State governments have started corporatising state electricity boards (SEBs) in order to eventually divest their stakes in these undertakings.
Under the present electricity laws, states are not allowed to divest from SEBs unless the boards are converted into separate public sector corporations.
Corporatisation of SEBs requires an amendment to section five of the Electricity Supply Act, 1948. These changes have to be cleared both by the respective state legislative assemblies and Parliament.
At the state level, a bill has to be moved to corporatise the SEB. Once the bill is passed by the legislative assembly, the Centre has to move a bill in Parliament seeking amendment to the Electricity Supply Act. The state government can divest its stake in the SEB only after Parliament has approved the amendment to the Act.
The states that have taken the initiative to corporatise their respective boards include Orissa, Rajasthan, Haryana, Andhra Pradesh, Tamil Nadu, Madhya Pradesh, Gujarat and Karnataka. Orissa has already hived off its SEB into four corporations one each to handle transmission and distribution, and two to tackle generation. The Orissa administration has started its divestment exercise in the distribution and generation corporations.
The other state governments are at various stages of drafting the required bills. The bills have been completed and are awaiting final clearance in Haryana and Rajasthan.
Rajasthan plans to replace the RSEB with Rajasthan State Electricity Corp Ltd. This new corporation would assume the boards functions of generation, transmission and distribution. Rajasthan has already started its divestment exercises in power distribution, where 51 per cent will eventually be hived off to the private sector.
The entire capital of the SEBs is in the form of perpetual loans from the state governments. Therefore, one of the methods worked out for corporatisation involves conversion of all these outstanding loans into equity.
Corporatisation involves registering the respective SEBs under the Companies Act, 1956. At present, all the SEBs are registered under the Electricity Supply Act, 1948, except Karnataka Power Corp which came into existence in the early 1970s and the four power corporations of Orissa which came into being after the 1995 unbundling exercise.
The major advantage of unbundling the SEBs is that it initially improves the leverage of the generating companies with or without state government guarantees. Currently, SEBs are allowed to borrow only with the sanction of the respective state governments.
Generating companies also benefit since any losses on account of tariff revisions are faced by the distribution company, where tariffs are determined on the basis of fixed and variable costs.
For instance, Karnataka Power Corp, which is basically a generation company, has a far stronger balance sheet than the Karnataka Electricity Board, which handles distribution.
Registering SEBs under the Companies Act will allow them to freely enter the financial markets on the strength of their own balance sheets, without having to obtain state guarantees. This is expected to help the states reduce their mounting contingent liabilities.
