By Nageshwar Patnaik in Bhubaneswar, November 1, 2018: Reforms in power sector in Odisha appear to have taken full circle with Odisha with two bidders in the race to acquire Central Electricity Supply Utility of Odisha (CESU). It would be the first such deal in nearly two decades in India’s power sector. This also clearly indicates that reforms in power sector to a great extent had failed in the state.

Behind the power reforms in the state is a sordid tale of mismanagement and callousness of the private sector. The Odisha model of ‘reforms’, under the prescription, guidance and supervision of the World Bank, has since been adopted by virtually every reforming State in the country.

But few realised the extent to which ‘reforms’ had vitiated Orissa’s power sector until the Kanungo Committee Report blew the whistle. The committee, set up in May 2001 by the state government to produce a scorecard of the State’s six-year-old power reform process, was headed by Sovan Kanungo, a retired bureaucrat, The committee’s report is a telling commentary on how a misconceived reform model can turn out to be a lot more damaging than no reform at all.

A quarter century has gone by and it is high time to revisit the various measures taken in the past and more importantly what needs to be done in the short term and long term to turn the sector around for the benefit of the consumers of the state. They will be willing to take up such review since data from other states and central sector are now abundantly available.

Power distribution companies have so far been the weakest link in the electricity value chain. Also, it is a test of the Naveen Patnaik led Biju Janata Dal government’s political will in attracting investments in the countdown to state assembly polls next year. The Odisha Electricity Regulatory Commission (OERC), which had failed earlier to sale of CESU, has once again initiated the sale process.

“Reform in power sector was imperative and in Odisha it was a pioneering effort and done in an effective manner initially. But subsequently, the management of distribution companies was not properly monitored. Implementation of reform in distribution sector has been sloppy and half-hearted”, says former Odisha Electricity Regulatory Commission (OERC) chairman, D K Roy, who incidentally is also a member of the CESU Sale Committee.

Odisha was the first state in the country to introduce reforms in power sector in 1993, by unbundling Orissa State Electricity Board (OSEB) into separate generation (OHPC and OPGC), transmission (Gridco) and distribution companies (Discoms).

Gridco took over transmission on April 1, 1996 and four Discoms took over distribution as Gridco subsidiaries from November 1998 after working our technical, commercial and other important aspects. The four Discoms were later privatized through international competitive bidding process by offering 51% equity to private investors.

The investors were selected on the basis of their financial and technical ability, track record and commitment to the improvement of power distribution system. Reliance Energy Ltd (formerly BSES Ltd) took over Wesco, Southco and Nesco while Cesco- the forerunner of CESU, was awarded to US utility, AES.

IN the case of CESCO, the distribution company that was controlled by AES Corporation, Gridco was to provide the working capital up to an amount of Rs.174 crores (deferred payments for power purchase), beyond which it would be the responsibility of AES. However, the Kanungo Committee found that “AES never fulfilled their part of the obligation and were allowed to pile up unpaid power purchase bills amounting to Rs.403 crores by the time they walked away in August 2001.” The committee chastised Gridco for inflicting pain on itself by continuing to supply power to CESCO despite non-payment of bills.

OERC revoked the licence in 2005. There was only one bidder in an earlier attempt to privatize CESU Odisha, forcing the process to be cancelled.

Incidentally, the state government has been the biggest beneficiary of the reform process in power sector, raking in direct and indirect benefits to the tune of Rs 14000 crore.

Leave aside ploughing back the money into the sector, Rs 6700 crore by way of surpluses earned from export of 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 tripping, 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 till two years back.

Instead of handholding in initial stages of reforms, the state government kept itself aloof from the whole process leaving it to OERC.

“In an underdeveloped state like Odisha, the OERC cannot be effective without the government support administratively and financially. As a result what has happened was lopsided progress. While impressive improvement was noticed in transmission, there was satisfactory progress in generation. But the distribution, which is a key segment in the chain, remained laggard. Now the government has taken some steps to improve in distribution field. But the results are yet to come,” Roy remarked.

However, there is some ray of hope with demand for power growing like never before. The business prospects for the private players is looking up and picking the right bidder with all essential riders to run CESU would revitalize the reforms process, Roy added.

Given the push for rural electrification, Odisha’s average power demand of 4,000 megawatts is growing and private companies can play a crucial role in galvanizing reforms process provided the state government acts in right spirit.

Energy analyst and consultant, Indian Energy Exchange, eastern region, Alekh Mallick, who is also an independent director in CESU board amply makes it clear that officials hardly learned lessons from the two decade long experiment with privatisation of Discoms.

“The basis aim of reforms was to dismantle monolithic structure of OSEB to separate entities with each one independent from any control. Never even before reforms, one person headed energy department and all other power utilities like to-day. That defeats the very purpose of reforms”, Mallick rues.

On the sale of CESU, Mallick is forthright when he says, “Initially, many private players had shown interest for the Discom. But finally, only two remained in the fray. It is rather more prudent to put conditions like time bound loss reduction, digitalization, metering and prudent technical up gradation at par with best practices before disposing off the discom failing which, reforms will once again be back to square”.