Battle between Orissa govt and AES set to intensify

Dilip Bisoi

The Orissa government and US power giant AES Corporation appear to be engaged in a war of wits in a bid to checkmate each other. AES, which has acquired 51 per cent stake in Cesco, a power distribution company in Orissa, is planning to withdraw from retail business in the state. In fact, it is trying to heap the blame on the state government for its failure in running Cesco. The state government, however, is making every effort to prevent AES’s exit from the management of Cesco, as it would mean a loss of Rs 421 crore that the latter owes to the state-owned transmission concern, Gridco, towards bulk supply of power.

Amidst all this din, the biggest casualty has been power sector reforms in the state.

It all began in May 2001, when Orissa Power Generation Corporation (OPGC), an AES-managed generation utility, switched off supply to Gridco. The OPGC managing director, Greyson Harvell, did this as Gridco had failed to clear the Rs 170 crore due towards supply. This led to a tussle between the Orissa government and AES. The state government, which has a majority in the OPGC board, restricted the managing director’s power and asked for restoration of generation and supply to Gridco. Crying foul that non-supply of power was a breach of contract, the Gridco chairman-cum-managing director (CMD), Priyabrat Patnaik, demanded Mr Harvell’s arrest. In retaliation, Gridco built up pressure on AES-managed Cesco to cough up the Rs 421 crore that the latter owed to the former towards bulk power supply. Eventually, uneasy peace was restored following a court directive to OPGC to resume supply to Gridco.

However, before the generation units at OPGCs 2x210 mw Ib Valley thermal power stations could be ignited, trouble resurfaced with AES announcing its decision to quit the Cesco management. Stating that there was no conducive atmosphere in Orissa for retail business, AES blamed the state government for its failure in running Cesco. The unviable tariff structure, delay in passing on the World Bank loan, and the poor law and order situation were some of the issues raised by AES.

AES observations were, in fact, not off the mark. Vexed with dilly-dallying by the state government in passing on the loan to power utilities, the World Bank has suspended its $350 million loan to Orissa. Early this month, AES made a formal submission to Orissa expressing its desire to withdraw from the Cesco management. It also sought Gridco’s permission to sell 51 per cent stake in the company which it bought in 1999 for Rs 42 crore. Gridco, has however, rejected AES’s proposal.

However, the situation took a turn for the worse last week as AES suddenly abandoned the Cesco management. This led to chaos. Cesco employees, who had not received their salary for July, threatened to strike work. The state government intervened and released Rs 5.80 crore to Cesco for payment of salaries. But the government messed up the situation by announcing that the salary bill would be met from the World Bank loan. Realising the faux pas, it soon clarified that the amount was for settling part of the Rs 45 crore various government departments owed to Cesco towards bills. This gave AES an opportunity to put down the Orissa government, stating that the payment of salary was an act of interference in the Cesco management. AES said the state government had violated the escrow account agreement as all revenues are supposed to be channelled through this mechanism.

Meanwhile, Gridco has filed a petition in the Orissa Electricity Regulatory Commission (OERC) alleging that Cesco failed in its commitment and thus violated the distribution license conditions. It has urged OERC to direct the distribution company to restore power supply in the flood-hit areas.

In reply to the petition, AES said it was not viable to run the distribution business because of flaws in the regulatory policy and administrative environment. OERC is expected take up the petition for hearing soon. One thing is, however, clear from all this—the battle between the Orissa government and AES is all set to get fierce now.