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In India (not uniquely) the issue arose specifically in the context of efforts to privatise distribution:
Creation of investor confidence in context of regulatory uncertainty the driving concern. Then existing legal framework incompatible with MYT, hence MYTP.
MYT(P) can be mandated either by Regulator or by Government. Privatisation is necessarily a Government, not a regulatory, decision:
The first multi-year framework was improvised (in Delhi) in a situation where the overriding concern was investor uncertainty about efficiency improvement expectations. The power to give policy directions proved crucial in the face of Regulators reluctance.
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SEBs were to set tariffs with reference to annual revenues (section 59).
SEB to be guided by any Policy Directions that the State Government might issue; CEA to decide in any dispute as to whether a particular question was a question of policy.
State Reform Acts typically required SERC to be guided, but not bound, by E(S) Act tariff principles.
When the Commission departs fromthe Sixth Scheduleit shall record the reasons therefor in writing. Licensee to submit an Annual Revenue Requirement:
Annual exercise laid down.
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Reform Milestones:
Feb 99 - GNCTD Strategy Paper. Nov., 99 -SBI Caps engaged as Consultant. Dec., 99 -Regulator Appointed. Oct., 2000 Delhi Electricity Reforms Ordinance.
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Reform Milestones:
Oct 2000 Tripartite agreement between staff, DVB and Government, on same day as Ordinance. Jan 2001 Investors Conference. Feb 2001 RFQ issued
Bought by 31 parties.
Feb 2001 DVB applies for MYTP along with its ARR. May 2001 DERC rejects MYTP.
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continued:
Mar 2001 - Delhi Electricity Reforms Act, 2000 comes into force July 2001 Consultants final report May 2001 - Bidders short listed Six bidders Two expressed lack of interest Nov 2001- RFP issued Nov 2001 - Policy Directions
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continued:
Feb 2002 DERC order fixing opening loss levels and initial BST. April 2002 Bids received from two bidders. Considered not acceptable in present form by Cabinet. Core Committee authorised to explore alternatives including negotiation.
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continued:
Political will:
Its relationship with compulsions of situation.
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New entities would incur losses before privatisation. Govt. retained option to abort the entire exercise in absence of investor response.
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Principles applied: electricity business becomes self sustaining within five years Minimise retail tariff shock. Support from GNCTD for funding initial losses - about Rs. 2600 crores (increased to Rs 3450 crores).
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DVB
2. All the liabilities of DVB are transferred to Holding Company, entire Equity of Holding Company is issued to GNCTD
GoNCT
Holding Co.
3. All the assets are transferred from GNCTD to successor entities. Assets will be assigned a value equal to serviceable liabilities
4. Equity and Debt in the successor entities, equal to the value of serviceable liabilities is issued in favour of the Holding Company
Genco
Transco
D1
D2
D3
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After 5 years DISCOMs to buy power directly and pay wheeling charges to TRANSCO
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No general appreciation of the necessity for MYTP in the context of developing Orissa experience. DVB accused of bad faith in making proposals on behalf of future, as yet nonexistent, discoms. Targets considered too low. Collection inefficiency pass-through thought to be contrary to accounting principles.
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DERCs views:
multi-year tariff approach linking to some indices would be suitable for a mature and stable environment so that the investing companies can undertake efficiency improvements and reap benefits from them. The efficiency benchmarks have to be robustneither the utility nor the consumer should suffer or benefit unduly in future. In conclusionalthough multi-year tariff setting principles is an issue that merits consideration, it is not the mature stagefor the purpose of this tariff order.
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require that tariffs for 2001-07 take into account: Selection process of bidders Technical & Commercial Loss to be on the basis of the bid of the selected bidder DISCOMS earn 16% Return on Equity (Assuming loss reduction, ARR approval) Incentives on over-achievement: 50% retained, 50% to rebate on tariff
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S/W
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Years 4 & 5: retail tariff increases of 5%, 3%. Bulk (Transco) Tariff to rise more sharply, with phasing out of Government assistance, efficiency improvements.
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5.18 % increase overall. Government decision to further subsidize to avoid tariff increase for consumers up to 400 kwh per month. Discom issues:
Depreciation rate; Deferred tax liability; Base for next year (BRYPL) And more.
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Order effective July 4, 03. Holding Company collections assigned to Transco ARR. Transco and Genco issues. Overall, effect on investor interest to be watched:
Was the presumption that advance fixation of loss reduction targets suffices to allay investor apprehensions on regulatory uncertainty justified?
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Shortly after DERC rejection of MYTPs, UPERC introduced 5-year MYTPs for Kanpur:
T&D loss reduction 2% per annum; Collection efficiency improvement targets; Concept of effective loss=AT&C loss.
Orissa Electricity Regulatory Commission has announced its intention to fix MYTPs.
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Karnataka package (still in the making) tries an alternative approach: envisages prior fixation of a Distribution Margin comprising
Base revenue set in advance for each year of transition period; Incentive charge (being amount collected above a Minimum Revenue Requirement) to be fixed by bidding.
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Karnataka continued
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Karnataka continued
Karnataka continued
APERC (Continued)
Mid-term review.
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continued
No specific provision necessitating annual filing. But how far do the provisions on open access and multiple distribution licenses change the context?
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Thank you
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