JP Chalasani

    Director

    October 15, 2005


                        1
Contents

  Delhi Power Scenario and Transition Support

  Privatization in Delhi

  Benefits of Privatization

  Delhi Power: Towards Competition

  Competition thru‟ Parallel Networks

  Way Forward


                                                 2
 Delhi Scenario: Distribution Economics
600                                          1.   No. of Units of power purchased                2




                                       Gap
500
                                             2.   Cost of procurement per unit (paise)           253

                                             3.   Cost of distribution: per unit (Paise)         52
400
      Cost of Supply




                                             4.   Total cost of supply: procurement +            610
300
                                                  distribution (Paise)
                          Av. Tariff




                                             5.   Initial Losses (say)                           50%
200
                                             6.   Payment finally recovered for no. of units     1
100
                                             7.   Required avg. tariff to recover full cost of   610
                                                  supply (paise)
 0
                                             8.   Avg. tariff (Paise)                            400

                                             9.   GAP(7 –8): (Paise/unit)                        210


                       For Self Sustaining Structure, the GAP needs to be minimum
                            Self Sustaining Structure essential for competition

                                                                                                       3
Options to Reduce the GAP

  Retail Tariff                                              State Govt. support
   Shocks ?                         Options                     to the Sector




                                     (2)                              (3)
      (1)                      Reduce Cost of                   Reduce Cost of
  Reduce the                  Power Procurement                  Distribution
    Losses




    In Delhi, all the above options are used to eliminate „retail tariff shocks‟




    State Govt. support plays a key role during the transition period

                                                                                   4
Govt. Support Profile


                   Without reforms – perpetual                           ?
 Support Amount




                    drain on Govt. resources




                                                    With Reforms




                    Transition Period
                                                 Period
Start of                                                           Self Supporting
Reforms                                                                 Sector




                  Reforms to gradually reduce required Support level

                                                                                     5
Reform Objectives
                                   Substantial
                                 improvement in
                                    Quality of
                                     supply


    Self sustaining                                              Bringing
   sector to attract                                            Customer on
   investment in all                                               Radar
         areas
                               Reform Objectives



                                                          Reduction in
            No strain on
                                                          AT&C Losses
           Govt. resources




        The reform process for Delhi started in Feb-99 and culminated in
                   acquisition of 51% Stake by REL/Tata in Jul-02

                                                                              6
Benefits of Privatisation: Sector
                         Fast turning around
  Savings to Govt:          of the Sector
    Rs. 2160 Cr
                                                 Customer is the
                                                   Focal Point


 Reduction in
   AT& C                                          70% Reduction in
   Losses                 Benefits
                                                   Load Shedding
                          to Sector


Improvement in
  “Quality” &                                  DTL is the most
 “Reliability” of                              preferred Bulk
     power                                         Power
                      Significant                Purchaser
                       System
                     Upgradation



                                                                     7
Next Level of Goals
 Integrated Customer Interface
     Managing “Expectation Shift”

 Accelerated loss reduction
     Consequential tariff stabilization

 International Standard Reliability
     Attaining a least” possible down time

 Availability of adequate power
     Reduction in input cost per unit

•    Quality & reliable supply
•    Customers on radar and international standard customer care
•    Commercial & Financial prudence


                                                                   8
Delhi Power:
Towards Competition




                      9
Need for Competition: Consumer’s Expectations
  Experiencing the benefits of Competition in other sectors (e.g.
      Telecom, Aviation, Banking etc.) consumers expectation from
      the electric supply industry is increasing.
  Consumer Expectations from Electric Supply Industry
        Affordability of Services
        Quality                                                         Competition in
        Reliability                                                    the all segments
                                                                          of the Power
        Transparency                                                     Sector would
        Significantly improved customer care services                     meet these
                                                                          expectations.
        Freedom to select the service provider


 •   Indian Power Sector is moving from „Monopolistic‟ to „Competitive‟ environment.
 •   However, for increasing affordability, competition in fuel market is also required

                                                                                           10
  “We Support Competition”




We See “Competition” as
an Opportunity and not as
        a Threat




                             11
The Electricity Act, 2003: Key Objectives
    “Promoting competition, protecting interest of consumers and supply

                              of electricity to all areas”

 Promoting competition in generation (supply side) is fairly easy

   and is being implemented

 Promoting competition in distribution (delivery side) is new

   requirement. This requires multiple players in any given area

   by
     Providing ‘Open Access’ on existing Transmission and Distribution network

     Creation of New Network (parallel distribution)


                                                                                  12
Changing Structure…as per Electricity Act, 2003
                                                                        Captive
 Wholesale          Generating               Own
                                                                       Generatio
  Market            Companies              Generation
                                                                          n

                      Transmission Network (Immediate Open Access)


                          Distribution                  Distribution
                           Licensee                      Licensee                     Supportive
                                                                                         sectoral
                                                                                        structure
               Distribution Network
                                                                                            for
              (Gradual Open Access)                                                     attracting
                                                                                       investment
                                                   Own Distribution System


                                                                             Power Traders
                                                                             would play key
                                                                             role in process
             Consumers




      Competitive, Flexible Structure enabling Choice to Consumer

                                                                                               13
Characteristics of well-functioning Competitive Power
Markets
                   Generation                    Wholesale                   Transmission                Distribution            Retail/ Supply


                  C Sufficient               D   Independent               E Equal access to F Equal access to              G Free   customer
Characteristics
                    competitive                  central dispatch            transmission      distribution                   choice
                    generation
                                                                              All        generators/  All suppliers can use  All customers have
                   Multiple    generators        Physical        and
                                                                               wholesalers can use      distribution            the option to choose
                    compete freely to                financial     flows
 Description                                                                   transmission             infrastructure      to their suppliers
                    fulfill demand                   between
                                                                               infrastructure      to   supply       to  their
                                                     generators      and
                                                                               supply      to   their          customers
                                                     suppliers
                                                                                     customers          (Third party access –
                                                     facilitated by an
                                                                               (Third party access –    TPA)
                                                     independent
                                                                               TPA)                    Transparent and fair
                                                     central mechanism
                                                                              Transparent and fair     rules of use
                                                                               rules of use

                                                 B       Unbundling of value chain
                        Separate companies for each part of the value chain (could have common ownership) with arm’s length
                         transactions between them

                                                 A      Independent Regulatory Oversight
                           Facilitating the functioning of the system by designing fair and transparent set of rules
                           Regulation of natural monopolies




                                                                                                                                                  14
Competition in Distribution

                                          Options


             Indirect                  Transition from Indirect           Direct
           Competition                  to Direct Competition           Competition



  Different Licensees in „different‟                       Open Access           Parallel Network
 Area under same regulatory body


 • Regulator and customers play a key
                                                              • The Electricity Act, 2003
  in ensuring benefits of Indirect
  Competition                                                     provides for both these
 • Competition by Proxy/
                                                                  mechanisms
  Benchmarking.




                                                                                                    15
Conditions conducive to support Open Access &
Competition
    Supply exceeds demand

    Well developed network with adequate capacity

    Rationalized Tariff Structure

    No outside/cross subsidy issues

    Very low level of losses

    Sophisticated consumer data base and associated accounting system

    State-of-the-Art Metering System

    Despite this, internationally, most of the countries took (or would take) over 10
                           years to implement full open access

                                                                                        16
Open Access Pre Conditions: Status in India
                                 INTERNATIONAL                            INDIA

                                                         Large Demand Supply Gap (Peak; 12.4%
 Demand / Supply Position        Supply exceeds Demand
                                                               Energy; 7.8%); Apr’05-Sept’05


 Distribution Network Capacity        Sufficient                   Highly inadequate

                                                            Needs extensive Rationalization
 Tariff Structure                   Rationalized
                                                               (Large Cross Subsidies)


 T&D losses                              Low                         Very high level

 Consumer data base and
                                    Sophisticated                      Inadequate
 accounting system
                                                           Large un-metered supply/defective
 Metering System                 Full/State of the Art
                                                                       meters



         Substantial improvement required in Supply, Network and suitable
             Regulations in India for implementation of Open Access

                                                                                                17
Open Access: Issues
 Cross Subsidy
     Subsidy to compensate full or partial revenue loss of existing licensee?
     Existence of inter-category and intra-category cross subsidies.
     Subsidy Definition
        –   Difference in Industrial and domestic or average tariff?
        –   Cost of service base?

 Apportionment of Losses
 Loss Reduction Targets
 Shortage of Supply
 Non-discriminatory Access (Separation of Carrier & Content)
 State-of-the-Art Accounting System


                                                                                 18
Competition thru’
Parallel Network




                    19
Competition in Retail thru’ Parallel Networks
 Regulator to grant license if investor meets GoI stipulated

   norms

 Tariffs ceilings may be set by regulator

 No timeframe issues unlike in privatization of state-owned

   utilities or distribution open access – commencement of

   operations limited only by time & cost to roll out network



 Competition in retail through parallel networks is an immediate possibility


                                                                               20
Electricity Supply: Competition in Delhi

 Indirect Competition already exists

 System Improvements being carried out by Licensees would

   facilitate ‘Competition thru’ open access’ in much shorter

   period compared to other areas.

 However, significant structural issues (sharing of past liabilities

   of the sector) need careful treatment

 Competition in NDMC area thru’ parallel network is feasible


                                                                        21
Way Forward

 Competition is desirable – No Conflict of Opinion,

   Whatsoever.

 Opening of the Sector across the value chain

 Implementation of enabling factors

 A Transition Phase

 Concerted efforts required to promote competition from

   all stakeholders; Govt., Regulators, Discoms & Customers


                                                              22
Thank You




            23
Back Up




          24
Significant System Upgradation


      SUB-TRANSMISSION                     DISTRIBUTION

               STEP-DOWN
 66/33 KV     TRANSFORMER
                            DISTRIBUTION
                            TRANSFORMER
                                                    11/0.4 KV


      HT System               LT System




                                                  METER   CONSUMER




                                                                     25
Distribution Transformer Failure
                                                                        DT Failure Trend - April 02- April 05

         140
                                      132

         120
                                       108
         100                                     100


         80
  No,s




                                                                                                             70
         60             61                                                                                        58
                                                          55

         40                                                                      40
                                                                                               32                          33

         20                                                                                                                     22
                                                                                      12                                                          13
                                                                                                                                         8             7
          0                                                                                                                                                              1            2 2        2                          0 0
                             Jun-02




                                                                                                    Jun-03




                                                                                                                                                                             Jun-04
                                                 Oct-02

                                                               Dec-02

                                                                        Feb-03




                                                                                                                                Oct-03

                                                                                                                                         Dec-03

                                                                                                                                                       Feb-04




                                                                                                                                                                                                 Oct-04

                                                                                                                                                                                                          Dec-04

                                                                                                                                                                                                                   Feb-05
               Apr-02



                                        Aug-02




                                                                                      Apr-03



                                                                                                                  Aug-03




                                                                                                                                                                Apr-04



                                                                                                                                                                                        Aug-04




                                                                                                                                                                                                                            Apr-05
                                                                                 Zero DT failure for past 5 Months

                                                                                                                                                                                                                                     26
Percentage Reduction in Load Shedding

                   Load Shedding
 3.5
               3
    3
 2.5
    2
%




 1.5
                                    0.84
    1
 0.5
    0
            2001-02       Year     2004-05



                                             27
Loss Reduction - AT&C
                63.16%

65.00%

60.00%
                         50.12%         51.54%
55.00%                                                               1% of Loss
                                                                     Reduction
50.00%                                             40.60%          translates into
                                                                      enhanced
45.00%
                                                                     Revenue of
40.00%                                                            about Rs. 80 Crs

35.00%

30.00%
               BYPL                         BRPL

                      July' 02    Mar' 05

Reduction in Losses : BYPL – 13.04% (Target - 6.5%); BRPL – 10.94% (Target - 5.4%)
                             “Double the Target set”


                                                                                     28
Customer is the Focal Point




                              29
Savings to the Govt: Reduction of Subsidy
1200                                                                               65%

                             BSES - Rajdhani Power Limited

1000                                                                               60%      Reduction
                                                                                             of AT&C
                                                                                            losses by
800                                                                                55%        11% -
                                                                                            double the
       51.54%                                                                               target set
600
                                                               Rs. 1,133 Cr*       50%

                           47.47%

                                                      45.06%
400                                                                                45%
                                                                                         * Incremental
                                                                                         burden with 2%
                                                                                         increase in loss
200                                                                                40%   level on July 02
                                                       Rs. 830 Cr**
                                                                          40.64%         base
                                                                                         ** Incremental
  0                                                                                35%   burden with no
  Jun'02                   Mar'03                     Mar'04                   Mar'05    change in loss level
                                                                                         on July 02 base
                Lower AT&C Losses resulted savings in resources

                                                                                                            30
        Reduction of Govt. Subsidy
            700                                                                          75%
                                      BSES - Yamuna Power Limited

            600                                                                          70%      Reduction
                                                                                                   of AT&C
            500
                      63.16%
                                                                                         65%
                                                                                                  losses by
                                     61.88%
                                                                                                    13% -
                                                                                                  double the
            400                                                                          60%
                                                                                                  target set
Rs Crores




                                                                       Rs. 633 Cr*
                                                             54.29%
            300                                                                          55%

                                                                                50.12%
                                                                                                * Incremental
            200                                                                          50%
                                                                                                burden with 2%
                                                                                                increase in loss
                                                                                                level on July 02
            100
                                                                       Rs. 440Cr**       45%
                                                                                                base

             0                                                                            40%
                                                                                                ** Incremental
             Jun'02                  Mar'03                   Mar'04                 Mar'05     burden with no
                                                                                                change in loss level
                                                                                                on July 02 base
                        Lower AT&C Losses resulted savings in resources

                                                                                                                   31
Open Access – International experience
                          Scandinavian countries (Norway, Sewden), UK, Italy, Spain,
 Major Countries          Benelux, France (emerging), Australia, Belgium, Germany and
                          selected states in US

 Period of Introduction   Over last 10 years

                          Progressive. Initially large industrial & commercial consumers slowly
 Consumers Covered        extending to retail (except Germany)
                          In Europe all the countries have Open Access for large consumers
                          whereas 1/3rd of the countries accorded for all consumers.

 Scope of Open Access     Up to consumer premises


                           Separate business (UK)
 Metering
                           Part of wires/incumbent company (USA, Europe)



 Fixing of Open Access
                          Regulated except in Germany where it is through mutual negotiation
 Charges




                                                                                                  32
Open Access – International experience

                           Fully Separated – UK, Scandinavia, Belgium & most of the
Scope of Wires & Supply
                            other European countries
Business
                           Not Separated – USA & some of the European countries




                        Standard losses computed and included in open access
Apportionment of Losses charges. Improvement over standard losses are allowed to be
                        retained by wires company to encourage reduction of losses




                                                                                       33
DTL: Most Preferred Bulk Power Purchaser
                           BST payment

                               100.24%
    110%
                                                    80.30%
      90%
                 65.22%
      70%                                56.69%

      50%
                      BRPL                      BYPL

                               FY 02   FY 05

     Substantial Improvement                   Fast Movement
      in paying capabilities                    towards self
                                                 sustenance

                                                               34
Electricity Sector –Pre Reform
 GENERATION          TRANSMISSION             DISTRIBUTION      CONSUMER

  SEBs                     SEBs                  SEBs
                                                             Agricultural
                                                             Domestic
                       Independent
  CPSU                                                       Commercial
                       (PGCIL)
                                                             Small Industrial
  IPPs                                                       Large Industrial
                                                             Public Lighting
                                              Pvt.           Railways
  Pvt. Licensees       Pvt. Utilities
                                              Licensees

  Excess
  Captive




         ?         Regulator‟s Role (Performed by Govt.)


                                    Rigid Structure

                                                                                35
Immediate Challenges on Takeover

       Single stage
                               Effecting a “change
      unbundling and
                              management” with the
       privatization
                               existing workforce



      National Capital –        Dilapidated network
   reform effort with “zero      and almost absent
      error” expectation      systems and processes
                              for O&M and customer
                                      service


     High Stakeholders             Inadequate
        expectations           Customer Database




        Substantial Efforts Required to meet the Challenges

                                                              36
Current Issues

 Improving customer interface

 Theft control

 Removing the apprehension about Electronic meters

  and address Billing Issues

 Complete eradication of corruption


                                                      37

				
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