A behemoth broken up

Published : Jul 01, 2005 00:00 IST

The Maharashtra government has unbundled the State Electricity Board into one holding company and three subsidiary companies under the pretext of making the State's power sector more efficient.


IT is light out for the Maharashtra State Electricity Board (MSEB), a one-time profit-making power utility which was perhaps one of the most efficient State-owned electricity companies in the country. Driven into the red by various factors, the financially crippled State Electricity Board (SEB) will now be split into four companies. The move has been in the pipeline for some time but it was on June 7, 2005, that the Government of Maharashtra formally announced the unbundling. While the government has ruled out the privatisation of the mammoth power company, there is a lurking suspicion among unions and power experts that the present route will eventually lead to that.

Under the provisions of the Electricity Act, 2003, the Maharashtra government unbundled the MSEB into one holding and three subsidiary companies within the June 9 deadline set by the Central government. The new entities will be the MSEB Holding Company, the Maharashtra State Generation Company, the Maharashtra State Transmission Company and the Maharashtra State Distribution Company. The Energy Minister of the State will head the holding company while the Minister of State for Energy will be its ex-officio Vice-Chairman. Managing Directors will be appointed for each of the newly formed companies. The State government has already taken over the MSEB's assets valued at Rs.24,000 crores (a figure disputed by the unions, which say it is worth Rs.80,000 crores) and begun the process of transferring them to related companies.

"The MSEB is a behemoth company. The need of the hour is to make it more efficient," says Jayant Kawale, its Chairman. "This issue has been debated for the past seven years. Two major reports on the issue have been done by expert committees and presented to the government. In addition, a White Paper was also prepared. We also had to follow the provisions of the Electricity Act, 2003. The government was committed to doing something about the Board for a while now," Kawale told Frontline. "We took a decision to restructure the MSEB in December last year, the Centre gave us time till June 9 to set the ball rolling."

In a presentation to the media about the power sector, Board officials said the main problems faced by the company were a demand-supply gap of 3,500-4,000 MW; cash losses of a whopping Rs.762 crores in 2003-2004; massive transmission and distribution losses (it was 35 per cent in 2004-2005); and 90.3 per cent lack of efficiency in collections, which is causing colossal losses. While the cost of supply is Rs.3.68 per unit, the Board collected Rs.2.97 per unit and thus absorbed the loss. To top it all, four lakh applications for agriculture connections are pending, according to the presentation.

Officials of the MSEB attribute the current problems to the absence of capacity addition in the past 10 years. There is a high level of theft with the connivance of all stakeholders. There is neither transparency nor any system of accountability within the organisation. Moreover, poor recovery mechanisms have led to a tremendous increase in arrears. Because of the recurring losses, the Board did not have the funds to invest in infrastructure, which would have enabled it to meet some of the demand.

But it was the Dabhol Power Company (DPC) that was perhaps singularly responsible for the MSEB's demise. As per the power purchase agreement between the DPC and the Maharashtra government, the MSEB was to be the only buyer of the DPC's expensive power and it was committed to paying Rs.90 crores every month to the DPC whether it needed the electricity or not. Within two years of making these monthly payments, the MSEB was crippled financially.

THE MSEB was formed 45 years ago on June 20, 1960, within a few weeks of the formation of the State of Maharashtra. Its initial power generation capacity was 760 megawatts (MW), which served about one-lakh consumers in over 853 villages and towns in the State. At that time, it earned about Rs.3.23 crores a year. Over the years, it increased its generation capacity to 14,363 MW and supplied power to 1.4-crore consumers spread across 40,687 villages and towns and its annual revenue rose to Rs.15,000 crores.

But today, the MSEB is faced with a power deficit. The deal with Dabhol put a stop to any new projects to increase its generation capacity. The new companies will not only have to make good the deficit but also are landed with the task of recovering outstanding bills totalling around Rs.8,500 crores.

THE announcement to restructure the MSEB was greeted with an uproar by MSEB workers' unions, which charged that the move was a step towards privatising the power sector in Maharashtra. But at a press conference, State Energy Minister Dilip Valse-Patil emphatically stated that privatisation was not on the cards and that it would be the "last resort". He said: "If all else fails - that includes assistance from the Centre - then they may have to opt to go private." In response to questions regarding the unsuccessful unbundling of power utilities in States such as Orissa, Valse-Patil said: "There are several models that can be followed to make power companies efficient. We in Maharashtra will aim to work out what is best for our consumers and workers."

Although the unions have been assured that there will be no retrenchment, they are sceptical. "We were not consulted on the matter. Public money has been used to build this company. I think we are entitled to a debate on the issue," says A.D. Golandaz, vice-president of the MSEB Workers' Federation. He told Frontline that the unions were united on the stand that SEBs should continue in the national interest. "These are socially sensitive sectors and should be protected by the State," says Golandaz.

Giving the example of Orissa, one of the first States to go in for the privatisation of SEBs, Golandaz said there had been minimal rural electrification in that State and power tariffs had increased by 150 to 200 per cent. Similarly, in Andhra Pradesh, which had its electricity board restructured, rural areas were completely ignored, he said.

In the past few months, the MSEB has increased load-shedding, sparking off violent protests in towns such as Pune and Nagpur. Golandaz says the State is trying to link this with the restructuring by making people believe that the days of power shortage will be over once the utility company becomes more efficient.

What is also pertinent here is the issue of valuation, says Golandaz. "The valuation of the MSEB has not been completed. Unless the worth of the company is known, who will lend it money to make it more efficient? Clearly, there is a plan here." He adds: "Through internal restructuring, the MSEB was able to reduce transmission and distribution losses by 4 per cent this year. We are confident that a solution to MSEB's problems can be worked out without splitting up."

THE decision may not be completely in the hands of the Maharashtra government. The restructuring process is part of a larger reform plan dictated by the country's new economic policy. In the economic reforms programme which started in 1991, electricity is a thrust area for improvement. The Electricity Act, 2003, was passed with the aim of reshaping the power sector in the country. The Act stipulated that power utilities must be unbundled to make them more efficient. Former bureaucrat and power expert Madhav Godbole, however, calls the Act a "halfway house" as it raises a number of new issues that are likely to pose serious problems in the coming years.

According to Golandaz, the MSEB's restructuring is a World Bank diktat. It is common knowledge that various World Bank loans come with riders such as this. Godbole says: "The driving force for the reforms is not a conviction among States that the reforms are imperative. Rather it is the allurement of large financial assistance from the World Bank, the Asian Development Bank and bilateral donors that are goading the States to show just enough progress to qualify for the release of the next instalment of aid."

It is critical for this Congress-Nationalist Congress Party government in Maharashtra to find a solution to the State's power crisis as it had promised free power and stability in electricity supply in its election manifesto. Therefore, it has laid out a set of long-term plans to promote the MSEB's recovery. These include capacity addition plans for the Uran, Talegoan, Khaperkheda power stations; outsourcing collections; putting in place a transmission and distribution reduction plan and reviving the 2,184-MW Dabhol plant.

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