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Shri Jayant Kawale, IAS, Secretary (Energy) Industries, Energy & Labour Department, Government of Maharashtra, Mantralaya, Mumbai 400 032.
Subject: Findings and Recommendations relating
to the viability of M/s Mula Pravara Electric Co-operative Society Limited
(MPECS)
Sir,
I am directed to refer to your letter No.
RPT-2001/CR-1080/NRG-1 dated 6th June, 2003 on the above
subject, and to forward herewith a detailed Note containing the analysis,
findings, and recommendations of the Commission on the matters in respect
of M/s Mula Pravara Electric Co-operative Society Limited (MPECS) referred
to the Commission by Government of Maharashtra, and to summarise the
Commission’s findings and recommendations as follows:
1. Efficiency of MPECS as compared to MSEB:
The Commission finds
that MPECS’s operations are more efficient than MSEB in comparable distribution
areas on key performance and service parameters such as distribution
losses, collection efficiency, average billing rates, consumer receivables,
operation & maintenance costs, and distribution transmission failure
rates.
2. Programme for improving viability.
The Commission is
of the view that a time bound improvement programme is essential for
establishing the sustained viability of MPECS.
The components and milestones for such a programme are set out
in the enclosed Note and includes inter alia, 100% metering of all consumers,
reduction of distribution losses in a defined time period, targets for
collection efficiency improvement,
and caps on employee
cost and administrative and general expenses linked with inflation.
The Commission is also of the view that, in the present economic context,
rural power supply requires some form of continuous assistance. GoM may consider providing capital subsidy
for installation of decentralized energy supply systems based on local
resources such as baggase based co-generation, biomass based power plants,
etc. by MPECS to meet its demand, which would enable self-sufficiency
and long term sustainability of its operations and reduce MPECS’s dependence
on GoM for revenue subsidies during the transition period.
3. Continuance
of MPECS, viable tariff for purchase of power from MSEB, and GoM subsidy.
Considering the
superior performance of MPECS as compared to the operations of MSEB
in similar areas, the Commission is of the view that MPECS should continue
to operate in its supply area. The
Commission explored the possibility of MPECS continuing with its present
status as a licensee or, alternatively, as a long term management contractor
for MSEB, keeping in view the provisions of the EA, 2003 and the policy
under consideration for rural electricity supply at the national and
State levels. On this basis, the three options that emerge
are as follows:
i) MPECS
to continue as licensee with transparent direct subsidy arrangements.
In this option,
keeping in view the provisions of the Electricity Act (EA), 2003, the
Commission would fix the “Fully Allocated Cost” (FAC) based Bulk Supply
Tariff (BST) at which MSEB or
its successor entities would supply electricity to MPECS. The Commission would also determine the “viable” BST on the surplus
cash revenue available towards power purchase. The difference between the FAC-based BST determined
by the Commission and the “viable tariff” would have to be paid by GoM
as subsidy to MPECS, subject to the performance parameters laid down
in the time-bound programme for efficiency
improvement. If MPECS purchases energy over and above the
permissible limit of power purchase in any specified time period, then
such purchases would be charged at FAC based BST by MSEB. Such additional costs would have to be borne and recovered by MPECS
through future efficiency improvements.
It is estimated that the requirement of subsidy from GoM under
this arrangement would be of the order of Rs.72 crores per annum, expected
to decline progressively.
ii) MPECS to continue
as licensee with creation of Regulatory Asset.
In this option,
MSEB would be directed to supply power at the “viable tariff” to MPECS
to the extent of power purchase limit as may be stipulated. The gap between FAC-based BST and the viable tariff would be treated
as a `Regulatory Asset’ in the books of MSEB (or its successor entities),
to be recovered over a period of time, from MPECS.
iii) MPECS as a Management
Contractor / Franchisee.
After considering
all factors, including the financial requirements from GoM and the efficiency
advantages of MPECS, the Commission finds the option of continuing MPECS
as only a management contractor rather than a licensee in its present
area of supply as the most tenable alternative.
All MPECS assets would be transferred to MSEB in lieu of its
current dues, and MPECS would be allowed to operate as a long-term management
contractor to MSEB or its successor entities for electricity distribution. The period of contract would be that of the
current MPECS license period and the entire arrangement would be secured
through a formal contractual agreement.
Thus, MPECS would be compensated as a management contractor,
and no BST fixation would be required.
Prima facie, this option could be implemented without resorting
to the complex revocation process under Section 19 and subsequent provisions
of the EA, 2003. The 8th
proviso to Section 14 of the Act enables the State Government to notify
a rural area for distribution of electricity, consequent upon which
the entities intending to operate in such area are exempted from requiring
a license. GoM would have to further examine the feasibility
of this recommended alternative considering, in particular, the legal
provisions. It is also to be
noted that if this option could be adopted, it would have universal
applicability while implementing GoM's study group report
on management of rural electrification.
With regards, Yours faithfully,
Secretary, MERC
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