AES (Cesco) DEMANDS SUPPORTIVE LEGISLATURE TO REDUCE MANPOWER AND UNRESTRICTED TARIFF HIKE

(Copy of letter sent from CMD, AES Orissa Distribution Private Limited to the Chief Secretary, Government of Orissa on dated 25 July 2001)

Subject: Central Electric Supply Company of Orissa (CESCO)

Dear Mr. Bagchi:

Pursuant to meetings with Honourable Chief Minister, Energy Minister, yourself anmd other representatives of the Government of Orissa I am outlining deep-rooted flaws in the regulatory, pl.olicy and administrative environment, which are the cause of the dire predicamentgs faced by CESCO in particular and other distribution companies of Orissa, in general. The scenario that has unfolded in the past twenty two months lead us to conclude that CESCO is an unviable business and it is simply impossible to run this business without an immediate and upfront correction of certain basic and obvious defects in the business model. This has also been clearly highlighted and emphasized by the World Bank in their letter and presentation dated July 5, 2001.

Steps needed to make CESCO a viable long-term business shall include the following, which are also in line with the World Bank recommendations:

1. The cost plus annual tariff regulatory regime in Orissa has resulted in CESCO tariffs which are set at levels that do not allow recovery of the energy purchase bill and business operating costs, let alone debt service and return on equity as guaranteed by the regulation. This has resulted from the regulator not recognizing the real T & D losses, unrecoverable bills, business and administrative costs, financing costs etc. The approved tariff structure repudiates regulatory intent of a cost plus reasonable returns based tariff regime. The current tariff regime has resulted in CESCO collections lagging by approximately Rs. 20 cores per month in relation to total costs, which has cumulatively accrued to approximately Rs. 400 crores dues to GRIDCO.

To structure the tariff to correspond with the intent of the regulation and allowing CESCO to operate, it is our view that the tariff will have to be increased as much as by approximately 70% from the current level immediately to cover the above-mentioned costs and returns. Moreover, multi-year tariffs with no interim regulatory approval would be imperative.

2. The current CESCO manpower stands at 8500; far exceeding the required manpower to run the business. The inflexible serve conditions inhibit management from fixing responsibilities, rationalizing organisation and staffing levels and instituting accountability.

A supportive legislature will have to be introduced by the Government to allow effective reduction in the manpower and to make crucial human resource decisions.

3. The lack of law and order support has inhibited the company from undertaking its day-to-day activities such as collection of dues and the control of the theft of electricity.

The Government will have to put in place strong legislation with effective implementation to prosecute any persons involved with the theft of electricity.

4. The World Bank funds authorized for the purpose of development of then system have not been made promptly and sufficiently available to the company in the past, causing significant delay in the implementation of improvement projects.

It is essential that the World Bank funding be directly funded to CESCO without then lengthy process of getting reimbursed for the GOO. Also, availability of Partial Risk Guarantee from the World Bank, guaranteeing the multi-year tariff agreed by the regulator, will be key to raise commercial debt, an essential source to fund distribution companies like CESCO going forward.

5. The government, including its departments and subsidiaries, currently has approximately Rs. 50 crores outstanding electricity dues with CESCO.

The Government will have to clear all its past dues and provide timely and adequate budget allocations to make prompt payments for all its electricity dues in the future.

It has to be noted that a short term resolution is not the remedy to the above stated problems. To turn around CESCO, along term commitment is necessary from the GOO to further the reforms.

We are willing to discuss any of the above issues raised by us at your convenience.

Thanking you.

Copyright © 2002 - 2004 Electricity Employees Federation of India. All Rights Reserved.
Email: info@eefi.org · Feedback · Terms and Conditions ·