Author: Shrikant Modak
Publication: Business India
Date: December 17, 2006
Introduction: Deftly managing its resources, Gujarat's apex power body has overcome power shortages and losses
Gujarat's glowing. The state's apex power utility has not only staged a recovery, it's now the only one in India to guarantee three phase 24 hours electricity supply to the rural households and eight hours uninterrupted supply to agricultural consumers. Gujarat Electricity Board (GEB), which had been reporting losses until 2004, came to black last year. The board's financial losses were Rs. 1,900 crore in 2003-04. In 2004-05 these were down to Rs. 935 crore.
In April 2005 the state unbundled its electricity sector with that GEB became Gujarat Urja Vikas Nigam Ltd (GUVNL), a holding company with six unbundled companies under its umbrella (generation and transmission companies and four distribution companies). The improvements in the utility continued even under this new avatar. GUVNL posted Rs. 187 crore profits in 2005-06. If this year's projections are to be believed it will report even better profits around Rs. 400 crore.
The entire process, "Started five years back," says Saurabh Patel, Gujarat's energy minister of state with the independent charge. "Then we were placed seventh in the power sector rankings of utilities in India and now we are second, behind Andhra Pradesh, "says Viiaylaxmi joshi, CMD Of GUVNL. What's contributed to this success? There are several factors in fact. "One that stands out most recently is the state's Gujarat Jyotigram Yojna that assures 24 hours three phase power supply to the rural residential consumers and eight hours guaranteed supply to the agricultural consumers," claims a GUVNL official.
The state very recently announced the completion of this Yojna (covering 18,000 villages and 9,700 hamlets) at a function attended by President, A.P.J. Abdul Kalam, near the heritage site of Chapaner town. Its impact! "A fact that more than 1,50,000 rural public came for the event will have obviously boosted Modi's political image," say chief minister, Narendra Modi's, admirers. But, in more mundane economic terms, "its impact on technical parameters like the T&D losses has been large," say GUVNL officials.
At a demographic level, a survey carried out by IRMA at the behest of CII (Confederation of Indian Industries) reveals a reduction in rural to urban migration. "The assured availability of electricity has opened up income earning avenues to the rural public that weren't there earlier," explains Patel. Even consumer durable companies have felt its impact. For example, John Verghese, proprietor of Ahmedabad-based consumer durable retail chain, Sales India, says, "There has been a significant increase of rural consumers to our showrooms in the last year." Haier regional manager, Sanjay Ghadial affirms a similar trend. "Our sales to rural areas have gone up significantly," he says.
Patel says, "Wherever we toured in the rural areas, people were demanding 24 hours electricity supply." He adds, "The question before us was then how to provide this? A simple answer, since agriculture consumers were subject to load shedding, was to separate the residential consumers by putting them on separate feeder. However, sceptics within the administration dismissed this as unfeasible. But Modi having spotted a political opportunity wasn't the one to let it go. A sample of 50 villages was chosen to test the viability of the proposal.
Its success eventually convinced everyone that this was the only way to assure 24-hour power supply to the rural households. In a short period of two-and-a-half years, the state spent Rs. 1,000 crore to erect 12 lakh poles to connect rural household to a separate feeder. Modi, avers, "jyotigram is the only solution for the survival of rural India. It can create millions of jobs." Though his detractors dismiss this as a political-speak the scheme itself has proved a blessing to the state's electricity board. Joshi says, "By shifting power supply to the agriculture, which constitutes 40 per cent of the state's load, from peak to the off-peak hours, the state's power supply scenario has changed significantly." Among its several benign effects, the most important is the end to load shedding in the state in the last couple of years.
No power thefts
Earlier there was only one feeder catering to both rural residential and agricultural consumers. Since agricultural tariffs were subsidised there was a general tendency to draw electricity from the same connection even for residential usage. Separating the feeder lines and restricting supply to the agriculture to the off-peak hours has not only reduced this, it has, in fact, done much more. "When there is no current in the lines not only can there be no thefts but also no line losses," says a GUVNL official. While theft may not have gone away entirely, the incentive to steal power has diminished. Further, all the feeders now have electronic meters, which makes it possible to attribute losses more accurately to the theft and deal with it.
As for the agriculturist electricity is guaranteed for eight hours at a fixed time of the day in each area. Since supply hours are restricted, many have gone for drip irrigation wherever agricultural pattern has suited them. Rural revenues have gone up not only because rural residential consumers now pay for what they consume but also because they pay the same tariff as the urban consumers. 'There has been an increase of 13 per cent in the total revenue of GUVNL, although the total demand itself has gone up only by 7 per cent in the last two years," according to a GUVNL official.
However, there are other factors, which too have contributed to the reduction in the sector's losses. For example, on the central side GEB took its issues with NTPC (National Thermal Power Corporation) to CERC (Central Electricity Regulatory Authority) and got it to streamline the former's cost structure. It also negotiated with the IPPs (Independent Power Projects) and got them to streamline their cost structure.
As far as its own cost reductions initiatives are concerned, as said earlier, it reduced T&D losses by 9 per cent; cost of finance by 2 per cent (from 10.67 per cent to 8.6 per cent by substituting costlier loans with the cheaper loans); improved PLF by 3.44 per cent (to 72.28 per cent); and brought down auxiliary consumption at its generating stations by 4.84 per cent, adopting efficiency improvement measures. It also got Rs.231 crore and Rs. 148 crore in incentives from the Union power ministry respectively in 2003-04 and 2005-06 for reducing its balance sheet losses. Similarly, improved load management left it with a surplus, which it sold in the interstate market at higher rates.
A misfortune of being successful is that the Union power ministry soon diverted Gujarat's 200 mw power share in the central power utilities to the neighbouring Maharashtra that's been reeling under power shortages since last year. The total financial implication of this to GUVNL in the current year will be Rs. 562 crore, as the state's own demand has grown and it now has to buy power from the market at Rs. 6.6 per unit against Rs. 3 earlier. Though the decision to transfer power was meant to be ad hoc the state officials fear that this may acquire permanent status.
Whatever, a remarkable aspect of GUVNL'S turnaround is that it has achieved what it has without any general tariff increase in the last six years. Moreover, improvements have come while preparations were on for unbundling in the latter phase of the recovery. Unlike neighbouring Maharashtra, unbundling went through smoothly with complete cooperation from the unions.
So far the state has managed its power scenario by judiciously balancing its resources. But, as demand's growing, these options will soon run out. "To maintain the tempo of economic development we are planning to make Gujarat power surplus," says Patel. How? Additional 11,563 MW generation capacity addition is being planned over and above the 9,000 MW currently available to it from its own, NTPC and IPP sources in the next five years (Gujarat State Electricity Corporation and the state PSUS together will add, 4,000 MW; IPPS, 4,900 MW; wind power, 500 MW; and NTPC the rest).