By Nageshwar Patnaik, Bhubaneswar, February 26, 2015 :

Odisha government has been the biggest beneficiary of the reform process, raking in direct and indirect benefits to the tune of Rs 13918 or say 14000 crore.

The state, which pioneered reforms in power sector with assistance from World Bank one and half decade ago, aimed at facilitating the participation of private sector and taking measures conducive to the development and management of electricity industry in an efficient economic and competitive manner.

Leave aside ploughing back the money into the sector, Rs 6700 crore by way of surpluses earned from export of over power on account of consecutively good monsoons were used to wipe out past liabilities, even those liabilities which were incurred before the distribution companies were privatized.

All this showed as if reforms were launched only to wipe out past liabilities and as a result of this short sightedness, the state more often than not gets plunged into power shortages, under-developed distribution companies, and mounting losses that threaten to spiral out of control.

It may be noted that prior to privatization, the annual subsidy support provided by the state government was to the tune of Rs 250 crore per annum. And yet, the Naveen Patnaik led government did not think it proper to invest part of the pie to accelerate the ongoing reforms process.

Immediate gains in terms of system up-gradation through infusion of World Bank Loan funds along with Upper Indravati coming on stream improved the quality of power supply leading to zero power cuts, but “sustainability” of the sector as a whole always remained a matter of grave concern, experts said.

The projections made by the World Bank on the basis of certain assumptions went horribly wrong. Industrial loads as forecasted never matured and estimates on the loss levels prevailing at that point of time were way off the mark. The variation between the forecasted and actual loss levels were more than 10% leading to inadequate cost recovery through tariffs.

In a bid to arrest the decline, in 2001, the state government appointed a Committee of Independent Experts headed by Sovan Kanungo, to suggest mid-course correction in the reforms process.

The committee amongst many suggestions, stressed upon the need for interim financing to the tune of Rs 3240 crore from the World Bank and DFID to stabilize the power sector, particularly distribution, which is the weakest link in whole power value chain.

Incidentally, four Discoms have a cumulative loss of over Rs 5000 crore of which the OERC managed CESU only accounting for about Rs 2500 crore.

The government preferred to sit over the Committee’s recommendation and did not take any pro-active measure. As a result, the power sector continues to move in spurts and starts, threatening to die down anytime.

Even then Odisha to-day continues to have one of the lowest tariff of domestic category @ Rs 2.30 per unit compared to Bihar [Rs.2.85], Jharkhand [Rs.2.40], West Bengal [Rs.4.46], Chatishgarh [Rs.2.70]. Delhi [Rs.4.00], Punjab [Rs.4.56]. The majority of the States are having Rs.3.00 and above.

Odisha is the only state to discontinue the subsidy while 13 states continue to provide subsidy to the sector.

Still worse is the fact that the state has been badly hurt by the union government’s decision to deny private electricity distribution companies in the state access to the Rs 51,577 crore earmarked for the Restructured Accelerated Power Development and Reforms Programme (RAPDRP) assistance during the 11th Plan.

In the past, three Discoms tried to raise debt and in fact got an in principle approval from Rural Electrification Corporation (REC) as a loan against hypothecation of assets for undertaking network augmentation programmes to reduce commercial losses. But neither Gridco nor the state government agreed to release assets previously hypothecated to them.

Interestingly, the assets of distribution companies are by their very nature immoveable and can neither be siphoned away nor sold stealthily. The “NTPC Bonds” continue to remain as an element of discord even after eight long years, ever since the OERC took cognizance of it. Over the years, the issue has been lost to personal biases and prejudices of individuals representing each side, while the OERC and the state government watch helplessly.

The fallout of the NTPC imbroglio is that assets of the distribution companies remain locked in hypothecation against a loan of Rs 400 crore, which in any case has got resolved through a cabinet approval of one time settlement of the NTPC dues by Gridco. The fallout is that, the distribution companies cannot even use their assets to raise loans from the market.

The impasse in the power sector continues unabated and the bubble may burst anytime derailing the whole reforms process, observers said.