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April 21, 1999


'Naidu has mortgaged state's interest for World Bank loan'

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M S Shanker in Hyderabad

The World Bank and the Andhra Pradesh government are under fire from the Congress and the Left parties.

AP CM Chandrababu Naidu Chief Minister Nara Chandrababu Naidu, they allege, has mortgaged the state's interests to the World Bank to obtain a Rs 42 billion loan.

The loan is for restructuring the power sector.

Another allegation is that the power tariff for agricultural, industrial and domestic sectors is likely to shoot up, sooner than later.

The opposition parties in the state are seeking to make this an issue during assembly elections in December.

The state unit of the Communist Party of India-Marxist has compiled a booklet complete with relevant documents. The booklet lists the indiscriminate borrowings from the international financial institutions by the Telugu Desam Party government.

The story dates back to the time when the World Bank offered a loan of $ 1 billion to the proposed AP Transmission Corporation Limited (not the AP State Electricity Board). The loan was to be in five parts covering as many phases of reforms spanning over ten years.

However, the WB laid out some conditions, according to the documents released by the CPM. One condition to obtain the $ 100 million loan for the second phase beginning March 2000 was privatisation of electricity distribution: new private power distribution companies were to submit their own tariff rates to the Regulatory Commission.

Former state finance minister and now member of the Lok Sabha, K Rosaiah, said the new disclosures vindicate the Congress, the main opposition party in the state. He said the Congress always protested Naidu's dangerous borrowing streak besides alleging indiscriminate acceptance of the WB terms.

To give the loan the flexibility of being discontinued in case of non-fufilment of any of the conditions, the WB named each phase as Adaptable Programme of Lending or APL.

A conditionality under APL I is that the first tranche of $210 million will be committed only if the government enacts new legislation for power sector reforms and duly notifies it.

The bank initiated the process only when it felt that the commitments on the financial restructuring plan (issued on January 4, 1999), such as introduction of market structure, establishment of an independent legal regulatory framework and tariff reforms, are accomplished and ''enjoyed a considerable degree of irreversibility''. Accordingly, the bank signed on the first tranche in February only after the Act was notified.

The conditions for APL II, which lasts up to the year 2003, are partial privatisation of supply, reconfiguration of the distribution system, setting up of distribution companies and their operation under licence obtained from the Regulatory Commission.

It is learnt that the government has already initiated the process to institute the commission. A selection committee comprising Justice Raghu Veer, retired Supreme Court judge, S Srivatsava, chairman, the Central Electricity Authority, and V Anand Rau, the state chief Secretary, is likely to be asked to shortlist names for the commission.

Another condition is that distribution cells have to be opened in AP Transco and private companies to plan and execute the loan research and energy efficiency programme. Under this phase, the private companies will make tariff submissions, to an extent not less than indicated in the financial restructuring plan (as accepted by the government for repayment) and satisfactory to the bank. Only then will the Regulatory Commission issue the tariff orders.

Further the documents refer to the controversial subsidy extended to agricultural pumpsets. The WB apparently stipulated that the agricultural tariff which is less than 50 paise for kWh in AP, should be ''depoliticised''.

The documents listed in the booklet indicate that it is unlikely that in the short-term, agricultural tariff can be increased significantly when the supply position is far from satisfactory. The WB wants the government to list AP Transco and AP Genco (the two proposed corporations for transmission and generation) on the stock exchanges to enable them to tap international and domestic capital markets.

Under the $ 250 million APL III beginning March 2001, the conditionality is that one or two distribution companies, representing at least one-third of the distribution system, should be converted into a joint venture with majority equity and management control transferred to the private sector.

Under the 250 million APL IV beginning February 2002, the conditionality is that two more distribution companies, representing a cumulative total of at least two-thirds of the supply system, should be converted into similar joint ventures with majority equity and management control held by the private sector.

Under the fifth and last $ 190 million APL V, the entire distribution business has to be privatised.

The documents lay down that the government will have to ensure ''satisfactory'' implementation of the financial restructuring and updating of the private companies' business plans in tune with its own programme and project implementation plan.

Rosaiah said, "Naidu is only a proxy and the state is, in fact, being ruled by the World Bank." He said that the WB had among the general risks the possible strong opposition to politically sensitive aspects of the reform programme such as more effective targeting of the rice subsidy, staff rationalisation, privatisation, closure of unviable public enterprises and more effective collection of user charges.

Suravaram Sudhakar Reddy, the CPI state secretary, added: "The TD government has committed itself to an agenda set by the WB, which included cut in agricultural subsidies and privatisation of the public sector undertakings. He (Naidu) is not behaving like an elected representative of the state, but as the representative of the WB."

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