Karnataka mulls split of power firms

Govt eyes better valuation before privatisation

The Karnataka Government is working on a proposal to split its region based four electricity supply companies (ESCOMs) into smaller entities in an effort to accelerate privatisation of power distribution.

The four electricity supply companies are Bangalore Electricity Supply Company (BESCOM), Mangalore Electricity Supply Company (MESCOM), Hubli Electricity Supply Company (HESCOM), Gulbarga Electricity Supply Company (GESCOM).

According to one school of thought in the government, if ESCOMs are sliced off to service to urban and rural areas separately, the former will attract higher valuation for privatisation.

Indeed, this was the idea when the state initiated privatisation process a couple of years ago by unbundling the monolithic Karnataka Electricity Board into Karnataka Power Transmission Company Limited (KPTCL) and four electricity distribution companies.

According to a senior Energy Department official, this model is being revisited again now as Hubli and Gulbarga ESCOMs are in a bad financial shape. "Private investors will not even touch them with a bargepole, "he added.

"BESCOM might pull through and Mangalore circle might be privatised with a bit of difficulty. In an effort to go further and try to privatise more segments of distribution in the state, we are looking at breaking up these four companies into 10-15 smaller entities," the official noted.

Touching on the methodology of privatisation of ESCOMs, he said: "It is envisaged that a study by independent consultants appointed by the Electricity Regulatory Commission would be undertaken to assess the capital investment required for the network following the transfer of management of ESCOMs. However, this might take two years for the study to be completed."

In the meantime, it is being proposed that investor be allowed to make twice the current capital investment made by ESCOMs." It is further understood that the investor may invest higher amounts, but that would not be allowed to pass through tariffs for the first two years.

The official further said that if this model was accepted and given the go-ahead the privatisation process will surely be set-back by atleast one more year.

"If the Government sticks to the privatising the ESCOMs under the existing structures, we should be seeing the process being completed within a year after the new Government takes over," he noted.