A Case Study of Monopoly Eco Term Papper1

8/8/2019 A Case Study of Monopoly Eco Term Papper1

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Term paperOf

Managerial economics

Submitted to:-

Palwinder Kaur

Submitted by:

Manoj Giri

Section-T (1001)

Roll no: - B53


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Reg: - 11011941

1)Introduction 2

2) Objective of Productivity Analysis of Indian Electricity

Utilities 4

3) Background on electricity services for the poor in South andSouth - East Asia 7

4. Selected case studies in India. 9

5. Assessment of selected reform option: Indian case

study. 10

6 Data Analysis 17

7 Results and Discussions. 19

8. Performance Analysis of SEBs. 21

9) CONCLUSION. 22

REFERANCES. 23


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A case study of monopoly- Performance

and functioning of State Electricity

Boards in India

Abstract:-

This paper presents a framework for assessing the productivities ofthe Indian State Electricity boards (SEBs), the government owned andcontrolled entities, which have been mainly responsible for thegeneration, distribution and transmission of electricity in India.Data Envelopment Analysis (DEA) was employed to analyse therelative efficiencies of the SEBs, while the productivity performances

of the twenty-six utilities was evaluated using the Malmquist indexfor the period 1996-97 to 2001-02. The total factor productivity wasdecomposed into the effects of technical change and pure efficiencychange, and the results revealed that the SEBs have attained

productivity progress from 1996-97 to 2001-02, but the technicalprogress has been rather subdued. The SEBs have reportedproductivity growths but have been unable to sustain their growths,their operations have also been relatively inefficient and need

improvement. The analysis reveals that DEA analysis can revealsignificant results of significant interest to various stakeholderscomprising the policy-makers, regulators, government and the publicat large.

Key words: Data Envelopment Analysis (DEA), Malmquist index,State Electricity Boards.


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1) Introduction:-

Electricity Sector reforms are transforming the structure and operatingenvironments of electricity industries across a host of developed anddeveloping countries to introduce private capital and increasecompetition (David et al., 1999; Sardana, 2003). This has beenaccompanied by the introduction of new regulatory regimes (Glachantand Finon, 2005).The effects of such reforms in a number of the developed economies

are now being documented, however, apart from a few case studies;the experience of developing countries remains much less researched.Nonetheless, this is important not just because such studies wouldreflect concerns that would affect millions of poor, but also because

privatization, competition and the reforms of state regulation are thekey themes in donor aid programmes, notably of the World Bank(Clive, 2003).Power reform in developing countries have been necessitated by the

pressing need for improvement in the existing power services asseveral of these countries are plagued by sub-optimal sectorperformances. Huge demand-supply gap is often a universal problemin developing countries and the distribution sectors are frequentlyfinancially crippled (Romeo and Elaine, 2002, Resende, 2002).Serious cash flow constraints result in palpable curtailment of muchneeded investment in expansion and maintenance of services, andultimately manifest in poor sector performances. High distribution

losses, poor management, low market densities, poor metering andbilling practices and weak institutions are some of the common


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problems besieging the electricity sectors in the developing nations(Alberto, 2004).Performance evaluation plays a crucial role in structural reforms infacilitating an understanding of the behaviour of electric utilities, andalso in defining regulatory policies for both transmission anddistribution. Benchmarking models for electricity distribution have

been introduced in UK and US (Burns and Weyman-Jones, 1996;Pahwa, 2002), and have become common throughout Latin America(Estache et al., 2004) and Europe. In Europe, a number of studieshave been reported which include those by Hjalmarsson andVeiderpass (1992) for Sweden, Foresund and Kittelsen (1998) for

Norway; Filippini (1998) and Filippini and Wild (2001) for

Switzerland; and Hirshchhausen and Kappeler (2004) for Germany.Outside Europe, the Australian electricity sector has been analysed byAbbott (2006), who has evaluated the improvements in the

productivity and efficiency performances after sector reforms.Comparative studies across developed nations have also been reportedin the literature. For example, Hattori, Jamasb and Pollitt (2005) makeuse of both a Data Envelopment Analysis (DEA) and StochasticFrontier Analysis (SFA) approach to analyse productivity growth in a

sample of 23 Japanese and UK electricity distribution businesses overthe period 1986- 1998. However, for developing countries few studieshave so far been reported. For example,Romeo and Elanine (2002) have calculated the cost efficiencies forPhilippines power sector. Philippines another benchmarking studyusing DEA and SFA was done Rouselle (2004). Chen (2002)compares the technical efficiency and cross efficiency of distributionsector in Taiwans using DEA, which is the study of a monopolized

and conventionally regulated utilities. Resende (2002) analysesrelative efficiency measurement and prospects for yardstickcompetition in Brazilian electricity distribution.However, to date, no detailed performance analysis has so far beenreported for the Indian electric sector which has undergone reformssince 1991, and has further accelerated the process of change with therecently enacted Electricity Act, 2003 (Thakur et al, 2005). Thecurrent paper is amongst the first productivity analyses carried out for

the SEBs, which are the vertically integrated utilities mainly


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responsible for generation, transmission and distribution of power inIndia.

2 Objective of Productivity Analysis of Indian Electricity

Utilities:-

India has commenced an era of reforms in 1991 by opening theelectricity sector to independent power producers (IPPs). However,more than a decade and a half later, the contribution of IPPs remainsinsignificant, with the private sector contributing only 12.1%, 0.4%and 12% of the total share in generation, transmission and distributionrespectively (MoP website). Thus, the major players in the Indianelectricity sector continue to be the State Owned Electric Utilities

(SOEUs), previously known as the State Electricity Boards (SEBs).These SEBs were established for the rationalization of powerdevelopment at the state level (for Generation, Transmission andDistribution activities), and were statutorily required to function asautonomous corporations by the Electricity (Supply) Act of 1948.Due to overriding declared social objectives, the SEBs have never

been viewed as commercial entities with an avowed objective ofprofit-making unlike the private sector2. The lack of professional

management, lack of accountability, political interfernance,unscientific tariff structure and non-transparent practices andsubsidies make them lossmaking bodies. This approach has adverselyaffected their performance and currently noSEB earns profit (Thakur et al., 2007). Also adversely affected are theexpansion schemes for meeting the growing demand3. There istherefore, a case for the review of the performances of these utilities,so that lessons from failures be taken note of, and effective steps be

taken to mitigate shortcomings. Such an analysis holds immensesignificance for India because presently the main focus of the Indian


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reforms programme is to make SEBs efficient and to commercialisethe electric entities4 (Task Force, 2004). Such an analysis of appraisalof existing SEBs is also warranted from the viewpoint of establishingcrucial innovation in the reforms process that incorporates continuousreview of newly evolved public-private mechanisms. Further, TheERC Act, 1998 has laid the foundation of the regulatory commissionin India as a independent autonomous body5. Such an analysis willalso be of interest to the regulators in deciding the tariff setting

principles where the productivity element X plays a crucial role inaddition to general price or cost increases6. Past productivity recordstherefore would also provide information for setting up of futuretargets. Also the learning from the past decades experience would be

an invaluable exercise for addressing similar sector problemscommon to most developing countries.

3) Background on electricity services for the poor in

South and South - East Asia:-

The demographic indicators of electricity services in South and SouthEast Asia show a wide variation. There is a large disparity in the percapita consumption of electricity in the region, with Singaporeleading with per capita consumption of 6,641 kWh per year, with

Nepal at the other end at 47 kWh per year. As per recent estimates,the per capita consumption of electricity in India at 379 kWh is one ofthe lowest in the world. Similar unevenness is prevalent in

electrification levels, with Thailand having the highest electrificationlevel of 97% and Bhutan only 11%. While The Philippines is at thehigh end of the regional electrification spectrum (87%), India is in themiddle (46%). Propelled by rising income and electrification levels,electricity demand in South and South-East Asian region is projectedto rise sharply in future. To meet this challenge many developingcountries in the region embarked on restructuring their electricityindustry by adopting different models for restructuring, privatization

and competition.


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S.No. South and

South - East

Asian countries

Old

structure

Restructuring Corporatisation Unbundling Independent

regulator

Privatisation Competition

1 Bangladesh

2 Bhutan

3 India

4 Indonesia

5 Malaysia

6 Maldives

7 Nepal

8 Pakistan

9

The Philippines

10 Singapore

11 Sri Lanka

12 Thailand

Countries like Indonesia, Malaysia, Singapore, Philippines andThailand have already introduced competition in the power market,whereas, in countries like Bangladesh, Bhutan, Nepal, Pakistan, andSri Lanka, the reforms are in early stages. In India, power sectorrestructuring and setting up of independent regulators started in thelate 1990's.


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Therefore, it would be useful to assess the experience and also drawlessons from the experience of other countries that could provideuseful learnings for the reform process.

4. Selected case studies in India:-

In this paper analyses the impact of power sector reforms on poorthrough the selected case studies of India. To assess the impact of

power reforms on the poor, it is essential to calculate the electricityindicators separately for poor and non-poor groups in society.International comparisons of poverty data entail both conceptual and

practical problems. Different countries have different definitions ofpoverty, and consistent comparisons between countries can bedifficult. Local poverty lines tend to have higher purchasing power in

rich countries, where more generous standards are used than in poorcountries. The conventional definition of poverty equates it withincome or expenditure levels that enable an individual to satisfy acertain minimum consumption level. The proportion of population notable to attain the specified level of expenditure is then segregated as

poor. Using such an approach the Planning Commission, Governmentof India has been estimating the Head Count Ratio of the poor at Statelevel, separately for rural and urban areas for over three decades. It

currently uses minimum consumption expenditure; anchored in anaverage (food) energy adequacy norm of 2,400 and 2,100 calories percapita per day to define state specific poverty lines, separately forrural and urban areas [National Human Development Report, 2001].As per the 55th NSS [National Sample Survey, 1999-2000], povertyline for urban areas was Rs.854.96 (US$19.02) per capita per monthand Rs.486.07 (US$10.82) per capita month for rural areas.According to this definition, 26.1% of the Indians fall below the

poverty line. In Philippines, poverty line is defined in terms of a least-cost consumption basket of food that provides 2,016 calories and 50


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grams of protein per day and of non-food items consumed by familiesin the lowest quintile of the population. The poverty threshold forPhilippines in 2000 stood at 967 Pesos (US$21.88) per capita permonth (National Statistical Office, Philippines).Therefore, in nominal dollar terms, the India poverty line is less thanthat of Philippines. As of 2001, 40% percent of total population wereofficially considered poor in the Philippines. Table 2 compares thesocio-economic, demographic, and electricity characteristics of thePhilippines and India.

Socio-economic, demographic, and electricity characteristics of India

(2001)

Indicator IndiaPopulation, total (millions) 1033.39Population growth (annual %) 1.70% Population below poverty line 26.10

GDP growth (annual %) 4.50Illiteracy rate, adult male (% of population ages 15 and above) 42.34Inflation, GDP deflator (annual %) 6.00Life expectancy at birth, total (years) 62.80Infant mortality rate, (per 1000 live births) 69.20Electric power consumption (Billion kWh) 391.65Exchange rates (Jan 2002) 48.56Per Capita GNI ($) 460Per capita consumption of Electricity (kWh) 379.00

Electrification levels 46%

Source: www.worldbank.org

On the reform front, in India, unbundling and privatization ofdistribution has taken place in two states, vertical unbundling and

restructuring has taken place in seven states, and 21 states haveestablished independent regulatory commissions. The Philippines hasgone a step further by moving towards competition in the sector. Anindependent regulatory commission has also been put in place toregulate and supervise the sector to assure stakeholders interests.

5. Assessment of selected reform option: Indian case study


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5.1. Power sector reforms in India- historical perspective till 1995

Electricity is covered under the concurrent list in the Constitution ofIndia, implying that both central and state governments have the

power to legislate the sector. The structure of the power industry inIndia has evolved considerably post independence (1947). In the pre-independence era, the Indian Electricity Act, 1910, governed theelectricity industry. The Act provided for private participation in thegeneration and supply of electricity and the industry comprised of alarge number of independent private or municipal electricity utilities.In the post-Independence era, vide the Electricity Supply Act, 1948(with various amendments therein) and the Industrial PolicyResolution, 1956, private participation diminished progressively. Thesector gradually assumed its current form of vertically integratedstatewide public sector utilities the SEBs (State Electricity Boards).The Electricity Supply Act also created the CEA (Central ElectricityAuthority) with the mandate for efficient techno-economic systems

planning. Till the onset of 1990s, the electricity industry wasregulated and owned by various government agencies andorganizations with the role and participation of the private sector

being limited to specific areas of small jurisdiction and consumerbase. Thus, the government performed the multiple roles ofdeveloper, promoter, and regulator of the power industry.

5.2. Growth of the sector

The demand for electricity has grown rapidly since independence,with the per capita consumption of electricity increasing at a CAGR(compounded annual growth rate) of 6.04% [TEDDY, 2002]. This

sustained growth is the result of economic development and has beenaccompanied by structural shifts in the consumption pattern. In spite


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policy to liberalize the sector and promote private investments (Table5) this policy initially focused on the generation aspect of electricity.Its main objective was to add generation capacity in a short timeframethrough private capital by making the sector attractive forinvestments. Later, it was perceived that the private power policy forgeneration projects would not succeed unless it was preceded byextensive reforms in the distribution of electricity. Unless the industry

provided a strong base of commercial working at the point of sale ofelectricity, it would not be able to attract the requisite capitalinvestments in generation, transmission, and distribution projects andother related inputs. It was recognized that fundamentalorganizational changes would have to be effected to restore financial

viability of the sector. Private investment was not forthcoming inundertaking generation as the SEBs were in no position to pay for the

power purchases. Hence, the need for restructuring the electricitysector was felt. The goal of restructuring was to increasetransparency, accountability, and viability of the industry, facilitate

private sector participation, and promote a competitive market. Theresponsibility for ensuring efficient operations of the industry wouldgradually shift to anindependent regulator, and the government would

continue to be responsible for long termplanning, legislation, andevaluation of sector performance. Unfortunately,improving electricityaccess was not recognized explicitly as an objective of therestructuring exercise and the regulatory legislation, which is perhapsa major lacuna inthe Indian reform process.

Table 5. Chronology of events in electricity sector reforms in India

1991 Electricity Laws (Amendment) Act allows private sector participation in generationwith foreign investors allowed 100 % ownership.

1992-97 Eight projects given fast-track approval status and sovereign guarantees by thecentral government.

1995 Orissa Electricity Reform Act establishes the Orissa Electricity RegulatoryCommission and provides for unbundling of the Orissa State Electricity Board.

1996 World Bank support for Orissa Power Sector Restructuring project approved.

1996 Chief ministers conference formulates a Common Minimum National Action Planfor electricity.

1997 Electricity Regulatory Commission Ordinance Notification provides for theestablishmentof a CERC (Central Electricity Regulatory Commission) and SERCs (State


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ElectricityRegulatory Commissions)

1998 Andhra Pradesh, Karnataka, and Uttar Pradesh proceed with the preparation ofElectricity Reform Acts. The World Bank prepares and approves projectssupporting reforms in each of these states.

1999-2001 Energy conservation bill passed by the Parliament.

2001Draft central government Electricity Bill prepared and introduced in the Parliament

Till December2002

Establishment of independent regulatory commissions in 21 states.

Source: Authors compilation

5.4. Reform Mandate

5.4.1. Establishment of Regulatory Commissions:-In 1996,the central government, along with the state governments, decided onthe Common Minimum National Action Plan to initiate steps toimprove the performance of the sector at the central and state level.Accordingly, the central government passed the legislation enablingthe setting up of independent and autonomous regulatory bodies at the

central and the state levels in July 1998. Broadly, the roles of theseregulatory commissions as envisaged in the ERC (ElectricityRegulatory Commission) Act, 1998 are (i) Setting retail tariffs (ii)Gradual elimination of cross-subsidy at improving efficiency levels(iii) Setting performance standards in the supply of electricity (iv)Setting performance standards in the promotion of efficient use ofelectricity by consumers (v) Promotion of competition (vi) Creationof a conducive environment for private sector participation.

5.4.2. Cost of supply and tariff:-

The regulatory commissions in India have been mandated to phaseout the cross-subsidies in tariff. The ERC Act, 1998 stipulates thattariff should progressively reflect the cost of supply of electricity.However, the Act does not clearly define a path or time frame toachieve tariff alignment, nor does it mandate any lifeline or

subsidized rates for the poor.


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The Electricity Act (2003) mandates a national electricity policy. Thedraft tariff policy, however, does not address key issues such as thetime frame for the elimination of cross subsides and effectivemechanisms for delivering support to the targeted consumers.

5.4.3. Efficiency improvements through reduction in T&D

losses:-The link between T&D losses and electricity access for the poor isindirect but important.

In India, a large part of electricity loss is due to pilferage byresidential, commercial, and low-voltage industrial customers.Agricultural and poor residential consumers are not metered and oftenthe consumption by these categories is inflated to mask theoperational inefficiencies and high distribution losses. Thus, actualavailability and consumption of electricity by these categories islower than what the statistics would imply. The reform mandaterequires reduction in T&D losses but does not specify any means forachieving this reduction such as 100% metering and curbing of theftsand pilferage. The ElectricityAct (2003) addresses this lacuna to some extent by provides for

penalties for power theft.

5.4.4. Government support

The reform mandates that if the state government wants to subsidize

some consumers, then it would bear the burden through budgetarysupport and fully compensate the utility for the same. This requiressmooth communication and co-ordination between the stategovernment, the utility, and the commission. Sometimes the decisionof the government, regarding the grant of subsidy has come after theissuing of the tariff order, which has ledto a partial rollback of theannounced tariff increase. Often the committed government support isnot provided. The new Electricity Act (2003) addresses this by

explicitly prescribing that the government support is provided inadvance.


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5.5. Rural electrification in India

The Rural Electrification Corporation (REC) provides financialassistance to SEBs, state power corporations, electricity departmentsof the state governments and rural electric co-operatives for variousrural electrification schemes. Setting up of REC has definitely actedas a catalyst for rural electrification in India. Of the 0.509 millionvillages electrified in the country, about 0.305 million villages have

been electrified under REC -financed schemes. Schemes financed byREC include the K J (Kutir Jyoti) scheme, Dalit Basthi scheme,

Hamlet Electrification, Pumpsets Energisation, system improvements,small generation, and Rural Electric Cooperatives. Some of theachievements of the KJ scheme of REC are discussed below.

5.5.1. Kutir Jyoti Programme

The Government of India in 1988 launched the KJ Programme89 forextending single point light connections to the households of ruralfamilies BPL (below the poverty line). Under this scheme, a one-timecost of internal wiring and service connection charges is provided byway of 100% grants by REC to the states. According to REC, till

March 2002, 4.85 million households of the BPL rural poor havebenefited under this programme and a grant of over 65.28 milliondollars has been drawn by the implementing agencies.

5.5.2. Challenges in rural electrification:-

With 78, 240 villages still awaiting electrification much needs to bedone. The overall pace of rural electrification as well as energization

of pump sets received a setback in the last reform decade. The poor


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financial health of the SEBs, increasing reluctance to move to ruralareas because of high costs and low returns is largely responsible forthis trend (Gokak, 2002). The Gokak study also points that thefinancial problem posed by the programme of rural electrification,which is subsidized, is enormous. The net subsidy after accounting foramounts received from state governments was 1,034 million dollars in1991 and increased to 4,710.87 million dollars in 19992000.In view of these problems, the Government of India has taken newinitiatives for rural electrification. This is reflected in the ElectricityAct (2003), which envisages stand-alone systems for generation anddistribution of power and decentralized management of distributionthrough Panchayats, users associations, and co-operatives or

franchisees.

6 Data Analysis6.1 Data source

The Planning Commission of the Government of India publishesannual performance reports for the SEBs on yearly basis (AnnualReport). The data used in this paper has been derived mainly fromthese annual reports. The data availability was limited to year 1996-97onwards as it was from this year onwards that the PlanningCommission of India started inclusion of the data pertaining to theelectricity departments and Union Territories like Arunachal Pradesh,Goa, Manipur, Mizoram, Nagaland, Pondicherry, Sikkim and Tripura.The choice for the cut-off year 2002 was again limited as subsequentto this year the Planning Commission and other data publishinggovernment and non-government agencies have suspended the data

publication work7 due to the changing structure of Indian powerutilities in the wake of SEBs having unbundled their structures. The

physical data for various states were obtained from the GeneralReviews published by the Central Electricity Authority, Governmentof India on yearly basis.

6.2 Input/output selection


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7 Results and Discussions:-

7.1 Overall Results

The results of Malmquist indices for the electricity utilities in eachstate are reported in Table 2. Estimations for annual performance of

all SEBs during the period of 1996-97 and 2001-02 are also presentedin Table 2 and plotted in Figs.1, 2 and 3. Table 2 shows themultiplicative decomposition of the Malmquist productivity indexinto technical efficiency change, that is movement towards the

production frontier (which Forsund, (1996) termed as the catchingup effect) and the pure technological change for the period 1996-97to2001-02. since technologies cannot be forgotten, technological shiftcan be thought to be always greater than 1 (Atkinson and Stiglitz,

1969). However, as Forsund (1996) points out, the frontier conceptbeing an empirical one, a change to a less productive technologymight involve the effect of management practice and would beinteresting to exhibit. The result in Table 2 clearly shows the positivechange in the overall electricity sector.

Numbers greater than one indicate productivity growth, while thenumbers smaller than one show regress and all SEBs shows progressas all of them has productivity index more than one. This shows that

the overall the electric utilities in India have improved productivitiessince 1996-97, and investments in this industry took place withtechnical progress.

7.2 Productivity distributions

Although Fig. 1 illustrates the annual productivity growth, how doesthe TFP index vary over this period? Getting individual information

of productivity development has its own advantages, and hence Fig 3shows the distribution of total productivity growth from 1996-97 to


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2001-02. Year 2000-01 has been significant as almost all the SEBsperformed well with positive growths and demonstrated M-indexvalues exceeding one. This may have occurred due to a wide array offactors such as:

Spillover and trickling down of the impact of the overall improvednational economy:The overall performance of the Indian economy started significantimprovements since 1998-99. The Gross Domestic Product (GDP) in1998-99 recorded a growth of 6.8 percent as against the growth rate of5 percent during 1997-98. The increase in the rate of economicgrowth was mainly due to higher growth in agriculture, electricity andtrade. After a negative growth of 1.9 percent in 1997-98, the

agricultural GDP registered a growth of 7.2 per cent in 1998-99.Electricity, gas & water supply recorded higher growths at 7.9

percent during 1998-99. The growth however marginally declinedduring the subsequent years 1999-2000 (6.4%) and during 2000-01(5.2%), but these growth figures were rather significant as thesewere estimated over the last year values, and hence a 6.4% growthover and above the 7.9% in the previous year represented a quantum

jump. (Annual Report, (2002), Planning Commission, (2001).

Plant Load Factor of Thermal Power Stations in the countryimproved during the Ninth Plan (1997-2002). It increased from a levelof 64.4% in 1996-97 to 69% in 2000-01 (Annual Report, 2002). The Electricity sector as a whole was under a process of reforms.The Electricity Regulatory Commission Act, 1998 (ERC Act 1998)was significantly introduced with proposal to distance theGovernments role from regulatory acts such as tariff determination.Also there emerged a common consensus amongst the Indian states to

initiate unbundling operations for the SEBs (MoP, 2001). It is clearfrom the yearly distribution of the TFP indices that the SEBs arehaving wide fluctuations from 1996-97 to 2001-02 duration, althoughoverall they have been able to increase their productivity but unable tomaintain their growth on yearly basis. Such fluctuations are notunusual in DEA studies, since the DEA method is much sensitive toyear-to-year changes in inputs and outputs. The case of Electricindustry is peculiar in the sense that utilities has fixed levels of capital

and often fairly fixed levels of labour endowment in the short run, but


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a fluctuating demand for their output (sales, number of consumers andnetwork length etc.) over time. If the utility is showing recession,electricity sales may fall but inputs will not change very much,leading to fall in levels of efficiency and productivity. Alternatively,if the industry has under-utilised capacity and sales boom, then

productivity levels will also rise significantly.

8. Performance Analysis of SEBs:-

Individual efficiency score of the SEBs is evaluated using DEA,Constant return to scale (CRS), results for 1996-97 and 2001-02 areshown in the Table 2. It is evident from Table 2 that Indian Electric

utilities display significant variations in efficiency levels. The totalefficiency had a mean score of 71% in the year 1996-97 which reduceto 68% for the year 2001-02. these results are very important whichshows that although SEBs has improved their productivity index buttheir average performance has reduced. For the year 2001-02 majorityof utilities (14 out of 26), lie below the average value of 68%. Threeutilities turned out to be the best practices, and all three best utilitiesare designated State Electricity Departments. Two of them, Sikkim

and Nagaland, belong to the North-Eastern India (regarded asrelatively and it is a union territory of India. The remaining 23 utilitiesexhibited varying degrees of inefficiencies. To explore the scaleeffects, the BCC formulation that assumes a variable Returns to Scale

by taking into consideration the sizes of utilities was employed. Thisformulation ensures that similar sized utilities are benchmarked andcompared with each are then calculated and shown in the Table 2. It isobserved that all the utilities, with the exception of the best practices

and the Mizorm, exhibited decreasing returns to scale (Table2) Indicating that further expansion of services may not be productiveand average productivity can be increased with smaller scale size. .This outcome supports the unbundling policy of the GoI, as envisagedin the Electricity Act 200313. Some of the States like AndhraPradesh, Delhi, Haryana, Rajasthan, Karnataka, Uttar Pradesh andMadhya Pradesh have already embarked the path of unbundlingactivities, while others must follow suit to take advantage of returns to

scale.


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Himachal Pradesh SEB has shown DEA efficient for the year 1997but performed badly in compare to other SEBs in 2002, with a scoreof 55%. The main reason evident is scale inefficiency and thus stateneed to decrease its scale of operation, thus restructuring whichadopted by the state (HP State Electricity Regulatory Commission,2005) is the move in the right direction. Thus it is clear from theanalysis that although SEBs have done productivity growth from1996-97 to 2001-02 but there is a need for induction of efficiency inthe power supply services in India. What becomes obvious from theabove analysis is the fact that there is a distinct possibility of makingsignificant savings through efficiency improvements. The resultantreduced costs may yield enough savings and finances to expand and

improve services.

9) CONCLUSION:-

The Indian economy has undergone a structural change over the pastdecade with a liberalized policy for many sectors. Liberalization firstopened up power generation for private sector participation. However,it was later realized that the private power policy for generation

projects would not succeed unless preceded by extensive reforms inthe distribution business. Thereafter, a new legislation was formedwhich paved the way for setting up of independent regulatory bodiesin the power sector. Many states also restructured and unbundled thesector through appropriate legislation. Unfortunately, electricitysector reforms in India have invariably neglected the poor. The focusof reform legislation has been more on improving financial viabilityof the ailing power sector than on improving access to electricity. The

legislation does not explicitly spell out any provisions for theextension of electricity services to the poor and the need andmechanism for subsidizing marginalized consumers. Until recently,the Indian reform legislation did not even contemplate ruralelectrification. This lacuna in the Indian reform model needs to beaddressed through appropriate policy and legislative changes to meetthe electricity needs of the large poor population of the country. It isalso important to note that electricity being a concurrent subject in

India, both the center and the states can formulate policy. This often


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makes the task of implementing reforms much more complex in caseof India as compared to Philippines where the central government hascomplete jurisdiction over organization and reform of power sector.

Nevertheless, there are valuable lessons to be learnt from Philippinesreform legislation in terms of addressing electricity needs of the poor.In contrast to the Indian reform legislation, the Philippines legislationhas provision of lifeline rates for poor and the treatment of cross-subsidy, subsidy and the expansion of network. The Act stipulates adefinite time frame for the elimination of cross-subsidy and at thesame time it ensures subsidized rates for the identified poor. ThePhilippines Act mandates expansion of electricity services to the ruralareas and compulsory levying of universal charge for meeting the

subsidy requirement for the electrification of the poor. ThePhilippines government has also embarked on an electrification plan,which aims to utilize new and renewable energy to bring electricity toremote and relatively inaccessible barangays. Indian policy-makerscan draw useful lessons from the Philippines experience to enhanceelectricity access in the country. There is need to have a legislativecommitment to address the issues of access to reliable and affordablesources of electricity. Innovative mechanisms like the provision of

lifeline rates and special functions like missionary electrification tomeet the electricity needs of the poor need to be developed.

REFERANCES:-

Alberto Gabriele. (2004). Policy alternatives in reforming energyutilities in developing countries, Energy Policy, 32, 1319-1337.


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Abbott Malcolm. (2006). The productivity and efficiency of theAustralian electricity supply industry, Energy Economics, 28, 44-454.

Annual Report on the working of state electricity boards andelectricity departments, Available at http: //planningcommission.nic/reports/generp/reports.htm

Annual Report, 2002. The working of State Electricity Boards andElectricity Departments, Planning Commission, Government of India.

Atkinson, A.B., Stiglitz, J.E., (1969). A new view of technicalchange, Econ. J. 79, 573-588.

Table 1 Average output and input values for 1996-97and 2001-02

Yer1996 Year 2002 Change

Outputs

Number of Customers (Million) 3.37 4.33 28.62%Distribution line length (circuit Kms) 192710.04 234895.23 21.89%Energy sold (Mkwh) 10121.15 12640.81 24.89%Input

Total Cost (Rs, Million) 21622.37 52642.47 143.46%

Documents

A Case Study of Monopoly Eco Term Papper1