1. Experience of Privatisation of Distribution Licensee in Odisha
ODISHA ELECTRICITY REGULATORY COMMISSION
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A Presentation on
Experience of Privatisation of Distribution Licensee in Odisha 1

2. Evolution of the sector
Year
Evolution of the sector
1996
Enactment of Orissa Electricity Regulatory Act, 1995; Constitution of OERC; Transfer Scheme; OSEB unbundled into OHPC and GRIDCO
1998
GRIDCO’s distribution function divided into four geographical zones- Central, Western, Northern and Southern; Creation of four companies namely CESCO, WESCO, NESCO and SOUTHCO; privatisation of OPGC
1999
Privatisation of Discoms; 2nd Transfer Scheme: Transfer of GRIDCO’s assets, liabilities and personnel to CESCO, WESCO, NESCO and SOUTHCO
Through a process of International Competitive Bidding (ICB), the four distribution companies were privatized during 1999 by transferring 51 per cent of the share of these companies to private companies.
CESCO was taken over by consortium of AES Corporation, USA, AES Orissa Distribution Company Private Limited and Jyoti Structures Limited
The other three distribution companies, namely NESCO, WESCO and SOUTHCO were taken over by BSES.

3. Evolution of the sector
Year
Evolution of the sector
2001
AES abandons CESCO; GRIDCO files petition before OERC asking revocation of license to CESCO alleging mismanagement; OERC interim order vesting management of CESCO with a CEO;
Sobhan Kanungo committee report to assess mid-tenure correction requirements
2003
Enactment of Electricity Act 2003
2005
Revocation of license to CESCO u/s 19 of Electricity Act; Appointment of Administrator;
The resale attempt u/s 20 of Electricity Act was unsuccessful as the sale was envisaged based on takeover of company with liabilities. The Investor were not interested in such model of sale.
2006
Formulation of CESU Scheme by OERC u/s 22 of the Electricity Act; OERC appointed CEO to look into CESU operations under management board constituted under the scheme
2008
Scheme of CESU being extended every year thereafter and currently upto to

4. Evolution of the sector Sale Process of DISCOMs
Year
Evolution of the sector
2015
Licences of WESCO, NESCO and SOUTHCO revoked “Suo motu proceeding under Section 19(3) of the Electricity Act, 2003 with effect from 04th March 2015 in order dated 04th March 2015 in Case No. 55/2013
Appointment of Administrator under Section 20 (d) of the Electricity Act, 2003 as an interim measure to mange the affairs of three DISCOMs WESCO, NESCO and SOUTHCO
Year
Sale Process of DISCOMs
2016
Pursuant to Section 20 of the Electricity Act, 2003, Odisha Electricity Regulatory Commission (OERC) invited bids from interested investors, to purchase the prospective Distribution Licensee CESU
2018
Two bids have been received from investors to purchase CESU. Bid Evaluation process initiated.
Regarding sale of WESCO, NESCO and SOUTHCO Transaction Advisor appointed. RFP under preparation.

5. Structural Evolutions
Pre-Reform
Reform Structure up to
Orissa State Electricity Board (Vertically-integrated)
OHPC
OPGC
NTPC
IPP1
IPP2
Generation
GRIDCO
(Transmission and Bulk Supply)
Transmission
GRIDCO Owned Distribution Companies
Distribution and Retail Supply D1 D2 D3 D4 C C C C C C C C C C C
Orissa was the pioneering State to usher in reforms in the power sector. It envisaged unbundling of Generation, Transmission & Distribution and Privatisation of distribution functions.
OHPC and GRIDCO were formed with effect from

6. Present Industry Structure
OPGC functioned as a State owned generating company from This corporation is in charge of the 2 X 210 MW Thermal units at Ib Valley.
OHPC in charge of Hydro plants.
GRIDCO in charge of transmission line, bulk supply and distribution.
From four distribution companies were formed and started functioning as wholly owned companies of GRIDCO. DISCOMs were privatised as on
OPTCL was formed on for carrying out transmission and SLDC Business.
SLDC was Ring fenced and its revenue requirement and charges separated from transmission charges of OPTCL.
Details of reforms provided in the annexure

7. Revocation of Distribution Licence - CESCO
In 2001, the AES-led consortium abandoned the management of CESCO. GRIDCO filed a petition before OERC on alleging that CESCO, the distribution and retail supply licensee in the area of the Central Zone in the State whose controlling shareholders were , AES Orissa Distribution Company Pvt Ltd and Jyoti Structures Limited had not taken appropriate steps to maintain the supply of electricity to the consumers in the area of supply.
After hearing the parties, followed by certain circumstances which were considered to threaten the supply of electricity to the consumers in CESCO’s supply area, a nominated officer of State Government was appointed by OERC through Order dated in Case No. 39/2001
The nominated officer was responsible for taking over the management and control of CESCO and manage the electricity supply activities in the CESCO area till further orders.

8. Revocation of Distribution Licence - CESCO
Thereafter, OERC initiated proceedings and asked to commit a comprehensive business plan to bail out the company from recurring financial deficits in order to avoid revocation of its license.
CESCO then submitted a revised business plan on 18 November 2004, which was however deemed inadequate by the stakeholders and OERC in discharging CESCO’s obligations as a licensed business.
CESCO’s license was subsequently revoked under section 19 of the Electricity Act, 2003 (the Act), with effect from and on OERC appointed Chief Executive Officer (CEO) and Administrator to discharge the licensed activity as per the provisions under Section 20[d] of the Act.
OERC made an attempt to attract private participation) by selling 51% ownership of the utility through a competitive bidding process, in accordance with sections 20 and 24 of the Act,.

9. Revocation of Distribution Licence - CESCO
However, despite the OERC’s best efforts, the sale process could not succeed. OERC then vide order dated , formulated a Scheme under section 22 of the Act for operation and management of the CZDRSU.
This Scheme was named the Central Electricity Supply Utility of Odisha (Operation and Management) Scheme, The tenure of the Scheme was initially two years, but it has been further extended periodically by the Commission and the Scheme now extend upto 7th September 2019.
Under the provisions of the Scheme, all assets, liabilities, rights, proceedings and manpower as well as the license for distribution and supply of electricity held by CESCO has been vested in Central Electricity Supply Utility of Odisha (CESU) and it has been authorized to carry out the business of distribution of electricity in accordance with license conditions in respect of area assigned to CESCO.
CESU continues to operate in the assigned area with directions of the OERC issued from time to time.

10. Revocation of Distribution Licence - WESCO, NESCO and SOUTHCO
Action for suspension of licences of the DISCOMs WESCO, NESCO and SOUTHCO was initiated in the year 2005 by the Commission.
The Commission on passed an order and gave opinion that the distribution licensees are unable to discharge the functions or perform the duties imposed on them by or under the provisions of the Electricity Act, 2003 and have persistently defaulted in complying with the directions given by the Commission under the said Act.
Commission ordered that notice be issued in terms of the Proviso to S.24(1) of the Electricity Act,
Commission appointed Special Officers to oversee the operation of the three distribution companies and to file a status report on the activities and management of the three distribution companies.
Three Special Officers assumed the offices of respective DISCOMs

11. Revocation of Distribution Licence - WESCO, NESCO and SOUTHCO
The three DISCOMs preferred appeal before the ATE against such order of the Commission
ATE in their interim order dtd.2nd June, 2006 placed the entire day today management, affairs, control, finance, man power at the command, management, administration and control of Special Officers appointed by that order
In pursuance to the above interim order two special officers assumed their task of managing affairs of the three distribution companies WESCO, SOUTHCO and NESCO
ATE disposed the Appeals of the three distribution companies in their order dated 13th Dec by allowing the appeal and revoked the orders appointing Special officers by them.
ATE further observed that if the Commission proposes to continue or initiate fresh action under Section 24 of the Electricity Act 2003, it is always open to the Commission to act strictly in accordance with Section 24 and follow the procedure prescribed therein

12. Revocation of Distribution Licence - WESCO, NESCO and SOUTHCO
The Hon’ble Supreme Court in its order dated upheld the action of the Commission for initiating and proceeding with the matter relating to suspension of the licence under Section 24(1) of the Act. The order of Hon’ble ATE was quashed so far as it annulled the show cause notice issued by the Commission under Section 24(1) of the Act.
Accordingly, the Commission issued notices under Sec. 24(1) to the respondents WESCO, NESCO , SOUTHCO and R-Infra to show-cause as to why, for having not fulfilled the license conditions and failure to address the issues raised in the Commission order dated , the licensee of the WESCO, NESCO and SOUTHCO should not be cancelled

13. Revocation of Distribution Licence - WESCO, NESCO and SOUTHCO
The commission disposed the case in it’s order dated in Case No.35/2005 and observed that
The suspension of the licenses at this stage would also give a wrong signal to the financial institutions for sanction of loan for enabling the distribution companies to arrange counter part funding
the Commission instead of suspending licenses of WESCO, NESCO & SOUTHCO directed demonstratable action towards performance
The key areas on which the Commission expected considerable improvement in performance were highlighted in para 64 of the order
In the concluding paragraph 65, the Commission observed that ‘at any time if the Commission feels that the distribution companies are not taking effective and adequate steps to reduce the loss and improve the quality of supply the Commission would be at liberty to initiate action either under Section 19 or Section 24 of the Act.

14. Revocation of Distribution Licence - WESCO, NESCO and SOUTHCO
The Commission therefore expanded the scope action from section 24 (suspension of License) to section 19 (revocation of License)
The DISCOMs did not prefer any appeal before ATE and therefore this order of the Commission attained finality
Through the reviews and enquiries thereon to ascertain if their earlier directions in Case No. 35/2005 have been complied with by the DISCOMs or not, the Commission, was satisfied that the DISCOMs have miserably failed to improve their performance and financial health as per earlier direction,
Accordingly the Commission issued the Show Cause Notice dated for revocation of licence under Section 19 of the Electricity Act in public interest.
In pursuance of the notice mentioned above, Suo motu proceeding was initiated in Case No. 55/2013 by the Commission and Director (RA), OERC was designated to present the matter in the capacity of the Petitioner under Regulation 9(4) of the OERC (Conduct of Business) Regulations 2004, for revocation of licence.

15. Revocation of Distribution Licence – WESCO, NESCO & SOUTHCO
The Odisha Electricity Regulatory Commission (OERC) revoked the licence granted to WESCO, NESCO and SOUTHCO under section 19 of the Electricity Act, 2003 (the Act) with effect from 04th March 2015 in order dated 04th March 2015 in Case No. 55/2013 “Suo motu proceeding under Section 19(3) of the Electricity Act, 2003 for Revocation of License of R-Infra Managed DISCOMs (NESCO, WESCO & SOUTHCO)”.
The license was revoked on following grounds:
Section
Revocation reasons
Section 19 (1) (a)
The Licensees have made wilful and prolonged default in doing several things which are required by him under this Act and Rules and Regulations made thereunder which are enumerated below:
Persistent default in payment of Bulk Supply Price (BSP) dues thereby jeopardizing the continuous power supply to the State consumers.
Wilful default of escrow arrangements with GRIDCO by not collecting revenue from large chunk of consumers and depositing the same in the escrow account.
Default in discharging the payment of dues as per Securitisation order dated vide Case No. 115/2004.
Not clearing the dues of NTPC bond of Rs cr. Vide Commission order in Case No. 107/2011. Not depositing terminal liabilities of the employees in the corpus fund as per the direction of the Commission.
Section 19 (1) (b)
The Licensees have broken the terms and conditions of his Licence as mentioned below the
breach of which renders the licence liable for revocation vide Clause 13 of the License Conditions.
Violation of successive tariff order of the Commission from FY to
Violation of directions of the Commission in Case No. 93, 94, 95 & 96/2011.
Violation of directions of the Commission in performance review for the period FY , , , and various directions for energy audit (Refer Para 26 (III) & 16)

16. Revocation of Distribution Licence – WESCO, NESCO & SOUTHCO
Section
Revocation reasons
Section 19 (1) (c)
The DISCOMs have failed within the period fixed by the Commission to show to the satisfaction of the Commission that they are in a position fully and efficiently to discharge the duties and obligation imposed on them by their licences such as
Wilfully not doing energy audit to find out actual level of distribution loss and hiding actual information from the scrutiny of the Commission to gain undue advantage.
Not doing proper repair and maintenance of line and substation by spending much less amount than what was approved by the Commission in successive Retail Supply Tariff (RST) orders thereby putting the quality and continuity of the power supply to the consumers at grave risk.
Not collecting electricity dues from the large numbers of consumers resulting in higher tariff for the paying consumers.
Violation of contractual agreement with regard to escrow arrangement.
Not making capital investment for the improvement of the network and not been able to arrange counterpart funding for CAPEX programme thereby making the network unsustainable in view of growth of consumer base.
Section 19 (1) (d)
The financial conditions of the licensees are such that they are unable fully and efficiently to discharge the duties and obligation imposed on them by their licence such as:
As per audited accounts the DISCOMs have posted huge cumulative loss in their balance sheet resulting in negative net-worth. The negative net-worths have debarred the licensees to mobilise counterpart funding by getting loans from financial institutions required for capital expenditure.
Defaulting in payment of dues of the bulk supplier.”

17. Revocation of Distribution Licence - WESCO, NESCO and SOUTHCO
Appointment of Administrator
The Commission, vide order dated 04th March 2015 in Case No. 55/2013 in the Matter of “Appointment of Administrator under Section 20 (d) of the Electricity Act, 2003”,
Under Section 20 (d) of the Electricity Act, as an interim arrangement the management and control of NESCO, WESCO and SOUTHCO utilities along with their assets, interests and rights were vested with Administrator (CMD, GRIDCO) in order to ensure the maintenance of continued supply of electricity

18. Revocation of Distribution Licence - WESCO, NESCO and SOUTHCO
Appellate Tribunal for Electricity Judgement -
The order of OERC was challenged by the WESCO, NESCO and SOUTHCO before the ATE vide Appeal No. 64 OF 2015 & I.A. Nos. 92, 121 & 131 of 2015.
The Hon’ble ATE in its order dated 21st August 2017, has stated the following:
“49. In the ultimate analysis, we have no hesitation in holding that the impugned order revoking the Appellants’ licences and appointing Administrator is legal. No substantial point is raised before us, which can persuade us to set aside the impugned order.”
Supreme Court Judgement
The Hon’ble Supreme Court further dismissed the appeal of WESCO challenging the order of ATE in their order dated 24th November 2017.

19. Performance of DISCOMs

20. Year
Purchase
Sales
3,611.14
1,990.24
4,025.30
2,218.52
4,186.45
2,143.04
4,055.47
2,310.59
3,899.54
2,348.98
3,849.34
2,252.34
4,185.51
2,392.00
4,623.66
2,611.55
5,203.61
3,045.11
5,679.00
3,384.30
6,232.67
3,775.08
7,069.36
4,361.45
7,233.05
4,469.79
7,401.89
4,662.96
7,973.19
5,211.93
8,297.32
5,484.25
8,366.57
5,570.76
8,139.36
5,488.59
8,466.81
5,781.45

21. Collection efficiency
Year
Distribution loss
Collection efficiency
AT & C LOSS
44.89%
69.72%
61.58%
74.51%
58.94%
48.81%
71.17%
63.57%
43.03%
79.89%
54.48%
39.76%
82.07%
50.57%
41.49%
83.53%
51.12%
42.85%
88.94%
49.17%
43.52%
92.81%
47.58%
41.48%
94.05%
44.96%
40.41%
89.76%
46.51%
39.43%
91.45%
44.61%
38.30%
92.62%
42.86%
38.20%
90.55%
44.04%
37.00%
93.40%
41.16%
34.63%
94.48%
38.24%
33.90%
99.88%
33.98%
33.42%
97.43%
35.13%
32.57%
96.63%
34.84%
31.72%
96.56%
34.07%

22. Year
Purchase
Sales
2,257.61
1,278.90
2,443.11
1,357.48
2,302.66
1,128.31
2,396.76
1,404.97
2,645.79
1,490.60
2,985.68
1,809.18
3,407.57
2,144.21
3,998.69
2,670.18
4,654.93
3,203.78
4,544.98
2,973.71
4,705.45
3,175.14
5,108.93
3,435.59
5,023.40
3,301.53
5,045.36
3,282.87
5,045.29
3,337.83
5,046.46
3,455.55
5,210.42
3,806.69
5,328.71
4,077.21
5,448.99
4,234.96

23. Collection efficiency
Year
Distribution loss
Collection efficiency
AT & C LOSS
43.35%
79.37%
55.04%
44.44%
82.12%
54.37%
51.00%
74.34%
63.57%
41.38%
81.46%
52.25%
43.66%
85.47%
51.85%
39.40%
95.58%
42.09%
37.08%
90.21%
43.24%
33.22%
88.74%
40.75%
31.17%
93.16%
35.88%
34.57%
92.50%
39.48%
32.52%
95.50%
35.56%
32.75%
92.38%
37.87%
34.28%
93.99%
38.23%
34.93%
91.63%
40.38%
33.84%
95.95%
36.52%
31.53%
92.35%
36.77%
26.94%
89.29%
34.76%
23.49%
94.48%
27.71%
22.28%
93.38%
27.43%

24. Year
Purchase
Sales
2,688.43
1,500.83
2,867.77
1,628.99
2,979.29
1,595.78
3,354.74
2,070.26
3,784.18
2,307.71
4,051.01
2,577.25
4,188.51
2,605.27
4,670.62
2,972.42
5,377.09
3,434.61
6,378.44
4,238.25
6,301.00
4,089.90
6,510.88
3,978.72
6,177.88
3,775.01
6,391.26
3,945.34
6,634.90
4,201.07
7,053.83
4,552.20
6,491.63
4,597.65
4,798.86
7,248.22
5,371.79

25. Collection efficiency
Year
Distribution loss
Collection efficiency
AT & C LOSS
44.17%
83.36%
53.46%
43.20%
79.32%
54.94%
46.44%
79.95%
57.18%
38.29%
85.40%
47.30%
39.02%
87.96%
46.36%
36.38%
91.70%
41.66%
37.80%
93.65%
41.75%
36.36%
94.29%
39.99%
36.13%
92.91%
40.65%
33.55%
93.86%
37.63%
35.09%
96.03%
37.67%
38.89%
91.32%
44.20%
94.43%
42.30%
38.27%
91.91%
43.26%
36.68%
93.75%
40.64%
35.46%
92.32%
40.42%
29.18%
91.15%
35.45%
26.08%
86.02%
36.41%
25.89%
89.99%
33.30%

26. SOUTHCO
Purchase
Sales
1,433.00
833.39
1,523.00
875.43
1,521.95
906.08
1,555.99
946.94
1,607.04
924.82
1,613.43
959.91
1,702.16
1,003.16
1,826.97
1,034.25
1,976.88
1,077.59
2,175.78
1,136.21
2,285.68
1,187.82
2,555.64
1,323.38
2,814.13
1,507.68
2,948.89
1,660.67
2,915.56
1,720.36
3,191.72
1,963.49
3,282.78
2,077.87
3,273.46
2,141.18
3,467.58
2,334.11

27. Collection efficiency
Year
Distribution loss
Collection efficiency
AT & C Loss
41.84%
78.75%
54.20%
42.52%
83.32%
52.10%
40.47%
79.29%
52.79%
39.14%
83.37%
49.26%
42.45%
88.16%
49.27%
40.51%
100.48%
40.22%
41.07%
95.26%
43.86%
43.39%
94.31%
46.61%
45.49%
94.05%
48.73%
47.78%
94.21%
50.80%
48.03%
94.04%
51.13%
48.22%
91.54%
52.60%
46.42%
92.49%
50.45%
43.68%
94.93%
46.54%
40.99%
91.83%
45.81%
38.48%
93.51%
42.47%
36.70%
88.60%
43.92%
34.59%
89.90%
41.20%
32.69%
91.44%
38.45%

28. Average Retail Supply Tariff (RST) (in P/U)
225.32
285.04
300.40
301.29
271.60
275.27
274.24
294.37
295.36
281.40
265.15
320.54
404.01
451.84
457.71
459.46
471.54
461.87
469.64

29. Thank You 29