BESCOM financials

Good read, good points SV

Makes good reading - great critical anaysis of BESCOM financials, thanks. Also, agree with Manivannan sir in that power to certain utilities cannot be cut off because these utilities face financial issues & are themselves unable to recover full costs.

@ Sanjay - I like to store all my ammunition in one place, and there is enough of it there. So, if at all I bring up any talk of 'privatisation' here, you may rest assured that the details on the same will be made available through a link to the debate elsewhere.

Having said that, the point I was making was that the lack of financial discipline, particularly in the matter of collection of dues (mostly from other government organisations/ agencies) is the single biggest reason for their inability to function as a professional set up. If this matter can be taken care of, a BESCOM under a Manivannan will be able to outdo even a TATA or Reliance company.

A second factor is that there are not enough Manivannans around, and by the time they establish themselves, it is time to move to Animal husbandry, or Sericulture. The question then is will the successor carry on the good work started by the predecessor? The Hindu recently quoted some BMTC managers talking about certain questionable pracices that crept in following the exit of Mr Upendra Tripathy.

Anyway, let us confine the discussions here just to financials, though, in the process if some glaring inequities show up, it will be difficult not to comment on them, I guess.

who made these rules? The democratic government, i.e, the people! You!

This is undisputed - an example is the recent resistance to allow FDI in retail or the diesel price or gas price hikes to limit subsidies. Where's all the ammunition coming from for the likes of Mamata Banerjee & BJP to castigate the ruling govt ? How is it that they have such loud voices in public, though anyone can see that the ruling govt's moves are in line with what the country needs ?

It's clout stems from peoples' resistance to pay correct value & demand free or subsidised services which they have been taking for granted for too long - even diesel car owners (whose numbers are now growing higher than petrol car owners) are up in arms, let alone the tempo /truck owners.

Unless people by & large (not just well paid executives that read things here on praja) accept responsibilities & do not constantly badger the govt for subsidies & stop supporting protests at every step, nothing will change as opposition parties will continue their clamour against anything & everything that is conveniently seen by them as "anti-people" to go against the ruling party, economics be damned.

As a result, we have a BESCOM that is unable to act on unpaid bills from BWSSB /BBMP, that are unable to realize water bills from other public sectors or property taxes from property owners, etc in a chain spiral whose end can never be identified.

our leaders are not leading..middle class to become active in politics - at least vote

Agreed, but are we doing it ? In my society, everyone made a dash to get voters' ids when they were being distributed some time back, but when elections came, I & my wife were the only ones that actaully voted from our society, & I'm sure it's the same in almost all such communities. The voters' ids are "sought" by the middle & upper middles classes to gain access to subsidised services like gas, children's admission to govt subsidised quotas in professional courses, getting passports easily for overseas travel & for such purposes, nothing else.

As for leaders, I think there are at least a few that have tried & are still trying - perhaps Manmohan singh is one & Jaiprakash Narayan may be another example. Most have given up or are forced to give up since they get mired in the vortex of petty politics -- again, largely a consequence of the people, & not necessarily because of poor leadership. Leaders are only a reflection of what we people are since they need to be elected periodically -- & we are forcing them to continue dishing out subsidies & 'accept' all kinds of mischief such as building violations, else they get voted out.

"Leaders" & "Parties" have thus been reduced to dole out largesses to the poor who vote, make provocative & sweet sounding statements when hard decisions are taken by the ruling party, accept & condone the practise of subsidies demanded not just by the poor, but all classes, & this goes on without end. Well meaning bureaucrats, unfortunately, get side-lined in this tug of war. Others "make hay when the sun shines"!

I am ready for water rate increase

So am I, but will it change things if only a few of us agree ? Most, including middle classes will protest in the name of the poor -- like for the removal of diesel subsidy.

They are also welcome to keep the lowest slab low to subsidize poor families

I think this has a lot of merit. Suppose we do away with the term 'poor' & replace it with 'consumption slabs' - like power tariffs become higher with increasing consumption. Similarly, if the same were applied to just about everything -- like petrol to diesel to kerosene, water & all food items under PDS, etc, perhaps, it might actually work better than the present system of identifying BPL families & then issuing ration cards to them, resulting in many middle class families having multiple cards & in some cases, selling off the surpluses in the open market for profits.

One should not ignore the least preferred option. Write off other dept dues as goodwill if GoK underwrites the same in the form of a grant to offset the loss. I cant imagine this being fiscally prudent in any way but practically this is what I think BESCOM ends up doing. If you are anyway going to write off get a grant in the bargain to offset the dues.

..or collect money in advance, like a prepaid card scheme. Dish out fancy power credits to all govt departments against payment. Dont wait for cheques to be cleared etc. get into some kind of electronic clearing arrangement.

Not just in govt in private also there is scant regard for timely payments. We get in trouble in other countries because of this culture. The respect for timely payments is a culture & habit that needs to be formed, much like standing in queues.

Dish out fancy power credits to all govt departments against payment. Dont wait for cheques to be cleared

As rightly stated by Ms Sharadini Rath (quoted by Sanjay above), "government finances are an interconnected mess, nothing is stand alone".

Couldn't agree with this more - unless cash collections, cash flows, expenses & accounts are fully streamlined + budgets in each & every dept balanced each year, nothing will change, & it may be futile to try to attempt the exercise for one dept such as BESCOM or KPCL.

But this is a big ask when govts keep changing frequently & officials are shunted about every now & then. Further, there will be many depts that will keep seeing red year after year, especially KPCL, BBMP & BWSSB that have to keep pace with growth on one side & deal with subsidies & leakage of revenues on the other, & these are subject to political considerations.

Another reason why subsidies are undesirable & at the root of all problems. Elimination of all unnecessary /inflated subsidies, beginning from national level down to the last panchayat might put these issues to rest for good.

1. Cut the power when bills are not paid
2. Put the water pumping bill and Street light bil on the end consumers. [Proportional to individual consumption]
3. Each one [end consumers] Pays for their "power" benefits

The belaku Yojana  (changing incandescent bulb with efficient CFL for residential consumers) which could have saved karnataka DISCOMs huge amount (More than 1000 crores per year with their own estimate) was only carried out in two circles and has stalled due to lack of investor interest. 

The scheme is part of the Bachat Lamp Yojana from bureau of energy efficiency (BEE) where investors/Manufacturers will supply the CFL at Rs.15 to consumers and collect the rest of the money through carbon credits.  But, due to crash in carbon credit prices (from Euro 12 to 3), it is not viable for the investors anymore.  However, the DISCOM would realize huge benefits if they can invest instead of waiting for investors/manufacturers and complete the project.

With their own estimate, the DISCOMS in Karnataka would save more than Rs.1000 crores per year with one time investment of just Rs.170 Crores.  With the power situation in Karnataka, it is no brainer for DISCOMS to complete the project. 

Here are the benefits from the project

1.       Direct saving through Tariff subsidy – the residential consumer in Karnataka pay at an average Rs.3 per unit and distribution cost is more than Rs.5.  With one project (for a Division which saves around 60 GWH or 60 million units the saving is 12 Crores.

2.       Peak load reduction – most of the residential consumers use the power during peak load (between 6.30 to 9.30 PM).  The additional power purchase during peak hour saves huge amount.  The 15 MW per Division when there is reduction 60 million units. (DISCOM buy power at Rs.5 to 6 Crore per unit during peak hour)

3.       T & D Losses – the corresponding T& D losses for the peak load reduction which is more than 20% for BESCOM Saves lot of money.

4.       Even though the carbon credit rates are low, DISCOM will still get some money back through sale of carbon credits.

5.       The residential consumers will see a drastic reduction in power bill

I have given this proposal to Mr. Manivannan but,it seems that he does not have authority to take decision on this most important project. 

Note: Kerala government invested Rs.95 Crores and completed the project in 2010 distributed 1.27 Crore CFL and have shown actual Savings of Rs.2200 Crores per year!!!!!.      

So Mr. Manivannan as Managing director of a Company, it is your responsibility to take the right decision and complete this project. 

Dear Asfaq and others,

I have the same question as sanjayv has asked. Can you show me the details of 2200cr savings in KSEB?

While the calculations you have shown appear to the 'best case' scenario, BESCOM is yet to get such savings in the 2 circles it has implemented. There are other issues:

1. As investors are not ready, BESCOM has to invest. Which brand do we sell?! In a fierce competitive environment where the savings Vs cost is yet to be established, how do we go about it without entering inviting allegations of a scam?!

2. The disposal issues regarding CFL is yet to be settled. Indeed BEE, which spearheaded the project is keeping quite about this project.

3. LEDs are supposed to be more energy efficient. Do we go for that? which brand? Savings?

There are various ways of saving power. BESCOM has prepared a draft policy on DSM. AEEE has assisted us in that. We will go as per the policy, rather than being adventurous with the public money, in these time of notoriety of 'notional losses'!:)

This proper tie up for payments is the weakest link.

The answer to that lies in the difference in the funding arrangements between government-owned companies, and privately-owned companies. Do you think a private company would ever be operating with its debtors position anywhere close to those for KPCL, ie with working capital more than its annual turnover even? It's just out of the question. So, the private companies have either to make the necessary tie-ups, or just keep out of such businesses altogether. They have no choice.

As compared to that, in the case of government companies, because of government guarantees, the funding agencies (largely government-owned, again) will generally refrain from applying the squeeze, and allow the show to carry on. The irregularities start perhaps in a small way. But, unless it is corrected immediately, it becomes a part of the culture, and then there is no turning back. Over the decades, this culture amongst the government-owned DISCOMS has affected the entire power sector chain, both upwards and downwards, and gone even beyond to coal, and railways, to name just a few. And, power sector being a key infrastructure sector, it has in turn affected the entire economy of the country, besides.

It is not as if BESCOM doesn't have the authority to cut off supply to a BWSSB. But, if BESCOM starts acting tough, they will get called by the minister-in-charge, and asked to lay off. And, it is not just with one BWSSB; it's the same with all the government agencies, and even the road-side tamasha's during Rajyotsava, etc. This builds on, and eventually, it becomes pay when able, and that is how the culture sets in. And, as long these remain government organisations, the political interference is inevitable.

A nephew of mine works for Reliance Power in Mumbai, and he can tell you quite a few stories of how they get their bills paid on time even by Dawwod's henchmen in Dharavi, or by Shiv Sena honchos. And, that is how much they value their money.

The Karnataka government is now with its back to the wall. But, instead of applying the correction where it is needed most, ie distribution, it goes and makes a sweet-heart deal with Udupi Power Corpn, mucking up the environment in the bio-diversity rich coastal region in the process. If you scratch the surface there, you'll find enough cronies behind it.
 

"avoided cost" is not called "savings" its called "opportunity cost"

Infrastructure was historically funded almost entirely by the government. Cost overruns were endemic, averaging a phenomenal 61% back in 1991. These were financed by grabbing more taxes from the public or by printing money.

However, these options are not available to corporations. Infrastructure requires heavy loans, often twice as much as equity. Such loans have a fixed repayment schedule. If a project is completed on time, revenue from the project will finance the repayments. But if there are delays of months or years, the project is squeezed badly. It's even worse if projects are unable to operate (such as 30,000 MW of power projects stranded without fuel) or suffer from sudden changes in environmental regulations (as in Hindustan Construction's Lavasa township) or from outright cancellations (as in the scam-ridden 2G telecom case).

For the full text of the blog by Mr S A Aiyer in the SToI, click here.

Distribution Companies, specifically in power sector

Dear Raghunandan,

I am sorry i missed it. Please post it in FB and tag me. I will ensure you get the correct data as approved by the KERC.

Thanks!

Pradeep Konapoor posted answers on Facebook. Sharing here with everyone.

"

1) The Average Cost per Supply {ACS} is Rs 5.34/KWHr for the last FY 2011-12
2)The Average Realization Rate {ARR} is rs 4.83/KWHr for the last Fy 2011-12
3) Peak Power purchase rate could be approx rs 10 some time but should be in the range of 100's of MW for say 3 to 4 hour short bursts traded with PGCIL based on Transmission evacuation availability by KPTCL on behalf of the escoms
FOR longer durations of purchase say 500MW throughout for say 5 to 6 months 24/7 it may cost Rs 5 for unit with around 20 paise wheeling charges and other T and D loss as measured at injection
With regards to whom the high cost power is used by
Once in the wire even electricity which cost Rs 10 can go to customer say a farmer who may not need pay or a customer with Just 80 rs bill per month

With regards to why we need to buy power at such high rates the best one i thought was the customer care guy will run away from his job even if he were to be offered a 6 digit salary on a day with heavy shortage of power with refusal to buy it high cost power to bridge the gap lest his ears bleed due to good verses of power starved customers

4) Peak Allocation to BESCOM 3600-3800 units and for Bangalore metropolitan area Is 2000MW at say 8pm in the evening
Off peak demand could be 3400 units in Bescom with around 1500 fo BMAZ
But there days with wild swing of around 400 to 800 MW swing based on rain and other factors beyond our control
On a rainy day the agriculture pumpset consumption should drop

Acknowledgement 1 ) http://www.bescom.org/KER...

"

Almost a year after the Minister of State with independent charge for Power, Coal and New & Renewable Energy Mr. Piyush Goyal worked to solve the issue of coal block allocations and creating coal linkages to support long term fuel availability, the discoms have got their own revival program. Named UDAY or Ujwal Discom Assurance Yojana, the program was announced by Mr. Goyal on November 5th after a series of extensive consultations with state governments – Chief Ministers, Power Ministers, and various bureaucrats, to get them onboard with respect to this transformation plan.

- - - UDAY is not a simple central government driven bailout program which just gives cash to discoms and states without accountability. There’s a specific roadmap for debt restructuring and there are hard budget constraints imposed for participating in the program. Once on board, the states will not be able to back out and the only prudent course of action for them will be to keep their side of the bargain – which is around driving operational efficiencies.

- - - The states which opt for UDAY and improve on their operational parameters will be given increased grants via these two schemes to create a better state level infrastructure.

The central government will take a discretionary call on budget allocations based on performance on UDAY parameters, thus creating a positive reinforcement loop – better infrastructure will further aid operational improvements. These schemes are investing in real, high impact areas like compulsory feeder and distribution transformer metering by states, separation of agricultural feeders, consumer indexing and GIS mapping of revenue losses. Each state stands to gain more if it does more from its own side.

- - - Yes – the states can still mar the program. India is never too far from a populist electoral campaign promising free power to farmers, or parties asking consumers not to pay their electricity bills, or consumers tampering with electricity meters with no law and order control. But since 2013 December assembly elections, more and more election campaigns are moving towards a development and outcomes plank, rather than identity or inputs plank. Hopefully the democratic process will provide enough incentives for politicians to not wreck the boat.

UDAY is a well thought out, scalable and future proof reform and restructuring program. It creates an actionable roadmap for each discom to become profitable over the next 5 years, while cushioning the financial pain by reducing cost of financing and cost of operations. The program puts in place the right incentives for state governments to act in good faith towards cooperating with the central government and jointly achieving the stated targets. Mr. Goyal has worked closely with all the states to get them onboard this program, and in the spirit of the country’s federal structure – providing fair terms and conditions in lieu of signed up improvements.

For an 18 month old government, eager to demonstrate that its policy announcements can be translated to operational changes, UDAY comes in as a shot in the arm. Starting Q1 2016, there will be visible action every day, as discom loans get restructured and transferred and as states reach out in the market to sell their bonds, testing their credibility and putting their reputation on the line.

For the full text of an analysis of the programme by Mr Aashish Chandorkar, a management consultant, in Swarajya magazine, click here.

Looks good overall. The important question, as far as Karnataka government is concerened, is whether it wants to reform, or wreck the programme and carry on with the status quo, in order to perpetuate the vested interests of the ruling mafia confederation. And, as far as the people are concerened, it's time they declared intolerance to the present state of affairs (where they are worse off than the people of rural Bihar even - check this), and even went beyond and demanded that they get services comparable to the best in the world.

I would still like to maintain that the best option for the state would be to go in for privatisation (of distribution) in cities, more or less on the Delhi model, and outsourcing through franchises in townships, and co-operatives in rural areas, as suggested here.

Ideally to my mind, no state needs to increase tariffs. Personally I think with the 180000 cores saving that the state discoms and correspondingly the people of the states can enjoy because of successful implementation of UDAY can take care of the losses. In fact we should actually be seeing price reductions. And the good news is Mumbai, BEST has already petitioned for a price reduction, Gujarat has already given a price reduction to its people.

For the full text (emphasis added by me) of the interview of Mr Piyush Goyal in the Economic Times, click here.

So, why are the citizens of Karnataka being deprived of the benefits from these developments?