Saturday, February 27, 2010

Ease of getting an electricity connection for business activity

"An entrepreneur would like to connect his newly built warehouse for cold meat storage to electricity. The internal wiring up to the metering point has already been completed by the electrician employed by the construction firm, and the entrepreneur would now like to obtain the final electricity connection from the local distribution utility. The electrician working for the entrepreneur estimates that the warehouse will need a 140 kVA (kiloVoltAmpere) connection. How many procedures and days will it take to release the service?"

The World Bank's Doing Business Report 2010 finds that it would take 7 procedures, 67 days and cost 504.9% of the country's GDP per capita to get the service released in India, the duration being amongst the lowest in the world. The OECD average is 4.6 procedures, 87.6 days, and 58.3% of per capita income. The methodology for calculating the procedures and costs are outlined here.

Let me list out the processes involved for release of the service in a typical electricity utility in India

1. Application at the Citizen Charter Center (single stop and immediate process)
2. Preparation of estimates by the utility and its sanction (a week)
3. Payment of the connection charges (security deposit, development charges, and service line laying charges) by the consumer on intimation.
4. Execution of the work (done either by the department or on turnkey, under utility supervision, by the customer, depending on his choice)
5. Procurement of the satisfaction certificate from the Electricity Inspector before release of the service
6. Physical release of the service by the utility staff (immediately on receipt of the certificate from Inspector)

The Citizen Charter of a typical utility specifies that the service will be released at 11 KV potential within 60 days of the receipt of the full connection charges. The sanctions are generally issued within a week of receipt of the application, thereby making the 67 days for release of such services.

The actual time taken may be much less in urban centers and in industrial areas, especially if the service lines are laid by the applicant himself. If we take the example of urban areas, as assumed by the Doing Business Survey, the typical Indian utility releases the service within 20-30 days if there is no line extension and only a transformer erection and 25-35 days if there is a small line extension work in addition to the transformer erection. Such service release conditions are mostly found in densely populated urban areas.

However, in rural areas and outskirts of cities, in the absence of network in the surroundings, a new line would have to be laid to deliver power to the consumer. Further, such network extensions can be carried out quickly in city surroundings as opposed to rural areas. It is therefore natural that the service gets released much quickly and at a cheaper cost in the urban areas. This is another example of the inherent locational advantages enjoyed by businesses in urban centers in comparison with their similarly placed counterparts in rural areas.

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