1

APTransco and Distribution Companies

An overview of

Power Sector Reformsin

Andhra Pradesh

Performance ImprovementInitiatives

July 2003

2

Agenda

1. Background of Power Sector in AP

2. Reforms Milestones achieved.

3. Initiatives and Actions taken up till date.

4. Results/Benefits of Reforms

5. Business Plan (up to FY07) & Turnaround of the Sector

3

Background-Reasons for Decline in financial performance in AP

The sector enjoyed a reasonably comfortable financial position till 1991-92 by meeting the operating expenditure from out of its revenues and State Government was giving assistance to the erstwhile APSEB only to the extent of providing 3 % return on the net fixed assets as prescribed in the ES Act.

The decline in the financial position over the years was due to various

reasons such as - Adverse change in Hydro - Thermal mix- Steep increase in cost of power purchase- Higher growth in consumption of subsidised categories like Agriculture and

domestic compared to the subsidizing categories like Industries.- Stagnation in industrial consumption from the grid and shift to captive and

third party because of higher tariff and low quality of supply - High level of T & D losses both technical and commercial.

4

Reform Milestones…..

5

Present Structure of AP Power Sector

APSEB has been ‘unbundled’ into a Generating Company, Transmission Company and 4 Distribution Companies

Generation

• Installed Capacity : 10336 MW

• Units Handled : 45804 MU

• Average Plant Load Factor : 88.9%(Genco)

Transmission

• Length of transmission network : 668,401 km

• No. of substations : 2,196

Distribution

• 4 licensees

T&D Losses

26.13% in 2002-03

APGENCO

Southern Discom

Central Discom

Northern Discom

Eastern Discom

APTRANSCO

Single Buyer Model

Differential BSTs

Independent Power

Producers

Central Generating stations

Imports from other regional

grids

Captive Power Plants

BSA

PPA

6

ANDHRA PRADESH POWER SECTORKEY STATISTICS – APTRANSCO & DISTRIBUTION COMPANIES

ADILABAD

NIZAMABAD KARIMNAGAR

MEDAKWARANGAL

RANGAREDDYEAST GODAVARI

KHAMMAM

SRIKAKULAM

NALGONDAWEST GODAVARI

KRISHNAMAHABOOB NAGARGUNTUR

NELLORE

CHITTOOR

BAY OF BENGAL

VISHAKAPATNAM

KURNOOL

ANANTAPURCUDDAPAH

VIJAYNAGARAM

PRAKASAM

Headquarters VishakapatnamPopulation 17.23 mConsumers 2.89 mUnits Input (ARR 2002-03) 5468 MU

EPDCL

Headquarters TirupatiPopulation 20.64 mConsumers 4.17 mUnits Input (ARR 2002-03) 8731 MU

SPDCL

Headquarters HyderabadPopulation 23.75 mConsumers 4.72 mUnits Input (ARR 2002-03) 14949 MU

CPDCL

Headquarters WarangalPopulation 14.09 mConsumers 2.96 mUnits Input (ARR 2002-03) 7219 MU

NPDCL

Headquarters HyderabadUnits Input(ARR 2002-03) 39529 MU

APTransco

7

ANDHRA PRADESH POWER SECTORHIGHLIGHTS IN GENERATION AND INSTALLED CAPACITY

• Total installed capacity to the end of March 2003 is 10336 MW, which is second highest after Maharastra.

• Capacity addition of 3025 MW from 99-00

• Energy handled during the year 2002-03 is 45804 MU, which is second highest after Maharastra.

• The PLF of the thermal generating stations of APGENCO was the highest in the country.APGENCO PLF was 88.9% during 2002-03.VTPS3(95.4%),VTPS2(94.9)&RTPP1(94.8%) were 1st,2nd&3rd Units in the Country in PLF.All India PLF is 70% .

Capacity addition-MW

73417980

906310336

7504

1998-99 1999-00 2000-01 2001-02 2002-03

Reform period

8

ANDHRA PRADESH POWER SECTORINVESTMENTS IN T&D INFRASTRUCTURE

• Invested over 9200 crores over the last 7years in the power sector towards generation transmission and distribution.

• Investments increased by more than two times from Rs. 613 crores in 1998-99 to Rs. 1347 crores in 2002-03

• Investment jump in 2002-03 to Rs 1347crores from Rs1072 crores in 01-02 through close monitoring for speedy implementation.

Rs crores

613

1118

9371072

1347

1998-99 1999-00 2000-01 2001-02 2002-03

Reform period

9

ANDHRA PRADESH POWER SECTORPHYSICAL AND OPERATIONAL PERFORMANCE

PHYSICAL PERFORMANCE• New era of 400 KV system introduced

with the erection of 3 Nos. sub-stations and 2015 ckt. KM of line.

• Separate 709 industrial feeders erected to provide reliable, interruption free supply to industrial consumers.

OPERATIONAL PERFORMANCE• Transmission and Distribution system

strengthened to handle 160 MU per day

• Peak demand crossed 7000MW during the month of March 2002

• Revenue increased from Rs.4159 crs. In 1998-99 to Rs. 7451 crores in 2002-03

• T&D losses reduced considerably from 38% in 1999 to 26.13% by end of 2002-03.

Particulars Commissioned during last

7years

Existing as on

31-03-03

Substations400 kV 3 3220 kV 29 73132 kV 36 19133 kV 783 2123Total 854 2390Distribution Transformers

112239 243893

Services (Lakhs)Domestic 51.35 111.54Agriculture 6.44 22.50Others 4.83 13.40Total 62.62 147.44

10

Government of AP Support & Subsidy

GoAP is releasing subsidy regularly monthly to the sector as per the directives of APERC and even some times in advance also. The details of Government Subsidy / support is as in the table shown below.

1999-00 2000-01 2001-02 (Provl.) 2002-03 (Provl.)

1. Tariff Subsidy 1626 1561 1509

2. Grants in aid 80 20

3. Other support

a) APPFC Bonds 1053 876

b) Adjustments 3064

4. Net Gap to be supported by Govt.

177 548 373

Total 3064 2936 3005 1882

11

Government of AP Support & Subsidy

1256

2074

30642935

2953

1882

1513

1224

519

FY 98 FY 99 FY 00 FY 01 FY 02 FY 03 FY 04 FY 05 FY 06 FY 07

Business Plan Assumption

GoAP Subsidy for FY 04

Rs

cror

es

Net revenue Gap

Zero

12

ANDHRA PRADESH POWER SECTORBENEFITS OF REFORMS

267292

613

1118

937

1072

1347

0

200

400

600

800

1000

1200

1400

Rs

. Cro

res

96-97 97-98 98-99 99-00 00-01 01-02 02-03 (Prop.)

Pre Reforms Post Reforms

Investments Capacity Additions

Energy LossesRevenue

607503

69163

476

1083

1273

0

200

400

600

800

1000

1200

1400

MW

96

-97

97

-98

98

-99

99

-00

00

-01

01

-02

02

-03

Pre Reforms Post Reforms

3296

4030 41594657

5597

6438

8128

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

Rs

. C

rore

s

96-97 97-98 98-99 99-00 00-01 01-02 02-03

Pre Reforms Post Reforms

32

33

38 36.9

33.9

29.6

26.13

25

27

29

31

33

35

37

39

Per

cen

t

96-97 97-98 98-99 99-00 00-01 01-02 02-03

Pre Reforms Post Reforms

13

Profile of Key Indicators during Reforms

FY00 FY01 FY02 FY03

Metered Sales

Revenue

Cost Coverage

Support+Subsidy

T&D Losses

35% 38.1% 42.7% 46.4%

FY00 FY01 FY02 FY03

Rs 8128 cr

Rs 6438crRs 5597 cr

Rs 4657 cr 26.13%29.6%33.9%

36.9%

80.2%

68.4%62.5%60%

Rs 1882 cr

Rs 2985 cr

Rs 2935 crRs 3064 cr

14

Investments v/s Reduction in T&D Losses and Reliability/Quality improvements

FY00 FY01 FY02 FY03

Rs 1118 crsRs 937 crs

Rs 1072 crs

18.72%

116kv110kv

24.33%

119kv

29.07%28.03%

127kv

48.52Hz48.67Hz48.7Hz

48.88Hz

29.6%

33.9%36.9%

Investments

Average 132kv Voltages

Frequency

T & D Loss

DTR Failures

26.13%

Rs 1347 crs

15

Revenue realised and Cost incurred

3.32

3.17

2.89 2.92

2.07

2.38

2.33

2.01

1.5

1.7

1.9

2.1

2.3

2.5

2.7

2.9

3.1

3.3

3.5

FY01 FY02 FY03 FY04

Revenue realised per unit of sale

Cost incurred per unit of sale

FY02FY01 FY03 FY04

Actuals for FY01,02 & 03 As per Tariff order

Rs/Kwh

16

Initiatives and Actions for Improved Performance

1. Regular Monitoring of Key Performance Indicators and implementation of Grading System

2. Adjusting the Target Demand based on actual energy drawals and monitoring Demand accordingly

3. Improving the Energy Audit methodology and energy accounting system by Fixing interface meters .

4. Improving the Information system by implementation of IT Tools like PMRS/TIMS/CAT

5. Improved employee benefits by way of increase in Salary levels

6. Extensive Training in Technical & Managerial skills to officers and workmen

7. Improved Customer focus-Establishment of Call Centers, Vidyut - Adalats. Spot Billing System. Improved Communications with Farmers

8. Administrative, Operational and Financial Autonomy to the Distribution Companies

9. Monitoring of power supply through Micro Logic Controllers to ensure stipulated supply to Agriculture

10. Intensive Inspection by DPE & Operation staff and simplification of Assessment process.

11. Massive replacement (37 Lakhs) of meters with High Quality meters12. Monitoring of Power Supply to Industries and creation of Express feeders13. Recruitment of Specialists in various Key positions14. Monitoring of Power Purchase Cost through Merit order dispatch15. Support and assistance from Government by way to timely release of Subsidy

17

Highlights 2002-03

2001-02 2002-03

Rs/

Kw

h

2.07

5.84

0.17

4.6

2.01

2.56

6.05

4.29

0.35

4.5

2.33

4.08

Domestic Commercial LT-Industrial Agriculture HT Industrial All Catagories

Specific Revenue improved for all categories.For HT Industrial category the tariff has been reduced and there by sales improved by 26% and Revenue by 24%

18

Highlights 2002-03

2001-02 2002-03

Rs

cror

es

1394

821724

208

2053

372

533

1779

943817

431

2488

453

844

Domestic Commercial LT-Industrial Agriculture HT Industrial Non TariffIncome

Other Income

Total Revenue increased by Rs 1690 crores in 2002-03 compared to 2001-02 representing 26.25 % increaseIn 2001-02 the Revenue was Rs 6438 crores and in 2002-03 the Revenue is Rs 8128 crores

19

Institutional StrengtheningAdministrative and Financial autonomy to Discoms

• Manage it’s own cash;

• Raise it’s own funds;

• Determine it’s own payment priorities and areas of expenditure;

• Manage it’s own treasury function

Financial autonomy provided to Discoms to :

Measures taken to enhance autonomy of Discoms • Distribution company boards reconstituted.

• Executive Director Finance inducted into the board.

• Managing Directors of the Distribution companies elevated as Chairman & MDs.

• Roles and responsibilities of employees in various positions defined and accountability fixed at each level

• Performance Appraisal Systems have been introduced to bring in Accountability and improve efficiency

20

Institutional StrengtheningRecruitment and Training initiatives

• Fresh talent inducted at Managerial levels

– Chief General Manager – Human Resources

– General Manager – Corporate Planning

– General Manager – Information Technology

– General Manager – Costing

– General Manager – Energy Audit

– Public Relations Officer

• Zonal Training Centers placed under control of Discoms

– Various Executive and Management development programs

were conducted

21

Institutional StrengtheningEmployees’ Options Exercise

Employee Options process completed successfully

• A total of 8230 employees allotted through options

• More than 93% of the employees got the company of their first

preference

• All transfers, postings, promotions and disciplinary action

powers have been delegated to the DISCOMs in the post-

options scenario

22

Institutional Strengthening Performance Review and Monitoring

Monitoring Key Performance Indicators (KPI)• Financial KPI’s

• Revenue Billing• Revenue Collection, including Daily Cash

Collections• Arrears

• Operations statistics• Customer Complaints

Viewing relevant aggregated data at each level of

the hierarchy• Relevant reports available circle level upwards,

online at all levels of the organization• Identification of exceptions at all levels• Centralised reporting facilitates timely updation

of data

• Performance

Management and

Reporting System

(PMRS) in place for

review and analysis of

performance at various

levels

• Information updated at

the district headquarters

on a monthly basis

• MIS cells established at

all Discom headquarters

PMRS is used for:

23

Efficiency Improvement Initiatives

• Consumer Analysis Tool (CAT), a tool for targeting irregularities in Metering, Billing and Collections

– CAT cells established at all four Discoms

– Company personnel trained on Data Acquisition (receiving and validating data) and Report Generation

– Detailed reports being rolled out for inspections by Operations, DPE & APTS

– Consumption and receivables analysis for the ARR filing to be generated from CAT across the four Discoms

• Monitoring and Tracking system, aimed at regularisation

– Enables tracking of theft and malpractice cases, right from detection to recovery

– Generates separate exception lists for all cases where procedures and time-lines are not being adhered to

– Being implemented in CPDCL; proposed rolled out in other Discoms as well

24

Efficiency Improvement Initiatives

• Transformer Information Management System, TIMS, is a tool which assists in– Analysing reports for effective and faster decision making by the Top

management

– Facilitating preventive maintenance through focussed inspections

– Better inventory management with increased visibility in the stock position

– Evaluation of vendors based on their performance

• Status of TIMS implementation– Rolled out in all the six circles in SPDCL

– Discom has taken the ownership of the system and the process

– TIMS reports used for reviewing the performance of offices and vendors

• Assisted in reducing the failure of DTRs and saving in repair cost.

– Rollout of the solution in other Discoms is currently being done

25

Efficiency Improvement Initiatives

• Contract Management – Use of Energy Management System (EMS) for merit order

dispatch– Prototype of dispatch tool for planning merit order being

implemented• Book Consolidation Module (BCM)

BCM, a tool for aggregation of trial balances, has been implemented at all DISCOMs and assists in

– Reduction in the errors in Trial Balances

– Timely generation of financial statements

– Reduction in monthly books closing time to 3 weeks

– Routine books consolidation activities at Circle level

– Development of a Fixed Assets Register is in process

26

Pre EBC Establishment • 536 Transmission to Distribution Metering Points considered for Monthly Energy

Accounts• Meter Readings finalised by 10th of Month• Monthly Energy Accounts agreed with Discoms on 25th of each month• Diverse local meter reading procedures used

Post EBC Establishment• 152 Generation to Transmission Metering Points considered for Monthly Invoice

Production• 807 Transmission to Distribution Metering Points considered for Monthly Invoice

Production• Meter readings Finalised by 3rd of Month• Monthly Energy Certification agreed with Discoms on 6th of each month• Standardised Meter Reading Procedures used by 200 trained APTRANSCO staff

Efficiency Improvement Initiatives

Energy Billing Centre (EBC) - established on April 1, 2001 to produce accurate monthly invoices in accordance with Bulk Supply Tariff awarded by APERC

Benefits from The EBC

27

Customer Service Initiatives

• Customer service and call centers established at all district

headquarters and being established in all municipalities.

• Citizen Charter introduced and implementation monitored through call

centers.

• Spot Billing implemented for all consumers across the State since

July, 2002

• Payment through E-Seva centers as in Hyderabad will be extended to

other municipalities during the year 2003-04.

• Meetings with consumers held every month at circle and division level

• Vidyut Adalats conducted every Monday in Mandal Head Quarters at

Section Offices by ADE & AO to redress defective bills of consumers.

• Various IT initiatives taken up to improve the performance and bring in

transparency / accountability

28

Performance Highlights - April 02– March 03

Operational Performance

– Cumulative T&D System Losses from Apr. 02 – Mar. 03 is

26.13% compared to ARR Target of 28.40%

– Transmission losses from Apr.02 – Mar. 03 are 7.47 %

compared to the ARR Target of 8 %

– Distribution losses from Apr02 – Mar 03 are 21.03%

compared to the ARR Target of 22.16 %

– Losses in 114 Towns have been reduced from 19.72% in

March 2002 to 16.01% in March 2003

– 17% reduction in 11 kV breakdowns compared to

previous year

29

Performance Highlights - April 02 – March 03

Commercial Performance– Demand raised for the period of April to March is Rs 7726 crores

as compared to an ARR target of Rs. 7314 crores

– Collection for the period April billed in May to February 03 billed in March 03 is Rs 6917crores, 98.52% of demand raised of Rs 7021 crs.

– HT metered sales have increased by 21.78% over the previous year

– Rs 895 Crores were collected as arrears from April 02 to March 2003

– 108934 cases registered and 67630 cases compounded from April 2002 to March 2003

– Rs 12.80 crores realised against Rs 34.74 crores assessed

– 1732 persons arrested from April 02 to March 03 under theft and malpractice cases, compared to 860 in the entire last year

30

Performance Highlights April 02– March 03

Financial Performance

– For Transmission & Distribution System, the total

revenue income from April 02 to March 03 is Rs. 9638

crores and expenditure is Rs. 10011 crores resulting in

net loss of Rs. 373 crores

– For Transco Revenue Income from Apr. 02 – March 03 is

Rs. 8647 crores and Expenditure is Rs. 8434 crores

resulting in net profit of Rs. 213 crores.

– For DISCOMS Revenue Income from Apr. 02 – March 03

is Rs. 9380 crores and Expenditure is Rs. 9966 crores.

Resulting in net loss of Rs. 586 crores.

31

Summary Financial Performance - April 02 to March 03

As a combined entity, APTransco and Discoms have combined losses of Rs 373 crores

Sl. No.

Particulars TRANSCO DISCOMSTransmision &

Distribution

1 Revenue Income 8,647 9,380 9,638

2 Revenue Expenditure 8,434 9,966 10,011

3 Net Profit/ (Loss) 213 -586 -373

SN Particulars EPDCL SPDCL CPDCL NPDCL Total

1 Revenue Income 1668 2210 3979 1523 93802 Revenue Expenditure 1669 2376 4205 1717 99693 Net Profit / Loss -1 -166 -226 -194 -5894 Energy Drawal 5883 9560 17246 7496 401855 Cost per unit drawal 2.84 2.48 2.44 2.29 2.486 Revenue per unit drawal 2.84 2.31 2.31 2.03 2.337 Gap per unit -0.17 -0.13 -0.26 -0.15

32

Business Plan(up to FY07) & Turnaround of the Sector

•The latest Business plan forecasts load growth at 8.2% CAGR for all the categories in the plan horizon of 2002-2007.The LT Growth rate is 8.32% and HT 10.79%. LT forecast includes –2.57% growth for Agriculture.

•The total T&D losses are expected to be reduced to 19.5 % from FY03 loss of 26.13%. This includes reduction of Transmission losses from 7.47% to 5% in 2007 & Distribution Losses from 18.66% to 14.5% in 2007.

•To meet this load a capacity addition of 5326 MW is estimated till 2007.

•In order to meet the load growth and reduce losses as stated above an investment of Rs 5671 crores is required in Generation(APGenco) & Rs 4683 crores for T&D Sector.

•Revenue increase has been projected at a rate of 12% for FY04, 23% forFY05, 17% for FY06 and 18% for FY07.

•With support from the Government (net support of Rs 13,623 crores between FY03 & FY07 )and realisation of projected revenue as above the T&D Sector will be able to earn a return from FY 04 onwards.

•APTransco has already earned a return in FY03.Discoms will earn a return from FY04.

33

Post Reform Benefits to Andhra Pradesh Post Reform Benefits to Andhra Pradesh Power SectorPower Sector

The World Bank has agreed to lend, upto US $ 1000 Million for Transmission and Distribution improvements and augmentation of system over a decade. This will be given as a series of loans under their Adaptable Program of Loans (APL). The first loan of US $ 210 Million has been already sanctioned and is being used to remove the critical bottlenecks in the Transmission and Distribution system.

Department for International Development (DFID) has sanctioned 42.7 Million Pounds to revamp the Distribution System. DFID is also providing 2.7 Million Pounds as technical assistance grant to the power sector.

The Overseas Economic Cooperation Fund (OECF) now known as JBIC has sanctioned funds to the extent of Rs. 390 crores for Srisailam evacuation scheme and Rs. 311 crores towards the Simhadri evacuation scheme.

PFC has sanctioned a project loan of Rs. 240 Crores for the year 1999-2000,Rs. 162 Crores during 2001-02 and Rs. 324 Crores during 2002-03 for Transmission and Distribution schemes.

Rural Electrification Corporation (REC) has sanctioned Rs. 720 crores for the period from 1998-2001 and sanctioned project loan of Rs. 913 crores for the period 2001-02 and Rs. 1104 Crores for the period 2002-03 for APTRANSCO & DISCOMs for rural electrification works.

34

Kfw, Germany have agreed to finance the expansion of Vijayawada Thermal Power Station Stage-IV (660MW).

Proposals finalised for setting up of Rayalaseema Thermal Power Station Stage II (2x210 MW) with the assistance of M/s CMEC, China.

Kothagudem Thermal Power Station (KTPS) Stage-V (2 X 250MW) completed with PFC, ICICI and IDBI funding.

Technical assistance to support implementation of Reform & Restructuring programme is grant funded by DFID and CIDA.

Post Reform Benefits to Andhra Pradesh Power Post Reform Benefits to Andhra Pradesh Power Sector (Contd.,)Sector (Contd.,)

35

Way Forward

36

Formation of Joint Venture Distribution CompaniesFormation of Joint Venture Distribution Companies

Key component of Power Sector Reforms is introduction of Private Sector participation in the Distribution Power Sector and formation of Joint Venture Distribution Companies through a transparent International Competitive Bidding process.

This is to be done by divesting a majority Stake and relinquishing management control in each of the four Distribution Companies to bring in better management practices of Private Sector and required investments into the Sector.

A Cabinet Sub-Committee comprising Ministers of GoAP was constituted to take a view on the strategy on privatization and options available.

DFID appointed HSBC /Crisil Consortium as Privatisation Consultants and they are on board from January 2002.

The privatization consultants have furnished a draft privatisation strategy report in July 2002 and discussions held with APTRANSCO and GoAP.

The Hon’ble CM, AP was also apprised of the proposal by the consultants in the first week of August 2002.

Based on Sub-Committee views on strategy report, Government to take decision on launching of the privatisation process after studying the investment climate.

It will take about 12 – 18 months to form 1st Joint Venture after GOAP takes a decision on launching of privatisation process.

37

٭ AP is one of the largest states in India with a population of over 77 million and a geographical area of over 275 thousand sq. Kms.

٭ Richly endowed with minerals and other natural resources like coal, natural gas etc.,

٭ Two of the large rivers (Krishna & Godavari) flow across the State.

38

٭ First State to come out with a vision document (Vision 2020)

٭ Focus on infrastructure development, attracting foreign investment and private sector participation.

٭ Programmes are supported by financial assistance from the World Bank and other International funding agencies.

39

٭ Govt.commitment for overall development of the State and in particular taking all steps to make the State as Investor destination.

٭ Single window clearances for new industries.

40

٭ The State Power Sector is the third largest in the Country.

٭ APGENCO Thermal Plants eg. RTPP,VTPS and KTPS etc.,got awards for highest PLF in the country.

٭ As per the CRISIL rating A.P. Power Sector is rated as number one in the Country in the year 2001-2002.

٭ A.P. is one of the first few States in implementing reforms successfully .

Rated by funding agencies as one of the best reforming States.

41

٭ Quality of supply improved

٭ Separate industrial express feeders provided for maintaining uninterrupted and quality supply to the industries.

٭ Incentives provided for industrial consumers consuming more power.

٭ For HT consumers separate cells formed for redressal of grievances.

42

Thank you