With Uttar Pradesh joining the bandwagon of switching to privatisation of electricity distribution, analysts believe it will lead to a surge in investment by independent power producers (IPPs) in India.
With the focus of states turning to wooing private investment in distribution, IPPs are expected to push their projects as they can hope to sell power to profit-making companies.
Uttar Pradesh is preparing to open up three of its power distribution zones to private investment, marking it as the third state in India after Orissa and Rajasthan to experiment with privatisation.
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The motivation for the states to push for private sector involvement is the realisation that private power generation will not make headway without it. This would also help improve the distribution system ridden with rampant thefts, frequent breakdowns and wild voltage fluctuations, the analysts said.
Several power projects of IPPs are failing to get off the ground because of financial bankruptcy of state electricity boards. We had started at the wrong end, remarked power ministry secretary E A S Sarma at a meeting here organised by the Independent Power Producers Association of India. He was referring to privatisation in the power sector which began in India with generation rather than distribution.
IPPs, the analysts said, would be interested in selling power to profit-earning private distribution companies rather than to the financially-bankrupt public power utilities which at any given time owe to the suppliers over $4 billion in payment arrears for power, coal and other inputs.
A government-appointed one-man committee on `Privatisation of Distribution under S J Coelho, a former chairman of the Gujarat State Electricity Board, is now preparing guidelines for the states on attracting private capital for power distribution.
Electricity boards owned by state governments have virtual monopoly in power distribution except in Mumbai, Calcutta, Ahmedabad and Surat cities where private enterprises run the distribution system. The new initiatives by Uttar Pradesh cover both towns and rural population. The Agra, Kanpur and Moradabad zones which are being opened for private capital together have over 12 million population.
The state is drawing upon its four years of experience of private power distribution in the industrial township of Greater Noida, about 30 km from here. The Greater Noida Power Company
(GNPC) is credited with bringing about improvement in power supply in the township spread over 100 sq km.
But the three distribution zones under the state electricity board (UPSEB), being thrown open to private capital, will be a real test of the success of privatisation in Greater Noida where three per cent of the consumers belong to the industrial category.
Power tariffs for industrial consumers in the state are the highest among various power consumer groups. Analysts say the Noida experiment has succeeded because it did not take the burden of carrying on with the existing state electricity board staff.
Shankar Aggarwal, principal secretary in the states energy department, says potential investors in power distribution for 30 years will be asked to absorb 75 per cent of the existing UPSEB staff in the three zones earmarked for privatisation.
The board assets will be leased instead of sold to the investors, he adds. This will not only do away with the problems in asset transfer, but will also enable the investors to keep the power sale tariffs at low levels.
The investors will be asked to bid for tariffs for bulk purchase of power from the UPSEB for the first five-year period.
The power distribution companies will be free to purchase power from whichever source they want after this initial period.
Both Orissa and Rajasthan are going in for the joint venture route for privatisation of power distribution after their attempts to bring in private enterprises on management contracts did not succeed. l India Abroad News Service
Rajasthan found the management fees demanded by the private companies for Bharatpur and Swai Madhopur areas too high. Orissa did enter into a three-year management contract with BSES Ltd, one of the leading private power utilities, for its central zone, but the deal fell through seven months later in March last year.
Investment offers are now being awaited by the Orissa government by mid-March for 51 per cent equity in joint ventures to be formed with its power transmission and distribution company Grid Corporation of Orissa. Four joint ventures are to be put in operation by April 1999 to cover the entire state divided into four power distribution zones together handling 11 billion kwh units of power per annum.
Rajasthan is also considering offering 51 per cent equity to private investors for two joint ventures to cover the Alwar and Jodhpur areas, two of the seven power distribution zones in the state. It is willing to dilute its equity from 49 per cent to 26 per cent in three to five years.