Rationale for Karnataka State Power Sector scoring - Ministry of Power
Rationale for Karnataka State Power Sector scoring - Ministry of Power
Rationale for Karnataka State Power Sector scoring - Ministry of Power
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<strong>Rationale</strong> <strong>for</strong> <strong>Karnataka</strong> <strong>State</strong> <strong>Power</strong> <strong>Sector</strong> <strong>scoring</strong><br />
Executive Summary<br />
A score <strong>of</strong> 68.0 has been assigned to the power sector in <strong>Karnataka</strong>. The distribution <strong>of</strong><br />
marks against the parameters is as follows:<br />
No. Parameter Maximum Score Score Assigned<br />
1 <strong>State</strong> Government Related Parameters 20.0 12.5<br />
2 SERC Related Parameters 20.0 15.0<br />
3 Business Risk Analysis 25.0 14.0<br />
- Generation 6.0 4.0<br />
- T&D 19.0 10.0<br />
4 Financial Risk Analysis 30.0 22.0<br />
5 Others 5.0 4.5<br />
The <strong>State</strong> Government<br />
Total 100.0 68.0<br />
Key Positives<br />
<strong>Karnataka</strong> was one <strong>of</strong> the first states to start the re<strong>for</strong>m process by signing the MoU with<br />
the GOI. The <strong>State</strong> Government has been extremely supportive in terms <strong>of</strong> finances and<br />
timely legislations with the state drawing up a 10 years Financial Restructuring Plan<br />
(FRP) which envisages an outlay <strong>of</strong> Rs. 8,999 crs over the next five years in improving<br />
the power sector. To monitor the re<strong>for</strong>ms taking place, a Special Secretary <strong>Power</strong><br />
Re<strong>for</strong>ms has been appointed and the Energy Department comes out with a monthly status<br />
report (the only state to do so), which reports the status <strong>of</strong> achieving various targets.<br />
Another area where the <strong>State</strong> Government has demonstrated commitment to re<strong>for</strong>ms is in<br />
the area <strong>of</strong> subsidy releases. In two <strong>of</strong> the last three years, the government had released<br />
60% to 70% <strong>of</strong> the subsidy claimed while in 2001-02, the figure rose to 103%.<br />
<strong>Karnataka</strong>’s high ranking is significantly driven by the financial backing that the state<br />
government is <strong>of</strong>fering to the power sector.<br />
The unbundling exercise has been completed with the <strong>for</strong>mation <strong>of</strong> four regional<br />
distribution companies. During this process a total <strong>of</strong> Rs. 3,722 crs have been adjusted or<br />
written <strong>of</strong>f by the <strong>State</strong> Government and KPCL, so that the new entities start out with<br />
clean balance sheets.<br />
Areas <strong>of</strong> Improvement<br />
The differential between cost <strong>of</strong> supply and average agricultural tariff is 84% and has to<br />
be reduced by hiking agricultural tariffs further. Releases to the Pension Fund were lower<br />
than envisaged and the <strong>State</strong> Government will have to step up its outlay to the figure<br />
committed in the FRP.
ERC<br />
Key Positives<br />
The ERC has per<strong>for</strong>med well in managing to increase tariff levels <strong>for</strong> subsidized<br />
segments with the two tariff orders passed hiking tariffs by 17% and 16% respectively.<br />
The ERC has also come out with strong directives aimed at moving KPTCL towards<br />
efficiency improvements and better loss reporting.<br />
Further there has been an attempt to reduce cross subsidies by increasing agricultural<br />
tariffs more than industrial tariffs. Incentives <strong>for</strong> metering agricultural consumers have<br />
been provided in the tariff orders by allowing them to pay the lower <strong>of</strong> flat rates or<br />
metered rates. This has resulted in villages with abundant rainfall opting <strong>for</strong> metering.<br />
.<br />
Areas <strong>of</strong> Improvement<br />
The key area <strong>of</strong> improvement is on the tariff order front. The first tariff order was delayed<br />
by 8 months and the second order by 15 months, resulting in an adverse impact on<br />
KPTCL’s revenues. The delay has been primarily because <strong>of</strong> KPTCL filing a case in the<br />
high court against the directives issued in the first tariff order. Co-operation amongst<br />
KPTCL, KERC and the <strong>State</strong> Government would promote timeliness <strong>of</strong> tariff orders and<br />
prevent the adverse impact on KPTCL’s financials that a delayed tariff order could have.<br />
Operational Parameters (Generation, Transmission and Distribution)<br />
Key Positives<br />
On the T&D side the ef<strong>for</strong>ts taken to meter agricultural customers are commendable<br />
especially the “One Time Regularization Drive” <strong>for</strong> connections and the sample meters<br />
being set up in each taluk. The collection efficiency <strong>of</strong> more than 100% is also heartening<br />
as it reflects a reduction in past dues. Manpower levels in the T&D system are among the<br />
lowest across re<strong>for</strong>ming states.<br />
Areas <strong>of</strong> Improvement<br />
<strong>Karnataka</strong> has been poor in terms <strong>of</strong> the per<strong>for</strong>mance <strong>of</strong> the T&D Infrastructure.<br />
Overdrawing from the grid has been a problem and steps should be taken to maintain grid<br />
discipline. The state’s power sector has also lagged behind in interface metering and<br />
metering efficiency, compared to some re<strong>for</strong>ming states.<br />
Finances<br />
Key Positives<br />
<strong>Karnataka</strong> is the top state in terms <strong>of</strong> the financial score. Bringing down receivables from<br />
186 to 122 days and accepting the Ahluwalia Committee Recommendations is<br />
commendable. The coverage levels are also among the best.<br />
Areas <strong>of</strong> Improvement
Further work needs to get be done in bringing receivable levels down to below 100 days.<br />
Gearing levels, while relatively low, can be brought down to more com<strong>for</strong>table levels.<br />
Due to the delayed monsoons this year, hydel generation is expected to decrease and<br />
consequently thermal power purchase costs would increase which could negatively<br />
impact the revenue gap in 2002-03.<br />
Outlook: The outlook on the ranking is stable. An improvement in <strong>scoring</strong> is contingent<br />
on KPTCL improving its T&D network and KERC passing tariff orders in a timely<br />
manner.
KARNATAKA<br />
PERFORMANCE SCORESHEET<br />
Max.<br />
score Actual Remarks<br />
I External Factors 40.0 27.5<br />
A <strong>State</strong> Govt related parameters 20.0 12.5<br />
A 1 - Existence <strong>of</strong> <strong>for</strong>mal Action Plan <strong>for</strong> time bound<br />
re<strong>for</strong>ms<br />
- If ’Y’, status <strong>of</strong> implementation <strong>of</strong> the plan (Q)<br />
5.0 4.0 Notable agreements in this regard are:<br />
§ Memorandum <strong>of</strong> Agreement between the <strong>Ministry</strong> <strong>of</strong> <strong>Power</strong> (MoP) and<br />
Government <strong>of</strong> <strong>Karnataka</strong> (Dated: 12th February 2000)<br />
§ Memorandum <strong>of</strong> Agreement between the <strong>Ministry</strong> <strong>of</strong> <strong>Power</strong> and <strong>Karnataka</strong><br />
<strong>Power</strong> Transmission Corporation (Dated: 22nd May 2002)<br />
§ KPTCL has signed the agreement under the APDRP Scheme and the following<br />
amounts have been released by the MoP:<br />
Rs. 81.50 crores (50% grant and 50% loan) on March 17th 2001<br />
Rs. 29.77 crores (50% grant and 50% loan) on April 4th 2002.<br />
Operational:<br />
§ One <strong>of</strong> the earliest signatories <strong>of</strong> the MOU with the GOI.<br />
§ Three member KERC set up and is fully operational since November 1999 and<br />
two tariff orders have been passed.<br />
§ The first tariff order increased tariffs by 17% and in the second tariff order<br />
increased tariffs by 16.2%.<br />
§ Four regional distribution companies have been <strong>for</strong>med.<br />
§ Consultants have been appointed to advise the Government on all matters relating<br />
to re<strong>for</strong>m and restructuring program funded by the World Bank<br />
4
A 2 - 3 year track record on subsidy payments 5.0 3.5<br />
Financial:<br />
§ Approval <strong>for</strong> clean balance sheets <strong>of</strong> 4 regional distribution companies under the<br />
BRP II (31st May 2002). A total <strong>of</strong> Rs. 3,722 crs was adjusted or written <strong>of</strong>f by<br />
KPCL and GoK.<br />
§ 10 yr FRP approved. Government to provide 8,999 crores in the next five years..<br />
§ The Ahluwalia Committee Report on the One Time Settlement <strong>of</strong> Dues has been<br />
accepted.<br />
MIS and Re<strong>for</strong>ms:<br />
§ The Energy Department comes out with a Status Report on Re<strong>for</strong>ms every month,<br />
the only state to do so.<br />
§ Has a Special Secretary <strong>Power</strong> Re<strong>for</strong>ms besides Energy Secretary to monitor the<br />
re<strong>for</strong>m process.<br />
> Average subsidy paid vs payable (%) Average Subsidy Paid vs Payable <strong>for</strong> last three years = 78%.<br />
It was over 100% in 2001-02 and between 60% - 70% in the previous two years.<br />
> Subsidy o/s (as % <strong>of</strong> subsidy payable in recent<br />
FY)<br />
A 3 - Health <strong>of</strong> <strong>State</strong> Government finances impacting<br />
ability to sustain subsidy levels<br />
A 4 - Legislation <strong>for</strong> power sector re<strong>for</strong>ms 5.0 3.5<br />
> Treatment <strong>of</strong> subsidies in the legislation including<br />
transitional support to utilities<br />
Subsidy Outstanding = 13.83%<br />
5.0 1.5 § Year on year the subsidy payments has been increasing putting pressure on the<br />
GOK's fiscal position. The increase in agricultural tariffs is very modest.<br />
1999-00: Rs. 769 crores, 2000-01: Rs. 1246 crores, 2001-02: Rs. 2300 crores<br />
$ The <strong>Karnataka</strong> Electricity Re<strong>for</strong>m Act was passed on June 1st 1999.<br />
5
Stringent Anti-Theft Legislation The Electricity (<strong>Karnataka</strong> Amendment) Act, 2001 has been passed to curb theft<br />
and pilferage <strong>of</strong> electricity in the state, with stringent penal provisions including a<br />
minimum compulsory imprisonment <strong>of</strong> three months <strong>for</strong> second and subsequent<br />
<strong>of</strong>fences.<br />
> Implementation <strong>of</strong> the Anti-Theft legislation The tangible results obtained are as follows:<br />
One Time Regularization Scheme has resulted in 7.5 lakh domestic, 40 thousand<br />
commercial and 79 thousand IP sets getting regularized till April 9th 2002.<br />
30 vigilance police stations have been set up with 2 stations per district and a<br />
special court and 4000 theft cases have been booked<br />
> <strong>Power</strong>s <strong>of</strong> the ERC The Government has been supportive in terms <strong>of</strong> the finances and staffing <strong>of</strong> the<br />
KERC.<br />
However it has not been as supportive in terms <strong>of</strong> implementation <strong>of</strong> the directives<br />
<strong>of</strong> the KERC with KPTCL taking the KERC to court after the first tariff order. The<br />
case was settled out <strong>of</strong> court but resulted in delaying the second tariff order.<br />
B SERC related parameters 20.0 15.0<br />
SERC functioning<br />
B 1 Infrastructure<br />
- Operationalising <strong>of</strong> SERC<br />
5.0 5.0 An independent three member <strong>Karnataka</strong> Electricity Regulatory Commission has<br />
been set up and is fully operational since November 1999.<br />
- Funding source <strong>for</strong> SERC Funded from the Consolidated funds <strong>of</strong> the GoK. Funding has been released on<br />
time as per the budgeted expenditure <strong>of</strong> KERC. Budgets were Rs. 1.23 crores in<br />
1999-00 and Rs. 3.66 crores in 2000-01.<br />
6
- Staffing <strong>of</strong> SERC <strong>for</strong> smooth functioning On the basis <strong>of</strong> our discussion with the Secretary Mr. Sridharan, KERC has been<br />
staffed sufficiently and there has been no hitches in the functioning because <strong>of</strong> this<br />
issue. There are a total <strong>of</strong> 25 people in the staff other than the 3 members <strong>of</strong> the<br />
KERC.<br />
Operational<br />
B 2 - Timeliness <strong>of</strong> orders 5.0 1.0 The first tariff order was delayed by 8 months. There was no tariff order <strong>for</strong> 2001-<br />
02 and <strong>for</strong> 2002-03, the tariffs came into effect from July 02<br />
B 3 - Tariff Philosophy 10.0 9.0 All consumers with the exception <strong>of</strong> BJ/KJ rural installations are charged a twopart<br />
tariff with some energy charges and some demand charges. For domestic<br />
consumers this is charged as fixed charges and demand charges. The agricultural<br />
consumers are charged a fixed amount per month, which is a single part tariff.<br />
> Tariff Structure<br />
> Average tariff trajectory The first tariff order increased tariffs by 17% and in the second tariff order<br />
increased tariffs by 16.2%.<br />
> Tariff finalization on economic basis Tariff filing is on a rational and economic basis based on ARR calculations<br />
> Agricultural tariff and % differential from<br />
average cost <strong>of</strong> power supply<br />
> Exercise to determine cost--to-serve <strong>for</strong> all<br />
categories<br />
> Steps taken <strong>for</strong> reduction <strong>of</strong> cross-subsidies<br />
& slab rationalization (based on past 3 year data)<br />
Agricultural consumers are charged flat rate. The differential between realized<br />
agricultural tariff and average cost <strong>of</strong> supply is 89%<br />
KERC has made ef<strong>for</strong>ts to direct KPTCL to determine the cost to serve prior to the<br />
2nd tariff filing and a preliminary report is available<br />
The tariff increase <strong>for</strong> domestic and agricultural consumers have been substantially<br />
more than that <strong>of</strong> industrial consumers indicating a move towards reduction <strong>of</strong><br />
cross subsidy.<br />
7
Steps taken <strong>for</strong> ensuring scientific basis <strong>for</strong><br />
computation <strong>of</strong> T&D losses<br />
> Options & Incentives <strong>for</strong> metering agricultural<br />
load<br />
> Role in payment <strong>of</strong> subsidies<br />
The KERC has taken ef<strong>for</strong>ts to direct KPTCL in the metering programme,<br />
concentrating especially on the agricultural customers. There is also an ef<strong>for</strong>t to<br />
control losses through an energy audit and metering programme. However KPTCL<br />
has not been in a position to achieve all the targets given to them.<br />
The following initiatives have been taken <strong>for</strong> metering <strong>of</strong> agricultural load:<br />
$ Agri. consumers can pay the lower <strong>of</strong> flat rates or metered rates. This has resulted<br />
in villages in regions <strong>of</strong> abundant rainfall to opt <strong>for</strong> meters.<br />
$ Sample meters have been set up in each taluk<br />
$ A survey <strong>of</strong> unauthorized IP sets was undertaken and 99,536 IP Sets were<br />
recognized, 20,299 were regularized, 25,412 were disconnected and the balance<br />
23,825 are yet to be regularized.<br />
- Strong KERC asks the GoK to file an affidavit about the subsidy release each year so as to<br />
give legal sanctity to the subsidy commitment made by the Government.<br />
- Neutral<br />
- Weak<br />
II Internal Factors 60.0 40.5<br />
C Business Risk Analysis 25.0 14.0<br />
C 1 - Generation 6.0 4.0<br />
> Auxiliary power consumption Average Aux. Consumption is 3.25%<br />
> PLF (%) -Only <strong>for</strong> thermal units Weighted Average PLF = 81.10%<br />
> Availability factor (%) Average Availability = 86.61%<br />
8
Manpower level per MW generated Man <strong>Power</strong> Level per MW = 2.01<br />
C 2 - Transmission & Distribution 19.0 10.0<br />
> Level <strong>of</strong> Interface Metering At 33 KV, metering yet to be completed<br />
> Quality <strong>of</strong> transmission and distribution network $ Approx 4.5% increase in length <strong>of</strong> transmission lines each yr <strong>for</strong> last 3 years.<br />
$ 1225.63 kms <strong>of</strong> transmission lines, 40 substations, 656 capacitors and 12465 kms<br />
<strong>of</strong> distribution lines were added in 2000-01.<br />
$ There were a total <strong>of</strong> 40 power trans<strong>for</strong>mer failures in 2000-01<br />
$ There was an investment <strong>of</strong> approximately Rs. 750 crores in 2001-02 to improve<br />
the T&D infrastructure.<br />
$ Distribution Trans<strong>for</strong>mer Failure Rate has been brought down from 19.23% to<br />
18.17% (1999-00 to 2001-02).<br />
> Units metered (distribn end) / Units input in the<br />
transmission system<br />
From 2000-01 to 2001-02 there has been an improvement <strong>of</strong> 0.59%<br />
> Energy Audit (11 kV) $ Metering at 400 KV and 220 KV levels are already available.<br />
$ 110 KV, 66 KV and 33 KV metering is to be completed by December 2002.<br />
$ All 11 KV Banks and Feeders have been metered with electronic tri vector<br />
meters.<br />
$ 280660 IP Sets, 788140 BJ/KP Installations and 16,200 Street Lights have been<br />
metered.<br />
$ Sample meters have been set up in each taluk.<br />
$ One Time Regularization Scheme has resulted in 7.5 lakh domestic, <strong>for</strong>ty<br />
thousand commercial and 79 thousand IP sets getting regularized till April 9th<br />
2002<br />
> Collection efficiency Collection Efficiency = 101% (Average <strong>of</strong> last three years)<br />
> Manpower in T&D per "000 consumers Manpower = 36,985<br />
Consumers =12,687 thousand (2001-02 figures)<br />
Manpower per "000 consumers <strong>for</strong> KPTCL = 2.92<br />
9
D Financial Risk Analysis 30.0 22.0 Analysis based on 2001-02 financials<br />
D 1 - Gearing level (Total Debt / Adjusted Networth) 2.5 2.0 Total Debt/Networth = 1.78<br />
D 2 - [Revenues from sale <strong>of</strong> power) / (Coverage <strong>of</strong> power 3.5 2.0 Coverage in 2001-02 is 1.20<br />
purchase cost + own gen costs (incl fuel / O&M)]<br />
D 3 - [(Revenues from sale <strong>of</strong> power / (Coverage <strong>of</strong> all<br />
optg costs + interest costs)]<br />
5.0 3.5 Coverage in 2001-02 figure = 0.70<br />
D 4 - Actual track record <strong>of</strong> debt servicing 5.0 5.0 KPTCL has been prompt in debt servicing<br />
D 5 - Level <strong>of</strong> receivables (Days <strong>of</strong> sales)<br />
(For DISCOMs)<br />
D 6 - <strong>Power</strong> purchase and fuel creditors (external to the<br />
state)<br />
2.5 2.5 Improvement from 186 days to 122 days (1999-00 to 2001-02)<br />
2.5 2.5 The Ahluwalia Committee Report on the One Time Settlement <strong>of</strong> Dues at 30th<br />
September 2001 has been accepted. The Tripartite Agreement signed by GoK and<br />
KPTCL has been sent to the MoP<br />
Dues worth Rs. 547.10 crores have to be securitized. Letters <strong>of</strong> Credit with respect<br />
to CPSUs (except NPCIL) are already open and in operation.<br />
Payable Days in 2001-02 = 126 days<br />
D 7 - Funding <strong>of</strong> pension & gratuity liabilities 3.0 2.0 $ Following a pay as you go scheme.<br />
$ Master trust <strong>of</strong> GoK/KPTCL has been <strong>for</strong>med and actuarial valuations<br />
completed. However the funding is still to be completed.<br />
$ GoK support over 10 years would be Rs. 4395 crores<br />
10
D 8 - Projections and outlook on revenue gap 6.0 2.5 Outlook on Agricultural Consumption: The collection efficiency and metering<br />
would improve since there is an ef<strong>for</strong>t to meter IP sets and BJ/KJ installations.<br />
However because <strong>of</strong> the poor monsoons there would be an increase in agricultural<br />
consumption.This would affect revenues adversely.<br />
Outlook on <strong>Power</strong> Purchase Costs: Poor monsoons would result in decrease in<br />
hydel generation, which would mean an increase in thermal power purchase. This<br />
would increase the power purchase costs.<br />
Tariff Hike: The KERC has hiked tariffs <strong>for</strong> 2002-03. (Latest tariff order: July 1st<br />
2002)<br />
E Others 5.0 4.5<br />
> Quality and availability <strong>of</strong> MIS The KERC had directed KPTCL to improve its MIS System by the time <strong>of</strong> the<br />
second filing <strong>of</strong> tariff.<br />
FINAL SCORE 100.0 68.0<br />
Though the KERC opinion is quite negative about the MIS System, the data<br />
gathering exercise was relatively smooth. KPTCL and KPCL have been very<br />
prompt in providing data. One notable feature has been the generation <strong>of</strong> monthly<br />
status <strong>of</strong> <strong>Power</strong> <strong>Sector</strong> Re<strong>for</strong>ms underway and its monitoring in the state. Audited<br />
accounts till 2000-01 and the unaudited P&L <strong>for</strong> 2001-02 were made available.<br />
11