It has argued that the franchisee model is less likely to trigger frequent tariff revisions as compared to privatisation, where companies need to raise tariff to meet capital and fuel costs. It said that while distribution companies believe that their problems can be attributed to inadequate tariff, an equally important factor was the rising distribution losses, which some utilities had camouflaged.
The Shunglu Committee has recommended that the SPV would be owned 76% by the Reserve Bank of India while Power Finance Corp and Rural Electrification Corp would hold the balance. The SPV would constitute a chairman appointed by RBI, chairmen of PFC and REC and representatives of PSU banks.
The committee has asked all public sector banks to jointly negotiate with states and their distribution utilities the final settlement amount and schedule. The committee has also recommended draw down of about 4,000 crore state guarantees by banks.
In cases where distribution utilities are unable to meet repayment liability, the SPV will purchase the liability and this would become as asset to it. According to the recommendation, the RBI would offer line of credit to the SPV to make purchases. The distribution companies would pay interest on repayment liability purchased by SPV enabling it to pay interest charges of the RBI. However, liability purchase by the SPV would be subject to state governments agreeing for regular and adequate tariff increase, an operational plan for franchising of distribution services and financial upgradation.
The committee has also proposed barring government officials from being appointed as state regulators for five years. Independent evaluation of functioning of state electricity regulators has also been proposed.
Accumulated losses of distribution utilities grew to 82,000 crore by 2010 due to a gap of about 0.60 per unit gap between average cost and average revenue. Primarily operational and management issues coupled with regulatory shortcomings are responsible for the losses.
"Regulators are often more concerned with state governments' agenda thereby compromising their statutory functions a¦ Such dilution in regulatory performance can be linked to more and more state governments increasingly placing in these positions individuals willing to follow government's wishes," the panel said.
Source- Times of India