Karnataka Power Sector Reforms

-Transition Management- (Finance & Accounts areas)

August 23, 2010

Bengaluru

Resource persons: V.G.Pandit, Financial Advisor KPTCL & Vasuki, Director, Dhiya consulting Pvt. Ltd.

Contents

• Karnataka power sector structure

• Reform milestones

• Transitional issues identified in:-

– Phase 1

– Phase 2

– Phase 3

GoK (Energy Dept.)

KPTCL

(T&D)

KPCL

(Genco)

Pre -2002 June- 2002 Current

KREDL

(Ren.

Dev.)

GoK (Energy Dept.)

KPTCL (T & SLDC)

KPCL (Genco)

KREDL (Ren. Dev.)

Bescom (Dist.)

Mescom (Dist.)

Hescom (Dist.)

Gescom (Dist.)

GoK (Energy Dept.)

KPCL (Genco)

KPTCL (T & SLDC)

KREDL (Ren. Dev.)

PCKL (SPV)

Bescom (Dist.)

Mescom (Dist.)

Hescom (Dist.)

Gescom (Dist.)

CESC (Dist.)

Karnataka Power Sector structure

VVNL

(Gen.)

Functions involved in power sector

• Following diagram sets out the various functions involved in power sector:-

Generation Txn wiresSys

Operation

Dist

Wires

Cust

ServicesConsumer

Supply

Wholesale/ Bulk Supply Retail Supply

Generation Txn wiresSys

Operation

Dist

Wires

Cust

ServicesConsumer

Supply

Wholesale/ Bulk Supply Retail Supply

Size of operations – March 2002

1 Area of operation (Sq. Kms) 1,91,791

2 No. of consumers in the State (in lakhs) 120

3 Energy Handled in FY 02 (In MUs) 26,000

4 No. of employees 40,000

5 Gross block of assets (Rs. In Crs.) 5,500

6 No. of accounting units TL &SS MW O&M Others

27

22

76

16

141

Reform milestones –Pre 2002

• Reform working groups formed

• Reform Act passed by GoK in 1999

• Corporatization of KEB in August1999

• First transfer scheme including BRP approved in 1999

• KPTCL and VVNL separated in August 1999

• Anti-Theft Law introduced in 2002

• T&D activities separated and independent accounting units

created/re-configured

• Action taken for capturing T&D accounting information

separately

Reform milestones –Pre 2002 • Creation of employee database

• Actuarial valuation of terminal liabilities

• Division wise Asset listing

• Identification of T&D boundaries Interface metering

• Audit of receivables

• Debt restructuring

• Interest waiver/RARRS scheme

• Securitization of receivables

• Setting up of Regulatory Affairs cell

• Filing of ARR and Tariff application with KERC

Transitional Arrangements

• T& D functions were separated with effect from 1st June

2002

• Energy Department issued an order in June 2002

prescribing various steps for ensuring smooth transition

• A workshop was held in first week of June 2002 to educate

the corporate office staff of new discoms about transitional

arrangements

Phase 1 - Immediate steps

• Ensuring smooth continuity of day to day operations:- – Functional heads of KPTCL authorized to issue instructions on procedural and

operational matters till such time the corporate offices of each Escom is

established.

• Cash and Banking arrangements:-

– Conversion of existing Banks accounts (disbursement bank and collecting banks

a/c) in to the Escoms operative and non-operative accounts

– Issue of instructions by KPTCL to all its field units to continue to remit the

revenue collections to the non-operative account of KPTCL until commercial

arrangements are put in place

– Issue of working instructions by the new companies to all the collecting bank

branches to transfer the remittance by the field units to the designated bank

account of KPTCL

Phase 1 - Immediate steps

• Cash flow:-

– KPTCL to provide necessary funds to the Escoms to meet their operational

requirements based on the requisition for funds received form the Managing

Directors of the respective companies

– Issue of instructions regarding sending of requisitions for payment to capital

supplies i.e. Maintenance of priority registers for payments, out of turn

payments, minimum credit period to allowed etc.

• Debt servicing:-

– Servicing of monthly debt obligations of KPTCL and four ESCOMs during

the transition period

– Submitting “Forced Debt” servicing schedule to GoK

Phase 1 - Immediate steps

• Inventory:-

– Issue instructions by KPTCL on operation of material stock with effect

from the formation of new companies

• Interface/Boundary metering:- – KPTCL and Escoms to take joint meter readings at inter-face points and

determine the energy received by each Escom

Phase 2 – Steps to be taken during transition

Immediately after the corporate offices of the new companies are

established and minimum administrative and operational facilities are put

in place, KPTCL and Escoms have to take the following steps:

• Capital and Revenue Budget:-

– KPTCL to prepare capital as well as revenue budget for the Escoms based on the

aggregate capital and revenue budget approved by the KERC for the year.

Escoms have to approve the capital and revenue budgets in their first Board of

Directors meeting

• Cash flow statements:-

– Preparation of cash flow statements on the basis of approved budget duly

indicating the month-wise cash inflows and outflows

Phase 2 – Steps to be taken during transition

• Banking arrangements:- – Finalize funds transfer and remittance arrangements with the Bankers

(At PAR facility etc)

• Closure of accounts:- – Issue of instructions to all the accounting units for closure of accounts as

on the effective date of transfer scheme

• Split ERC:- – Splitting the approved ARR/ERC for each of the entities

• Pension settlement issues:- – Finalization of issues relating to payment and disbursement of monthly

pension, settlement of pension, accounting of pension payments etc

Phase 2 – Steps to be taken during transition

• Transfer of institutional loans:-

– Taking measures to identify and transfer individual loans to each of the new

entities as per the transfer scheme after due consultations with the

Government and lenders

• Drawl of Loans:-

– Putting in place an arrangement to draw the loans from institutions/lenders in

respect of various on going schemes for which loans have already been partly

drawn

• Advances to staff:-

– Evolving a procedure for sanction of advances to staff (HBA,HPA,MCA etc) and

maintenance of accounts there on (both existing and new)

Phase 3 – Final steps to make the Escoms fully independent

• Pairing off of inter-Escom transactions:- – Paring off of inter-company transactions that would have happened

during the initial transition period and final settlement thereon.

• ESCROW issues:- – Addressing issues relating Escrow accounts

• Notification of Final Transfer scheme:- – Notification of Final Balance sheets after expiry of the provisional

period and incorporation of balances at the accounting unit levels

• ARR Filing:- – Filing of ARR independently for each of the disaggregated entities from

the ensuing years

Thank you