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Switching to the fast track

Nandini Lakshman | July 26, 2003

Asoke Basak, chairman, Maharashtra State Electricity Board could give Bollywood's reigning deities a complex.

The waiting room outside his office is filled with political wannabes, hangers on and powerbrokers of all hues who are vying for his time.

There are even executives from Reliance Energy (or BSES, as it was till recently). They are there to talk to the country's largest SEB about purchasing more power from them, says an MSEB manager.

The reappointment of the Bengali bureaucrat, who converses in Marathi like a native, after a break of two-and-a-half years, couldn't have been better timed. He is the fourth bureaucrat since May 2000 to head this power utility.

But with the Electricity Bill 2003 being passed last month, the tasks before MSEB are tremendous. "We have to change to take on competition," says the tough-talking Basak.

The Bill makes it mandatory for SEBs to trifurcate their three operations -- generation, transmission and distribution -- leading to subsequent privatisation.

Also, MSEB's stronghold on the power line is no longer valid.

Earlier, the ailing SEBs had exclusive rights over intra-state transmission of electricity. Now, any private player can sell to any customer by using the board's transmission network.

It was only last year that the MSEB unions, fearing downsizing, had objected to the white paper brought out by the state to initiate all these changes. MSEB has got a year's reprieve, but it first has to put its house in order.

That's why, even as Basak says that the current focus is on internal reforms and not on privatisation, there are plans to add on more capacity, clamp down on defaulters and tackle the demand-supply gap in power.

In other words, Basak is trying to gear his 100,000-plus employees to face competition by improving generation and minimising transmission and distribution losses.

Will that be easy? "It is a slow process and we are trying," says Basak, who is negotiating to bring a consultant on board for the restructuring.

MSEB gets 2,375 megawatts (Mw) from central power utilities, 1,774 Mw from Tata Power and 500 Mw from BSES, and has an installed capacity of 9,771 Mw but its outstandings have hit the roof. This, when demand is growing steeply.

Today, the state's demand for power is around 15,000 Mw, with agriculture accounting for around 20 per cent last year.

Industrial demand is around 37 per cent, with domestic and commercial demand accounting for 12 per cent and 8 per cent respectively. The rest is accounted for by water supply.

Now, look at MSEB's revenues. Of the total Rs 12,000 crore (Rs 120 billion) revenues it earns, around 55 per cent comes from industry, 12 per cent from commercial users and only 7 per cent to 8 per cent from agriculture.

With this portfolio, as of March 31, 2003, total arrears stood at around Rs 8,517 crore (Rs 85.17 billion). The defaulters included the state's agricultural sector, which had piled up payment worth Rs 3001.87 crore (Rs 30.02 billion) despite the subsidies.

High-tension industry users (using above 67 horse power) owed Rs 350.10 crore (Rs 3.5 billion). Tata Power defaulted on Rs 449.58 crore (Rs 4.5 billion) while the public water supplies department accounted for another Rs 605.18 crore (Rs 6.05 billion).

Also, T&D losses continue to choke MSEB. Two years ago, at 15 per cent, the T&D losses were the lowest in the country. The receivables amounted to about 115 days of revenue. This year, T&D losses have galloped to 40 per cent.

So now, to improve financial stability, Basak will spend around Rs 900 crore (Rs 9 billion) over two years to install new meters and replace old lines, transformers and other equipment.

At the same time, he is pushing his employees hard. "If you restructure properly, things should be okay," he says.

So the accent is on modifying the way MSEB works. It will now make its employees accountable, especially on the recovery front.

A month ago, MSEB served notices to Tata Power for not paying its total arrears of standby charges of Rs 386.7 crore (Rs 3.87 billion). Basak says that the Tatas have already paid up Rs 162 crore (Rs 1.62 billion).

Or take the new exercise, which commenced in Nasik two months ago. The town has been divided into 2,800 distribution transponder centres, making people down the line responsible for recovering dues.

By August-end, Basak says, the MSEB will have 55,000 DTC level metering zones. The logic is simple: convert each of these centres into profit centres empowering them to be accountable for the business.

And how are people down the line reacting? Having seen reforms in other sectors, MSEB's employees finally appear to be waking up to reality. "If we don't change now, even the private sector may not want us later," says one union member.

At the same time, MSEB is hoping that the Maharashtra Electricity Regulatory Commission will at least consider a partial hike in tariff in six months time. MSEB had requested a 12.1 per cent hike.

But there is no hurry to trifurcate its business. "The failure of the Orissa model has thrown up many challenges for the private sector," says Basak.

Orissa was the first state to privatise with BSES bagging the power distribution network. Now, with alleged understated T&D losses, players are pointing out to the deficiencies in the model. "The major hurdles have been evaluating assets and the staff resistance," says a player.

This shouldn't be much of a hurdle for Basak who is no stranger to controversy. He was Maharashtra's principal secretary, energy, at the height of the famous controversy over Enron Dabhol's power project.

Then, during his earlier stint at MSEB, he endeared himself to the unions when he was vociferous about breaking free of government control to make the organisation profitable.

"MSEB is not a government department," he had said. Now, he has got the unions to sign on the dotted line and is continuously hammering home the "we sink or swim against competition" message to them.

Then, last March, he initiated Sanman, an amnesty scheme to bring illegal commercial users into the fold. Today, MSEB has given 5,000 connections.

At the same time MSEB is ramping up capacity in the next three years. It currently has three generation projects at hand, the first two at Parli and Paras in the state's Bheed district. There is already a 700 Mw plant at Parli.

It will now have another 250 Mw plant. Similarly, Paras, which produces 60 Mw of power will get another 250 Mw plant. Both these will cost MSEB around Rs 2,500 crore (Rs 25 billion).

Next year, it plans to put up another 400-mw project at Uran, which already has a 900 mw plant. Part of the equity for these projects will come from the government and the rest of the money will be raised through debt.

Will all of this equip MSEB to take on competition? "Nobody will be able to compete with us. Nine out of our ten customers are now subsidised and the private players are all eyeing that one. They are forgetting that the Electricity Act says that everybody has to pay for electricity," says Basak.

He claims, that in a year's time, with a level playing field, his economies of scale and manpower strength will stand him in good stead.

"A new entrant cannot generate power for less than Rs 4 per unit, while my average cost of generation is Rs 1.80," he adds.

Despite this, demand for power continues to be the biggest problem for MSEB. To offset the Dabhol loss, it has tied up to buy 700 Mw from Power Trading Corporation during peak hours. It also has an agreement with Tata Power to pick an additional 150 mw at Rs 2.50 per unit.

But Basak isn't worried. Having been with MSEB earlier, he says that he is better equipped to handle the company today. As he puts it, "We are going to change."


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