DEBACLE IN ORISSA POWER REFORMS
The committee
constituted by the GOO on 30th May 2001 of independent experts to review the
Power Sector Reforms with the following terms of references
(a) "To examine
whether the reforms in the electricity sector have progressed on the desired
lines"
(b) If not, what corrective steps need to be taken to ensure that the
intended benefits of the reforms process flow to targeted groups.
© What can
be done to strengthen the key institutions like GRIDCO and the Orissa
Electricity Regulatory Commission.
(d) What specific steps need to be taken
to promote socially relevant objectives like Rural electrification, Energisation
of L.I. points and providing electricity to the under privileged sections of the
community
(e) Any other matter connected or incidental thereto
has
submitted its report in October 2001 drawing attention to the fact that the
state's power sector is now on the brink of a crisis and recommended that to
bring the reforms back on rails, the World Bank and the DFID who helped Orissa
initially and retained their interest in the reform, should come forward with a
package of further interim financing estimated at Rs. 3240 crores without which
there seems hardly prospect of the reform coming to fruition, otherwise it would
have its inevitable adverse impact on reform all over the country. The consumers
have not failed to provide support; they have made ample sacrifice in search of
better quality of service which has eluded them so far.
(EXCERPTS FROM REPORT OF THE COMMITTEE ON POWER SECTOR REFORMS ON ORISSA)
POST-REFORM SCENARIO :
Encouraged by the Government of
India, World Bank dictated reforms were adopted by Government of Orissa with
grants from the government of U.K. (DFID). Conceptualization of the reform and
road map of its implementation drawn by the World Bank with the active
involvement of a large number of foreign consultants. The consultants got
siphoned Rs.306 crores by mode of consultancy charges out of a total of Rs.650
crores loan provided by the WB to the government of Orissa.
Tariff revision:-Tariff revision which is required to be cost related at
efficient levels of operation is among the most difficult tasks which the
Commission has accomplished by trying to balance conflicting interests of the
utilities and different categories of consumers. This has pleased none. The
utilities are aggrieved that the tariff falls far short of revenue requirements
while the consumers, particularly those in the domestic category, bitterly
resent the tariff hikes. In the post-reform period (1996-01) there have been
five tariff revisions over and above four revisions in the immediate pre-reform
period (1992-95) made by OSEB. The tariff revision, after commencement of the
reform was done by GRIDCO. Thereafter OERC has issued four tariff orders. The
average increase in tariff were :
Year
Increase in Average Tariff
Index of increase
1991
100
1992
29.42%
129
1993
28.58%
166
1994
15.73%
193
1995
17.47%
226
1996
17.00%
264
1997
10.33%
293
1998
09.30
320
2000
03.92%
333
2001
10.23%
367
If 1991 were to be taken as the base
year, the average tariff has registered an increase of 267% at a cumulative
annual growth rate of 15.54 %.
The committee was told that
public hearings of the Commission are so conducted that even elderly persons are
required to keep standing while making their submission. A specific instance was
also given to us where a person was not permitted to take a sip of water in
course of public hearing on the ground that proper etiquette needs to be
observed as in law courts. Looking at OERC's mandate, we are convinced that far
from being just a quasi judicial body, the commission is intended to perform a
much larger role covering, inter alia, planning, promotional and advisory
functions. We expect the commission to measure up to its mandate.
GRIDCO's story is one of getting buffeted on the one hand by generation
companies and on the other by distribution companies, all of them facing serious
problems of inadequate cash realization. Asset revaluation in the case of GIDCO
from a book value of Rs.1201 crore to Rs.2395 crore, an addition of Rs. 1194
crore. Until distribution business was transferred to four distribution
companies in 1999, GRIDCO carried out both transmission and distribution
functions. Losses sustained by GRIDCO during this period are indicated below:
Rs. in Crore
1996-97
294.996
1997-98
319.116
1998-99
583.213
After transfer of distribution business to the
DISTCOs (three DISTCOs from 1.9.1999 to BSES and the fourth one from 1.9.1999 to
AES) the provisional losses suffered by GRIDCO are as follows:
Rs. in Crore
1999-2000
111.44
2000-01
87.29
We are sad to know that finalization of accounts of
the utilities is much in arrear. GRIDCO's accounts have not been finalized after
1997-98 and accounts of all the four DISTCOs since their inception are
provisional. GRIDCO's management has assured us that the accounts till 31 March
2001 would be finalized after statutory audit latest by 31st January 2002. We
expect that by that time the DISTCOs too would have their accounts certified by
the respective statutory auditors. We would also like to take the opportunity to
emphasize that in the absence of duly audited accounts there is apprehension
that large provisions may have been made for bad and doubtful debt without
adequate justification. We need hardly say that the sooner such doubts are set
at rest, the better it would be for all concerned.
Among the
major benefits expected from reform was reduction in T&D losses which had
assumed unacceptable proportion under OSEB. The World Bank's Staff Appraisal
Report (SAR) which spelt out the reform scheme and set the targets and
milestones, envisaged reduction in T&D loss from a level of 39.5% in 1996-97 to
35% in the following year, ultimately coming down to 23% by 2002-03. Keeping in
view this projection, the OERC had fixed 35% as the benchmark level of T&D loss
in the determining tariff requirement. The utilities have however, reported the
following T&D losses:
T&D Loss %
CESCO NESCO WESCO
SOUTHCO GRIDCO's Estimate of
total System loss
1996-97 52.9
44.4 42.1
45.1
49.5
1997-98 47.9
42.1 38.4
35.2
49.2
1998-99 48.6
44.6 44.6
43.7
48.6
1999-00 44.8
43.4 44.2
41.9
43.8
2000-01 44.9
44.4 43.9
42.5
43.4
In so far as billing and collection are
concerned, there has been hardly any improvement. On the other hand a
substantial decline in collection efficiency is clearly noticeable from the
following Table.
Year
Billing (Kwh) to input (Kwh)
Collection (Rs) to Billing (Rs)
1996-97
53%
84%
1997-98
57%
80%
1998-99
54%
80%
1999-00
55%
75%
2000-01
54%
77%
This needs to be reviewed in the light
of the SAR assumption of 100% collection from 1996-97.
It
has repeatedly been stated before us by consumer organisations and individuals
that even now bills received are often erroneous and what is worse is that
complaints in this regard hardly get prompt response. We were told that in
certain areas where DISTCOs have contracted out the functions of meter reading
and billing, the confusion is worse. Another general complaint is that contrary
to expectations, there is no perceptible improvement in customer care under
privatized DISTCOs.
As far as capital works for
strengthening of transmission and distribution system are concerned, the
progress is very disappointing. The SAR had envisaged a total investment in
Orissa's power sector to the extent of Rs.4,135 crores, of which not even half
was translated into-commitment. The committed amount included rs.1,442 crore (US
Dollar 350 million) from the World Bank for capital outlay to strengthen the
transmission and distribution system. Of this, the expenditure incurred till
March, 2001 by GRIDCO and DISTCOs is a total of Rs. 588 crore. It is a matter
for serious concern that there has been enormous time over-run (with inevitable
cost over-run though not qualified) in practically all schemes. What is more
disturbing is that not a single work has been completed, and no benefit realized
from this large investment out of borrowed funds, carrying heavy debt servicing
liabilities. This is so inspite of the fact that a full fledged Project
Management Unit (PMU) has been functioning all these years under the supervision
of international consultants.
Repeated Tariff hikes year after year and even
higher increase in the cost of power without any perceptible reduction of T&D
loss, improvement of collection efficiency customer care have come to
characterize the reform. Some of the major factors responsible for sharp
increase in cost were :
(a) Revaluation of assets under the transfer scheme
raised the depreciation requirement of OHPC substantially from Rs. 14.52 crores
in 1995-96 to Rs.47.75 crores in 1996-97. Higher amounts had also to be provided
towards return on equity. As a result, hydro power which constitutes close to
40% of the total power requirement of the State, registered a cost increase from
20 paise per unit in 195-96, 38 paise per unit in 1996-97 and further to 49
paise per unit in 1997-98.
(b) In the case of GRIDCO, revaluation of assets
required much higher depreciation provision, going up from Rs.54.88 crore in
1995-96 to Rs. 132.96crore in 1996-97 and progressively thereafter. Asset
revaluation resulted in larger return on Capital Base which again raised the
cost of transmission and distribution.
The Committee
observed that unlike other items of expenses which have grown by leaps and
bounds, the expenditure on repair and maintenance has fallen far short of levels
approved by OERC. This is indicative of neglect of the vital area of maintenance
so essential for achieving the objective of ensuring quality power supply.
The private sector partners of the DISTCOs, neither brought super management
skill into the companies nor did they arrange financial support by way of even
working capital for the companies. All that they gave was the fund they had
brought in for acquisition of shares at the time of privatisation. When we
pointedly asked about infusion of working capital, we were told that infusion of
capital into the DISTCOs needed to be viewed as joint responsibility of both the
partners, not the private sectorpartner alone. We find this attitude difficult
to accept, particularly having regard to the clause 8.1 in the Shareholders
Agreement executed at the time of privatisation:
The DISTCOs are in dire
need of capital, working capital in particular. Instead of using the good
offices of BSES Ltd. to secure working capital in accordance with the
Shareholders Agreements for the three DISTCOs under their control, they have
persistently defaulted in the payment for power they purchased from GRIDCO and
thereby have over exploited GRIDCO's misplaced generosity in permitting them to
use as working capital GRIDCO's dues towards sale of power. In so far as CESCO
is concerned, the situation is worse. The Shareholders Agreement in their case
clearly stipulated, among other things, that GRIDCO will provide CESCO working
capital support to the extent of Rs.174 crore beyond which it would be the
responsibility of AES, the majority shareholder to arrange for working capital.
An accommodation of Rs.174 crore was given to CSECO infurtherance of this
agreement at the time of privatization, but AES never fulfilled their part of
the obligation and were allowed to pile up unpaid power purchase bills amounting
to Rs.403 crore by the time they walked away in August 2001. We find such
prolonged acts of self inflicted impoverishment by GRIDCO rather puzzling. Now
that AES has abandoned CESCO, GRIDCO seems to be left with hardly any other
option except exploring legal remedy. However, as far as BSES DISTCOs are
concerned, we feel that the attitude of deliberate default in the payment to
GRIDCO towards purchase of power must end. BSES should make all reasonable
endeavor to bring in the requisite working capital in terms of clause 8.1 quoted
above.
The rural electrification seems to have the worst casualty of the
reform process. Even in the OSEB days this activity was considered unattractive;
a dedicated wing under the exclusive charge of a Chief Engineer had been set up
in the OSEB to keep pushing the implementation of this high priority national
programme. When OSEB was restructured and DISTCOs were privatized, the rural
electrification wing got disbanded and the focus of the rural electrification
disappeared though the programme was not given up. It was apparently left to the
DISTCOs to carry on with whatever schemes were in the pipe line. Since the
activity is commercially unattractive, DISTCOs are obviously not very
enthusiastic about rural electrification despite assurance of 100% capital
subsidy by the State.
M.Ps and M.L.As were willing to provide funds under
the local area development scheme for rural electrification works. This has not
taken off owing to disagreement of the issue of departmental charges payable to
DISTCOs who would execute such works would be unrealistic to expect the private
distribution companies to execute such works free of charge. We would recommend
that the charges for such work be kept at the minimum and considered as an
expense properly incurred for tariff purposes.
Another regrettable feature
is the utter lack of concern for utilization of potential for agricultural
pumping by productive use of electricity for rural development. In terms of
agricultural demand for power among States, Orissa is practically at the bottom.
What is worse is that the share of agriculture in the total demand for power in
the State has gone down from a meagre 6% in 1992-93 to a dismal 3% in 1999-00.
