Mseb Must Be Split Into Three: Godbole Report

The second report of the Energy Review Committee (ERC) headed by Madhav Godbole, presented on Wednesday morning to the Maharashtra government, warns that the state will incur a cumulative liability of Rs 59,000 crore over the next decade if the current payment obligations to the Enron-promoted Dabhol Power Company (DPC) and the transmission and distribution (T&D) losses of 39 per cent in the state remain unchanged.

The report recommends the unbundling of the Maharashtra State Electricity Board (MSEB) into three distinct entities through phased privatisation over seven years. Commenting on the report, Maharashtra principal secretary Vinay Mohan Lal told mediapersons in Mumbai, "The report emphasises that ultimately power should be traded like other commodities."

The Godbole report calls for tariff rationalisation (read: higher tariffs for farmers and powerlooms), a white paper on the proposed restructuring strategy, which it describes as being based on a distinct "Maharashtra Model" of power sector reforms. The committee had studied privatisation in Orissa, Rajasthan, UP, Haryana and in California.

The report states: "It is important to institute a time path for tariff rationalisation, under a multi-year regulatory regime, even before the privatisation of distribution. Similarly the privatisation of distribution could occur in a phased manner, concomitantly with the institution of vesting contracts with existing generation units."

On the generation area, the ERC has recommended that each of the major thermal generation stations of MSEB or a group thereof should be formed into a separate corporation, amounting to a total of six generation companies.

"Further the hydro-generation stations and the Uran plant should be corporatised as a single state-owned entity called the Maharashtra Power Corporation Limited (MPCL). This entity will be the nodal agency for the state share of central sector generation like the National Thermal Power Corporation (NTPC) power," the report states.

The ERC has also recommended that the funds generated through the privatisation of MSEB should be deposited in a Power Sector Reform Fund (PSRF), to be used exclusively for pursuing power reforms in the state. It also pitches for full financial and operational independence to the Maharashtra Electricity Regulatory Commission (MERC). Lal said "The report has sought full powers for the regulatory commission (MERC) and an independent status with (a levy of) one paise per unit of electricity sold in the state to be utilised to finance its operations."

Importantly, the report favours the government retaining control of transmission and system coordination over a longer period of time. This, the committee says, will "ensure fair and equitable access to these services."

In view of the natural monopoly characteristic to the transmission and system coordination services, the prices charged by this entity shall be regulated by the MERC. "Further, over time the operation and maintenance, but not the ownership of these facilities, can be handed over to the private sector in a gradual manner," the report notes.

In its report, the ERC has also stated that the successful implementation of a reform strategy calls for re-negotiation of the DPC contract in a manner that the distribution zones are brought outside the escrow cover.

Similarly the report notes: "As regards MSEB's power purchase agreement (PPA) with DPC, the committee recommends that as and when a clearer picture emerges from the ongoing renegotiations, the PPA can be dealth with in a manner similar to MSEB's agreements to purchase power from the National Thermal Power Corporation (NTPC) and be vested in the same manner as the NTPC agreements."

Judicial probe into DPC project

The coordination committee of the Democratic Front government has decided to initiate judicial enquiry into the Dabhol project. as recommended by the first Godbole committee report. The state Cabinet will subsequently ratify this decision.The terms of reference of the commission of enquiry, will be decided later.

A DPC spokesperson said,