Under the Indian Electricity Act, these companies can earn a maximum of 16 per cent on capital (although it does not accrue to the company directly). What this means is that the profits have to be earned in reality. In the Orissa venture, these subsidiaries will have to procure power, distribute it to consumers and collect the charges. However, past history shows that there are a few handicaps.

In an earlier experiment, Gridco had given the central zone (comprising thelucrative Bhubaneshwar, Cuttack and Dhenkanal) under a private management control to BSES in September, 1996. However, Gridco terminated this contract ahead of the 3-year schedule, sighting failure on the part of BSES. Gridco claimed that despite undertaking a capital expenditure and upgrading the distribution system, collections did not improve. If that was BSES' experience in the past, how would it change now?

BSES reportedly had union problems in Orissa, presumably from Gridco. It was felt in private circles that Gridco employees were not too keen to help BSES. Although the current situation is not known, investors keen to pick up the BSES stock should take this uncertainty into account. Besides, Orissa is known for big power thefts; transmission and distribution losses are high at around 47 per cent. On the other hand, the regulatory authority has pointed out that it will allow only a total of 35 per cent total losses, (10 per cent commercial and 25 per cent technical).

Gridco had raise the tariffrate from 94 paise in 1993 to Rs 2.21 in 1997. The regulatory authority has reportedly refused to grant a 17 per cent hike, permitting only a 10 per cent hike. The crucial issue is that the authority will take only 35 per cent losses for granting tariff revision. So, future profitability would certainly depend on the new set-up to bring the T&D losses down. And, this is certainly no easy task. Apart of other factors, further investments will have to be made.

These are not the only negatives. The three joint companies are likely to have a high debt liability, going by Gridco's past. There could also be liability for immediate payments. On the power procurement front, Gridco was earlier forced to buy 30 per cent of its power from NTPC at a high rate of Rs 2.55. Also, technical problems with the power supply threatened to damage Gridco's transmission equipment, which would now stand transferred to the new joint venture companies.

Gridco is reportedly making losses, as its monthly outgo far exceeds itsrevenues, due to debt serving, wage bill and power purchases. How this picture can change to one of profit is anybody's guess. The job of plugging power leaks, thefts, installing metres, removing corruption at lower levels, tackling unwilling customers are not going to be easy tasks.

A BSES spokesperson said while making the investment in the Orissa venture, due diligence had been done. But investors will be uneasy until they know the balance-sheet of the new venture and how BSES plans to ensure that the investment yields a positive flow to its bottomline.