The Hindu : Investors in power sector want enforceable contracts

Online edition of India's National Newspaper
Monday, Jun 09, 2003

Southern States

Southern States - Karnataka-Bangalore

Investors in power sector want enforceable contracts

By Divya Sreedharan

BANGALORE June 8. What will a private investor look for in Karnataka? A survey conducted by the World Bank in 2002 on "Private power investors in developing countries", says that "an enforceable exit strategy" is a top priority.

Investors also want enforceable contracts, payment discipline, support till the business becomes commercial, "low risk appetite for bankrupt businesses", and Government support.

These and other "insightful preliminary" conclusions have been sent to the State Government as part of a World Bank-funded study on "introducing multi-year tariff, facilitating private sector participation, and a suitable transition for the power sector."

The State Government, which gets World Bank funds for its power privatisation and reform programme, has decided to privatise all four electricity supply companies (Escoms) simultaneously through a distribution margin (DM) method. DM contains everything that an investor wants -- low risk, government support till the business is out of a "transitional phase", payment discipline, etc.

Though the Karnataka Electricity Regulatory Commission (KERC) has said that DM needs to be publicly debated, the State Government has only published a draft paper on it.

For that matter, DM itself has been suggested by the financial and distribution privatisation consultants to the State Government -- CMS Cameron McKenna, Rothschild, and Deloitte Touche Tohmatsu -- who were appointed because the World Bank felt they were necessary. Now, the bank has stressed that the State Government must "re-engage" the consultants to see that the Escoms are properly sold off.

It has also asked the State Government to extend the contracts of the consultants appointed for "institutional strengthening" of Escoms.

This is reportedly to "assist" the Escoms in activities such as energy audit and setting up a management information system.

What kind of investors will buy the Escoms?

One example is that of the GMR Group, promoters of the 220 MW Tannir Bavi Power Company, in Mangalore.

The GMR Group has interests in banking, insurance, infrastructure, and power.

The Vice-President (Strategic Planning and Business Development) of GMR Infrastructure, P.Chakrapani, told The Hindu that they would bid for Bangalore (Bescom) and Mangalore (Mescom) companies, which were the two better run and more revenue-yielding of the four Escoms.

"If the State Government restructures the others, we will be interested in them as well," he added.

When the Escoms are sold, how much will power cost, and will government subsidy come down?

The State Government is silent on this. It also does not say if the private investors will be legally bound to supply power for "hard to collect categories" (in the World Bank's words), such as farmers.

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