Volume 16, Number 1 Article by D V Ramana , P K Kukde , Jagdish Sagar , Allen Eisendrath and T V S N PrasadMarch, 2004
Distribution Reforms :
D V Ramana traces the power sector reforms in Orissa, the first state in India to initiate the reform process and, by outlining a study of CESCO, a distribution company in Orissa, raises the question of cost of service-based tariff to rationalise the tariff structure and makes out a case for continued government support to the power sector.
Jagdish Sagar in his paper on Delhi privatisation deals with the lessons learned from Orissa and how the Delhi model blended the desirability of the multi year tariff with the annual tariff setting requirement of the Act. The Delhi model rests on three pillars: expectation of efficiency gains from private sector discoms, tariff increases by the regulator and very generous transitional support from the government. The privatisation effort was pushed through, combating a host of public sector ills - unnecessary subsidy, political interference, technical incompetence and thieving consumers aided by corrupt employees. This misgovernance has extracted a huge price during privatisation. Now, Sagar asks, how long will it take to reach efficiency, for consumers to be assured of good service at a good price?
Allen Eisendrath gives us a glimpse into the Karnataka distribution privatisation design. Their distribution margin concept talks of a relatively risk free base revenue, with a low guaranteed return on equity and an incentive payment for reducing the T&D losses to efficient levels. The risk is passed on to the government, which would subsidise the input power to discoms during the transition period. The challenge here is to set the loss reduction trajectory over the years and determine the Capex that is eligible for the guaranteed return. P K Kukde of Tata Power elucidates the lessons learned from Orissa and applied in the Delhi transaction. The main feature is the shift from asset based valuation of the SEB, for which reliable data is a problem, to a business valuation based on the revenue stream.
T V S N Prasad of Central Discom, Andhra Pradesh, demonstrates how IT enablement could be effectively used to disempower colluding staff without confronting them and thus bring down the losses. It also appears easier to control technical losses than non-technical ones by improving the HT to LT ratio and having a larger number of smaller capacity transformers to improve voltage levels and thus lower losses.
Reprint No 04105c
