financial viability of distribution companies in india

FINANCIAL VIABILITY OF DISCOMS IN HARYANA

July 2014

Presentation by

Anil Malik, IASManaging Director,UHBVNL

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Financial Position of the Discoms in Haryana

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FINANCIAL CONDITION OF HARYANA DISCOMS AS ON 31.03.2012 – CUT OFF DATE FOR FRP Accumulated losses of Rs. 19710 Crs as of 31st March 2012.

UHBVN-Rs. 12423 Crs DHBVN- Rs. 7286 Crs

Working Capital borrowings as on 31st March 2012 amounted to Rs. 12670 Crs UHBVN -8762 Crs DHBVN-Rs. 3907 Crs

Interest and finance charges incurred during the year FY 2011-12 amounted to Rs. 1627 Crs. UHBVN- Rs. 1083 Crs DHBVN- Rs. 544 Crs.

AT&C losses in FY 2011-12 : 30.34% (for combined discoms) High level of ACS-ARR gap: Rs. 1.52 per unit

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REASONS FOR FINANCIAL DISTRESS

Regulatory Reasons No tariff increase for nine years from 2001-02 to 2009-10. Delay in approval of FSA coupled with staggering of recovery of FSA over 3-4

years. Significant disallowance of costs by HERC in the ARR orders. (~only 33% of Interest

& Finance charges allowed by Commission during 2011-12 to 2013-14) Deficit in the revenue requirement (ARR) was bridged through creation of

Regulatory Assets/acknowledgement of uncovered revenue gap rather than tariff increase. The borrowings against this regulatory asset/gap further increased the debt servicing cost.

Inadequate RE subsidy due to disallowance of Agricultural sales Other Reasons

High level of AT&C losses Expensive procurement of power through short term purchase and unscheduled

interchange mechanism particularly in FY2009-10. Due to poor financial health of Discoms banks stopped funding in June 2011 Significant increase in employee cost attributable to 6th Pay Commission. Massive receivables in books of accounts due to socio-political factor amounting

to over Rs. 4900 Crs as on 31 Mar 2012 (UHBVN & DHBVN). Inadequate Capital Investments to control system losses.

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Highlights of FRP scheme of GoI

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HIGHLIGHTS OF FRP SCHEME OF GOI

The scheme was aimed at restoring the financial health and commercial viability of the State Discoms.

Key Covenants : 50% of the short-term outstanding liabilities as on 31st March 2012 would be taken over by the

State Government, to be first converted into bonds and issued by the respective Discoms which would be taken over by State Govt.

Balance 50% of the loans are to be restructured by banks by providing a moratorium on the principal (3 yrs) and extending best possible terms for repayment (repayment in 7 years after moratorium)

Banks to finance discoms on a diminishing scale for a period of three years only (100%,75%&50%) Transitional Finance Mechanism (TFM) by Central Government:

Incentive by way of capital reimbursements support of 25% of principal repayment by the state government on the liability taken over by the state government under the scheme. The amount to be reimbursed only in case the state government takes over the entire 50% of the short term liabilities outstanding as on 31.3.2012.

Grant equal to the value of additional energy saved due to loss reduction at a higher rate than the R-APDRP mandated reduction (3% p.a. For utilities above 30% and 1.5% for others)

The eligibility of grant would arise only if the gap between ARR and ACS for the year has been reduced by at least 25% during the year judged against the benchmark for the year 2010-11

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Mandatory conditions under FRP scheme and compliance thereof

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STATUS OF COMPLIANCE OF MANDATORY CONDITIONS & RESPONSIBILITIES UNDER FRP SCHEME

Discoms Remarks

•Audited accounts for FY 11 to be finalised by 30.11.12 and for FY 12 by 31.01.13 •Filing of tariff petition with SERC on time so that tariff order may be issued by April

•Roadmap for Private Sector participation through Franchisee arrangements

•Submission of time bound plan for liquidation of regulatory assets

•Fixation of target for progressive reduction in short term power purchase.

• Completed

•Tariff Orders for 2012-13 and 2013-14 issued prior to 31 Mar 2012 and 31 Mar 2013 for effect from 1 April 2012 and 1 April 2013 resp.

•Efficiency Improvement envisaged through present set up only.

•Liquidation of regulatory assets ordered by the HERC over 3 years (liquidation of 45% of regulatory assets i.e. Rs. 1042 cr. allowed in tariff order for 2013-14)

•Adequate long term power purchase agreements are in place for the Discoms. A power surplus situation presently exists and is visualized to continue up to 2018-19

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Discoms Remarks

•Prepaid meters to be installed for all Govt. Consumers and consumers above 1 MW where defaults have occurred or direct release from the budget.

•Reduction of ACS-ARR gap by 25% annually judged against the benchmark for the year 2010-11.

•Funding of operational losses shall be available for the first three years i.e 2012-13, 2013-14 and 2014-15

•Reduction in AT&C Losses

•Scheme being formulated for direct transfer from the State Budget. (Current bills being paid by the departments, arrears to be liquidated post reconciliation)

• ACS-ARR gap reduction is being achieved from FY 2011-2012 to FY 2013 – 2014.

•Banks have sanctioned loans of Rs. 3500 cr., 3209 cr. & 3467 cr. for FY 2013, FY 2014 & FY 2015 respectively under the FRP.•Discoms are on track and are broadly achieving the desired loss reduction.

ARR - ACS Gap 2011-2012 2012-20132013-2014 (tentative)

Rs. per unit base year As per the FRP (1.52) (0.84) (0.54)

As per the actuals (1.52) (1.01)

(0.81)** (up

to December

only)

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HERC Status of Compliance

•Notification of Tariff Order for FY 2012-13 should have been issued before FRP approval

•Future Tariff Orders to be issued by 31st March of each year, as per model tariff regulations

•Revised tariffs be made applicable w.e.f. 1st April of each year

•APTEL judgment dated 11th November 2011 to be complied with and compliance report to be filed as per directions of the APTEL.

1. Allowing Fuel Surcharge Adjustment (FSA) to offset increase in power purchase cost

2. Regulatory Asset be recovered within a period of 3 years

•In-Principle approval required to be given

•Tariff Order for 2012-13 has been issued on 31 March 2012.•Tariff Order for 2013-14 has been issued on 30 March 2013.•Tariff Order for 2014-15 has been issued on 29 May 2014.

•Implemented from 1st April of each year

•Automatic pass-through of FSA on quarterly basis is applied as per HERC’s MYT Regulations.

•Recovery of Regulatory Assets allowed over 3 years by the HERC (recovery of 45% of Regulatory Asset implemented through tariff order 2013-14)

• In-Principle approval received

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State Government Remarks

•Takeover of bonds issued by Discoms equal to 50% of short term liabilities (STL) and providing support in payment of interest and repayment of principal – If fiscal space is not available with the State, then the takeover may be staggered over the next 2-5 years.

•Provide State Government guarantee for loans/bonds to be raised/issued by Discoms

• Bonds of 7366.60 Cr issued to Banks and the liability of servicing these bonds has to be borne by the State Govt. The Govt. is providing funds to the discoms for paying interest on these bonds.

•Guarantee against bonds of Rs. 7366.60 crores issued. Further all the loans including the restructured loans and the fresh loans under the FRP have been guaranteed by the State Government.

Out of Short term liabilities of Rs. 14763 cr. (incl. working capital loans of Rs. 10269 cr & power purchase payables of RS. 4494 cr) as on 31.03.2012, the State Govt. has taken over Rs. 7366 cr. (approx. 50%). Thereafter in FY 2012 – 2013 the committed funding of Rs. 3509 cr. has been released. The sanctioned loans for the FY 2013 – 2014 are being drawn. As on 31.03.2014 total working capital loans of Rs. 8406 cr are outstanding from the banks (excl. REC/PFC loan of 8500 cr., capex loans of 3430cr.)

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State Government Remarks

•All outstanding dues from Government departments for electricity supply to be paid before 30.11.2012 .

•Amount of subsidy in arrears to be paid before 31.03.2013.

•The discoms and FD are working on a operational modalities for direct transfer of the electricity bills of Govt. departments from the budget.

•The State Govt. is expected to liquidate the arrears of subsidy over a period of 1 – 2 years besides making the payment of current subsidy regularly. (Current outstanding is about Rs. 1800 cr)

Sr. No. Name of Department As on 31.03.2014

1 Irrigation 23989.02

2 Municipal Committees 5943.93

3 Panchayat 997.06

4 Public Health 13737.44

5 MCFaridabd 1294.07

6 Others [for UHBVN] 1178.77

G.Total 47140.29

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Targets of FRP and Progress so Far

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FRP TARGETS

Haryana FY 2012 FY 2013 FY 2014 FY 2015 FY 2016 FY 2017 FY 2018 FY 2019 FY 2020 FY 2021 FY 2022

Distribution Losses 26.10% 23.80% 22.00% 20.30% 18.70% 17.40% 16.00% 15.10% 14.20% 13.40%

AT&C Loss Trajectory 31.35% 29.71% 26.82% 24.40% 22.23% 20.41% 18.83% 17.12% 15.80% 14.78% 13.59%

ARR-ACS Gap (on billed units basis)

-2.3 -1.57 -0.64 -0.83 -0.22 0.28 0.48 0.59 0.63 0.72 0.78

Year Tariff Increase Considered (%)UHBVN DHBVN

2015-16 15 152016-17 10 10

Tariff Increase considered (in %)

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SYSTEM GENERATED DISTRIBUTION AND AT&C LOSSES OVER THE LAST 3 YEARS

FY 2011-2012 (First Half)

FY 2011-2012 (Second Half)

FY 2011-2012



FY 2012-2013

FY 2013-2014 (First Half

FY 2013-2014 (Q 3)

Distribution Loss

UHBVN 36.28% 27.56% 32.43% 35.86% 27.94% 32.47% 35.04% 28.39%

DHBVN 22.91% 23.29% 23.09% 23.22% 21.95% 22.60% 23.49% 22.99%

DISCOM 29.65% 25.27% 27.62% 29.76% 24.70% 27.44% 28.91% 25.36%

Target Distribution Losses as per FRP

27.56%(Base)

26.14%(Base)

23.8%(yearly)

Collection Efficiency (%)

UHBVN 91% 96% 93% 91% 97% 94% 95% 93%

DHBVN 97% 100% 99% 97% 100% 98% 97% 97%

DISCOM 94% 98% 96% 94% 98% 96% 96% 95%

AT&C Losses

UHBVN 42.01% 30.56% 36.95% 41.39% 30.10% 36.56% 38.28% 33.40%

DHBVN 25.00% 23.14% 24.11% 25.67% 22.26% 24.01% 25.90% 25.65%

DISCOM 33.58% 26.58% 30.34% 33.80% 25.86% 30.17% 31.72% 29.05%

Target AT&C Losses as per FRP

31.35% (base)

29.71% (base)

26.8%(yearly)

Loss reduction from 29.76% in first half of 2012-13 to 28.91% in first half of 2013-14 may seem to be 0.85% but in fact it is around 3 % owing to Impact of increased supply hours to RDS consumers

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OTHER PARAMETERS

DISCOMSFY 2011-2012

(First Half)FY 2011-2012 (Second Half)




RIB per unit of input 2.43 2.79 2.70 3.55 3.53Increase over the corresponding period in the last year 11% 27% 31%

ARR - ACS Gap (on input units basis) 2011-2012 2012-20132013-2014 (tentative)

Rs. per unit base year

As per the FRP (1.52) (0.84) (0.54)

As per the actuals (1.52) (1.01) (0.81)** (up to December only)

The increase in the Revenue in Banks (RIB) over units input (units purchased & paid for) has increased more than the per unit increase on account of tariff / FSA which clearly shows that the AT&C losses have decreased.

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Other Initiatives

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INITIATIVES IN ENERGY AUDITING

Targets for Revenue on the basis of Units purchased and actually paid for. Scientific methodology of assigning revenue targets to the field offices. Targets based on normative sector-wise distribution losses (urban – 15%, industry

– 4%, Agriculture – 16%(non HVDS areas) & 8%(HVDS areas), rural - 30%) and more than 100% collection efficiency because of targets for liquidation of receivables.

Periodical refinement of targeting methodology right up to the sub division on the basis of actual data of the previous month.

The distribution losses are calculated using the sales data generated by the billing data and the agriculture consumption is based on HERC methodology using feeder data and normative distribution losses (For estimating the agricultural consumption the HERC is taking input energy on the segregated agricultural feeders and applying losses of 16% thereon )

Monthly review of the achievement vis-à-vis targets.

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Metering is heart of power distribution business and directly affects the revenue. Nigam has proposed to eliminate human intervention in metering process by roll-out of AMR and CMRI based meter reading through optical port. The meters are being procured.

Automatic Meter Reading (AMR) has been implemented for HT Industrial Consumers in UHBVN.. A dedicated analytical team has been constituted to do a detailed analysis of the AMR billing data and generate exception reports.

85000 consumers in DHBVN having connected load of more than 10kW are proposed to be covered under the AMR (Automated Meter Reading) under the World Bank funding scheme and tendering process has been initiated. Till the time AMR is implemented, Discoms have planned to conduct CMRI based meter reading for such consumers using optical port for data analysis and identification of tampering events. Discoms are also planning to conduct CMRI based meter reading in identified pockets for consumers having connected load in excess of 10kW.

Meters are being shifted to electricity poles out side the consumer premises so as to avoid any tampering of energy meters. Almost all the three phase meters have been relocated outside the consumer premises and the single phase meters are likely to be shifted by the end of September in the urban areas..

INITIATIVES FOR IMPROVING BILLING EFFICIENCY

Meter Relocation

DISCOM

Single Phase Three Phase CT/PT Status ending June 2014

Nos. of Single Phase

meters [Urban Only]

Nos. of Meters

relocated

Nos. of Three phase

Meters

Nos. of Meters

relocatedNos. of CT/PT

Meters Nos. of Meters

relocatedTotal Nos. of Meters

Total meters relocated Percentage

UHBVN 1145763 535188 136460 132552 19804 19804 1302027 687544 52.81%DHBVN 1103093 747466 210381 168975 23599 23590 1337073 940031 70.31%

Total 2248856 1282654 346841 301527 43403 43394 2639100 1627575 61.67%

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All the defective meters are proposed to be placed within 6 months.


Replacement of defective Meters – Progress is given as under (as on 30.06.2014) :

Billing of all the major consumers is being pre audited centrally and analyzed by a dedicated analytical team based on suspicion against the benchmark consumption norms, reading unavailable/not readable, etc cases to verify any billed quantum of energy. Following table provide under billing from select suspected consumers in UHBVN.

The billing of all the major consumers including mobile towers is being pre audited centrally and analyzed by dedicated analytical team. Key outcomes of energy audit include reduction in faulty metering status and increase in revenue.

Discoms have also implemented a software through WEEXCEL in which the entire billing data is available on a real time basis to the officers of the Nigam and customized billing exception reports can be generated to target under billing.

Billing Data Analysis - Exception Reporting

UHBVN DHBVN

9116971064

9393868295

16777 25746

59326

14

55

5

13

86

7

27

00

7

14

15

36

19

40

13

10

21

Single Phase Three Phase 145305 105671 106565 144411

41143

87523 98031

41

75

8

20

18

1

18

55

3

43

38

6

92

73

11

04

8

41

61

1

Single Phase Three Phase

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M/s HESL is employed to perform sample verification of 5% of the meter readings of industrial consumers along with collecting data pertaining to equipments being used in the premises. HESL has also been entrusted with responsibility to collect consumption data of NDS consumers on specific formats on various fields (i.e. complete address, no. of ACs/ Geysers installed, nature of business etc.) for identification of suspected meter tampering cases. The data of all the consumers has been collected and is being punched.

In UHBVN 1448 cases of accumulation of reading have been detected in the month of March 2014. Similarly, in DHBVN, 867 cases of accumulation of reading have been detected in February 2014 with the amount charged of around 48 Crores.

Feeder indexing is underway in both the Discoms and the work is 95% complete. Post feeder indexing, each feeder shall be designated as profit center and feeder wise targets shall be communicated to field staff for targeted loss reduction. One sub division per circle is being given feeder wise RIB targets to begin with and after the completion of the indexing the scheme of feeder based targeting shall be rolled out in all the circles.

Feeder Pillar Scheme to reduce theft and improving billing efficiency in rural which is motivated by giving various incentives to the consumers like giving supply hours on urban pattern, 10% rebate in energy bill for one year wherever the scheme is implemented on complete feeder. Currently feeder pillar has been implemented on 90 villages and thereafter the scheme has been stopped.

Wherever the schemes has been implemented, average AT&C loss have been reduced significantly, via increase in collection efficiency by around 20%, reduction in input energy by around 30%.


Cross Checking of meter reading by M/s HESL

Feeder Indexing

Feeder Pillar Scheme

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INITIATIVES FOR IMPROVING BILLING EFFICIENCY Spot Billing:

Currently the circles of Rohtak, Panipat (Model Town), and around 30 sub-divisions of DHBVN have the facility of spot Billing. Precisely, Spot Billing has already been started in 36 APDRP towns

Theft Detection – Theft detection has been made proactive. Implementation of mandatory lodging of online FIRs have improved quantum of detection and disposal of cases.

During First half of FY 2013-14, near about 10% more theft cases were detected in comparison to 2nd half of the year.

In FY 2013-14 First half, ~ 17% more penalty amount recovered from theft cases than in the 2nd half.

FY 2011-12 FY 2012-13 FY 2013-14

52237

25160 24293

30162

20138

Number of theft cases detected

FY 2011-12 FY 2012-13 FY 2013-14

46103096

4001

35022871

Penalty Recovered (in Rs. Lakhs)

1st Half

2nd Half

1st Half

2nd Half

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STATUS OF REGISTERED FIR CASES AND AMOUNT REALIZATION :

Apr-13

May-13

Jun-13Jul-1

3Aug-13

Sep-13Oct-

13Nov-1

3Dec-1

3Jan-14

Feb-14

Mar-14

FIR regestered (No's) Moving average (FIR regestered (No's))Amount Realized (Cr.) Moving average (Amount Realized (Cr.))

FIRs made Online Max. No’s of FIR (2878) were registered in Oct-13 while max. Amount realized (7.55 Cr.) in Nov-13

month. Both- FIR registration and amount realization reported to step down in 2nd Half of the year.

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INITIATIVES TO IMPROVE COLLECTION EFFICIENCY Discoms have recently initiated drive for accelerated arrear recovery by targeting all connected defaulters in

the decreasing order of default in order to liquidate the entire defaulting amount of urban connected consumers .

If persistent efforts to recover dues don’t suffice, then disconnection is put to effect. Table below provide latest snapshot of recovery from connected defaulters.

Moreover, as per the HERC Supply Code Regulations 2014, in case the consumer fails to make the timely payment of the bill, the bill in the next billing cycle shall be prepared on a distinct colour paper(red) along with a notice, highlighting the unpaid amount and in case the amount is not paid within the due date, the supply shall be disconnected without any further notice.

Discoms

Progress during Sep'13-Feb'13

Rate of increase in defaulting Consumers

Rate of increase in Amount

Urban -11.81% -17.82%Rural 4.71% 5.36%Total 0.04% 0.83%

No. of Consumers Amount (Rs. Lacs) No. of Consumers Amount (Rs. Lacs)Total Connected Defauting Amount as on 30.09.2013 Total Connected Defauting Amount as on 28.02.2014

297295

56983.98

262174

46827.15

753698

234606.85

789206

247187.09

Urban Rural

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CONSUMER GRIEVANCE REDRESSAL SYSTEM

Sr.Mode of Complaints

Total Received (No’s)

Total Resolved (No’s)

Total Pending (No’s)

1Call Center [1800-180-1615] 238254 238254 Nil

2 Online Consumer Grievances redressal System 50754 49136 16183 Online Harsamadhan Portal of State Govt. 516 450 664 Complaints received through SMS 1054 465 589

Customer facilitative call centre has been set up in the state of Haryana. Email and SMS facility for online registration of complaints in website. Online Application Facility for consumers who wish to opt for 10 KW or more of Connected Load Most of the unresolved complaints are due to incomplete information supplied by consumer in their complaint

through SMS/ Portal. A UHBVN Consumer can lodge his complaints/grievances by sending SMS to 51969. Consumer can also lodge his complaints/grievances by sending an E-Mail to [email protected] and

[email protected], [email protected] & [email protected] Web/ Online Consumer Grievance Redressed System URL:

http://173.201.36.72/uhbvn/portal/home/go/processGroupListWeb.jsf and http://173.201.36.72/dhbvn/portal/home/go/processGroupListWeb.jsf Around 2 lac complaints have been handled in last one year.

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WAY FORWARD

The State Govt. should release the entire subsidy in time upfront The electricity bills of Govt. departments to be released timely Autonomy to the Discoms for Performance based transfers Cost reflective tariffs to be allowed by the Regulators Regulators should allow all the legitimate costs in the ARR (i.e. interest on working

capital loans, increase in employees cost due to recruitments) and not to underestimate costs / overestimate revenue to keep the deficit low so that there is minimal tariff increase.

Online FIR system over Theft detection for loss reduction be allowed Enforcing disconnections of defaulters Pillar boxes for rural connections Meter relocation in urban areas CMRI/AMR/Spot Billing endeavors External and internal tie up for capital expenditure funding be supported. For ex.

Funding prospects from JICA and World Bank Extension of R-APDRP in non R-APDRP – Metering, Billing, Collection in non-RAPDRP

towns on the pattern of RAPDRP areas proposed to be completed by December 2014.

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Thank You

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