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Power distribution reforms in Karnataka -- Consultants told to revise interim report

C.Shivkumar

BANGALORE, Sept. 2

THE Karnataka Government has differed with the interim report of the consultants on reforming the electricity distribution sector in the State.

Sources said here that the State Government had asked the consultants to revise their interim report. The financial restructuring and valuation of distribution circles for corporatisation and privatisation have been assigned to a consortium comprising C ameroon Mckenna, Rothschild and Deloitte. The consultants final report is expected only by next year.

These consultants had in their interim report, sources said, had said that only three distribution circles were financially viable. The distribution circles identified as financially viable include_ Bangalore Urban, Mysore Urban and the Mangalore Urban c ircles. These three circles account for the highest high tension load in the State. of the 80-lakh electricity consumers in the State , Bangalore accounted for 20 lakh, Mysore accounted for 5.5 lakh and Mangalore about 5.1 lakh consumers. Most of the hig h quality consumers, industrial load and high tensions consumers are located in these regions.

These zones, which also have very low transmission and distribution losses accounted for the bulk of the revenues of the State owned utilities. These losses which included both technical and non technical losses are hardly above 14 per cent in these reg ions, the sources said. These figures are way below the average of 35 per cent for the entire State and comparable to zones like Mumbai. Consequently consultants, they said, had inferred the three zones would be automatically be viable for corporatisatio n and privatisation.

This is contrary to the assessment by the government , which has been trying to carve up the entire Karnataka into five distribution circles through blending of both high revenue and low circles. This is expected to be done as a prelude to corporatisatio n and eventual divestment.

The sources said that simultaneous divestment or privatisation of all the circles was not possible. Instead in some of the corporatised circles, the State Government was keen to carry out changes only in the managements. This was because even after blen ding these DisCos are expected to remain financially weak. The change in management of the weak circles would be intended to make the distribution entities self sustaining. Subsidy demands would be restricted only to DisCos which have high levels of agri cultural load.

Divestment in these financially weak DisCos was expected to be done only after complete rehabilitation, they added. Consequently the initial round of any complete privatisation is expected to be done only in the high revenue circle and allow for creation of the first distribution company in the State, the sources said.

The State Government has also indicated that it would not be averse to the idea of a differential method of asset separation for the distribution companies. This would imply that for some of the low revenue, high loss circles, asset separation from the integrated utility could be done at a depreciated value. This would allow for keeping the tariffs low in these circles and promote rehabilitation of the circles from a deficit to a surplus circle. But this method of asset separation would be carried out only to those distribution companies where the equity would be Government owned supported by private managements. However, for the more profitable distribution circles, mainly DisCos created for urban centres, the asset separation is expected to be done on the basis of a replacement cost value though this would mean slightly higher tariffs.