Privatisation of power distribution in Delhi has been a landmark success

Privatisation of power distribution in Delhi has been a landmark success

July 2012 marks the 10th year of successful privatisation of power distribution in the National Capital Territory of Delhi by two private players – Reliance Infrastructure and Tata Power. In fact, the past decade has been truly remarkable.

In the context that power sector woes have reached crisis proportions, this success story not only gives hope to the planners and policy makers but also provides them with a tried and tested approach that can be successfully replicated in the other parts of the country.

Legacy that was inherited

The year 2002 marked the beginning of a long and assiduous journey. The very phase was in complete shambles and on the brink of an almost collapse. Electricity theft was rampant and the system looked financially unviable and unsustainable. There was near zero investment on network up gradation. Transformer and equipment failures were rampant and led to frequent unplanned outages for long durations. The concept of customer care was unheard of. To say the least, it was a very challenging situation. In order to induce a complete overhaul, the private players focused on several factors that needed improvements and introduced innovative concepts that actually worked.

Customer services

Relentless focus on customer has meant that service levels not only exceed those provided by the best utilities in the world but are also comparable to benchmarks established in highly competitive sectors like telecom and banking. Well skilled customer care staff along with robust systems and processes has meant consistent delivery of world class service. A noteworthy example of the extent of customer centricity and focus is the “doorstep service” launched recently, wherein customers' complaints and requests are catered to at his doorstep itself.

Reliable & quality power supply network

Large investments in network and technology (Rs 6,500 crore) along with streamlining of systems and processes, has meant dramatic improvements in quality and reliability of supply.

Five to six years down the line, typically a Delhi resident was completely exasperated by 4 to 5 hours of daily power cut. At least things have changed as he may now experience merely 4 to 5 hours interruptions in the entire year. A true testimony of the fact that reliability levels in Delhi are now comparable to international benchmarks.

Also, lights do not dim anymore and TV screens do not contract during peak hours. It is interesting to note that sales of generator sets, inverters and stabilisers have dropped considerably.

Unprecedented Loss Reduction

One of the most critical challenges faced by power sector in India today, is the exceptionally high technical & commercial (AT&C) losses, universally prevalent across all distribution utilities.

The first and foremost concern was to bring down power theft, a serious issue and a major contributor of loss, in Delhi. Interestingly, post privatisation it was soon brought down to 5 per cent from 45 per cent. That has also led to unprecedented reduction in commercial losses.

This unprecedented loss reduction is the single most important factor responsible for easing the significant upward pressures on tariff levels in recent years, due to sharply rising input costs.

Containing Operational Costs

Relentless focus on productivity enhancement through continuous improvements in systems and processes by adoption of best industry practices has yielded impressive results.

Despite, average inflation of 7-8 per cent per annum, operating cost has seen significant declining trend as seen in the chart above.

Benefits to government

Loss reduction has meant a whopping Rs 30,000 crore cumulative savings till date to Delhi Government and Rs 5,000 crore every year here after.

This has clearly translated into more money being available to build physical and social infrastructure in Delhi (schools, colleges, hospitals, roads, metros etc).

Key success factors

The phenomenal success of Delhi privatisation initiative has been based on a multi-pronged approach with a special focus on mobilising support from all key stakeholders.

a. State Government played its crucial enabling role by instituting special courts and providing dedicated police force to utility companies, absolutely vital for containing theft.
b. Being people intensive business, “Buy in” of employees was critical and they were taken into confidence even before the entire reform process was initiated. Not only their employment benefits were protected but also career growth possibilities in the new set-up were highlighted.
c. Customers were informed of the changes taking place. Very often, customers have unrealistic expectations from privatisation process and there is a need to moderate the same. They were made to understand that changes would take time and transformation can be achieved with their active involvement.

Conclusion

Aggregate loss of distribution utilities nationwide in FY-12 is estimated at staggering Rs 120,000 crore (~1.5 per cent of GDP). Poor financial health has resulted in inadequate investments leading to not only serious power shortage scenario but also poor quality of supply. Unless health of this sector is restored with a sense of urgency, it has the potential to derail the fast pace of India’s growing economic might.

Clearly, we have to find a national will towards cost-reflective tariffs. At the same time, the need of the hour is to induct greater efficiencies into distribution utilities by replicating Delhi’s success story, all across the country.