Home >industry >energy >Rajasthan bets on private sector for power reforms

New Delhi: In a move seen as a test case for electricity distribution reforms, the Rajasthan state electricity board (SEB) has placed its bets on more private-sector participation, cutting the cost of power purchase and finance and providing 3 million new electricity connections.

The plan to be implemented over four years assumes significance, as out of the accumulated losses of around 3 trillion by the SEBs, Rajasthan alone accounts for 90,000 crore.

The state government credited with ushering in labour reforms also plans to appoint a transaction adviser for loan swaps with cheaper options by the end of July, for which six firms, including SBI Caps, Edelweiss and a consortium of Axis Bank and Capital Trust among others, have placed their bids, said Sanjay Malhotra, principal secretary, energy, Rajasthan government, in an interview on Saturday.

SEBs are laden with debt of 3.04 trillion, of which Rajasthan SEB accounts for 81,000 crore. The state government has been able to get the interest rate reduced by 0.5% by the three consortium of 27 banks, which has lent to three distribution firms—Jaipur Vidyut Vitran Nigam Ltd, Ajmer Vidyut Vitran Nigam Ltd and Jodhpur Vidyut Vitran Nigam Ltd from around 12.75%. Also, the state government has decided to take 12,000 crore of loans on its books.

SBI Caps, Edelweiss, Axis Bank and Capital Trust Ltd couldn’t be immediately reached.

Experts underline the importance of Rajasthan SEB and its domino effect on the Indian power sector. India’s energy woes have meant the country has been hard-pressed to generate enough power to keep its economic engine running at a price that makes its manufacturing competitive.

This comes in the backdrop of Prime Minister Narendra Modi’s ‘Make in India’ programme wherein special emphasis has been placed on manufacturing, in which India lags behind Asian economies such as China, to boost economic growth.

“Given the quantum of accumulated losses and outstanding debt in the power sector in Rajasthan, any serious restructuring and turnaround would come as a big relief to all stakeholders, particularly lenders and IPPs (independent power producers)," said Debasish Mishra, senior director, consulting at Deloitte Touche Tohmatsu India Pvt. Ltd.

Cash-strapped SEBs have been unwilling to procure electricity, given the low tariffs they earn for power supply, slow progress in reducing losses and higher purchase costs. According to analyst estimates, the exposure of the banking sector alone—not including non-banking financial companies—may be around 2 trillion today.

“The strategy is manifold. At the heart of this strategy is the consumer," said Malhotra.

The state government plans to implement the distribution franchisee model in Ajmer, Kota and Bharatpur this year to bring in efficiency wherein a private firm will take over the operation and maintenance of a distribution area while the ownership will remain with the government.

It also plans to implement the public-private partnership (PPP) model in Bikaner by this year. Going forward, these models will be replicated elsewhere.

“To reduce power purchase costs, we are undertaking various measures such as better scheduling, reducing unscheduled interchange (UI) power, better forecasting and use of merit order (of electricity dispatch)," Malhotra said.

UI charges is the maximum price of overdrawing power from the grid. Rajasthan has a power generation capacity of 16,235.50MW with 3,539.65MW capacity under construction and another 34,243 MW sanctioned for the 13th Plan (2017-22). The state with a per unit electricity purchase cost of 4.5 has a peak deficit of 0.3% as compared to the national average of 2.3%.

“This (SEB losses) is certainly an area of concern," said Malhotra, while adding, “Many of these losses are because people are forced to steal in the absence of an electricity connection."

To address this problem, the state government plans to provide electricity to 3 million unconnected households, including 2.5 million in rural areas under the National Democratic Alliance (NDA) government’s 24x7 electricity plan.

Mint reported on 3 July about a request for proposal (RFP) floated by the Rajasthan state government inviting bids from companies that can prepare debt restructuring plans for the state discoms. Also, a repayment crisis at the Rajasthan SEB has been temporarily averted after the utility agreed to pay a minimum pending interest to its lenders.

The Rajasthan SEB registered a loss of 16,500 crore and 13,000 crore in 2013-14 and 2014-15, respectively. “The plan is to bring it down to 10,000 crore this year," said Malhotra.

Analysts believe more is to be done.

“Apart from the reform measures such as private participation in distribution, debt restructuring, power purchase cost optimization etc., it will be critical for the utilities to receive past subsidies declared by state government but not paid. Tariffs not commensurately increasing with increase in costs and state government subsidies declared but not paid to utilities, are the two main reasons why utilities in Rajasthan have become the most indebted among all electricity utilities in the country," Deloitte’s Mishra said.

“The build-up of regulatory assets continues to be significant (i.e. estimated at 84,000 crore) for discoms in three states mainly Rajasthan, Tamil Nadu and Uttar Pradesh due to lack of tariff revision for a prolonged period and large delays in true-up of the cost variations," rating agency ICRA Ltd wrote in a 7 July report.

The NDA government is preparing a blueprint for the supply of 24x7 electricity that will include customized plans for each state and lays special emphasis on green power and energy efficiency.

The government, which has made boosting power generation a key policy priority, is looking to supply adequate power at affordable prices. Such plans have already been prepared for Andhra Pradesh and Rajasthan.

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