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Structure

Distribution is the last segment in the electricity supply chain; it is however, a key segment as it forms the vital link between the end consumers and the power companies. Until some time back, the State Electricity Boards (SEBs) handled the distribution segment completely. Power distribution in a few regions/areas has been privatised, however the SEBs are still handling a large part of power distribution.

Power distribution caters to both rural and urban areas, both of which have different characteristics. The consumer mix in the rural areas is largely residential and agricultural, while in the urban areas, the consumer mix is residential, commercial, and industrial to a certain extent. Both the consumer segments have their distinct characteristics and their own set of problems. In the rural areas the distribution network needs to be widely dispersed in relatively larger areas with long lines, implying higher cost of supply. This region has a large number of subsidised consumers, flat rate/tariff to farmers, low load and low rate of load growth and non-metering due to high cost and practical difficulties. Distribution in the urban areas is characterised by higher consumer density and higher rate of load growth.

A big challenge facing the power distribution sector is T&D losses, which are estimated to be as high as 26.9% in FY08. Though it has come down over the years from 32.5% in FY04, it continues to be much higher than T&D losses reported in other countries of the world. A number of technical and non-technical factors are contributing to the high transmission and distribution losses (T&D). These include political interference in terms of free power supply or subsidised power supply to agricultural users, lack of consumer education, theft, and inefficient use of electricity. A major share of these losses occurs in the distribution sector. Inadequate investments in the sector over the years for system improvement have resulted in unplanned extension of the distribution lines, overloading the distribution system elements.

T&D losses were computed taking into account electricity bills issued to consumers as accrued income and not on actual collection. The concept of Aggregate Technical & Commercial (AT&C) losses was introduced in 2001-2002 to capture the difference between the billing and collection, which was not captured by the T&D loss figures. AT&C loss is the difference between units input into the system and the units for which the payment is collected.

The commercial losses in the sector can be eliminated by improving metering efficiency, proper energy accounting & auditing and improved billing and collection efficiency. Greater accountability across the different segments would also help reduce the AT&C losses considerably.

The government initiated the Accelerated Power Development & Reform Programme in 2001 for strengthening the T&D network and reducing the AT&C losses.

Accelerated Power Development and Reform Program (APDRP)

The APDRP programme was launched in 2002 to promote and incentivize distribution sector through the policy initiatives and controlling fund flow. The main objectives of the programe is to reduce the Aggregate Technical & Commercial (AT&C) losses to 15%, decrease the power outages and interruptions, ensure commercial viability, creating better management information system and increase consumer satisfaction.

The APDRP programe was formulated to improve the financial viability of SEBs (State Electricity Boards)/Discoms. The SEBs average cost of supply was too high and average revenue was very low, as a result the SEBs were under financial crunches and they were not able to make payment to the Central Public Sector Undertakings (CPSUs). The APDRP has been tasked with restoring the commercial viability of the Distribution Sector. MOP set up the guidelines to be followed by states to be eligible for the APDRP funding.

The APDRP scheme gives its support through two components – investment by states and incentives from the centre. The allocation of funds by both the parties was in the ratio of 50:50. During the 10th plan period (2002-2007), the scheme had an allocation of Rs 400 bn with Rs 200 bn each for investment and incentives.

Investment component – The Government of India (GOI) provides assistance for strengthening and up-grading of the sub-transmission and distribution network for which additional assistance covers 50% of the project cost in the form of 25% grant and 25% loan and remaining 50% have to arrange from PFC (Power Finance Corporation), REC (Rural Electrification Corporation) or any other financial institution. Special category states (like J&K, Himachal Pradesh, Uttaranchal and Sikkim) get 90% of the grant and remaining 10% loan. Around 571 projects of the cost of Rs 170.33 bn get investment benefits under the APDRP. The Union government assistance is Rs 87.2 bn with Rs 64.45 bn in grants and Rs 22.74 bn as loans. The fund released was Rs 72.1 bn while fund utilised was Rs 119 bn (as of 31/03/2008) which is 70% of the sanction amount.

Incentive component - Incentive component is to reward the SEBs/utilities for cash loss reduction by providing 50% of reduction as a grant. Under the incentive component, the government released an incentive reward of Rs 28.79 bn (as on 31/03/08) for nine states.

Performance under APDRP – APDRP has upgraded the entire distribution network by strengthening it. The metering status has shown appreciable results as 11 KV feeder metering was raised from 81% (FY02) to 98% (FY08) while the consumer metering reached 89% (FY08). States like Delhi, Himachal Pradesh, and Kerala have achieved 100% consumer metering. As per the Ministry of Power (MOP) AT&C losses of APDRP towns dropped below 20%. The Average Revenue Realisation (ARR) by many states like Maharashtra, Gujarat, Punjab, Madhya Pradesh, Chhattisgarh, Himachal Pradesh, Orissa, Delhi, Manipur, West Bengal and Nagaland increased.

Rajiv Gandhi Grameen Vidhyutikaran Yojana

The ministry of power launched the Rajiv Gandhi Grameen Vidhyutikaran Yojana (RGGVY) programe in Apr 2005, which aims at providing electricity to all villages and habitations in four years and to also provide access to electricity to all rural households. The scheme envisaged a necessary infrastructural distribution system to villages by setting up a 33/11 KV sub-station and a distribution transformer of appropriate capacity in each village or hamlet.

The programme provides capital assistance of upto 90% and the assistance to Below Poverty Line (BPL) households of upto 100%. The funds were released from the Rural Electrification Corporation (REC) which is the nodal agency for the programme. To widen the scope of electrification, habitations of electrification are now defined as having a population of 100 and above (earlier it was 300). Certain guidelines were decided by the MOP for the RGGVY to disperse the electrification in rural areas.

Electrification Achieved

Rural electrification achieved during the 6th and the 7th plan periods was over 100,000. However, rural electrification achieved during 8th and 9th plan periods was not significant as a result RGGVY was launched in 2005 to remedy that. As of FY09 493,163 villages were electrified while 100,492 villages were left unelectrified as on Jun 09.

Status of RGGVY

As per the 2001 census, the programe has a target of electrifying 582 districts, 6,337 block, 570 villages, 153,7943 habitations, 119,570 villages and 78,019,262 households. But the number of districts, blocks, villages, habitations and households has increased over the years. Therefore in order to achieve the target, electrification planning should be done keeping in mind the increased figures. As many as 588 projects were sanctioned under RGGVY with coverage of 530 districts, 116,010 unelectrified villages, 349,853 electrified villages and 40,487,557 electrified households including BPL with a total project cost of Rs 256.8 bn.

Advantages amongst other schemes: The schemes which were launched prior to RGGVY like Minimum Need Programme and Grameen Rozgar Yojana were given capital assistance through the state sector with additional assistance from the central government. Hence it took a long time before the funds are released while in the case of RGGVY funding is released directly from the central government. The programme has to achieve its target on a priority basis and time frame which was given for rural electrification was the five year plan period. The scheme was being supported by t CPSUs in execution and implementation of projects.

One aspect of the RGGVY scheme is the franchisee model. The model is being developed by the MOP (Ministry of Power) for better management of electricity distribution in rural areas. The guide lines were formulated by the REC and were issued to all states and CPSUs. The model is adopted by as many as 14 states and covers 87,666 villages. The approach adopted by different states were revenue collection-based franchisee and input base franchisee.

Steps taken to Improve the Distribution Sector

In order to achieve commercial viability of SEBs, efficient performance by the distribution sector is mandatory. For boosting up the performance of distribution sector GOI and MOP have taken several steps which include: