Rationale for Karnataka State Power Sector scoring - Ministry of Power

Rationale for Karnataka State Power Sector scoring
Executive Summary
A score of 68.0 has been assigned to the power sector in Karnataka. The distribution of
marks against the parameters is as follows:
No. Parameter Maximum Score Score Assigned
1 State Government Related Parameters 20.0 12.5
2 SERC Related Parameters 20.0 15.0
3 Business Risk Analysis 25.0 14.0
- Generation 6.0 4.0
- T&D 19.0 10.0
4 Financial Risk Analysis 30.0 22.0
5 Others 5.0 4.5
The State Government
Total 100.0 68.0
Key Positives
Karnataka was one of the first states to start the reform process by signing the MoU with
the GOI. The State Government has been extremely supportive in terms of finances and
timely legislations with the state drawing up a 10 years Financial Restructuring Plan
(FRP) which envisages an outlay of Rs. 8,999 crs over the next five years in improving
the power sector. To monitor the reforms taking place, a Special Secretary Power
Reforms has been appointed and the Energy Department comes out with a monthly status
report (the only state to do so), which reports the status of achieving various targets.
Another area where the State Government has demonstrated commitment to reforms is in
the area of subsidy releases. In two of the last three years, the government had released
60% to 70% of the subsidy claimed while in 2001-02, the figure rose to 103%.
Karnataka’s high ranking is significantly driven by the financial backing that the state
government is offering to the power sector.
The unbundling exercise has been completed with the formation of four regional
distribution companies. During this process a total of Rs. 3,722 crs have been adjusted or
written off by the State Government and KPCL, so that the new entities start out with
clean balance sheets.
Areas of Improvement
The differential between cost of supply and average agricultural tariff is 84% and has to
be reduced by hiking agricultural tariffs further. Releases to the Pension Fund were lower
than envisaged and the State Government will have to step up its outlay to the figure
committed in the FRP.

ERC
Key Positives
The ERC has performed well in managing to increase tariff levels for subsidized
segments with the two tariff orders passed hiking tariffs by 17% and 16% respectively.
The ERC has also come out with strong directives aimed at moving KPTCL towards
efficiency improvements and better loss reporting.
Further there has been an attempt to reduce cross subsidies by increasing agricultural
tariffs more than industrial tariffs. Incentives for metering agricultural consumers have
been provided in the tariff orders by allowing them to pay the lower of flat rates or
metered rates. This has resulted in villages with abundant rainfall opting for metering.
.
Areas of Improvement
The key area of improvement is on the tariff order front. The first tariff order was delayed
by 8 months and the second order by 15 months, resulting in an adverse impact on
KPTCL’s revenues. The delay has been primarily because of KPTCL filing a case in the
high court against the directives issued in the first tariff order. Co-operation amongst
KPTCL, KERC and the State Government would promote timeliness of tariff orders and
prevent the adverse impact on KPTCL’s financials that a delayed tariff order could have.
Operational Parameters (Generation, Transmission and Distribution)
Key Positives
On the T&D side the efforts taken to meter agricultural customers are commendable
especially the “One Time Regularization Drive” for connections and the sample meters
being set up in each taluk. The collection efficiency of more than 100% is also heartening
as it reflects a reduction in past dues. Manpower levels in the T&D system are among the
lowest across reforming states.
Areas of Improvement
Karnataka has been poor in terms of the performance of the T&D Infrastructure.
Overdrawing from the grid has been a problem and steps should be taken to maintain grid
discipline. The state’s power sector has also lagged behind in interface metering and
metering efficiency, compared to some reforming states.
Finances
Key Positives
Karnataka is the top state in terms of the financial score. Bringing down receivables from
186 to 122 days and accepting the Ahluwalia Committee Recommendations is
commendable. The coverage levels are also among the best.
Areas of Improvement

Further work needs to get be done in bringing receivable levels down to below 100 days.
Gearing levels, while relatively low, can be brought down to more comfortable levels.
Due to the delayed monsoons this year, hydel generation is expected to decrease and
consequently thermal power purchase costs would increase which could negatively
impact the revenue gap in 2002-03.
Outlook: The outlook on the ranking is stable. An improvement in scoring is contingent
on KPTCL improving its T&D network and KERC passing tariff orders in a timely
manner.

KARNATAKA
PERFORMANCE SCORESHEET
Max.
score Actual Remarks
I External Factors 40.0 27.5
A State Govt related parameters 20.0 12.5
A 1 - Existence of formal Action Plan for time bound
reforms
- If ’Y’, status of implementation of the plan (Q)
5.0 4.0 Notable agreements in this regard are:
§ Memorandum of Agreement between the Ministry of Power (MoP) and
Government of Karnataka (Dated: 12th February 2000)
§ Memorandum of Agreement between the Ministry of Power and Karnataka
Power Transmission Corporation (Dated: 22nd May 2002)
§ KPTCL has signed the agreement under the APDRP Scheme and the following
amounts have been released by the MoP:
Rs. 81.50 crores (50% grant and 50% loan) on March 17th 2001
Rs. 29.77 crores (50% grant and 50% loan) on April 4th 2002.
Operational:
§ One of the earliest signatories of the MOU with the GOI.
§ Three member KERC set up and is fully operational since November 1999 and
two tariff orders have been passed.
§ The first tariff order increased tariffs by 17% and in the second tariff order
increased tariffs by 16.2%.
§ Four regional distribution companies have been formed.
§ Consultants have been appointed to advise the Government on all matters relating
to reform and restructuring program funded by the World Bank
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A 2 - 3 year track record on subsidy payments 5.0 3.5
Financial:
§ Approval for clean balance sheets of 4 regional distribution companies under the
BRP II (31st May 2002). A total of Rs. 3,722 crs was adjusted or written off by
KPCL and GoK.
§ 10 yr FRP approved. Government to provide 8,999 crores in the next five years..
§ The Ahluwalia Committee Report on the One Time Settlement of Dues has been
accepted.
MIS and Reforms:
§ The Energy Department comes out with a Status Report on Reforms every month,
the only state to do so.
§ Has a Special Secretary Power Reforms besides Energy Secretary to monitor the
reform process.
> Average subsidy paid vs payable (%) Average Subsidy Paid vs Payable for last three years = 78%.
It was over 100% in 2001-02 and between 60% - 70% in the previous two years.
> Subsidy o/s (as % of subsidy payable in recent
FY)
A 3 - Health of State Government finances impacting
ability to sustain subsidy levels
A 4 - Legislation for power sector reforms 5.0 3.5
> Treatment of subsidies in the legislation including
transitional support to utilities
Subsidy Outstanding = 13.83%
5.0 1.5 § Year on year the subsidy payments has been increasing putting pressure on the
GOK's fiscal position. The increase in agricultural tariffs is very modest.
1999-00: Rs. 769 crores, 2000-01: Rs. 1246 crores, 2001-02: Rs. 2300 crores
$ The Karnataka Electricity Reform Act was passed on June 1st 1999.
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Stringent Anti-Theft Legislation The Electricity (Karnataka Amendment) Act, 2001 has been passed to curb theft
and pilferage of electricity in the state, with stringent penal provisions including a
minimum compulsory imprisonment of three months for second and subsequent
offences.
> Implementation of the Anti-Theft legislation The tangible results obtained are as follows:
One Time Regularization Scheme has resulted in 7.5 lakh domestic, 40 thousand
commercial and 79 thousand IP sets getting regularized till April 9th 2002.
30 vigilance police stations have been set up with 2 stations per district and a
special court and 4000 theft cases have been booked
> Powers of the ERC The Government has been supportive in terms of the finances and staffing of the
KERC.
However it has not been as supportive in terms of implementation of the directives
of the KERC with KPTCL taking the KERC to court after the first tariff order. The
case was settled out of court but resulted in delaying the second tariff order.
B SERC related parameters 20.0 15.0
SERC functioning
B 1 Infrastructure
- Operationalising of SERC
5.0 5.0 An independent three member Karnataka Electricity Regulatory Commission has
been set up and is fully operational since November 1999.
- Funding source for SERC Funded from the Consolidated funds of the GoK. Funding has been released on
time as per the budgeted expenditure of KERC. Budgets were Rs. 1.23 crores in
1999-00 and Rs. 3.66 crores in 2000-01.
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- Staffing of SERC for smooth functioning On the basis of our discussion with the Secretary Mr. Sridharan, KERC has been
staffed sufficiently and there has been no hitches in the functioning because of this
issue. There are a total of 25 people in the staff other than the 3 members of the
KERC.
Operational
B 2 - Timeliness of orders 5.0 1.0 The first tariff order was delayed by 8 months. There was no tariff order for 2001-
02 and for 2002-03, the tariffs came into effect from July 02
B 3 - Tariff Philosophy 10.0 9.0 All consumers with the exception of BJ/KJ rural installations are charged a twopart
tariff with some energy charges and some demand charges. For domestic
consumers this is charged as fixed charges and demand charges. The agricultural
consumers are charged a fixed amount per month, which is a single part tariff.
> Tariff Structure
> Average tariff trajectory The first tariff order increased tariffs by 17% and in the second tariff order
increased tariffs by 16.2%.
> Tariff finalization on economic basis Tariff filing is on a rational and economic basis based on ARR calculations
> Agricultural tariff and % differential from
average cost of power supply
> Exercise to determine cost--to-serve for all
categories
> Steps taken for reduction of cross-subsidies
& slab rationalization (based on past 3 year data)
Agricultural consumers are charged flat rate. The differential between realized
agricultural tariff and average cost of supply is 89%
KERC has made efforts to direct KPTCL to determine the cost to serve prior to the
2nd tariff filing and a preliminary report is available
The tariff increase for domestic and agricultural consumers have been substantially
more than that of industrial consumers indicating a move towards reduction of
cross subsidy.
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Steps taken for ensuring scientific basis for
computation of T&D losses
> Options & Incentives for metering agricultural
load
> Role in payment of subsidies
The KERC has taken efforts to direct KPTCL in the metering programme,
concentrating especially on the agricultural customers. There is also an effort to
control losses through an energy audit and metering programme. However KPTCL
has not been in a position to achieve all the targets given to them.
The following initiatives have been taken for metering of agricultural load:
$ Agri. consumers can pay the lower of flat rates or metered rates. This has resulted
in villages in regions of abundant rainfall to opt for meters.
$ Sample meters have been set up in each taluk
$ A survey of unauthorized IP sets was undertaken and 99,536 IP Sets were
recognized, 20,299 were regularized, 25,412 were disconnected and the balance
23,825 are yet to be regularized.
- Strong KERC asks the GoK to file an affidavit about the subsidy release each year so as to
give legal sanctity to the subsidy commitment made by the Government.
- Neutral
- Weak
II Internal Factors 60.0 40.5
C Business Risk Analysis 25.0 14.0
C 1 - Generation 6.0 4.0
> Auxiliary power consumption Average Aux. Consumption is 3.25%
> PLF (%) -Only for thermal units Weighted Average PLF = 81.10%
> Availability factor (%) Average Availability = 86.61%
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Manpower level per MW generated Man Power Level per MW = 2.01
C 2 - Transmission & Distribution 19.0 10.0
> Level of Interface Metering At 33 KV, metering yet to be completed
> Quality of transmission and distribution network $ Approx 4.5% increase in length of transmission lines each yr for last 3 years.
$ 1225.63 kms of transmission lines, 40 substations, 656 capacitors and 12465 kms
of distribution lines were added in 2000-01.
$ There were a total of 40 power transformer failures in 2000-01
$ There was an investment of approximately Rs. 750 crores in 2001-02 to improve
the T&D infrastructure.
$ Distribution Transformer Failure Rate has been brought down from 19.23% to
18.17% (1999-00 to 2001-02).
> Units metered (distribn end) / Units input in the
transmission system
From 2000-01 to 2001-02 there has been an improvement of 0.59%
> Energy Audit (11 kV) $ Metering at 400 KV and 220 KV levels are already available.
$ 110 KV, 66 KV and 33 KV metering is to be completed by December 2002.
$ All 11 KV Banks and Feeders have been metered with electronic tri vector
meters.
$ 280660 IP Sets, 788140 BJ/KP Installations and 16,200 Street Lights have been
metered.
$ Sample meters have been set up in each taluk.
$ One Time Regularization Scheme has resulted in 7.5 lakh domestic, forty
thousand commercial and 79 thousand IP sets getting regularized till April 9th
2002
> Collection efficiency Collection Efficiency = 101% (Average of last three years)
> Manpower in T&D per "000 consumers Manpower = 36,985
Consumers =12,687 thousand (2001-02 figures)
Manpower per "000 consumers for KPTCL = 2.92
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D Financial Risk Analysis 30.0 22.0 Analysis based on 2001-02 financials
D 1 - Gearing level (Total Debt / Adjusted Networth) 2.5 2.0 Total Debt/Networth = 1.78
D 2 - [Revenues from sale of power) / (Coverage of power 3.5 2.0 Coverage in 2001-02 is 1.20
purchase cost + own gen costs (incl fuel / O&M)]
D 3 - [(Revenues from sale of power / (Coverage of all
optg costs + interest costs)]
5.0 3.5 Coverage in 2001-02 figure = 0.70
D 4 - Actual track record of debt servicing 5.0 5.0 KPTCL has been prompt in debt servicing
D 5 - Level of receivables (Days of sales)
(For DISCOMs)
D 6 - Power purchase and fuel creditors (external to the
state)
2.5 2.5 Improvement from 186 days to 122 days (1999-00 to 2001-02)
2.5 2.5 The Ahluwalia Committee Report on the One Time Settlement of Dues at 30th
September 2001 has been accepted. The Tripartite Agreement signed by GoK and
KPTCL has been sent to the MoP
Dues worth Rs. 547.10 crores have to be securitized. Letters of Credit with respect
to CPSUs (except NPCIL) are already open and in operation.
Payable Days in 2001-02 = 126 days
D 7 - Funding of pension & gratuity liabilities 3.0 2.0 $ Following a pay as you go scheme.
$ Master trust of GoK/KPTCL has been formed and actuarial valuations
completed. However the funding is still to be completed.
$ GoK support over 10 years would be Rs. 4395 crores
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D 8 - Projections and outlook on revenue gap 6.0 2.5 Outlook on Agricultural Consumption: The collection efficiency and metering
would improve since there is an effort to meter IP sets and BJ/KJ installations.
However because of the poor monsoons there would be an increase in agricultural
consumption.This would affect revenues adversely.
Outlook on Power Purchase Costs: Poor monsoons would result in decrease in
hydel generation, which would mean an increase in thermal power purchase. This
would increase the power purchase costs.
Tariff Hike: The KERC has hiked tariffs for 2002-03. (Latest tariff order: July 1st
2002)
E Others 5.0 4.5
> Quality and availability of MIS The KERC had directed KPTCL to improve its MIS System by the time of the
second filing of tariff.
FINAL SCORE 100.0 68.0
Though the KERC opinion is quite negative about the MIS System, the data
gathering exercise was relatively smooth. KPTCL and KPCL have been very
prompt in providing data. One notable feature has been the generation of monthly
status of Power Sector Reforms underway and its monitoring in the state. Audited
accounts till 2000-01 and the unaudited P&L for 2001-02 were made available.
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