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Power ministry kicks off action plan to reform distribution

Sanjay Jog  |  Mumbai 

In a bid to give a much needed boost to distribution reforms, the power ministry has launched an ambitious action plan.

It will revise Case I and Case II standard bid documents (SBDs), introduce a rating methodology of utilities to enable them get loans, provide a reform-linked interest subsidy to utilities and promote distribution franchises to reduce aggregate transmission and commercial (AT&C) losses.

These steps are crucial, as the cumulative losses of distribution companies increased sharply to Rs 1,06,347 crore as on March 31, 2010 from Rs 79,339 crore in the corresponding period of the previous year.

Besides, the gap without subsidy between the average revenue realised per unit and the average cost of supply had risen to Rs 0.86 in 2009-10 compared to Rs 0.79 in 2008-09.

The ministry has already prepared a consultation paper for revising Case I and Case II SBDs to capture factors arising out of fluctuations in fuel prices, especially during imports and a pass-through provision to consumers. The ministry would hold consultations with the stakeholders and plans to put a draft SBD on its website by April.

The revised case I and case II SBDs would be applicable for future power projects.

The government has proposed capacity addition of 100,000 megawatt during the 12th Plan period. The new bid documents would not cover those projects where the producers have entered into a power purchase agreement with distribution utilities.

For a rating methodology, the ministry has launched a process to facilitate banks and financial institutions evaluate the performance of utilities and enable them to take informed decisions while providing loans. The banks and institutions would rate utilities on the basis of reforms, including timely tariff revisions, a reduction in AT&C losses, an increase in realisation, etc.

The ministry is finalising the SBD for the appointment of a distribution franchise on the lines of Bhiwandi in Maharashtra to bring down AT&C losses.

Under Case-I bidding, a developer has to decide the location, fuel and technology for the proposed power plant, get all the requisite clearances and acquire land for the same. Here, the onus lies more on the developer than the government. In Case-II bidding, the developer has to bid on the basis of a specific location and fuel. The government facilitates the acquisition of land and clearances, and signing of power purchase agreements.

Power minister Sushilkumar Shinde told Business Standard, "Even though distribution is a state subject, the ministry is actively working with states to expedite reforms and thereby improve the financial health of distribution companies. As agreed in the meeting with states on July 13 last year, various states have launched a slew of actions, including tariff revisions by Tamil Nadu and Rajasthan."

Ashok Khurana, director general of the Association of Power Producers, emphasised the need for providing relief to projects facing problems in the wake of restrictions imposed by fuel-rich countries. "An important suggestion for a change in the SBD is that in view of fuel shortages and volatility in international commodity markets, the fuel availability and price risks cannot be taken by a project developer for 25 years. Therefore, the bidding should be based on capacity charges and efficiency of conversion," he said.

Subrat Ratho, managing director of Maharashtra State Power Generation Company, argued the revision of SBDs was necessary. "However, as far as the existing contracts are concerned an appropriate solution has to be found, which does not violate the sanctity of the bidding process and terms of the tender."

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First Published: Mon, February 06 2012. 00:11 IST