Battle Lines Drawn For Picking Up Kesco Stake
When power distribution companies -- BSES, L&T-AES combine, Tata Electric Co and CESC -- submit their bids for picking up a 74 per cent stake in Kanpur Electricity Supply Co (Kesco) on Saturday, it will signal the beginning of the process of the most ambitious privatisation attempted in the power sector.
The Tatas and CESC, despite their initial doubts, are now keen on the deal. "We are already involved in UP -- we are power distributors for Greater Noida through a separate company, Noida Power Company.
Difficulties at CESC, Calcutta, are temporary and these shall soon be overcome," a CESC spokesperson asserted.
BSES and L&T-AES will resume their earlier battle (the former bagged three and the latter one area for distribution in Orissa). The recent rulings of the UP Electricity Regulatory Commission have made Kesco a far more attractive proposition than Orissa.
While the regulator raised the price of the bulk power purchase to Rs 2.15 a unit from UPPPCL, the simultaneous granting of higher tariff to be charged from the consumer by Kesco has resulted in an increase of only 4 paisa a unit, which is no deterrent.
An important gain for Kesco, which does not exist in Orissa, is the incentive granted for improvement in efficiency performance. In Orissa, the flat rate of return is 16 per cent of the equity, which is constant and there is no incentive to improve performance.
But UPERC, in order to make attractive for potential investors, has set a five-year target for improving efficiency.
If Kesco's actual performance is equal to targets set, the permitted return on capital base for that year would be the rate approved by the commission. For each 1 per cent reduction in the gap between units billed and units input beyond the target fixed , 40 per cent of the resulting additional gain in revenue shall be payable to Kesco as an additional ROR on capital base over and above the ROR to which Kesco may be eligible in that year.
Whosoever takes over will have to spend only Rs 20-30 crore for metering initially and nothing more for quite some time. Its balance sheet, as finalised by the ERC, has turned out to be fairly attractive. Total reasonable return on capital base has been placed at Rs 11.51 crore, while the net capital base is estimated at Rs 71.92 crore.
The fixed assets are valued at Rs 284 crore. The expected revenue at the current tariff is of Rs 545.42 crore. Expenditure is estimated at Rs 106.69 crore. The purchase price of energy is placed at Rs 429.89 crore for 2219 mu.