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BESCOM financials
Written By sanjayv - 19 September, 2012
Bangalore BESCOM Power Supply report Citizen Reports subsidy Finance
<!-- @page { margin: 2cm } P { margin-bottom: 0.21cm } --> This is the transcript of a facebook thread following BESCOM posting their financial statement online. They invited comments and some questions were asked by me and others which I am selectively reproducing here for all to read, with credits. My objective at posting it here is to archive elements of the conversation and hopefully, spur some constructive discussion on the topic here on praja. See full facebook discussion here.
I wish to place on record my appreciation to BESCOM for fostering this open discussion.
See the BESCOM financial statement here.
The Discussion
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PM (P Manivannan aka Mani1972): We are improving... but have a long way to go...
PM: Yes, the main reason for sharing the info was to make it transparent, and get the advantage of opinion and suggestions from public. Would have posted even if it had been a loss! We will be posting other info also, like the quantum of power purchased, sold, loss etc. Gmaccounts Tariff: please post all financial details, including the cash flow statements.
SV: Do you benchmark with other ESCOMs nationwide on financial performance (and technical , operational parameters for that matter)?
PM: It will be so good if we can do that! But, we hardly get time for all that amidst of the fire-fighting we do on daily basis! Come and be our guest for a couple of days! You will be amazed!
NM: Philosophy of public undertakings is not to make profit but provide services of good quality, necessarily they incur loss which has to be made good by Govt. which once again is pulic money colected in the form of taxes.
SB (GM F&T): Philosophy of public undertaking has undergone seesaw effect in changed scenario of of LPG environment, though the Service motto is ultimatum for BESCOM , financial viability also important for endurance of any company. We have to thank our MD sir, a true leader who is instrumental in shaping the company better and better in all area, either it be opening a counter for collection in rural area or its other end of activity i.e financial accounting. In between this two parameters there are numerous paradox has to be crossed to make the end a more satisfactory to all concerned . Thanks for overwhelming feedback/comments on financial statement of the company, we the compilers of the same feel elated because our effort for last three months with our 46 Accounts units, CMS section, Power Purchase section Company Secretary office & Statutory Auditors has shown the opening in FB and BESCOM financials to the world with so much further more to learn and unlearn.
SV and responses from SB (GM F&T) interleaved : Okay, I read through the statement and there are many questions.
What is the financial structure of BESCOM? Is it completely 100% stand-alone from the state budget.
No response
What constitutes long term liabilities at 2110 crores? Does future pension obligations come under long term liabilities? How is the pension funded?
(a) Deposit Contribution Work 103 30 58 471
b) Security Deposit from consumers 2006 85 69 704
Total 2110 16 28 175
BESCOM is remitting the amount to KPTCL&Escoms pension trust formed exclusively for pension and gratuity settlement Remittance is as per actuarial valuation and covers as per set conditions of GOK
Trade payables at 2145 crores is bills payable? That is some 66% of your net tangible assets. Isn't that a large number?
Sundry Creditors for Purchase of Power 1708 80 98 651
Creditors/Liabilities for supplies / works 294 09 19 995
Levies / fees payable to GoK 86 02 37 929
Outstanding Liability for Expenses 56 24 71 965
Payable to other 38 74 186
Total 2145 56 02 726
What is intangible assets?
It is amount paid as lease for land taken under various local authorities as lease rights
Trade receivables is 3752 crores. What does this consist of?
It is amount to be collected from various category of consumers including Government receivable, inter escom receivables etc.
Equity and liabilites is matching up with assets down to the rupee. Hard to believe. Is this some kind of accounting practice? So the assumption is that all asset values are un-depreciated?
Yes it is a due to set principles in accounting practice, it will match to the end rupee, noting extraordinary. Asset value shown in the Balance sheet is net off after depreciation as per revised VI Schedule of Companies act 1956
Gross block of Fixed assets 4351 81 30 738
Depriciation charged 1429 47 05 182
Net asset block 2922 34 25 556
And sufficient provision is made as reserve for B&D in current assets.
Where does salaries and capital expendire come in expenses? Currently revenue is some 1000 crores more than power ourchase expenditure.
Salary comes under “Employee Benefits Expense” (Item 3 under expenses) and balance of Capex is a non current item
"Profit" is 68 crores.
ya, Operating profit is Rs 68 Crores
There is a prior period expense and an Extraordinary item that is pushing the profit after depreciation and taxes to 144 crores. What are these items?
Prior period expenses /income arises due to various reason, mainly due to rate/unit for purchase of power is approved by competent authorities in the subsequent years and suitable treatment has to be accorded in accordance with event of happening. In may be higher or lower hence debit or credit in the accounts in the year of accounting .
Extraordinary item is the amount released by Government as subsidy/Grant as compensation to Escoms for various reasons and events. It is of special nature arising out of some occasions. Not a regular kind and treated as income in the year of release.
PM: @SB Wow! Even i didn't know so much! @SV is this ok? Please feel free to ask more! We will be enlightened!:)
SV: This part is very concerning. Please see trade receivables of 3752 crores. Sri Suresh Bala expanded on it as "It is amount to be collected from various category of consumers including Government receivable, inter escom receivables etc". Now, from the statement, your average monthly operational revenue is about 784 crores. So, this pending amount is about 4.78 months worth of revenue. Isn't that crazy?!! As an average consumer, if I don't pay my bill, my connection will be cut by the 22nd or so (or I will see a sticker on my door according to the new policy). How can there be so much receivables? Can you segment this amount by which are the top 5 categories of consumers or others who owe money out of this 3752 crores?
PM:Some explanation now: The first is the old arrears from the farmers (IP sets) which the government undertook to pay, when they announced free power to farmers. Second is the arrears from Rural development and panchayat Raj (RDPR) department (Rural water supply and lighting), third is from Urban local bodies. Next come BBMP, BWSSDB, Police dept etc. If we cut power, the ultimate losers are the public! We are having dialogue with them, thru the state finance department to adjust at source. But, there are issues! They do not have so much money. Because, people do not pay for water or street light in villages! Now, this will be starting of a new topic! I would suggest SV to be with us for 2-3 ORM meetings to understand it better!:)
SV: I understand what you are saying sir at a high level, even without attending ORM meetings. Maybe the meetings will give detailed insight, but I am not sure how many more meetings I should add to my life ;-). Here is how I see it... ESCOMs were carved out of erstwhile State Boards in order to have a better situation in the power sector. The erstwhile state boards were all mired in debt (and still are in states where reforms are not implemented, correct?). Now we have a situation where the ESCOMs are not able to recover their dues in time due to flawed policies. What has really changed then? Is the ESCOM functioning like a company. if you categorize these dues as NPAs, would you have a profit at all or show a huge loss? These are rhetorical questions. The situation is the result of policy decisions made by the state.
Here is what I hope to see in BESCOM (or any ESCOM's) functioning. BESCOM makes enough "profit" to cover -power purchase costs, salaries and other statutory obligations, depreciation on equipment and funds for future capital investments. That would be you self sustaining enterprise. Please don't get me wrong. I have sympathies for people at the low end of the financial spectrum. Farmers (at least some of them) get a very raw deal. But free power is an invitation to abuse. BWSSB water rates need to be adjusted to pay for the cost of power. And people who do not pay should face the consequences. If not, they will simply not pay. WHy should they, there is no incentive to. It is possible to frame policies to balance this better than the way it is being done now. Don't you agree? Sir, if things go this way, eventually, the tax payer will have ti bail out BESCOM and other ESCOMs. Not only that, in the current situation where there is a cash flow problem, BESCOM is incentivised to cut corners or "manage" Overall, this hurts the health of the electricity sector in the state and country.
PM: What you say makes sense. I agree with you. I want such debates to happen. It will lead to better policies.
PK: I have one doubt with the figure present
I just want to understand the criteria to understand when these trade receivables become bad debts or NPA
What part of trade receivables are older by an year ?
Then why not classify it as bad debt or NPA
I understand the issue of UDD and Municipalities not paying at the prescribed tariff or not agreeing to the units billed
Not having enough budgets in these departments
Some day as talks break down or we just dont receive some part of amount among trade receivables.
You have declare it as bad debt or NPA
What is criteria and how long do you wait before the use of above terms. Also do you charge interest for delayed payment for trade receivables
Is there a way to transfer this burden by adjusting these figures in PCKL books. But i believe book adjustments only transfer these figures to books in some other office so the scenario wont change.
Shiva Kumara swamy sir can you share some wisdom
GM Accounts Tarriff: Dear PK
Let me brief you the following for quarries:
• Dues from consumer is treated as bad debts after following a set procedure as per the regulations. Defaulting consumers are served with notice for clearance of outstanding arrears, failing which their supply agreement is terminated followed by issue of Forms prescribed (A,B & C) and recovery process is initiated through Revenue authorities as arrears of land revenue. Write-off process will begin in case the same cannot be recovered.
• Break up for trade receivables are older by an year :
Sundry Debtors for sale of power – Less than six months- Rs 1246.00 Crs
Sundry Debtors for sale of power – More than six months- Rs 2923.00 Crs
Inter Escoms energy Balancing - Less than six months – Rs 369.00 Crs
Inter Escoms energy Balancing - more than six months – Rs 377.00 Crs
Other Trading Activity (Receivables)- Less than six months- Rs 75.00 Crs
Other Trading Activity(Receivable) - More than six months-Rs 97.00 Crs
Total Rs 5087.00 Crs
LESS Provision for B&D debts - Rs 1335.00 Crs
Grand total Rs. 3752.00 Crs
• UDD and Municipalities pay electricity bills as per allocation of funds by the government which is less than our demand which is cause for the accumulation of arrears.
• The interest is charged as per Condition of Supply , once agreement is terminated and process of recovery starts through Revenue authorities, charging of interest is stopped.
• These kind of burden cannot be transferred to PCKL books, as it is a separate independent statutory body formed for monitoring of energy procurement activity.
SB (GM F&T): In lighter vain , Can we conclude providing power to Street Lights, Water Supply and Ip sets as “Corporate Social Responsibilities? “ . Yes or no it is a Social obligation , all corporations (Escoms)s are leading obligators of CSR of this kind, but at what cost ? will there be a end of it or should there be a end of it. How to end this. Once when the floods wiped out Mumbai transformers manned by Pvt service provider due to heavy rains, service provider made a delay tactics compelling the state government to come to rescue as social obligation with no alternative, even statutory terms will not help in such situations.
The majority of beneficiaries of society who get free power. Pay promptly for Cable Television charges fearing cable disconnection but not for power without which they cannot get entertained wholesomely, I think we have to tie up with Cable operators for collection of Revenue of domestic category so that he will be more effective. No person gets telecommunication at free cost ,rather he ends paying more in pre paid mode without knowing the actual quantum he spends, but surely he spends significant amount rather more than avg Electricity charges
May be Government should device a mechanism where it should tie up with financial institution to pay the electricity charges on behalf of UDD/TMC/CMS/TP/VP in full and accept the obligation of fulfillment of amount paid . By this it may avoid Escoms pleading with financial institutions for funds for running day to day affair because of non payment of those categories.
If collection from Domestic category and UDDs (street lights & Water supply) is recovered in full in respective months, escoms financial flow will improve to great level .
SV: @SB. As a citizen and tax payer, I view this "CSR" as abhorrent. This is an example of spreading the rot around and really comes as a result of political pandering to the electorate as well as inaction. If you hold the line and say firmly that bill has to be paid, it will. Giving something free is also a recipe for misuse, a well established fact. Take the example of IP sets and street lighting. Have you seen narrow 20 feet roads with a blazing sodium vapor lamp in Bangalore. If you talk to our corporator and ask for street lighting. His immediate response is - how many do you want? 10? 20? I will have it put! That is because there is no cost or even a model to account for these costs.
What do I mean by spreading the rot? Local bodies as the third arm of the government with financial autonomy has been clearly brought out in the 74th amendment to the constitution. 20 years later, it is still not implemented. When all accounts are finally tied to the consolidated fund of the state or state budget and the institutions are firmly within state control, fudging happens and the sickness of one organization infects the other. Take BWSSB. The estimate is that it costs more than Rs 24 per kiloliter to get Cauvery water to Bangalore. Most domestic installations pay about Rs 8 per kL on average. How will BWSSB ever pay your power bills? Additional irony is that there is enormous losses in BWSSB lines and 45% of the water is UFW (leaks and theft). Further, the people who get insufficient supply buy bad quality tanker water at Rs 60 per kL. Some very poor who get water in pots are known to pay equivalent of Rs 300 per kL. You think these very poor will not be willing to pay Rs 24 per kL if you give them metered water supply? People have even published well thought out models with slabs arranged so that the poor families can get water cheaper and middle class families pay higher cost of water to keep BWSSB solvent and functioning. But there is no political will to implement for many reasons. Net result - this situation also hurts BESCOM!
This is a political problem. What I would expect of the BESCOM and BWSSB is to speak out loud about it and let the citizens understand the implications. Propose solutions, spur debate. The citizens will have to pressure their politicians because long term, they will pay the price for this. You have taken the first step and put your financial statement on facebook. Next step is to make a brutal assessment on recoverable debts and highlight the losses. Then put out the statement showing the losses due to unrecoverable dues. Send out a press release when the fin statement is out. Let the people know how things are and why it is so.
PM: @SV I cant agree with you more!
SV: Here is a story where the TN CM is announcing a slew of measures where essentially the tax payers are swallowing a big chunk of the TNEB's debt. Is it faor to say that the effective rates of electricity paid by the tax payers of TN have retrospecitively been increased? We have to implement a way to provision any subsidy in suich a way that (a) chances of misuse are minimized and (b) ESCOMs are insulated from it. See: http://www.ndtv.com/article/view/south/268045?device=mobile
PM: @SV: I agree with you. Will be glad if we have experts to work along with us to submit such a request to the government.
SV: Unfortunately, I have no expertise in such policy matters. Criticizing is one thing. Even stating a high level wish list is easy. Nitty gritty of policy is best done by an expert who has studied how various incentives work. I can always throw in ideas, but it will be more of the so called "intelligent analysis" variety with no data to back up any approach. Maybe SP is among this policy expert category?
COMMENTS
enormous cost of fanancial indiscipline
murali772 - 20 February, 2016 - 14:14
The minister asserted that the government had taken all measures to provide power to the entire state in the coming months by purchasing power from central government (Rs 4.50 paise per unit), exchange and from other sources at Rs 5.80 per unit. The minister was addressing the media after a visit to the Sharavathi generating station on Friday afternoon along with Energy Department officials.
Speaking about the loss incurred, he said, “This is an accident. We cannot make up for this loss from elsewhere. It certainly costs a huge amount to purchase power from other sources. We have to bear with it, it is inevitable.”
For the full text of the report (emphasis added by me) in the New Indian Express, click here.
As compared to the rates cited in the report, "the newly commissioned Reliance owned Sasan UMPP bagged coal blocks by bidding to supply power at Rs 1.196/ unit" - check my post here, for that, elaborating on the reason for Delhi DISCOM's ability to lower their tariffs. I had added further as below:
Another major factor responsible for the turnaround is the ushering in of financial discipline amongst the stake-holders involved (more particularly the government), resulting out of the reversal of an earlier order by the Supreme Court, after the private players came into the picture, leading to smoother and timely cash flow between them. In contrast, the government-owned BESCOM (Bengaluru) and its sister ESCOMS put together are paying their main supplier, viz government-owned KPCL, in 402 days on an average (ie almost 13 and a half months later - 09-10 figures; they aren't any better even now).
And, financial discipline was possible in Delhi only after the private players came into the picture, and therein lie the imperatives of pursuing that route - read more here.
However, even with the lesson staring you in the face, the government refuses to look in that direction. Well, aren't the reasons obvious?
murali772 - 17 May, 2016 - 08:25
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?
idontspam - 19 September, 2012 - 14:10
Good read, good points SV
Reply to Mr. Manivannan's comment
ashfaq syed - 24 September, 2012 - 12:11
Dear Mr.Manivannan
Thanks for prompt reply
The savings in Kerala has been well documented and presented in a conference organized by BEE in New Delhi earlier this year. I have the presentation which is made by Mr. K.M. Unninathan Director of EMC Kerala who successfully executed the project. I have sent the presentation to Sanjay who would share it here soon.
Regarding the CFL vs LED, LED is still not affordable for common man. The power saving comparison is
1. Incandescent 100 watt - last 6 to 8 months (800 to 1000 hours) cost Rs.10 to 15
2. CFL 18 w -- 5 to 6 years (6000 to 8000 hours) Rs.100
3. LED 4 to 5 w - lasts 20,000+ hours Rs.600 to 800
The power savings from incandescent to CFL is significant and price is affordable but, for additional 12 to 13 w reductions for using LED, the cost is very high. Off-course the life of LED is long but, initial cost is too high for a common man to digest.
The disposal of CFL is an issue but, it is an issue for 250 Million CFLs currently being sold every year in India. It is possible to encourage proper disposal through the BESCOM unit offices. It has been suggested by BEE to have recycling bins outside BESCOM offices for the consumers to dispose CFL. Also, after the complete life of CFL, only negligible amount of mercury is left.
Yes the savings shown is a best case scenario but, even with 50% success, the savings are significant. I am aware that there was no significant savings realized in the two circles where the project was done, but, it was for different reason. Besides, there is no data captured to show the before and after scenarios.
Investment from DISCOM/GOK: The project would be same BEE Bachat Lamp Yojana, similar to kerala model where the government of Karnataka would extend loan/grant for implementation of the project and assign the implementation to nodal agency like (KREDL). The loan is paid back through the savings realized by the DISCOMS.
The nodal agency will work with the CDM Consultant/Implementation agency and complete the project in each Division/Circle of the DISCOMs in the state.
The loan/grant would be used for purchase of CFL through competitive bid.
Rs.15 would be collected from consumers which would take care of distribution expenses, CDM expenses, ICL Destruction, monitoring survey, etc.
There is Rs.3 Lakh given by BEE for awareness program per CDM Project (a CDM Project cover around 200,000 households). The BESCOM DSM campaign can be combined with this and make it an effective campaign and reduce the power consumption significantly.
Also, every power policy draft of Karnataka Government from 2010 includes the implementation of Bachat lamp Yojana as the first step towards energy efficiency in DSM. So it is not new or outside BESCOM power policy. even though there may be better programs to save power, but, this is a established program which is being implemented in many parts of the country, which is easy to implement and provides significant savings.
If you can initiate the process, I would be happy to come and do the presentation to the Power Secretary, MDs of all DISCOMs in the state and Power Ministry.
Ashfaq
UDAY - Modi govt's discom reform & restructuring programme
murali772 - 13 November, 2015 - 10:32
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.
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