Why bids for CESU Odisha have lit up the power sector

The winning bidder will operate, manage and invest in CESU Odisha as a distribution business licensee for 25 years. Photo: Mint

The winning bidder will operate, manage and invest in CESU Odisha as a distribution business licensee for 25 years. Photo: Mint

Why is the CESU deal important for India’s power sector?

It would be the first such deal in nearly two decades in India’s power sector since the 2003 privatization of Delhi power distribution. The transaction will serve as a bellwether of investor interest in India’s power distribution business. Power distribution companies have so far been the weakest link in the electricity value chain. Also, it is a test of the Biju Janata Dal government’s political will in drumming up investments in the countdown to state assembly polls next year. The Odisha Electricity Regulatory (OERC) has initiated the sale process of CESU Odisha.

What is the opportunity here?

The winning bidder will operate, manage and invest in CESU Odisha as a distribution business licensee for 25 years. With an annual revenue of ₹3,200 crore, CESU Odisha supplies power to around 2.2 million consumers in Bhubaneswar, Cuttack, Paradip, Angul, Talcher and Dhenkanal. With an area of 29,354 sq km, comprising 18.9% of the state’s landmass, investors have been eyeing it for sometime. Given the push for rural electrification, Odisha’s average power demand of 4,000 megawatts is growing. The centre is focusing on reviving electricity demand and has proposed power sector reforms.

What are the challenges?

Apart from a high aggregate technical and commercial loss of 34.65%, the successful bidder will have to deal with issues such as unreliable electricity supply, low tech usage and old, ageing infrastructure.

What’s the significance of Odisha in power distribution privatization?

Odisha, earlier known as Orissa, was the first state to privatize its power distribution sector into four discoms, including the Central Electricity Supply Company of Odisha Ltd (Cesco). The forerunner of CESU Odisha, Cesco was privatized in 1999 ,with the licence granted to US-based electricity producer AES Corp. OERC revoked the licence in 2005. There was only one bidder in an earlier attempt to privatize CESU Odisha, forcing the process to be cancelled.

What’s the role of discoms in the power sector’s woes?

Poor payment records of state-owned discoms have not only hit power generation firms, but also contributed to stress in the banking sector. The discoms did manage to narrow their losses to ₹17,352 crore in FY18 from ₹51,096 crore in FY16, as per government data. But with the 10% rise in billed energy, the gap between average supply cost and average revenue realized is narrowing. The centre plans to rationalize electricity tariff categories and simplify tariff slabs.

First Published: Fri, Oct 12 2018. 10 18 AM IST

Source: Livemint