PRIVATIZATION OF ORISSA
BACKGROUND
Orissa was the first state in India and also in South Asia to introduce
comprehensive reforms in its state-owne...
NEED POWER SECTOR REFORM IN ORISSA
 Orissa suffered from high transmission and distribution losses
 Inadequate accountab...
Reform Agenda
The State Government of Orissa pioneered Reform and Restructuring in
the power sector by introducing POWER S...
Reform Agenda (Continues)
 Development of an autonomous power sector regulatory agency,
the Orissa Electricity Regulatory...
O.E.R ACT 1995 & ELECTRICITY ACT 2003
OVERALL OBJECTIVES
 Restructuring Electricity Industry
 Rationalizing Generation, ...
O.E.R ACT 1995 & ELECTRICITY ACT 2003
Ensure availability of quality power to consumers at a reasonable
rates
Promote tr...
Orissa power sector reform was carried
out in two phases :-
First Phase
Two Government-owned corporate utilities were formed with
agreement ensuring full autonomy with effect from 1s...
2nd Phase
Pursuant to the Orissa Electricity Reform Rules, 1998, the Govt. of Orissa
transferred the distribution assets a...
 On 19.11.97 GRIDCO divided its distribution functions into
four geographical zones viz. Western zone, North-Eastern
Zone...
 The private companies because of their majority shareholding
were responsible for day-to-day management of the
Distribut...
Outcome
 The T&D losses that were assumed (Staff Appraisal Report of the World
Bank) to be 39.5%, were actually greater t...
Outcome (Continued)
 Tariff increase was assumed to be 16% in FY97 and 18% in FY98.
However weighted tariff increase by O...
POWER SECTOR REFORM IN ORISSA –
RESULTS – SUCCESS OR FAILURE?
 Orissa is the acknowledged pioneer in reform of the power ...
Has the Orissa Power Sector Reform
Failed?
An analysis:
The first fatal error is withdrawal of subsidy..
But that subsi...
An analysis. Contd.
 Up-valuation of Assets
 The financial condition became weak due to up-valuation of
assets by over R...
An analysis. Contd.
 Power Sector Reform has helped the State finances turn
around.
 Transitional financial support is n...
THANK YOU
Privatization of orissa
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Privatization of orissa

  1. 1. PRIVATIZATION OF ORISSA
  2. 2. BACKGROUND Orissa was the first state in India and also in South Asia to introduce comprehensive reforms in its state-owned electricity industry, including privatization of the distribution business. The reform exercise was expected to turn around the ailing power sector of the state and also serve as a model for other states to follow. However, the results have belied many expectations and raised a number of issues. These have been debated widely in various forums, including the Orissa Legislative Assembly during early 2001.
  3. 3. NEED POWER SECTOR REFORM IN ORISSA  Orissa suffered from high transmission and distribution losses  Inadequate accountability for various segments (generation, transmission, and distribution)  Poor financial performance,  Poor quality of service and manpower related issues  There was a pressing need to solve the financial problems of Orissa State Electricity Board (OSEB) and meet the projected demand of funds for investment in generation, transmission and distribution system. It was also the time when the new  National Economic Policy, 1991 was announced which envisaged liberalization and private participation in infrastructure development.
  4. 4. Reform Agenda The State Government of Orissa pioneered Reform and Restructuring in the power sector by introducing POWER SECTOR REFORM ACT, 1995, which came in to effect from 1st April 1996.  Unbundling and structural separation of generation, transmission, and distribution into separate services to be provided by separate companies  Private sector participation in the new hydroelectric generation and transmission utilities, the Grid Corporation of Orissa (GRIDCO) and the Orissa Hydro Power Corporation (OHPC)  Privatization of thermal generation and distribution  Competitive bidding for new generation
  5. 5. Reform Agenda (Continues)  Development of an autonomous power sector regulatory agency, the Orissa Electricity Regulatory Commission. The role of OERC was to: a) Take measures conducive to an efficient electricity industry in the State b) Issue license for transmission and distribution and set tariff c) Safeguard the interests of consumers d) Prevent monopolistic behavior by operators e) Reforming of electricity tariff at the bulk power, transmission, and retail levels
  6. 6. O.E.R ACT 1995 & ELECTRICITY ACT 2003 OVERALL OBJECTIVES  Restructuring Electricity Industry  Rationalizing Generation, Transmission, Distribution & Supply  Providing avenues for Private Sector Participation in the Electricity Industry  Development and Management of Electricity Industry in the State in an efficient, economic & competitive manner  Establishment of Independent Regulatory Commission  Ensure financial viability of the sector and attract investment
  7. 7. O.E.R ACT 1995 & ELECTRICITY ACT 2003 Ensure availability of quality power to consumers at a reasonable rates Promote transparency, consistency and predictability in regulated approaches and minimize regulatory risks Balancing of interest of consumers & investors ELECTRICITY ACT 2003: Trading recognized as a distinct activity Growth of power market and competition Consumer Grievance Redressal Mechanism Open Access and consumer choice Liberalization of Generation & facilitation of CGP 7
  8. 8. Orissa power sector reform was carried out in two phases :-
  9. 9. First Phase Two Government-owned corporate utilities were formed with agreement ensuring full autonomy with effect from 1st April 1996. These were:  Orissa Hydro Power Corporation (OHPC) - responsible for hydro power generation  Grid Corporation of Orissa (GRIDCO) - responsible for transmission and distribution functions
  10. 10. 2nd Phase Pursuant to the Orissa Electricity Reform Rules, 1998, the Govt. of Orissa transferred the distribution assets and properties along with personnel of GRIDCO to four distribution companies with effect from 26th November 1998. 1. CESCO, 2. NESCO, 3. WESCO and 4. SOUTHCO continued to function as affiliates of GRIDCO up to 31st March 1999.  GRIDCO disinvested 51% share to Private Sector Investors keeping a share holding 39% with it and 10% share for Employees Welfare Trust.  No asset sale had actually taken place. Assets have been assigned to respective companies.
  11. 11.  On 19.11.97 GRIDCO divided its distribution functions into four geographical zones viz. Western zone, North-Eastern Zone, Southern Zone and Central Zone.  The assets and liabilities were assigned to these Companies with an equity base for each Company.  A decision was taken at the Govt. level for privatization of the distribution system in the State through a joint sector/joint venture route, in which the proposed equity sharing will be as under :  Private Strategic Investors (PSI) : 51%  GRIDCO : 39%  Employees Trust : 10%
  12. 12.  The private companies because of their majority shareholding were responsible for day-to-day management of the Distribution Companies.  They were issued retail supply licenses by the Regulatory Commission who had also the authority to regulate their functioning as per the provisions of OER Act, 1995.  Three distribution Companies viz. WESCO, NESCO and SOUTHCO were taken over by M/s BSES of Mumbai from 01.04.99  CESCO was taken over by the AES of USA with effect from 01.09.99.  The State Govt., which was paying a subsidy to the tune of Rs. 300 Crores per year by 31.03.96 during the OSEB time, did not pay any subsidy from 01.04.96 onwards after the split up of OSEB and creation of GRIDCO and OHPC.
  13. 13. Outcome  The T&D losses that were assumed (Staff Appraisal Report of the World Bank) to be 39.5%, were actually greater than 50%. OERC based their Tariff Order considering 35% T&D losses, leading to an additional T&D loss of 15% being absorbed by GRIDCO as losses. NOTE : The higher than anticipated T&D losses are one of the most important reasons for the current situation in Orissa wherein the private distribution companies are unable to pay GRIDCO and hence have caused shadow on the overall reform exercise. The higher than assessed T&D losses were in turn on account of higher agricultural consumption, which were actually commercial losses. Non metered supply to most agriculture consumers made it impossible to estimate the true extent of the T&D losses  Even though 100% Collection Efficiency was assumed by FY98, the actual collection was 83% in FY99
  14. 14. Outcome (Continued)  Tariff increase was assumed to be 16% in FY97 and 18% in FY98. However weighted tariff increase by OERC in its two orders was less than 10% each year, with a 20 month gap between the two tariff orders  The crucial aspect of government support during the transition period was neglected, and GRIDCO was expected to break even in FY 98. Haryana and Andhra Pradesh learnt form the Orissa example and have provided for transition period support from the State government  The impact of captive power was not analyzed which took away a significant share of consumers  To make the distribution business attractive to private investors, only around Rs. 650 crores of total liabilities was passed on the four Distribution Companies while GRIDCO, the Transmission company, retained with it Rs. 1950 crores of liability in its own books, as all distribution companies were loss making undertakings
  15. 15. POWER SECTOR REFORM IN ORISSA – RESULTS – SUCCESS OR FAILURE?  Orissa is the acknowledged pioneer in reform of the power sector. The First state to  Enact an electricity reform Act  Bring about functional unbundling  Set up an electricity regulatory commission,  Privatize distribution,  Divest shares of a government generation company,  Set up a state transmission utility,  Lay down procedure and to operationalize the quasi-judicial regulatory body  Set tariff through open hearing  Set standards of service.
  16. 16. Has the Orissa Power Sector Reform Failed? An analysis: The first fatal error is withdrawal of subsidy.. But that subsidy is per se bad and that it has no place in a reform environment is a dangerous misconception. Withdrawal of subsidy and subvention at one go without evaluating the economic, political and commercial consequence was a faulty step.
  17. 17. An analysis. Contd.  Up-valuation of Assets  The financial condition became weak due to up-valuation of assets by over Rs.2000 crores  Gridco faced an enormous financial burden with empty kitty.  Private investment  The power sector reform has attracted private investment in the sector but state does not get the full benefit from such investment.  Setting up of large power plants has huge costs associated with land, water and environmental degradation, as well as rehabilitation and degradation of infrastructure like road and rail.
  18. 18. An analysis. Contd.  Power Sector Reform has helped the State finances turn around.  Transitional financial support is needed for investment in speedy operation and maintenance work.  Besides this, theft control requires pro-active involvement of State Govt. which needs to recognize the menace as the single most reason for the sickness of the industries.  Govt. of Orissa should play a very pro-active role to ensure effective functioning of Energy Police Station and Special Courts.
  19. 19. THANK YOU

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