Gridco in debt trap over wrong valuations, inaccurate projections

Suresh Nair

Mumbai, July 15: Inaccurate projections on improvement in transmission and distribution losses (T&D) and the over-valuation of assets by international consultants have landed Grid Corporation of Orissa Ltd (Gridco) in a debt trap.

The mandate to these international consultants for unbundling of the Orissa State Electricity Board in to different generation, transmission and distribution companies was given by the World Bank.

Gridco, the holders of the Orissa transmission and bulk supply licence, has stated that the up-valuation of assets at the time of transfer of assets during the formation of Gridco from OSEB has been the primary reason for the current financial crisis that it is undergoing.

In its application filed to the Orissa Electricity Regulatory Commission (OERC) for approval of re-scheduling of loans and for financial restructuring OERC, Gridco says: “The transfer of assets from OSEB to Gridco was carried out after there valuation of the same, thus leading to an increase in revenue requirement of Gridco in the subsequent years due to additional depreciation on the capatilised asset, enhanced requirement for operations and maintenance costs, increased employee costs and return on the revalued capital base.”
This could be worrysome for some of the international consultants which were mandated to value the assets of Orissa State Electricity Board (OSEB). In this case the asset of OSEB was valued by KPMG, while the projections on T&D losses were made by PricewaterhouseCoopers.

The OERC in its order dated March 16, 2001 has observed that the cash problem of Gridco started right from when it was conceived as the government of Orissa up-valued its assets by Rs 1,153 crore and adjusted a good part of receivables against the dues of the state government and passed on to Gridco, payables to NTPC and other creditors on April 1, 1996 amounting to Rs 465.5 crore.

OERC has further observed that the financial modelling in the reform programme had an inherent flaw with regard to the assumption on the prevailing levels of T&D losses.

The commission has also noted that the pace of reduction in T&D losses, possibility of improvement in the revenue generation in the short term and the load growth in the sector had inherent flaws.