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KPTCL seeks Rs 1,500 crore from Power Finance Corpn

C. Shivkumar

Bangalore , March 4

WITH the World Bank withholding release of the structural adjustment loan, Karnataka Power Transmission Corporation Ltd (KPTCL) has approached the Power Finance Corporation (PFC) for support.

Sources said that the amount sought from the PFC was about Rs 1,500 crore as transitional funding to meet the costs of restructuring. The bank had withheld release of the loan equivalent to about $200 million. The third tranche of the loan was to have been released last year as part of the Karnataka Economic Restructuring Project.

However, sources said that since some of the milestones prescribed could not be complied with, the bank had withheld release of the loan. Among the milestones include divestment of stakes in the four distribution companies, as part of the power sector restructuring and ensuring that the sector generating revenues to match expenditure. The sources said that the utility has also failed to meet with the limits prescribed under the financial restructuring plan prepared way back in 2000 for the utility.

However, most of the targets made in the revamp plan appeared to be completely off the mark. For instance, one of the critical assumptions in the plan was that the subsidy demands by the KPTCL would be brought down to Rs 1,538 crore for the fiscal year 2004-05. The annual financial statement of the State Government has instead made a provision of Rs 1,935 crore for power subsidies. This increase in subsides comes despite the mid-year hike in tariffs permitted by the State Electricity Regulatory Commission last year (SERC).

Sources said, said that the major difficulties in reducing the subsidy demand was partly due to the escalating tariffs from power generating companies. The escalations were never factored into the original estimates. For instance, the inclusion of liquid fuelled generation, who feed about 6.3 million units per day into the State grid. The average cost from liquid fuelled sources is over Rs 5 per unit, given the current international price of naphtha. As a result, the sources said the average cost of supply in the original revamp plan estimates was breached. The cost of supply, assumed then was about Rs 3.7 per unit , assuming a transmission and distribution loss of 29 per cent. In reality, the losses continue to be over 30 per cent and realisation continues to be low, with the exception of some circles like Bangalore.

The sources said that the bank's loan was intended to help some of the technical issues in this restructuring effort. With the loan not forthcoming, the sources said that PFC's support would be essential to sustain the momentum in the reforms programme. But unlike the bank's loan, PFC loans would not require any sovereign guarantee.

Moreover, the sources said, that the Central ministries of power and finance were also keen that the States reduce reliance on external funding agencies. Instead, the centre was keen that all the reform-funding requirements be sourced entirely from the domestic financial institutions. This was to ensure that the restructuring exercise minimised the adverse effects during the transition period. Besides the sources added, the Centre was also keen to ensure that accretions to external debt were restricted.

More Stories on : Power | Karnataka

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