Blueprint For Overhaul Of Power Distribution Ready

A high-powered committee has recommended sweeping reforms in power distribution, including complete corporatisation of the existing distribution system and a shift towards performance-linked return on investment.

The one-man S J Coehlo committee, which was constituted by the Union power ministry last August, has also questioned the viability of the Orissa power distribution model. Coehlo a former chairman of the Gujarat State Electricity Board and a present member of the NTPC board has listed eight models for states which wish to revamp their existing distribution system.

The committee recognises the need to break up the existing state electricity boards distribution system into manageable distribution zones. It adds that it is essential to covert the existing distribution system into corporate units which could lend themselves more conveniently to the transition from public to private sector ownership.

 

The committee has also suggested that it is essential to adopt an efficiency-based criterion for returns to the private sector, against a cost-plus approach. Under the existing guidelines, a licensee faces a cap on profits (five per cent over the bank rate), while this suggestion implies that the returns should be linked to the efficiency of the operator.

The committee has also recommended institution of a regulatory authority to set the technical and financial parameters for performance, to frame guidelines for tariff fixation, to evolve a schedule for the private sectors participation in the transition and to ensure transparency in the restructuring exercise.

The eight models that the committee has suggested for the states to adopt include:

n Expanding the area under the existing licensees

n Contracting of services

n Management contract

n Distribution by municipal undertakings

n Joint ventures

n Linking independent power producers (IPPs) and distribution licensees

n Outright sale through a licensee arrangement

n Distribution co-operatives

Each model has been scrutinised by the committee, which has specified that there are no standard solutions to the problem of restructuring the industry. However, the committee has raised doubts over the functioning of certain models like management contract, linking independent power producers and distribution licensees and outright sale through a licensee arrangement.

For instance, it points out the failure of the Orissa model (management contract) wherein the ownership is retained with the government while a private company manages an area for distribution. Even though the committee has only listed models that could be adopted by states, the report indicates that some models like joint ventures and distribution by cooperatives would be more suited to the power sector.

The former model is similar to the Rajasthan model, where the state becomes only a minority shareholder while the private sector retains control over a certain distribution zone.

The committee has also suggested various criteria for evaluating the value of existing assets. It says any valuation should arrive at an adequate capital base by which the regulator can fix adequate returns as well as a reserve price which an investor can use to evaluate the distribution business.

Interestingly, it has sought a limited role for the power ministry as distribution is within the operational jurisdiction of states. It says the Centre should only provide guidance and support on a coordinated basis, which would enable the states to improve the viability and quality of supply.

COELHO PALLIATIVE

l Move to perfomance-linked return on investment

l Corporatise existing distribution system

l Disaggregate existing distribution system into viable distribution zones

l Create a regulatory body to oversee distribution

l Set out a timetable for the transition process