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Feasibility & Indexation of DISCOMs Viable for Privatisation in India

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Report Summary State-wise Examination upon Financial & Operational Parameters - Examination of distribution utilities suitable for privatization under different models as per SBD

Feasibility & Indexation of DISCOMs Viable for Privatisation in India

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    Will the power of PPP put the right plug in ailing and dysfunctional power distribution utilities in India?

    With the intent of the Government of India to induce PPP in the management of power distribution companies by floating Standard Bidding Document (SBD), will it be feasible both tactically and operationally to do so remains the big question?

    The woes of power distribution companies in India is not a hidden fact and the way their operations are managed despite multiple efforts by the Government and Regulatory bodies are still witnessing rampant losses. Also, this is not a problem in specific to India only but is existing across the globe wherein inability or unwillingness to collect fees from users, political interference, and lack of managerial skills among senior staff are infecting the power distribution sector. Such operations has had a cascading impact upon the power generation with slack in investments which shall lead to a deficit in supplies eventually, given the rate of rise in demand. India has been racked by this kind of sickness for far too long then desired and perhaps therefore the GoI intends to ring in arguably some harsh and corrective measures which is nothing but increasing private participation in the sector through PPP mode. It is certain that if the Government is willing to bring in private participation with an intent bring back the utilities to first develop and then nurture good fiscal health, will not be easy.

    The reasons are many but the key one’s which cannot be ignored are the interests of the employees, the management and handling of PPA’s and obviously the role of regulators in terms of managing the players and competition in the sector. However, there are ample reasons to counter the above reasons which therefore validates the feasibility examination for discoms which potentially can undergo the privatization.

    The case of national capital Delhi has been one of the finest case studies to understand as to how and why the grappling situation of power outages in early 2000’s found a resolve in privatized utilities with profitable and sustainable business for long-term. The notable highlights for the Delhi privatization can be summarized as below (if applied and adapted wholly by the new SBD draft does offer potential to achieve successful results for the ailing discoms across the country):

    • A tripartite agreement which offered guarantee of non-retrenchment of the employees and continuance of service of employees on same terms prior to the purported transfer
    • The liability for retirement benefits of existing Delhi Vidyut Board (DVB) employees and retirees were secured in the Pension Trust Fund
    • All past liabilities and losses of DVB were not to be passed on to the successor companies. This step was done to ensure that restructured entities started with clean opening balance sheets.
    • The use of AT&C/ATC&C losses as the criteria for selection of preferred bidder for privatisation of discoms
    • The MYT framework also assured regulatory certainty for over a determined period; Government was supposed to provide for transition period support/subsidy to cushion impact of tariff shocks. For this a loan of ₹ 34.50 Billion was supposed to be given for the period of 5 year period post privatisation
    • With regards to equity 51% was supposed to be divested in Delhi.
    • The fundamental to Delhi privatisation was protection of employment and service conditions involved thereof
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