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Public-Private Partnership in distribution – A boon for state government exchequer

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In order to revive the distribution sector, immediate steps should be taken like roping in private players to assist the ailing and under-performing discoms

It has been 3 decades that India is struggling to fix the issues pertaining to the Power Sector. Starting with Delicensing of Generation, Enacting Law of Regulations, understanding the need of transmission and distribution reforms, APDRP to UDAY, every possible initiative has been tried by the Policy Makers. However, these efforts have been partly successful in the generation and the transmission domains but made a little headway in the distribution space which is still reeling under tremendous losses. No doubt, even after 73 years of Independence, it is the weakest link in power sector business plagued with surmounting dues to generators, non-cost reflective tariffs, inefficient service delivery systems et al.

In order to revive the distribution sector, immediate steps should be taken like roping in private players to assist the ailing and under-performing discoms which are finding it difficult to meet the UDAY targets given to them. Smart Cities with adjacent rural areas could be other appropriate domains for Public Private Partnership (PPP) models where it can work wonders by bringing in operational and financial efficiencies rather than the Govt. continuing with its efforts to revive these discoms by infusing more capital. It is high time to free the distribution business from age old shackles to achieve the path of 5 trillion economy.

We as a nation should adopt the successful Public Private Partnership (PPP) model in full earnest for the power distribution as it has the potential to address all concerns of the policy makers as well as of the political class. This could be best understood by analyzing that soon after the Delhi Electricity Regulatory Commission issued its Tariff Order for FY 19-20 slashing the fixed charges for customers the Govt. of Delhi announced (on 1st August 2019) free electricity for all the domestic and agricultural consumers who consume less than 200 units a month.

For the consumers in 201-400 units consumption bracket, a flat subsidy of Rs. 800 was also provided. The announcement is expected to increase the subsidy burden marginally at new tariff but still within manageable limit. While this move will benefit 85% of the consumers of Delhi, one is forced to ponder whether the Govt. of Delhi would have been in a position to announce such concessions had the distribution sector not been privatized under the Public-Private Partnership (PPP) model which has resulted in significant savings to the Govt. when Delhi was privatized in 2002, the average losses stood at more than 50%, and the Govt. was spending approximately Rs. 1200 Crores per annum to keep the distribution sector in a running condition and enabling them to meet the payments of generators.

The national losses stood at around 32.5% at the point of time in 2002-03 and Delhi was much behind the national average. Over the years, the national average moved to 18.22% (as per the UDAY portal) for FY 19, which is a reduction of 14.3 %.During the same period, if we talk about Tata Power-DDL area which serves 8 million population in North and North West Delhi, the losses have seen a steep reduction from opening level of 53 % to 8 % at the end of FY 19, a reduction of over 85% which has resulted in enormous savings to the exchequer. 

Even considering that without involvement of private sector, Delhi had caught up with the national level loss reduction trajectory in some years’ time (though it was unlikely considering the gap at the opening level), still a cumulative saving of approximately Rs 17,000 crore would have accrued to the exchequer. This has been utilized in other infrastructural developments like education and healthcare etc. in Delhi and a part towards subsidies to the consumers. 

If we compare the national losses of around 18.2%, specifically for the FY 2018-19 with that of Tata Power-DDL’s 8%, it shows savings of around Rs. 850 Crores to the exchequer in one financial year. Combining the same with other two discoms, the savings would be approximate to the tune of Rs 2500 Crs and this is roughly same as the subsidy burden on the Govt. with the announcement of the new subsidy scheme.

Other states which provide subsidies to domestic/agricultural consumers could also gain tremendously from the PPP model and save thousands of cores which could be utilized for all round development. If the Delhi model is replicated in these states, the efficiency gains from loss reduction would enable the States to pay for the subsidies in addition to several benefits to the multiple stakeholders of power sector as elaborated below.

The foremost stakeholder, the end consumers have gained the most out of the PPP model success. While before the model was rolled out, power cut was an everyday problem and almost 100,000 new connections were pending for energization. The customer satisfaction levels have crossed more than 90% in surveys conducted by independent agencies. Today, the consumers in Tata Power-DDL area face negligible power outages. They have been able to do away with inverters and stabilizers due to improvement in the quality of supply. 

The online service delivery and e-payment options have made the services of the power sector equivalent to the banking sector. Consumers are being given connection within two days in most of the cases. The turnaround in service delivery can also be seen through India’s improved ranking in the World Bank Report on “Ease of Doing Business” in which Tata Power-DDL is one of the two utilities in India which gets assessed on “Ease of Getting Electricity”. The rankings for the same have improved to 24 in 2019 report as compared to 137 in 2015 report. Additionally, the continuous reduction in loss levels have always obviated the need of steep tariff hike.

Another important stakeholder of this system is the employees engaged with the utilities today. While the service conditions for the erstwhile employees remain unchanged as per government rule providing them with certainty, on the other hand, with change in governance and new ecosystem with clearly defined job description, expected service level performance, fixing accountability and responsibility has lead them to perform much more efficiently.

A healthy discom never defaults the payment of its Power Suppliers. Such situation, if replicated in the entire country, would prove to be a boon to the Power Sector growth ,what more, while nation is having a cumulative Discoms’ loss of USD 2.6 Bn (Almost 1% of GDP), it has consistently distributed dividends to Government being the shareholder.

While Central Government acknowledges the fact that without private sector involvement distribution reforms are incomplete and the same sentiment has been echoed by Niti Aayog too with the Govt. working to usher in Carriage and Content in the sector which will encourage private participation. However, this sector needs more focused attention from state governments and much-required freedom from mistaken belief that the PPP model is limited to urban area and is a political challenge. 

Let us not forget Delhi privatization was followed with two consecutive victories by same government and distribution reform success helped present government to reduce tariff and announce subsidy bonanza which will definitely make present ruling party gain public appreciation.

2 comments on “Public-Private Partnership in distribution – A boon for state government exchequer

  1. Amit Raj Gosain

    Indeed there is No match for Services provided by Tata Power-ddl in the field of Electricity Utility right in the Capital of India.
    Year after year it has gained Benchmarks for delivering world class services.
    Infact Tata Power-ddl has perfectly showcases the true meaning of the word SERVICES.

    • Tata Power-DDL

      Dear Amit, thank you for your comment. Stay tuned for more updates on the latest in Power Distribution Space.

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