In a suo motu proceeding, the Commission headed by former bureaucrat SP Nanda, ordered the cancellation of power distribution licences of Nesco, Southco and Wesco(all Reliance Infra companies) under section 19 of the Electricity Act. In a suo motu proceeding, the Commission headed by former bureaucrat SP Nanda, ordered the cancellation of power distribution licences of Nesco, Southco and Wesco(all Reliance Infra companies) under section 19 of the Electricity Act.

The power reform that it had undertaken in late Nineties, today came a full circle after state power regulator Orissa Electricity Regulatory Commission revoked the distribution licences of three power distribution companies owned by Anil Ambani’s Reliance Infrastructure Ltd.

In a suo motu proceeding, the Commission headed by former bureaucrat SP Nanda, ordered the cancellation of power distribution licences of Nesco, Southco and Wesco(all Reliance Infra companies) under section 19 of the Electricity Act for their gross failure in raising their performance and financial health, reducing distribution loss, preventing theft of energy and running the organisation in a financially viable manner.

“One of the major objectives of the privatisation of distribution business is to run it in a viable, efficient and commercially sustainable manner. It was expected and rightly so that a private investor should be able to infuse capital to make necessary investment in network so as to reduce transmission and distribution loss. The present distribution companies took over the distribution business from 1.4.1999. Even after 15 years of operation, the licensees have consistently failed to run the enterprise in a commercially sustainable manner,” the commission said in its 93-page order.

The Commission said audited accounts the distribution companies showed huge cumulative loss in their balance sheet resulting in negative

net-worth. When the three discoms were privatised in 1999, they had infused capital of Rs 152 crore. But by 2012-13, the three discoms run by Reliance Infra had a negative net worth of Rs 2077 crore while running a loss of Rs 2424 crore. “The negative net-worths have debarred the licensees to mobilise counterpart funding by getting loans from financial institutions required for capital expenditure. Licences can be revoked if one of the conditions prescribed in Section 19 of the Act is satisfied. But in the present case which is one of the rarest of rare case where all the conditions described in Section 19 of the Act are satisfied,” it said.

OERC has now temporarily handed over the management of the three discoms to Gridco which holds 49% stake in the companies. The CMD of the State-owned Gridco would be the administrator of the distribution companies.

A pioneer in power reforms, Orissa was the first state to privatise distribution in 1999 by unbundling a loss-making Orissa State Electricity Board. The four distribution companies – NESCO, WESCO and SOUTHCO and CESCO – were privatised with US-based AES Transpower taking up majority shares in CESCO while BSES(Now Reliance Infra) got the three other discoms after international bidding. The discoms were to buy power from Gridco, collect tariffs from the consumer and pay Gridco, which in turn had to pay the generating companies. The three distribution companies are now being run by Reliance Infra after the latter took over BSES in 2003. The first setback to power reforms came in July 2001 when AES Transpower left CESCO unable to pay its power dues to Gridco. Now Orissa government manages CESCO and renamed it CESU in 2006.

The main reason is the total inability to realise costs from end users and reduce distribution loss by making necessary investment and initiating administrative reforms. Instead of reducing loss gradually over a period of nine years the loss has remained more or less constant and in some years it has increased and thus there has been no improvement.

OERC first initiated licence revocation in 2005, but the proceeding was quashed by the Appellate Tribunal for Electricity. The Supreme Court in 2009 however upheld the action of OERC. OERC however instead of penalising the discoms gave a further opportunity to improve their performance. The proceedings were renewed in May 2013 with a showcause notice under Section 19(3) of the Electricity Act, 2003 as to why their licenses would not be cancelled.

Some of the areas where the Commission faulted the discoms are –

1. Meagre investment in the ambitious CAPEX programme to reduce aggregate technical and commercial loss to improve quality of supply. Though Orissa has so far invested Rs 180 crore in the three discoms, the three companies failed to arrange counterpart funding from their own source or through borrowing due to their negative net-worth in the balance sheet.

2. The way BSES shares were transferred to Reliance Energy and the Reliance Infra without prior consent of the Commission.

3. Persistent default in payment of Bulk Supply Price to Gridco dues thereby jeopardizing the continuous power supply to the State

consumers.

4. Wilful default of escrow arrangements with GRIDCO by not collecting revenue from large chunk of consumers and depositing the same in the escrow account.

5. Failure in reducing the distribution loss. Between 2005-06 to 2013-14, the distribution losses of the companies ranged between 33 per cent and 41 per cent and hardly reduced by 2 per cent.

Energy department officials said the cancelation of licences of the Reliance Infra companies would not solve the mess in power sector. When AES left CESCO, it did not pay Rs 600 crore to Gridco towards energy bills and loan instalments. The company walked out without depositing the provident fund and pension contributions of its employees.

The State-owned Grid Corporation of Orisssa(Gridco), which would now manage the three discoms is under deep financial crisis. The four power distribution companies owe Rs 4,461.92 crore to Gridco for bulk power supply with CESU alone accounting for a due of Rs 1,856.80 crore. The three discoms run by Reliance Infrastructure have outstanding dues worth Rs 2600 crore.

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