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BUSINESS: POWER PRIVATISATION
Reform Unplugged
A model for other states till recently, power reforms
in Orissa have hit a road block
By Ruben Banerjee
 All's
not well and it is going to get worse. The much-admired power reforms
in Orissa have come unstuck barely six years after they were hailed as
a beacon for the rest of the country. Instead of bringing light and prosperity,
the reforms have spelt gloom, bitterness and uncertainty. Privatisation
was supposed to end the subsidy regime and stem transmission losses. So
far it has resulted only in heavy losses, unhappy consumers and acrimony
among the players.
Matters came to a head last week when AES Corporation,
the US power major that has a 49 per cent stake in the Orissa Power Generation
Company (OPGC) and a 51 per cent stake in CESCO, the distribution company
for central Orissa, threatened to pull out. Dennis Bakke, AES president
and CEO, in a terse press statement, warned of drastic measures. The message
"enough is enough" sent Orissa in a tizzy.
This is not the first time that the private
sector players have pulled the plug. In May this year, the managing director
of a power generation company switched off its generating stations to
pressurise the government-owned GRIDCO into clearing its dues. The Government
in desperation sought to bring about order by threatening to arrest the
managing director. The bad blood continues to linger.
 Foreign
power companies locking horns with state governments is nothing new. Enron's
Dabhol Power Company feud with the Maharashtra government has run on for
years. But the hostility and distrust among Orissa's power players go
a step further. The AES has initiated arbitration proceedings against
GRIDCO for non-payment of dues and has threatened to pull out of CESCO
if tariffs are not increased. With CESCO losing several crores every month
in high costs and low tariffs, the implicit message is loud and clear:
AES is not into charity and it cannot be expected to lose perennially.
The fact that the power corporations are still
in the red after six years bodes ill for the privatisation process. Orissa
was the only state to privatise distribution. Generation was partly privatised
with AES picking up a stake in OPGC. The four distribution companies-the
AES-owned CESCO and the BSEs-owned NESCO, WESCO and SOUTHCO for different
zones of the state-were to buy power from GRIDCO, collect tariffs from
the consumer and pay GRIDCO, which in turn had to pay the generating companies,
including the OPGC. All this and more was envisaged by the Orissa Electricity
Reforms Act of 1995 that saw the unbundling of the government-owned state
electricity board. But the ground situation now presents an entirely different
picture.
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"When
the distributors are defaulters, what do you do?"
R. Mishra, Director, GRIDCO
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"We
have a perception problem. But there are no easy short cuts to reforms."
D.K. Ray, Chairman, OERC
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Instead of a chain of supply and payment, it
has become a series of losses and non-payment. The distribution companies
have begun to crack the whip on consumers, disconnecting power lines in
case of non-payment. But these distribution companies themselves owe GRIDCO
around Rs 800 crore. They claim they are still in the red. AES's CESCO
owes Rs 250 crore but that has not deterred AES from initiating legal
proceedings against GRIDCO for the Rs 160 crore it owes OPGC. "When
CESCO pays us, we would square up with OPGC the next day," says GRIDCO
Chairman Priyabrata Patnaik.
While the war of attrition is on among the players
in power sector, the public is ready to retreat. The general feeling is
that the reforms have failed. "Enough is enough. It's time that the
reforms process is rolled back," declares Janardhan Pati of the CPI(M).
Angry consumers ransacked the CESCO office on learning that it is still
to pay its dues to GRIDCO despite charging higher tariffs. With reforms
making a bigger hole in the consumers pockets, the reformists are on the
defensive.
Breaking away from the subsidy regime was bound
to be painful. The Rs 250-crore annual subsidy was supposed to be offset
by cutting down on distribution losses and improving collections. But
it's not going as per plan. The private companies are defaulting on payments
to GRIDCO, which as a result is reeling under liabilities of over Rs 2,700
crore. "The power business here has grown into a very complicated
affair," admits R. Mishra, finance director of GRIDCO. "
The whole episode puts the reforms in a quandary.
If AES walks out, it will be difficult to find someone to fill the breach
in CESCO. While monthly power bills amount to Rs 52 crore, CESCO manages
to collect only Rs 40 crore. And if salaries and other administrative
costs are added, its losses mount to more than Rs 12 crore.
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POWER STRUGGLE: Reforms are losing support
as tariffs rise and consumers face the risk of disconnection. A
political protest in Bhubaneswar echoes this anger.
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Privatisation, however, has not been a total
loss. The reforms have already yielded results: Andhra Pradesh pays over
Rs 1,500 crore annually to prop up its power sector, while the Orissa
Government pays not even a rupee. Revenues also flowed in when the companies
paid several hundred crores of rupees to get licences. The stumbling block
which threatens to overturn the reforms is that the distribution companies
are unable to cover their costs. Reformists say that it would balance
out eventually when transmission losses are minimised and the collection
goes up. The immediate need is that the private players like AES must
keep their commitment of bringing in capital.
Recent developments have put a question mark
on AES's role. Even the World Bank that goaded the state onto the reforms
track has not delivered on its promise. It had foreseen a 5 per cent reduction
in transmission losses every year, but after six years losses are still
high at 43 per cent. From being a model in power sector reforms, Orissa's
experience is now a lesson on how not to go about privatising the core
sector.
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