These statistics clearly show that at
least 20% of the power supplied to the system is being stolen or lost because of
incompetent management, corruption and poor infrastructure. The purchase cost of this 20%
power (after giving allowance to 16% acceptable system losses) would be in the order of
Rs.1680 crores. If an average tariff of Rs.3 per unit is realised from this energy
unnecessarily lost, the revenue lost would be a staggering Rs. 2500 crores.
The saddest feature of these huge and unnecessary losses is their
continuance for years without any tangible and effective steps to improve the situation.
For years the government and AP Transco have been claiming that all steps are taken on
war-footing to eliminate theft and T & D losses. However there is no real evidence of
tangible positive results so far. In effect the consumers are now forced to bear the
unfair burden of gross incompetence and corruption in the management of the system.
APSEB and AP Transco have also been showing grossly varying figures
of agricultural consumption over the years.
As agricultural power is not metered,
farmers are charged a flat rate on the basis of load irrespective of consumption. Various
assumptions have been made from time to time effectively transferring the system losses to
agricultural consumption. As sample metering showed that agricultural consumption may be
lower, the figures are being revised now, showing correspondingly higher system losses.
However there is evidence to suggest that the flat rate of power charged for agricultural
sector encouraged use of low efficiency pumps and motors, excessive use of power and
needless drawal of water depleting ground water reserves. It is generally accepted that
farm sector needs to be partially subsidized for lifting water. However all efforts should
be made to save power and ground water, even as reasonable subsidies are continued.
Despite the mounting crisis in the power sector, no effective steps have been taken to
conserve ground water and save energy. Even now no rational policy for farm sector power
has been evolved.
Revenue deficits :
On account of the mounting inefficiencies, rampant corruption and
theft and unsustainable subsidies, APSEB and AP Transco have been claiming huge revenue
deficits. As electricity supply Act 1948 makes it mandatory for the government to ensure
3% rate of return to the utilities, the government has been transferring resources to the
sector over the years. However in reality these have been only book transfers or writing
off of loans and as of now there have been no real cash transfers.
Year |
Revenue
deficit |
Govt. payments |
|
Rs. in crores |
|
1994-95 |
857 |
Equity written off to a tune
of
Rs.944 crores |
1995-96 |
1128 |
Loans written off to a tune
of
Rs.1259 crores |
1996-97 |
721 |
Loans written off to a tune
of Rs.850 crores |
1997-98 |
1134 |
Subsidies to a tune of
Rs.1255 crores due from government |
1998-99 |
2038 |
Rs.2519 crores due from
government |
1999-2000 |
3600 |
- - - |
2000-2001 |
3558 |
Rs.1626 crores
promised |
These figures clearly show that there have been no real
cash transfers to APSEB/ AP Transco from government. Over the years equity and loans have
been written off merely reducing requirement of return on reduced equity, or reducing the
burden of debt servicing. The control of government on APSEB/ AP Transco has been total in
terms of policy, tariffs and personnel. In addition there has been interference in
day-to-day functioning and routine executive decisions. Pilferage, thefts and corruption
continued unchecked on account of political patronage and lack of political will to
improve the system. The power sector became the proverbial goose that laid golden eggs,
and public interest suffered grievously. Endemic power shortages, voltage fluctuations,
frequent tripping, tremendous corruption, harassment and extortion, populism, unreliable
power and high tariffs have become the order of the day.
Disproportionate rise of domestic tariffs :
In this back drop, the AP Electricity Regulation Commission (APERC)
was created under AP State Electricity Reform Act, 1998 in order to insulate tariffs and
licensing decisions from partisan political control. On May 27, 2000 APERC gave its orders
on the tariff revision proposals of AP Transco for the year 2000-2001. The resulting
higher tariffs affected the domestic sector disproportionately. This distortion was
largely a result of the high estimates of cost to serve. Most of the thefts (95%) are
assumed in LT sector alone; the burden of thefts is thus disproportionately borne by
domestic sector. In addition, as domestic consumption is largely during the peak hours
between 6 PM and 10 PM, AP Transco charged most of the generation infrastructure cost to
the domestic sector. Both these assumptions ¾ high losses and
thefts in domestic sector, and additional cost on account of peak hour load ¾ are flawed. It is unlikely that most thefts are in domestic
sector, and in any case thefts are a result of incompetence, connivance and corruption in
AP Transco. It is unreasonable to transfer the burden of the utilities' follies to the
honest consumers who pay bills. In a situation of endemic scarcity and power cuts, it is
not reasonable to transfer the burden of additional power generation entirely onto the
domestic sector. In addition, nearly half of the power generation capacity in the State is
in hydro-electric stations, in which cost of generation is very low. These stations can be
switched on and off at will, and ought to be operated when the load peaks. Given these
facts, the assumption of 496ps as cost to serve in domestic sector is highly exaggerated.
Unfortunately APERC has largely relied on these unscientific estimates while revising
tariffs.
Domestic Tariff Comparison |
No of units |
Old |
ERC |
Revised |
|
Rate |
Amount |
Rate |
Amount |
% Incr. |
Rate |
Amount |
% incr |
50 |
0.80 |
40.00 |
1.45 |
72.50 |
81% |
1.35 |
67.50 |
69% |
100 |
1.20 |
120.00 |
3.90 |
267.50 |
123% |
2.95 |
215.00 |
79% |
200 |
1.65 |
330.00 |
3.90 |
657.50 |
99% |
2.95 |
510.00 |
55% |
300 |
2.10 |
630.00 |
6.15 |
1272.50 |
102% |
4.50 |
960.00 |
52% |
400 |
2.90 |
1160.00 |
6.15 |
1887.50 |
63% |
4.50 |
1410.00 |
22% |
500 |
3.40 |
1700.00 |
7.05 |
2592.50 |
53% |
5.25 |
1935.00 |
14% |
From the above table it can be seen that the burden of tariff increase
has fallen disproportionately on the domestic sector. In particular, greater hardship is
felt by the steep increase in 50-200 units slab and reduction of the earlier six slabs
into four. Given the public concern and the steep hike, there is a strong case to
reintroduce the earlier six slabs, and to provide relief in 50-200 units slab. However,
relief to the small domestic consumer may pacify the public, but the crisis in power
sector will need to be addressed squarely to protect consumer interests.
Real issue ¾ better management, not revenues :
However the real issues in Electricity sector are camouflaged in the
current debate arising out of tariff revision. If our whole emphasis is on increasing
revenues to meet the expenditure, then the burden of tariffs will be unsustainable. If AP
Transco is suffering losses, then some one has to pay. The only way of maintaining tariffs
stable even as losses are mounting is by huge government subsidies to AP Transco. The
government itself is showing huge fiscal deficits and all development expenditure has been
stopped. Therefore the burden of subsidies will be transferred to citizens in the form of
higher taxes. People are both consumers of power and tax payers. It makes little
difference whether we are forced to pay higher tariffs as consumers, or higher taxes as
citizens. In a deep sense the terms of debate in power sector now are short-sighted and
counterproductive.
Lok Satta firmly believes that the real issues in power sector
are better management, more transparent policies and decisions and reduction of
expenditure and losses now and in the future. The events of the last two years clearly
show that increasing tariffs in themselves provide no solution in the long-term without
addressing the fundamental problems plaguing the power sector. Last year AP Transco
projected revenue deficits of the order of Rs.2400 crores, and T and D losses to a tune of
31.8% and sought tariff revisions. Accordingly, tariffs have been increased last year to a
tune of over Rs.430 crores. However, a year later, AP Transco has now projected a revenue
deficit of Rs.3700 crores and T & D losses of 36.9%. Again tariff revisions to a tune
of Rs.1083 crores have been granted by APERC, part of which 281 crores was offset by
increased government subsidies. There is no guarantee that next year AP Transco will not
again come before APERC and the public and seek higher tariffs claiming much higher
revenue deficit and higher T & D losses. Exclusive focus on revenue deficits and
tariffs thus leads to a dangerous vicious cycle and eventual collapse of the system. APERC
has also taken into account the time lost in the accounting year before tariff revision
was ordered. Since AP Transco should get the intended benefit of tariff increases in a
shorter span, APERC has correspondingly made higher revision to meet the requirement.
However, this means that next year, even without further enhancement of tariff, AP Transco
will automatically derive 16% additional revenues. Therefore the tariffs now ordered
cannot form the basis for further revisions.
Fundamental issues :
The real answer to the crisis lies in addressing three fundamental
issues to improve system efficiency, reduce corruption and minimize future expenditure.
- T and D losses
- Power Purchase Agreements (PPAs)
- Distribution privatization
T and D losses :
At present AP Transco is metering and selling only 41% of the power
supplied to it. The one verifiable indicator of improvement in the system is increase in
percentage of metering and billing for consumption outside agriculture. APERC in its order
stated that AP Transco "frankly admitted' that they cannot improve metering and
billing by at least 10%, and therefore APERC directed that metering and billing should go
up by 7% to at least 48% during this year. This is a wholly unacceptable situation. People
are not only consumers, but are also the owners of AP Transco, which is a public utility.
Rank incompetence and corruption cannot be allowed to continue unchecked. AP Transco
itself estimates that about 13-14% of power is stolen, and Distribution losses amount to
about 18%. It is absurd to allow such huge thefts and technical losses. A 10% improvement
is the minimum we should demand and get over the year, and this power saved will fetch
about Rs.1250 crores per year at Rs.3 per unit.
If the government and AP Transco with all their personnel, resources
and powers at their command confess to their inability to at least reduce thefts and save
10% of the power, then they forfeit all moral right to manage public affairs. Therefore
we, as people, demand at least 51% of power to be metered and billed by 31 March 2000.
This should be exclusive of conversion of agricultural pump sets to metered connections if
any. This should also exclude the 8% additional billing that might automatically result in
the current year (without any efficiency improvement) on account of monthly billing
proposed now.
Financial Position of AP Power Sector |
|
|
2000-01 |
2001-02 |
2002-03 |
2003-04 |
1 |
Demand Projection (MU) |
. |
27500 |
. |
30000 |
. |
33000 |
. |
36000 |
2 |
Energy Losses (MU) |
. |
15000 |
. |
10500 |
. |
8750 |
. |
7500 |
. |
. |
. |
35% |
. |
26% |
. |
21% |
. |
17% |
3 |
Energy purchases |
. |
42500 |
. |
40500 |
. |
41750 |
. |
43500 |
4 |
Revenue Requirement |
. |
8365 |
. |
8200 |
. |
8500 |
. |
9000 |
. |
. |
PP Costs |
7042 |
. |
6745 |
. |
6900 |
. |
7200 |
. |
. |
. |
Other costs (10 % increase) |
1323 |
. |
1455 |
. |
1600 |
. |
1800 |
. |
5 |
Revenue Realisation (Rs
in crore) |
5448 |
6521 |
. |
7110 |
. |
7821 |
. |
8532 |
. |
. |
(As per old tariff) |
(As per revised tariff) |
. |
. |
. |
. |
. |
. |
6 |
Revenue Deficit (Rs in
crore) |
2917 |
1844 |
. |
1090 |
. |
679 |
. |
468 |
7 |
To be covered by |
. |
. |
. |
. |
. |
. |
. |
. |
. |
. |
Subsidy |
2417 |
1344 |
. |
890 |
. |
579 |
. |
368 |
. |
. |
Efficiency improvement |
500 |
500 |
. |
200 |
. |
100 |
. |
100 |
. |
. |
Ave. purchase cost/unit |
. |
1.66 |
. |
1.66 |
. |
1.66 |
. |
1.66 |
. |
. |
Ave selling cost / unit |
. |
2.37 |
. |
2.37 |
. |
2.37 |
. |
2.37 |
Note
: It is assumed that
1) Demand will increase 10% per annum
2) Power Purchase Cost will be stable during the period 2000- 2004
3) Average sale price of power will be as per APERC order for the year 2000-2001
4) Reduction of T & D losses will be 10% in the year 2000-2001, 5% in the year
2001-2002 and 4% in the year 2002-2003 |
As the table above shows, improvement of efficiency and reduction of
technical losses and elimination of thefts alone will significantly improve the financial
health of AP Transco and the four distribution companies. Increase in non-agricultural
billing by 10% in the current year, 5% in 2001-2002, and 4% in 2002-2003 is both practical
and vital for the future of electricity sector. As the table shows, if these improvements
are made, it will be possible to significantly reduce revenue deficits even at the current
tariff levels. Tariff increases will not be necessary for the next three years.
Simultaneously, the subsidy burden on government will fall significantly to a nominal
Rs.368 crores by 2003-04. Clearly, genuine improvements in distribution and elimination of
thefts and corruption are the most vital requirements to safeguard the future of the power
sector.
Power Purchase Agreements (PPAs)
As APSEB's financial health declined over the years, there has been
no investment in new generating stations to meet the increasing demand. The APSEB/ AP
Transco has entered into power purchase agreements (PPAs) with several private companies
¾ foreign as well as domestic. There are two serious problems with these projects.
Firstly the realistic capacity of AP Transco to buy power from private sector in the next
five years does not exceed about 2500 MW. However, the State has entered into PPAs with
projects with a total capacity of over 5600 MW. There are no objective and verifiable
norms as to which project will be promoted, and which will be sidelined. This
arbitrariness led to enormous scope for corruption and delays. Secondly as power plants
have been promised returns on 'cost plus' basis, capital costs of these plants have been
escalated and are highly variable. Plants with similar fuel and in the same locality cost
a lot more than other comparable projects, resulting in higher tariffs. Added to this
there has been no proper planning and foresight in promoting plants with appropriate fuel
mix keeping in view economy, availability, and reliability. As a result naphtha-based
short-gestation projects have been promoted, and the rising cost of naphtha has led to
unaffordable tariffs. While gas-based power is clean and cheap, there is a limitation of
gas availability, which may not exceed 1000 MW. Also gas has greater value as a chemical
than as a fuel, and therefore the limited gas reserves cannot be used exclusively for
power generation.
Given these facts, unless a transparent and fair policy is evolved and
implemented, there is a real danger of enormous escalation of tariffs as private projects
become operational. The Kondapalli project which is already commissioned will have to be
kept idle on account of high cost of naphtha, and AP Transco will have to pay about Rs.300
crores per annum as fixed costs until gas supplies are available. In Maharashtra, Enron is
similarly being paid about Rs.1000 crores per annum as fixed costs. While as of now the
role of private projects in power sector is marginal, it will grow considerably over the
next few years. As new projects come in, tariffs also will rise as their capital cost has
to be repaid in about seven years or so. Therefore, people should assert now to ensure
that abundant and cheap power is available, and the future is not mortgaged by promoting
high cost power projects.
Decentralization of distribution:
The government has repeatedly declared its policy of privatization
of distribution network. People are unconcerned about ownership and management of
distribution companies, as long as abundant, affordable, high quality power is available
to meet our consumption needs and fuel economic growth. When the government and management
of AP Transco proclaim their inability to manage the distribution system, reduce line
losses, and eliminate thefts and corruption, competitive private management is one option.
However, the model now being contemplated is privatization of four large distribution
companies, each of which has infrastructure worth about Rs.7000 crores or more in terms of
replacement value. Permanent transfer of such large public assets necessarily means that
only huge global companies will be involved. The large investments needed, and the stiff
qualifying criteria to bid will reduce competition severely. There is apprehension in the
minds of people that the huge system losses, inefficiency and corruption will be used as
alibis to transfer the vast distribution network for a paltry consideration. Such a
process will inevitably give scope for enormous corruption. Even after privatization,
large distribution networks covering five or six districts cannot be improved without
involving the local community and the workers. Also, in management of distribution of
power there are no real economies of scale beyond a sub-station.
The above pictorial representation of the electricity generation,
transmission and distribution network shows that about 4.5% of power is lost in high
tension transmission. While there is room for reduction of these losses by about 1.5%, the
investments needed are relatively high. Also there are no thefts possible in transmission.
The real area of concern is distribution, in which losses are of the order of 32-33%.
About 14% of the power is estimated to be lost by thefts alone. Elimination of thefts
requires political will, legal enforcement, and local strength and influence to counter
political pressures and small mafias. Technical improvements in distribution do require
infusion of technology and investments, but both are within the reach of small
entrepreneurs at local level. Even technical improvements require close local monitoring
and painstaking fieldwork and not central control.
In Andhra Pradesh, the 33 KV substations number about 1800. A
substation is a viable unit for distribution management. If each of these 1800 substations
is transferred to private entrepreneurs with distribution licenses for a finite period of
say five years each time, then there will be real improvement in a short span of time.
This method will encourage tremendous competition among hundreds of small entrepreneurs,
mostly from the State. The employees, who may number about 50 to 100 in each substation,
will have a stake in improving the performance in a limited area with finite investment.
As hundreds of local entrepreneur's deal with the system, detection and elimination of
thefts and corruption will be far more easy. Many employees who understand the local
conditions may well become capable entrepreneurs. Such distribution rights can be
auctioned with the private entrepreneurs earning the right to derive profits from power
saved by improving the distribution system. This decentralized distribution will also give
flexibility to learn from past experience and improve practices. Ownership need not be
transferred to private sector permanently. This model of decentralized distribution will
be somewhat similar to annual auctioning of distribution rights of arrac. As arrac
distribution permits are auctioned, illicit distillation is controlled locally with ease.
Similarly cable TV operators came up on a large scale all over the State and are providing
high quality service to consumers. Distribution privatization is as much a political and
social issue as an economic one. Unless the private power distributors enjoy local clout
and carry the employees with them, they will not be able to invest and improve the
distribution system, or control theft and corruption. The safest and most effective way of
involving citizens and workers and encouraging private initiative in distribution of power
is on a small-scale at the substation level and town level.
Citizens as consumers and owners:
Unless government and AP Transco address these basic issues of T
and D losses, power purchase agreements and decentralized and transparent transfer of
distribution rights, the electricity sector is bound to sink deeper into financial crisis
and collapse sooner, than later. AP Transco is owned by the people of the State, and the
government is merely our agent. The people have extremely serious stakes in the management
of power sector. In many ways, the future of our economy and the fiscal health of
government depends on the way the power crisis is handled. Therefore we should act as
citizen-owners in addition to asserting our rights as consumers.
Charter of Demands :
Therefore Lok Satta is making the following demands of the
government and AP Transco to set things right in the power sector.
- State government / AP Transco should give a categorical commitment (in writing), backed
by a verifiable time-bound activity chart, to improve non-agricultural billing from the
present 41% to at least 51% by March 31, 2001. This should exclude the 8% addition, which
accrues on account of monthly billing, if it is introduced, and conversion of agricultural
slab connections to metered connections if any. This commitment of government should be
available in writing by July 31, 2000, along with a time-bound, verifiable action plan.
- State government / AP Transco should release a comprehensive white paper on PPAs with
private power projects and give a detailed plan by July 31, 2000 indicating:
- the purchase cost of power __ fixed and variable costs - project wise
- pricing policy of power purchase - including incentives, station heat rate,
auxiliaryconsumption, secondary fuel consumption etc - project wise
- the priority of purchase of power and further development
- the fuel mix of the projects from which power can actually be purchased
- availability of gas, whether naphtha is proposed for any project, how many MW of power
will be produced for each fuel - gas, coal, naphtha etc
- the details of the need for, and capacity to, purchase power from private projects over
the next five years
- the action proposed in respect of unviable power projects from which power cannot be
purchased on account of high cost or low demand
- action proposed in respect of each project which did not achieve financial closure ¾
does the govt. / AP Transco wish to pursue these projects, and assist them in reaching
financial closure, if so, which projects, how and why
- AP govt. and AP Transco should immediately give an irrevocable written commitment that
in the event of privatization of distribution network, they will go in for competitive
bids at sub-station level or town level in order to:
- promote transparency
- encourage local entrepreneurship
- have greater flexibility
- obtain employee participation and cooperation
- achieve greater efficiency
- realize higher revenues
- If the government comes forward with effective and verifiable action on the demands
made, then Lok Satta calls for strong and sustained popular vigilance to monitor
improvement. If the government and AP Transco fail to meet the performance standards, Lok
Satta will urge people to resort to non-cooperation to force improvement in Transco's
management and ensure greater accountability.
- In the event the government and AP Transco meet the performance standards as demanded,
then and then alone they would be reasonable in seeking public cooperation and
understanding. In that case, any future tariff revision should be based on Table 38 and
not the schedule in Table 53 of APERC order, since it is based on the need of AP Transco
to raise additional revenues for the whole year 2000-2001 in ten months from June 2000 -
March 2001. In effect, the tariff increases now ordered, and modified by the government
subsidy, will automatically ensure additional revenues in the next year 2001-2002 over the
current year as the tariffs will be applicable to twelve full months in the next year.
- Lok Satta is prepared to demonstrate efficiency gains in a few substations on pilot
basis with the cooperation of government and AP Transco and support of the public and
employees.
- If the AP Govt. / AP Transco fail to give firm written and irrevocable commitments on
the above three issues and fail to furnish credible and verifiable information by 31 July,
Lok Satta will have no option but to give a call for non cooperation. The people are not
only consumers, but are also the owners of the public utilities. AP Transco and government
have singularly failed to improve efficiency and performance, and reduce corruption,
thefts and losses over the years. In 1998-99, they claimed a deficit of Rs.2400 crores in
AP Transco, and T & D losses (both technical and commercial) to a tune of 31%. Tariffs
had been raised, and yet in 1999-2000 they claimed a deficit of Rs.3700 crores and T &
D losses to a tune of over 37%. Further tariff revision has been granted by APERC. The
people cannot accept such criminal inefficiency and connivance in theft and losses. If the
government fails to discharge its duties, the people are perfectly right in refusing to
pay the bills and in general resort to non cooperation and enforce accountability.
If the government and AP Transco fail to respond to our appeals and do
not come forward with a verifiable, time-bound, concrete plan of action before 31 July
2000, we, as people will be well within our rights to assert our sovereignty and take
direct action to set things right.
Keeping these factors in mind, Lok Satta is releasing the people's
Charter of demands to resolve the power sector crisis. We appeal to all sections of the
public to collectively monitor the performance of government and AP Transco and assert our
sovereign right as citizens to enforce accountability of those who are entrusted with the
management of power sector on our behalf. This is time for thoughtful and resolute action,
irrespective of political and partisan differences.