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

Synopsis of State Reports (Vol.-IV)
Study on `Impact of Restructuring of SEBs’
this amount. AES provided a letter of comfort to GRIDCO promising
assistance to the CESCO management in raising funds for its working capital,
which never happened. Since M/s AES did not honour its commitment,
GRIDCO took CESCO to court for violation of escrow arrangements as
CESCO was diverting part of the amount towards payment of salaries, instead
of paying fully for the bulk supply bill. The OERC intervened and directed
CESCO to do its job of electricity distribution properly. In July 2001, AES
sought GRIDCO’S permission to sell its stake in CESCO to a third party or to
GRIDCO. However, this was against the Shareholders’ Agreement, which
provided for a lock-in period of five years ending on 31 March 2004. CESCO’s
overdues to GRIDCO have reached Rs 577 crore including the initial cash
accommodation of Rs 174 crore. AES management abandoned its
responsibility from CESCO and disappeared. OERC appointed an
Administrator to run CESCO. A similar arrangement continues till date. OERC
is trying to induct a new management and is hopeful of succeeding.
CESCO is now able to pay for the BST dues to GRIDCO. The situation will
now worsen as the OERC has revised BST upwards by 15 per cent but has not
allowed any enhancement of retail tariff.
CESCO has to take relaxation of escrow norms from GRIDCO for paying
salaries and interest on past dues. It is improving steadily, but still has a long
way to go.
5.4 LESSONS LEARNT
Post-Reform Difficulties Faced
• Upvaluation of assets by over Rs 2,000 crore (128%) resulted in increase
in BST by 24 paise per unit – cumulative financial impact Rs 590 crore.
• Unrealistic determination of distribution loss level targets in retail tariff
structuring. Retail tariff was set at 32 per cent distribution loss level
against actual loss level of 42 per cent - cumulative financial impact Rs
358 crore.
• Non-recognition of collection efficiency. Retail tariff was set without
taking AT&C losses into consideration.
• Retail tariff set with negative clear profit for seven consecutive years,
which resulted in financial sickness of DISCOMs.
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