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India Utilities
Key Highlights from the Shunglu Committee Report on SEBs
Effectiveness lies in implementation: Most of the
committee’s recommendations to improve the future
performance of distribution companies are intuitive – but
their effectiveness would lie in their implementation. In
2001-03 the discoms were similarly bailed out with the
proviso that they would improve their performance,
which has clearly not happened. In our view, the
committee has proposed another bailout through the
SPV, but it remains to be seen whether RBI would be
willing to be a party to this.
The Committee submitted its report on December
15… In July 2010, the Planning Commission set up a
High Level Panel (Shunglu Committee) to look into the
financial problems of the SEBs and identify corrective
steps. The committee has found the accounts of many of
the discoms to be in a less than desirable state. It
estimates that the losses of discoms (post subsidy) of
Rs270 bn in F2010 could come down to Rs221 bn by
F2017 provided the discoms actively correct course.
…making certain key recommendations for
discoms to correct their course:
• Creation of a SPV, with a line of credit from RBI, to
buy distressed loans of discoms
• Improving the quality of accounts via computerization
and rationalization of outstanding receivables
• Use of pre-paid meters for defaulting consumers
• Introduction of a zone-based loss surcharge, linked
to the zone’s loss levels, in bills
• Improving independence of the SERCs by changing
the method of appointing members
• Monitoring of SERCs’ performance in terms of
regular and if required suo-moto tariff hike
implementation by the SERCs
Other Issues
Functioning of Regulators
Impartiality of regulators: The committee has recommended
barring people who have worked with the state government in
the last five years from taking positions on the SERC to
maintain the impartiality of the regulators.
Tariff hikes without audited accounts: The committee has
found that the SERCs’ insistence on audited accounts for truing
up and tariff determination exercise is often the reason for the
delay in the tariff determination. It has recommended that the
SERC should discharge their statutory duty of tariff
determination with the best available data.
Suo-moto tariff hikes: The committee cites the Appellate
Tribunal of Electricity (ATE) judgment of November 11 to
re-iterate that the SERCs need to carry out suo-moto tariff
hikes if the discoms don’t file tariff hike petition in time.
Tariff dhock: The committee has recommended that the
regulator should not implement partial tariff hikes to avoid tariff
shock for consumers.
State Governments’ Role
Uniform retail tariffs: The committee has found that some
states have directed the regulators to maintain uniform retail
tariff in the state for all discoms. This forces inefficient discoms
to suffer losses. The committee has recommended removing
this practice.
Overstating agricultural consumption: The committee
found that agricultural consumption of power is always an
estimate and is often overstated to hide the losses.
T&D Losses
The aggregate T&D losses in F2010 were 30.59%.
Tariff based on actual T&D loss: The committee has found
that setting tariff on the normative T&D loss levels is another
contributor to discoms’ losses. Reducing T&D losses is often
not in the discoms’ control due to political intervention.
Loss surcharge: The committee has recommended
introducing the concept of loss surcharge in the bill. This will
ensure areas with higher commercial losses are billed higher.
RAPDRP Scheme Review
12th Plan: The committee has recommended extending the
scheme to the 12th Plan period.
Expanding coverage: The scheme should be extended to all
peripheral areas of existing cities covered under the scheme as
that can be done with very little extra effort.
RGGVY Scheme Review
Metering: The committee has recommended that all
consumers, including BPL consumers, should be metered and
a suitable tariff collected from them.
The planning for domestic supply in rural areas should be done
on the basis of 1 KW per house.
Franchise Model
The committee has found that the franchise model of power
distribution has been running successfully in many areas and
recommends adoption of the same. In this model the
franchisee gets very less incremental income from tariff hikes
and has to depend on reduction of T&D losses and addition of
customers to increase its revenue. Hence, the efficiency of the
system has been found to increase in towns with the franchise
model.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Utilities
Key Highlights from the Shunglu Committee Report on SEBs
Effectiveness lies in implementation: Most of the
committee’s recommendations to improve the future
performance of distribution companies are intuitive – but
their effectiveness would lie in their implementation. In
2001-03 the discoms were similarly bailed out with the
proviso that they would improve their performance,
which has clearly not happened. In our view, the
committee has proposed another bailout through the
SPV, but it remains to be seen whether RBI would be
willing to be a party to this.
The Committee submitted its report on December
15… In July 2010, the Planning Commission set up a
High Level Panel (Shunglu Committee) to look into the
financial problems of the SEBs and identify corrective
steps. The committee has found the accounts of many of
the discoms to be in a less than desirable state. It
estimates that the losses of discoms (post subsidy) of
Rs270 bn in F2010 could come down to Rs221 bn by
F2017 provided the discoms actively correct course.
…making certain key recommendations for
discoms to correct their course:
• Creation of a SPV, with a line of credit from RBI, to
buy distressed loans of discoms
• Improving the quality of accounts via computerization
and rationalization of outstanding receivables
• Use of pre-paid meters for defaulting consumers
• Introduction of a zone-based loss surcharge, linked
to the zone’s loss levels, in bills
• Improving independence of the SERCs by changing
the method of appointing members
• Monitoring of SERCs’ performance in terms of
regular and if required suo-moto tariff hike
implementation by the SERCs
Other Issues
Functioning of Regulators
Impartiality of regulators: The committee has recommended
barring people who have worked with the state government in
the last five years from taking positions on the SERC to
maintain the impartiality of the regulators.
Tariff hikes without audited accounts: The committee has
found that the SERCs’ insistence on audited accounts for truing
up and tariff determination exercise is often the reason for the
delay in the tariff determination. It has recommended that the
SERC should discharge their statutory duty of tariff
determination with the best available data.
Suo-moto tariff hikes: The committee cites the Appellate
Tribunal of Electricity (ATE) judgment of November 11 to
re-iterate that the SERCs need to carry out suo-moto tariff
hikes if the discoms don’t file tariff hike petition in time.
Tariff dhock: The committee has recommended that the
regulator should not implement partial tariff hikes to avoid tariff
shock for consumers.
State Governments’ Role
Uniform retail tariffs: The committee has found that some
states have directed the regulators to maintain uniform retail
tariff in the state for all discoms. This forces inefficient discoms
to suffer losses. The committee has recommended removing
this practice.
Overstating agricultural consumption: The committee
found that agricultural consumption of power is always an
estimate and is often overstated to hide the losses.
T&D Losses
The aggregate T&D losses in F2010 were 30.59%.
Tariff based on actual T&D loss: The committee has found
that setting tariff on the normative T&D loss levels is another
contributor to discoms’ losses. Reducing T&D losses is often
not in the discoms’ control due to political intervention.
Loss surcharge: The committee has recommended
introducing the concept of loss surcharge in the bill. This will
ensure areas with higher commercial losses are billed higher.
RAPDRP Scheme Review
12th Plan: The committee has recommended extending the
scheme to the 12th Plan period.
Expanding coverage: The scheme should be extended to all
peripheral areas of existing cities covered under the scheme as
that can be done with very little extra effort.
RGGVY Scheme Review
Metering: The committee has recommended that all
consumers, including BPL consumers, should be metered and
a suitable tariff collected from them.
The planning for domestic supply in rural areas should be done
on the basis of 1 KW per house.
Franchise Model
The committee has found that the franchise model of power
distribution has been running successfully in many areas and
recommends adoption of the same. In this model the
franchisee gets very less incremental income from tariff hikes
and has to depend on reduction of T&D losses and addition of
customers to increase its revenue. Hence, the efficiency of the
system has been found to increase in towns with the franchise
model.
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