The Andhra Pradesh government is likely to create at least three power distribution companies by April.
Meanwhile, the state has decided not to provide escrow cover to any generation projects till the distribution companies and the new escrow structure are in place. It has already withheld the cover for the Spectrum power project which has started generation.
Based on the zones that are to be created within the state, these new distribution companies will have to be individually viable.
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State government sources said the proposal on distribution companies is pending with Chief Minister Chandrababu Naidu and would soon be placed before the state Cabinet for clearance.
The government sources, however, did not specify the number of companies that would be created to be privatised later.
After unbundling the state electricity board, the power transmission and distribution business was taken over by a new corporation called APTRANSCO while the generating business as well as assets were taken over by APGENCO.
APTRANSCO will be the holding company for the new distribution ventures to be created with either a minority equity stake in the companies or hold the entire 100 per cent equity in the distribution companies.
As compared to Orissa and Haryana, one of the crucial differences in the approach adopted by the Andhra Pradesh government is that none of the independent power producers in the state will have revenue circles assigned as escrow cover from the distribution companies. Instead, the IPPs' escrow cover will be from the APTRANSCO through a tripartite agreement between the distribution company, the transmission company and the IPP. Under this, the state owned transmission company will provide the escrow comfort to the IPP and will in turn, have an escrow agreement with the distribution company.
The valuation of these distribution companies will thereby not be effected as was the case in Orissa's central zone. The IB valley power project in the state was provided an escrow cover from the central zone thereby attracting only limited response from the private sector for the central zone.
Providing a proper load mix under the new zones will be crucial, as a predominant agricultural load in any of the zones will not be as attractive as a zone with a high agricultural load. Apart from this, sources said the state has wide variation within regions with some of the regions like along the Krishna belt being much better than that of the Telangana belt.
After the Andhra government creates the new distribution companies, it is expected to identify the number of projects that will be provided with escrow cover. This information will be crucial for the distribution companies bidding for the zones as it will determine the zonal value.
The escrow cover is crucial for projects like Hinduja-National Power promoted 1000 mw power project, the BPL promoted 500 mw Ramagundam power project, the 250 mw Jegurupadu power project , the 500 mw Krishnapatnam power project and the 500 mw Vemagiri power project. Apart from this, NTPC which is promoting the 1000 mw Simhadri power project is also in talks with the state for escrow cover.
THE RESTRUCTURING STRATEGY
* Andhra Pradesh will provide escrow cover only after the new distribution companies are in place along with a new scrow structure
* The distribution companies will have to be individually viable in their respective zones
* The prposal for creating the distribution companies is pending with the Chief Minister
* APTRANSCO will be the holding company for the distribution ventures
* Compared to Orissa and Haryana, one of the crucial difference in the approach in Andhra PRadesh is that none of the IPPs in the state will have revenue circles assigned as escrow cover from the distribution companies.
* The IPPs' escrow cover will be from the APTRANSCO through a tripartite agreement between the distribution company, the transmission company and the IPP.
* Under the agreement, the state transmission company will provide the escrow comfort to the IPP and will, in turn, have an escrow pact with the distribution company
* The government is also expected to identify the number of products that will be provided with escrow cover.