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A Presentation on Experience of Privatisation of Distribution Licensee in Odisha

A presentation on the structural evolutions and experiences of the privatisation of electricity distribution in Odisha, along with the revocation of distribution licenses for CESCO, WESCO, NESCO, and SOUTHCO.

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A Presentation on Experience of Privatisation of Distribution Licensee in Odisha

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  1. ODISHA ELECTRICITY REGULATORY COMMISSION Together, let us light up our lives. A Presentation on Experience of Privatisation of Distribution Licensee in Odisha 1

  2. Structural Evolutions Pre-Reform Reform Structure up to 31.03.99 • Orissa was the pioneering State to usher in reforms in the power sector. It envisaged unbundling of Generation, Transmission & Distribution and Privatisation of distribution functions. • OHPC and GRIDCO were formed with effect from 1.4.1996. Orissa State Electricity Board (Vertically-integrated) OHPC OPGC NTPC IPP1 IPP2 Generation GRIDCO (Transmission and Bulk Supply) Transmission GRIDCO Owned Distribution Companies Distribution and Retail Supply D1 D4 D2 D3 C C C C C C C C C C C

  3. Present Industry Structure • OPGC functioned as a State owned generating company from 14.11.1984. This corporation is in charge of the 2 X 210 MW Thermal units at Ib Valley. • OHPC in charge of Hydro plants. • GRIDCO in charge of transmission line, bulk supply and distribution. • From 26.11.1998 four distribution companies were formed and started functioning as wholly owned companies of GRIDCO. DISCOMs were privatised as on 1.4.1999. • OPTCL was formed on 09.06.2005 for carrying out transmission and SLDC Business. • SLDC was Ring fenced and its revenue requirement and charges separated from transmission charges of OPTCL. Details of reforms provided in the annexure

  4. Revocation of Distribution Licence - CESCO • In 2001, the AES-led consortium abandoned the management of CESCO. GRIDCO filed a petition before OERC on 04.08.2001 alleging that CESCO, the distribution and retail supply licensee in the area of the Central Zone in the State whose controlling shareholders were , AES Orissa Distribution Company Pvt Ltd and Jyoti Structures Limited had not taken appropriate steps to maintain the supply of electricity to the consumers in the area of supply. • After hearing the parties, followed by certain circumstances which were considered to threaten the supply of electricity to the consumers in CESCO’s supply area, a nominated officer of State Government was appointed by OERC through Order dated 27.8.2001 in Case No. 39/2001 • The nominated officer was responsible for taking over the management and control of CESCO and manage the electricity supply activities in the CESCO area till further orders.

  5. Revocation of Distribution Licence - CESCO • Thereafter, OERC initiated proceedings and asked to commit a comprehensive business plan to bail out the company from recurring financial deficits in order to avoid revocation of its license. • CESCO then submitted a revised business plan on 18 November 2004, which was however deemed inadequate by the stakeholders and OERC in discharging CESCO’s obligations as a licensed business. • CESCO’s license was subsequently revoked under section 19 of the Electricity Act, 2003 (the Act), with effect from 01.04.2005 and on 18.04.2005 OERC appointed Chief Executive Officer (CEO) and Administrator to discharge the licensed activity as per the provisions under Section 20[d] of the Act. • OERC made an attempt to attract private participation) by selling 51% ownership of the utility through a competitive bidding process, in accordance with sections 20 and 24 of the Act,.

  6. Revocation of Distribution Licence - CESCO • However, despite the OERC’s best efforts, the sale process could not succeed. OERC then vide order dated 08.09.2006, formulated a Scheme under section 22 of the Act for operation and management of the CZDRSU. • This Scheme was named the Central Electricity Supply Utility of Odisha (Operation and Management) Scheme, 2006. The tenure of the Scheme was initially two years, but it has been further extended periodically by the Commission and the Scheme now extend upto 7th September 2019. • Under the provisions of the Scheme, all assets, liabilities, rights, proceedings and manpower as well as the license for distribution and supply of electricity held by CESCO has been vested in Central Electricity Supply Utility of Odisha (CESU) and it has been authorized to carry out the business of distribution of electricity in accordance with license conditions in respect of area assigned to CESCO. • CESU continues to operate in the assigned area with directions of the OERC issued from time to time.

  7. Revocation of Distribution Licence - WESCO, NESCO and SOUTHCO • Action for suspension of licences of the DISCOMs WESCO, NESCO and SOUTHCO was initiated in the year 2005 by the Commission. • The Commission on 27.01.2006 passed an order and gave opinion that the distribution licensees are unable to discharge the functions or perform the duties imposed on them by or under the provisions of the Electricity Act, 2003 and have persistently defaulted in complying with the directions given by the Commission under the said Act. • Commission ordered that notice be issued in terms of the Proviso to S.24(1) of the Electricity Act, • Commission appointed Special Officers to oversee the operation of the three distribution companies and to file a status report on the activities and management of the three distribution companies. • Three Special Officers assumed the offices of respective DISCOMs

  8. Revocation of Distribution Licence - WESCO, NESCO and SOUTHCO • The three DISCOMs preferred appeal before the ATE against such order of the Commission • ATE in their interim order dtd.2nd June, 2006 placed the entire day today management, affairs, control, finance, man power at the command, management, administration and control of Special Officers appointed by that order • In pursuance to the above interim order two special officers assumed their task of managing affairs of the three distribution companies WESCO, SOUTHCO and NESCO • ATE disposed the Appeals of the three distribution companies in their order dated 13th Dec. 2006 by allowing the appeal and revoked the orders appointing Special officers by them. • ATE further observed that if the Commission proposes to continue or initiate fresh action under Section 24 of the Electricity Act 2003, it is always open to the Commission to act strictly in accordance with Section 24 and follow the procedure prescribed therein

  9. Revocation of Distribution Licence - WESCO, NESCO and SOUTHCO • The Hon’ble Supreme Court in its order dated 05.01.2009 upheld the action of the Commission for initiating and proceeding with the matter relating to suspension of the licence under Section 24(1) of the Act. The order of Hon’ble ATE was quashed so far as it annulled the show cause notice issued by the Commission under Section 24(1) of the Act. • Accordingly, the Commission issued notices under Sec. 24(1) to the respondents WESCO, NESCO , SOUTHCO and R-Infra to show-cause as to why, for having not fulfilled the license conditions and failure to address the issues raised in the Commission order dated 27.01.2006, the licensee of the WESCO, NESCO and SOUTHCO should not be cancelled

  10. Revocation of Distribution Licence - WESCO, NESCO and SOUTHCO • The commission disposed the case in it’s order dated 12.5.2011 in Case No.35/2005 and observed that • The suspension of the licenses at this stage would also give a wrong signal to the financial institutions for sanction of loan for enabling the distribution companies to arrange counter part funding • the Commission instead of suspending licenses of WESCO, NESCO & SOUTHCO directed demonstratable action towards performance • The key areas on which the Commission expected considerable improvement in performance were highlighted in para 64 of the order • In the concluding paragraph 65, the Commission observed that ‘at any time if the Commission feels that the distribution companies are not taking effective and adequate steps to reduce the loss and improve the quality of supply the Commission would be at liberty to initiate action either under Section 19 or Section 24 of the Act.

  11. Revocation of Distribution Licence - WESCO, NESCO and SOUTHCO • The Commission therefore expanded the scope action from section 24 (suspension of License) to section 19 (revocation of License) • The DISCOMs did not prefer any appeal before ATE and therefore this order of the Commission attained finality • Through the reviews and enquiries thereon to ascertain if their earlier directions in Case No. 35/2005 have been complied with by the DISCOMs or not, the Commission, was satisfied that the DISCOMs have miserably failed to improve their performance and financial health as per earlier direction, • Accordingly the Commission issued the Show Cause Notice dated 13.05.2013 for revocation of licence under Section 19 of the Electricity Act in public interest. • In pursuance of the notice mentioned above, Suo motu proceeding was initiated in Case No. 55/2013 by the Commission and Director (RA), OERC was designated to present the matter in the capacity of the Petitioner under Regulation 9(4) of the OERC (Conduct of Business) Regulations 2004, for revocation of licence.

  12. Revocation of Distribution Licence – WESCO, NESCO & SOUTHCO • The Odisha Electricity Regulatory Commission (OERC) revoked the licence granted to WESCO, NESCO and SOUTHCO under section 19 of the Electricity Act, 2003 (the Act) with effect from 04th March 2015 in order dated 04th March 2015 in Case No. 55/2013 “Suo motu proceeding under Section 19(3) of the Electricity Act, 2003 for Revocation of License of R-Infra Managed DISCOMs (NESCO, WESCO & SOUTHCO)”. • The license was revoked on following grounds:

  13. Revocation of Distribution Licence – WESCO, NESCO & SOUTHCO

  14. Revocation of Distribution Licence - WESCO, NESCO and SOUTHCO • Appointment of Administrator • The Commission, vide order dated 04th March 2015 in Case No. 55/2013 in the Matter of “Appointment of Administrator under Section 20 (d) of the Electricity Act, 2003”, • Under Section 20 (d) of the Electricity Act, 2003 as an interim arrangement the management and control of NESCO, WESCO and SOUTHCO utilities along with their assets, interests and rights were vested with Administrator (CMD, GRIDCO) in order to ensure the maintenance of continued supply of electricity

  15. Revocation of Distribution Licence - WESCO, NESCO and SOUTHCO Appellate Tribunal for Electricity Judgement - The order of OERC was challenged by the WESCO, NESCO and SOUTHCO before the ATE vide Appeal No. 64 OF 2015 & I.A. Nos. 92, 121 & 131 of 2015. The Hon’ble ATE in its order dated 21st August 2017, has stated the following: “49. In the ultimate analysis, we have no hesitation in holding that the impugned order revoking the Appellants’ licences and appointing Administrator is legal. No substantial point is raised before us, which can persuade us to set aside the impugned order.” Supreme Court Judgement The Hon’ble Supreme Court further dismissed the appeal of WESCO challenging the order of ATE in their order dated 24th November 2017.

  16. Performance of DISCOMs

  17. Average Retail Supply Tariff (RST) (in P/U)

  18. Thank You 29

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