Shunglu report: Can SEBs finally breathe easier?

Under pressure from banks, who are refusing to lend, state utilities are poring over the new reports by Shunglu and BK Chaturvedi Committees.Is franchise the best way forward, though?

At 31 percent, the national average on AT&C losses are unacceptably high. Quantified, this amounts to nearly Rs 70,000 crore of losses, and the Finance Commission fears that this amount will rise to Rs 1.16 lakh crore by 2014-15.The Shunglu Committee Report, formed to help state utilities find ways to address their mounting losses, has suggested setting up of a special purpose vehicle (SPV), 76 percent owned by the RBI and remaining by Rural Electricity Corporation (REC) and Power Finance Corporation (PFC) to bail out State Electricity Boards (SEBs). Among other recommendations for operational and acc­ounting restructuring, the Committee lists computerisation to imp­r­ove the quality of accounting, assessment of receivables (whether the amount due from customers will be collected or should be considered as a non-performing asset), prepaid services for defaulting customers, and keeping a check on SEB committee members.

However, the most interesting recommendation from the Com­mittee, headed by former Comptroller and Auditor-General VK Shunglu, is for state utilities to go the franchise way. Torrent Pow­er's commendable reduction of AT&C losses at Bhiwandi is now a benchmark. When Torrent took over in 2007, losses stood at 48 percent—against a national average of 31 percent.Largely, with sheer operational efficiency and, as the buzz goes, some strong-arm tactics, these losses are now down to 19 percent.

Following the success of the franchise experiment, the process is on in Agra, Kanpur, Patna and Nagpur, while Madhya Pradesh and Rajasthan have expressed their interest. Whether one successful experiment is evidence enough to completely go for fra­n­chise is not beyond debate. The BK Chaturvedi Committee, under the Planning Commission, also working on the same subject, contends that because a franch­isee is not required to obtain a distribution licence, and because the­re is a dire need to infuse capital into discoms, PPP is a better model to adopt.The Shunglu Committee is sceptical that new models of revenue would lead to tariff anomaly and reduce the number of eligible companies.

A middle path, or perhaps letting states can choose based on their confidence level of attracting private partners, may be the best way forward.- Shashidhar Nanjundaiah