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Area served has become directly proportional to the losses for Discoms, Lalit Jalan, Chairman, BSES

13 Aug 2012

The grim power situation in the country amidst shortage in gas and coal supplies calls for quick action. Capacity addition is necessary but also important is proper distribution. However, most power distribution companies are reeling under losses, primarily due to low tariffs. BSES Chairman, Lalit Jalan, delves deep into the main causes of concern for power distribution companies – BSES in particular in an interview with Pallavi Chakravorty, InfralineEnergy.

Edited excerpts.

Tariff seems to be the key concern of most power distribution companies, BSES in particular. What exactly is the main cause of concern?

A distribution utility is a mere aggregator of power received from generators and servicing the consumers at regulated tariffs as approved by regulators (DERC). Power purchase costs account for more than 80% of expenses for the discoms and all other costs viz; O&M, financial interest and return fall under the remaining 20%. In the past ten years, power purchase cost per unit (which is uncontrollable by discoms) has gone up by more than 200% while all the discom controllable operational costs per unit have actually decreased. Delhi has one of the lowest tariffs as compared to neighbouring states, my point is the tariffs should reflect the equivalent increase in power purchase cost required to serve the consumers of Delhi, so as to ensure that neither the discoms need to borrow heavily nor the consumers are burdened with past interest on loan as per the National Tariff Policy. This equilibrium is disturbed as of now and BSES is affected more because it serves -- 70% of Delhi. More the area served, higher the proportion of loss per unit of power supplied.

On an average, how much of power does BSES need to buy from the short-term market to meet its requirements, keeping in view the increasing power cuts during summers? 

BSES prefers long-term power purchase for catering load requirement but due to variation in weather, discoms have to buy power from short-term market so that peak demand can be met in specific periods to avoid any load shedding what-so-ever. The share of short-term power procurement is less than 5% of total power procurement by discoms.

DERC has observed gaps in revenue collection during the first seven months of 2011 both in the case of BRPL and BYPL could have been eliminated if collection efficiency had been near 99.5 per cent. You have filed an affidavit, what is your response? 

For any utility involved in revenue collection from consumers, it is a given fact that at least 5% of the consumers will delay the payment of bills or default on them. This results in lowering of collection efficiency. In the past, collection efficiency of BSES has been more than 100% due to collection of past year arrears including those of DVB, which now have been either entirely collected or written off. Some state commissions have made provision of under recovery upto 5% in billed revenue. It is imperative that the levels of collection efficiency be set at realistic levels and at levels generally followed in the sector.

Do you think that the gap between tariff realisation and payment to the generation companies should be shortened to help the liquidity of the discoms?

It would certainly help as a gap between tariff realisation and payment to generation companies results in increased borrowing. Present tariff does not adequately reflect the power purchase cost and the process of true up is almost 1-2 years after the payment to generation companies. As a result, the consumer is burdened with the interest payment on such bad debt. Moreover, liquidity crunch mitigates the ability of discoms to procure short-term power in times of peak demand and impacts its capital expenditure plan. Implementation of Power Purchase adjustment costs (PPAC) mechanism would do away with the problem of liquidity crunch. As per the directives of ATE, many states in India have implemented the same, and it is time that it is implemented in Delhi too.

How much more tariff hike do you think in the next quarter would bring the company in a comfortable position? 

It is difficult to put an exact number to that as determination of tariff for purchase as well as sale of power is the prerogative of appropriate regulatory commissions. If power purchase costs increase, tariffs should increase and vice versa. Once, Power Purchase adjustment mechanism is implemented the tariffs would become cost reflective and may even practically come down in near future. Moreover, the Commission has already recognised revenue gap incurred by discoms in the latest tariff order (Aug 2011). We trust that the Hon’ble Commission will provide a road map for its recovery within the MYT control period 2012-15.

Is BSES having a long term plan (say 5-10 years) for power procurement? Means how much under PPA, from short term market and from traders etc?

BSES prefers long term power purchase for catering load requirement but due to unprecedented variation in weather, discoms have to buy power from short term market so that peak demand can be met in specific periods. BSES is always looking forward to procure power on long term basis at the competitive prices. 

With Open Access, does BSES fear that its customers may jump to Tata power instead? 

Not at all. Open Access in an opportunity for us rather than a threat. We are confident that our standard of performance would add to our consumer base within Delhi from other discoms as well as in adjacent states, once open access is implemented in its true spirit in the country.

What are the customer service offerings introduced by BSES to lure customers?

We have modern customer care centers within a range of 2.5 kms. Facilities like on spot bill correction, single window operation, multiple payment facility and queue management system. A user-friendly website, unified helpline number, best in payment options like – Internet based (ECS/Credit Card/Debit Card), pay by phone, drop boxes, Customer care centers, Suvidha/Jeevan/Easy bill, Mobile cash vans, etc. Best in class billing options (E bill/Web bill, Physical bill delivery and multilingual self explanatory bill). Active participation & involvement of RWAs in forum like AAP ke Dwar initiative, Vishisht Sahyogi, BHAGIDARI movement and regular RWAs meet. Customer education for energy conservation, awareness drive on Power theft & its repercussions, understanding meters & its stringent quality checks & standards etc. 

NTPC threatened to snap supply of power to BSES due to outstanding dues in the past. Delhi government’s intervention saved the situation. How do you plan to avoid such occurrences in future? 

Realistically, electricity retail tariffs in Delhi have not been cost reflective. This has been recognised by DERC in its latest tariff order in August 2011. In the absence of cost reflective tariff, the lenders were hesitant to lend any further, which resulted in delayed payment of dues to the generators. However, due to the intervention of promoters including GoNCTD the situation was taken care of. For the future, we trust that DERC will come out with cost reflective tariff and a suitable power purchase price adjustment (PPPAC) mechanism in the interest of consumer.

(InfralineEnergy thanks Lalit Jalan, Chairman, BSES for sharing his valuable insights with our readers. The column 'In-Conversation', is a platform to engage experts from various sectors to share their views on the different transformations happening in the Indian energy sector.)