A draft on State Electricity Distribution Responsibility Bill prepared by the Forum of Regulators (FOR) proposes casting responsibility on the state government for taking measures enabling the financial turnaround of distribution licensees.
Besides, it envisages power purchase planning and procurement in short, medium and long term by distribution licensee with the approval of the state electricity regulatory commission (SERC), time bound programme for loss reduction, establishment of special courts to tackle theft and greater autonomy to the state distribution licensee.
The draft legislation was prepared by FOR through its consultants as desired by the power ministry. FOR is a representative body of power regulators. FOR chairman Pramod Deo, who also heads the Central Electricity Regulatory Commission told Business Standard "The draft came up for discussion at FOR's meeting held last month in Srinagar."
A power ministry official informed that ultimately states will enact legislation as the financial viability of distribution licensees is quite crucial for the power sector.
The draft legislation has been formulated at a time when the Centre has launched scheme for financial restructuring of state owned distribution companies for their financial turnaround and ensure their long term viability. The cumulative losses of the distribution utilities surged to Rs 1.90 lakh crore as of March 2011 from from Rs1.22 lakh crore in 2009-10.
The draft legislation proposes advance payment of annual budgetary provision for subsidy by state government to the distribution licensee and payment of past government dues and budgetary provision for payment of charge for electricity supplied to various government departments.
The draft legislation suggests operationalization of financial restructuring plan of state distribution companies and notifying action plan to undertake financial liabilities of the latter. According to the draft, the financial liabilities need to be in accordance with the space available in the state Fiscal Responsibility & Budget Management (FRBM) limit.
Further, the financial liability taken over by the state government won't be adjusted as loan to the state distribution licensee and FRP will be made a part of the state budget statements for monitoring of its impact on state finances.
Furthermore, draft legislation notes that future borrowings by distribution companies will be against verifiable physical assets and not for funding operational loss.
As far as corporate governance is concerned, the board of directors of state distribution licensee will be an optimum combination of functional and independent directors. Besides,a code of conduct for all board of directors and senior management will be put in place.
On regulatory compliance, the distribution licensee will have to be regular and timely in the filing of true up petition, annual revenue requirement and tariff petitions at the state electricity regulatory commission.
The draft legislation suggests formation of a committee comprising the chief secretary or finance secretary, power secretary, head of the distribution and representatives of nodal bank and three major lenders for monitoring of the effective implementation.
Source- Business Standard