Report of Indian Institute of Public Administration ... - Ministry of Power

State Reports (Vol.-III)
Study on `Impact of Restructuring of SEBs’
financial and physical inputs, which could not be mobilised by the public sector alone
that the State Government decided to issue the IPP policy, mentioned earlier.
A High Level Committee on escrow cover to IPPs had recommended that the
Government, as owner of KPTCL, should not provide such cover to IPPs, and that the
process of transferring the distribution system to private ownership must be completed
expeditiously. The Committee had also recommended that all future capacity addition
in the thermal sector must come from the private sector. After carrying out several
studies, the Committee’s recommendations to encourage a total capacity addition of
about 3,500-4,000 MW from IPPs over the timeframe up to 2009-10 were approved. It
was further decided that encouragement would also be given to non-conventional and
environment-friendly sources of energy by as much as 10 per cent of the total
capacity. Further, there would be no provisions for escrow covers, or other forms of
guarantees, etc. The policy also proposed to prioritise the projects based on the given
principles and parameters including the least tariff criterion, timing, and the extent of
capacity requirement synchronised with the evacuation arrangements, on a year-toyear
basis.
The IPP policy was another major stride in the transition towards reforms in the power
sector.
RECOMMENDATIONS OF FDP CONSULTANTS
As mentioned earlier, the Government of Karnataka had appointed the consortium of
M/s CMS Cameron McKenna with Rothschild and IDFC as the Financial
Development Plan (FDP) Consultants. The consultants submitted their report on
privatisation strategy paper in October 2001. The report is very significant and takes
into account the suggestions and views expressed by the top management in the
Government, including the Steering Committee appointed to monitor the reforms. The
consultants were of the view that the privatisation of the distribution assets and
businesses by a ‘conventional’ sale to strategic investors would be limited to the urban
pockets of Karnataka, at best, Bangalore Urban, Mangalore, Hubli, Dharwad and
Belgaum, and would cover at best 33 per cent of the load and 5 per cent of the land
area. The consultants also opined that given the position of the existing low tariff
levels, the ability of consumers to bear risk through appropriate tariff increases was
limited. Based on this, the consultants proposed that the Government of Karnataka
must assume the risks, which would normally be allocated to consumers until such
time as consumers start paying cost recovery tariffs and could bear the risks allotted to
them. In other words, the Government of Karnataka was to assume many risks of the
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