Best practices for other SEBs: Under the leadership of Narendra Modi, Gujarat has seen an impressive turnaround in the power sector—its distribution arm has an eight-year-long profitable track record and supplies 24×7 power. Losses were cut via the landmark ‘Jyotigram’ feeder separation, which could apply to three (MP, UP, Rajasthan) of the five troubled SEBs. Power being a concurrent subject, it would be interesting to monitor the pace and speed at which the Centre is able to incentivise the adoption of best practices by the states. This could remove the biggest bane of the Indian power sector—financial viability for SEBs—and significantly reduce working capital pressure for banks and IPPs (independent power producers).
A comprehensive solution:
We believe a combination of strong initiatives backed by political intent, not just the Jyotigram scheme, have led to the implementation of a comprehensive solution. The following helped Gujarat deliver sustained profitability: (i) the Jyotigram scheme for feeder separation helped in the reduction of AT&C (aggregate technical & commercial) losses to 19% vs. the country average of 26%; (ii) advance action on building sufficient generation capacities and the tie-up of low-cost power on a long-term basis; (iii) deleveraged state distribution company balance sheet to zero debt; (iv) higher revenues from the industrial (42%) sector through promotion and sale of excess power to other states.
Why is the Gujarat power sector different?
The Gujarat power sector has been at the forefront of discussions, thanks to its stupendous turnaround story, 24×7 power supply and its status as the only one in states to remain profitable since 2006. The new power minister visited Gujarat recently to study the sector, and is contemplating replicating many of its best practices to other states. We analyse the reasons behind the success story beyond the well-known ‘Jyotigram’ scheme.
What has made the model popular?
The Gujarat tariff gap has been among the lowest as it has been able to keep the cost of power under stringent check. Key reasons are:
* Reduced AT&C losses
* Negligible debt/interest costs
* Advance action on building sufficient capacities and tie-ups
What is behind the profitability of distribution companies?
Apart from cost control, analysis of revenues suggests a benign regulatory environment (read cost-reflective tariffs) and favourable mix of customers. Despite paying a high subsidy for agri consumers, Gujarat has remained profitable. This is largely for the following reasons:
* The ‘Jyotigram’ scheme led to feeder separation and metering of agricultural load, and in-turn reduced AT&C losses.
* Significantly higher industrial load (42%) at 20% higher tariffs.
* It’s the only state to have significant surplus power sale to other states, leading to R27 bn additional revenue advantage over other states. Maharashtra has also implemented a feeder separation scheme. West Bengal is also a profitable SEB largely due to regular tariff rationalisation.
Gujarat implemented the Rural Feeder Segregation Scheme, popularly known as the Jyotigram Scheme, continued…