Draft Rejoinder To Govt Of Orissa Reply-ver2[1][1].0 From Piyus Mohanty

Page 1 of 12

BEFORE THE ORISSA ELECTRICITY REGULATORY COMMISSION, BIDYUT NIYAMAK BHAWAN, KALYANI COMPLEX, UNITVIII, BHUBANESWAR Case No.35 of 2005 IN THE MATTER OF Sarat

Chandra

Mohanty

………………………………

Petitioner And IN THE MATTER OF Reliance

Energy

Ltd.

&

Others………………………..

Respondents IN THE MATTER OF Reply to Rejoinder filed by Dept. of Energy, Govt. of Orissa. MOST RESPECTFULLY SHEWETH: Para wise Reply: -

1. That, in reply to the Para – 1 to 7, it is most respectfully submitted that the submissions are the statements of facts and needs no reply.

2. Reply to Para – 8: That, the averments made by the respondent no – 6 are denied. It is most respectfully submitted that, Respondents 2, 3, 4, in compliance with the Notice

issued by the Hon`ble OERC, as a

continuation to the Order of the Hon`ble Apex Court dated 05th January 2009 in Civil Appeal No – 946 of 2007 and 2309 of 2007, have replied to the said notice, and that it is the duty of the Respondent to inform the Hon`ble Commission, that by efflux of time the issue raised therein have lost relevance and in any case does not warrant invoking Section – 24 of the Electricity Act’2003.

Page 2 of 12 3. Reply to Para – 9: it is most respectfully submitted that, allegation made by the Respondent – 6 are erroneous. The Discoms have throughout the proceedings in Case No – 35 of 2005 submitted their replies with specific instances of improvement in performance, initiatives taken, and, at no point of time has the same been challenged. On the contrary, allegations made by the petitioner are vague, not specific, based on hearsays and not supported with facts. In any case the reports of the Special Officers appointed by the Hon’ble ATE have gone into the specifics and ought to be relied upon. Therefore charges levelled by the Petitioner ought not to be relied upon.

4. Reply to Para – 10: It is most respectfully submitted that, the averments made by the Respondent – 6 are erroneous and unrelated to the context in which it is being made. It is respectfully submitted that Discoms are separate, legal corporate entities registered as such under the Companies Act’1956 and distinct from REL. The submissions made by the Discoms were in relation to a specific allegation made regarding apparent refusal of REL to renew the Share Holders Agreement and this respondent is advised not to deal with the same.. The Discoms are governed by their

Article of Association and are

answerable to its Board of Directors of which the CMD, GRIDCO is its Chairman and as-such there has been no specific instances of clear abdication of responsibilities as has been alleged by Respondent No 5.Further the Discoms by virtue of their Licenses are also answerable to the OERC. . In reference to averments made in OERC Case No – 115 of 2004 dated 28.02.2005 it is denied that Discoms did not take any steps in this regard as expected of them. Discoms have already placed on record the steps taken by them regarding the raising of a loan. Hon`ble Commission is already aware that Discoms had obtained an in principle sanction from Union Bank of India for an amount of Rs 450 Crores loan at an interest rate of 9 % p.a. subject to compliance of certain terms and conditions which includes approval of OERC, GRIDCO and

Govt

of

Orissa.

However

stake

holders

support

was

not

Page 3 of 12 forthcoming, on account of which, the same could not be materialized. It is submitted that even a recent attempt by the Discoms to raise a loan of Rs 82.17 Crores from REC for SI Initiatives could not materialize due to non- cooperation from GRIDCO i.e. not having accepted to allow for parip assu basis the assets worth about Rs 40 Crores in favor of REC

against with whom assets worth Rs 1275 Crores stands

hypothecated against the NTPC bond of Rs 400 Crores. Thus it is submitted that stakeholders support is mandatory for raising loans. The companies are governed by their Articles of Association and the Share Holders Agreement which have lapsed with efflux of time are as such not relevant. Hon`ble ATE in Order dated 13.12.2006 in Case No – 75 / 2005, wherein REL (now Rel Infra ) and Respondent No 5 were arrayed as Petitioner and Respondents, had passed necessary Orders regarding Share Holders agreement which as such in the absence of being challenged stands is final and binding on all parties and ought not to be adjudicated in this proceedings.

5. Reply to Para – 11: It is most respectfully submitted that the averments made by the Respondent – 6 are contrary to facts and as such denied. The appointments of CEO’s in the capacity of the Managers are in accordance to the provision of Section – 269 of the Companies Act’1956. The responsibly and functions and of a Manager are similar of the CEO. Further Board of Discoms has approved such appointments which by most stretch of imagination should not be treated as a breach of statutory provisions. It is most humbly submitted that, GRIDCO has approached the Company Law Board against the Discoms, sometime around February 2008 praying for increase in equity capital, reconstitution of Nesco`s Board of Directors and appointment of Directors, issue of directives to REL and etc. The Discoms have filed their replies and the matter is as such under adjudication of the Hon`ble Company Law Board. The situation remaining thus, is ‘sub-judice’ and not liable to be interfered.

Page 4 of 12

6. Reply to Para – 12: NTPC Bonds : It is most respectfully submitted that, averments in context of

alleged failure to resolve the issue of servicing Rs 400 Crore NTPC Bond is erroneous and misconceived. The Discoms refer to the decision of the Orissa Cabinet dated 02.03.2007 regarding One Time Settlement of Discom Power Bonds ( NTPC Bonds of Rs 400 Crores) which is as under.

“

CABINET DECISION dated 02.03.2007 “ 3. Energy

Department. Subject: One Time Settlement of Distcoms Power Bonds (NTPC Bonds) of Rs.400 crore. Approved. GRIDCO is allowed to negotiate with NTPC for settling the outstanding amount of the "Power Bond" issued by WESCO, NESCO & SOUTHCO under One Time Settlement Package (OTS), NTPC has pressed GRIDCO for redemption of the defaulted Bond amount as a "fall back arrangement" as per the terms and conditions of the Bond. GRIDCO is also allowed to mobilize funds from Bank/Financial Institutions to the extend of the settlement amount and to pay to NTPC. The facility of OTS is available to GRIDCO only. It is ascertained that, concessions like reduced rate of interest from 12.5% to 8.5%, cash incentive of 19% of Bond value and waiver of interest due to delayed payment, waiver of 60% of the DPS etc. will be negotiated by GRIDCO under One Time Settlement

.”

It is clear to Discoms

from above that at no point of time did the

cabinet issue directions as alleged in 12(i),

12 (ii). The Discoms, in

order to avoid loading the consumer of possible tariff hikes in future arising out of a settlement of such bonds on original terms and conditions

had

prayed

for

extension

of

the

same

terms

and

concessions as availed by the Gridco vide several letters, which was

Page 5 of 12 subsequently turned down. It is further submitted that keeping in mind the interests of the consumers in the state, Gridco ought to have allowed extension of such terms to Discoms:It is further submitted that Hon`ble Commission, has consistently maintained in its consecutive tariff orders starting from 2001, that the Rs 400 Cr NTPC bonds ought to serviced at 8.5% in accordance with the OTS Scheme since its order in FY 2001. Further Hon`ble Commission has in those orders has also advised the Govt to pass on the benefits to the end users of electricity on account of the reliefs that would be available if securitization shall be effected in line with the one time settlement scheme approved by Govt of India to be made effective from 01.10.2001. Reverting back to servicing the same at old terms and conditions is a case of promissory estoppels and would lead to considerable burden on the consumers. Accordingly, Wesco, Nesco and Southco would be required to claim Rs 22.4 Crs, Rs 32.3 Crs and Rs 30.68 Crs respectively towards the differential interest in their ARRs leading to an increase of about 5.3 p/u for Wesco, 9.5 p/u for Nesco & 22.3 p/u for Southco. It is further submitted that interests of the consumers should be kept in top priority and that one organization can not be seen to profiteer at the out of the misery of the other. It is further submitted that Discoms have always strived for an out of court settlement with GRIDCO and have written several letters outlying various options. Yet GRIDCO instead of seeking the good offices of the Hon’ble Commission sought to approach the Company Law Board (CLB) for judicial redress being Case No – xxxxx and xxxxxxx. The Discoms and GRIDCO are amenable to the jurisdiction of the Commission and seek the services of Respondent no – 5 to facilitate the process. Copies of the Letter written to GRIDCO seeking an out of Court settlement are shown as Annexure – 1. GOVT ARREARS In the context of Govt arrears and the suggested means of recovery, it is most respectfully submitted that, the averments made by the

Page 6 of 12 Respondent no – 6 are erroneous and berets of facts. The arrears dues of Govt is as under WESCO Arrears as 71.59

NESCO

SOUTHCO

TOTAL

67.81

59.60

199.00

on 31.3.2009

The Discoms have from time to time individually and collectively intimated Govt of Orissa the arrears position and

submitted lists of

defaulting Government departments, Bodies and state owned PSU’s which have yielded no results. The details of submissions are as under sought help. It may be appreciated that ground realities are such that it is not possible for the Discom to deprive Govt. Departments of electricity as because of vital functions performed by many such Govt. departments, which would otherwise lead to sever law and order problems. Additionally there have been instances of Govt issuing guidelines to avoid disconnection during certain period of time. Copy of Letters issued to GoO is shown as Annexure 2 Thus it is submitted that support from Govt. is but final for successful credit control activities like disconnection etc. Payment of Annual Inspection Fees for inspection of Electrical installations: Discoms respectfully submit that there was not even a whisper of allegation regarding non payment of annual inspection fees for inspection of electrical installations in either the OERC Notice cum Order dated 27th January 2006 issued to the them or in the subsequent proceedings before the Hon`ble Tribunal or in the proceedings before the Hon`ble Apex Court wherein Respondent No 5 was a party, and is as such barred from adding new issues at this stage inasmuch that the same is erroneous. The Discoms had filed a writ petition before the Hon`ble Orissa High Court challenging the Gazette No 13 dated 29.3.2002 and Notification No 2309 dated 22.06.2002 of the Chief Electrical Inspector, Govt of Orissa. The Hon`ble Orissa High Court

Page 7 of 12 without expressing itself of the merit of the case advised the petitioner Discoms to initiate appropriate steps before the appropriate forum as per Clause VI of the said notification. Thereafter the matter is pending before the Civil Judge ( Sr Division), Bhubaneswar ( C.S No 252 of 2007 for Southco, C.S No xxxx of xxxx for Wesco and C.S No zzzz of zzzzz for Nesco0

7. Reply to Para – 13:

, Averments made are denied. It is most

respectfully submitted that Discoms have been discharging their duties and obligations as per their terms and conditions of license. The Discoms have been paying their BST dues in full, employee salaries and undertaking need based R&M works. Discoms have been paying the BST bills in full since April 2001. With all revenue receipts escrowed to Gridco, it is further stated that upto December 2008 , aggregate surplus amount of Rs 580 Crs towards were paid to GRIDCO after payment of the full current BST bills and meeting net salaries and repair and maintenance expenses. The said amount was not utilized by GRIDCO either towards servicing or towards payment of NTPC bonds, once again despite being aware of the fact that it shared a pari passu charge in respect of the same with NTPC interest costs over and above the BST payments. It is denied that their have been any violation of various Tariff Orders as alleged by Respondent No 5. The accounts of the Discoms are subjected to statutory audits appointed by Gridco, passed in an Annual General Body Meeting and as such no such allegations of unilateral and arbitrary adjustments are tenable. World Bank Loan: It is respectfully submitted that according to Kanungo Committee recommendations “the World Bank loan shall be passed on to the DISCOMS as 70% loan @ 13% interest per annum and balance 30% would be treated as grant”. It was the DISCOMS case that these recommendations ought to be implemented. It was further submitted that taking into consideration the interest rate scenario at the relevant time, the rate of interest of 13% on the World Bank loan is high for DISCOMS, more particularly for the poor consumer profile and

Page 8 of 12 DISCOMS sought the help of GOO and Government of India in the larger interests of the consumers in revising it in line with the prevailing interest rates. The aforesaid submissions insofar as the treatment of IBRD loans are concerned was also accepted by this Hon`ble Commission in its Order dated 1st December 2008, yet Govt did not issue any letter regarding passing on the benefit of treating 30% of World Bank Loan as Grant. Rather stringent conditions were imposed

making

the

grant

conditional

and

contingent

to

the

performance of the Discoms without any commitment on funding the cash gap of Rs 3240 Cr which was considered as a pre requisite for achievement of performance targets by the Kanungo Committee. Therefore such imposition of conditions were in contrast to the letter and spirit of the recommendations and Discoms welcome a formal communication from Respondent No 6 in this regard. Counter Part Funding:

it is most respectfully submitted that the

allegations made regarding counter part funding is erroneous. Discoms have already submitted the steps taken by them in arranging counter part funding. The Discoms have arranged funding to the tune of Rs 39 Crs from REC by pledging rebate receivable from GRIDCO on prompt payment of full BST and security deposit . The details of funds utilized by Discoms and those mobilized by them under APDRP funding has already been furnished in the submissions made by Discoms and this Hon`ble Commission is fully seized of the fact that it was GoO which had initially delayed the project. Even as of now Discoms had arranged a loan to the tune of Rs 82.17 Crores from REC for System Improvement Activities which could not materialized due to reluctance of GRIDCO to provide First charge on parri passu basis on assets to the tune of Rs 1500 Crores which remain hypothecated to GoO and GRIDCO.

8. Reply to Para – 14 : It is most respectfully submitted that, while Discoms appreciate the statement of Respondent no – 6, in recognizing the difficulties faced by the Discoms in raising finances on account of the negative net worth of the Discoms, the allegations of poor performance being the main reason for insufficient internal accruals is

Page 9 of 12 denied. There have been several attempts by Discoms to raised funds from Banks and FIs by hypothecation of assets, which have not fructified on account of apparent refusal by Gridco and GoO to relinquish charge on hypothecation of assets.. Assets of the DISCOMS to the tune of Rs.1500 Crs remain hypothecated to GOO and Gridco and that even for loan to the tune of Rs 82 Crs from REC, which already stands approved, could not be availed by the Discoms, due to post facto refusal of Gridco for cessation of the rights of first charge on hypothecated assets

9. Reply to Para – 15: it is denied that, there is a failure to introduce energy audit and spot billing. The steps taken by the Discoms in-spite of constraints and liquidity crisis have already been elaborated in its submissions before the Hon’ble Commissions in response to the show cause notice. This has reference to the status report submitted by the Special Officers appointed by the Hon’ble ATE, where in vide clause 2.83 the progress made is highlighted. It is submitted that activities as aforementioned are continuous in nature with scope for improvement and the Discoms have accordingly doing so. Amidst the difficulties, the Discoms have gone ahead with Spot Billing and have installed 600 numbers of AMR’s through which remote meter reading can be done and billed accurately. Therefore any allegations regarding failure to those Energy Auditing & Spot Billing is unfounded. It is denied that there has been any disobedience and default in this regard by Discoms.

10. Reply to Para – 16: it is most respectfully submitted that, the allegations made by Respondent – 6 are bereft of content and truth. The Discoms with emerging times have recruited manpower as per requirement, the details of which have already been a part of the Discoms submissions in the current proceedings and as such requires no reiteration. Introduction of Franchises: Discoms, Wesco in particular have introduced the concept of Franchises much before it was made a part of policy. Reference is placed to the comments in the Implementation

Page 10 of 12 Completion Report of the World Bank dated 29th December 2004, which is as under. “4.5.2 At the community level, thousands of village committees have been established and laid the foundation for pilot franchising programs in one of the distribution companies (WESCO); initial results from franchise operations indicated that losses could be reduced, and collections and connections increased. However, flaws in regulatory design and market structure are preventing any significant expansion of the franchising program. During the pilot phase, the franchisee was rewarded for collection improvement by splitting the incremental revenue generated with WESCO. The distribution companies have tried to advance an alternative model, dubbed the "inputbased" approach. Under this scheme, franchisees would pay for the discoms for bulk power and then sell it on to the customers. Obviously, this could only work if retail rates were higher than the bulk rate offered by the discoms, which they are not (Rs 1.3 per kWh is the household rate for the first block, compared to Rs 2.3 per kWh that the distribution company can offer to franchisees). As a result, the franchise program in rural Orissa has stalled, as no private company would agree to such terms ' In turn, this development makes the further strengthening of village committees problematic.” In the meanwhile the three Discoms have already signed agreements with Ms Enzen Global on an “input based revenue sharing model”, the performance review of which is conducted by the Hon`ble Commission from time to time.

11. Reply to Para – 17 : it is most respectfully submitted that, reply by Discoms to the Hon’ble Commissions Order dated 25.10.2005, 03.10.2005 and 30.09.2005 have been furnished as supporting

Page 11 of 12 document with their appeal at Hon’ble ATE which is part in Volume – II of our submisssions.

12. Reply to Para – 18: it is most respectfully submitted that, the Discoms have submitted details of material procured by them to the Hon’ble OERC in performance review meetings that are held by this Hon`ble Commission and submit that the same has been done in a transparent manner.

13. Reply to the Para – 19: It is most respectfully submitted that, the Discoms have placed on record and relied on neutral Third party observations regarding the improvement in quality of power supply since privatization. It is denied that Discoms are complacent and have failed to realize ground realities and do self assessment. The Discoms have promptly acted to any feedback received from the consumer forthwith and are committed to provide reliable power.

14. Reply to the Para – 20: It is most respectfully submitted that, the averments made by the Respondent no – 6 are denied. It is respectfully submitted that Sector viability rather than GRIDCO’s profitability should be the main issue to be deliberated upon. The discoms at the lowest end of the value chain and cost chain need to be made viable. It is submitted that utilization of trading surpluses to off set the preprivatization liabilities are bad in law and in contravention of the principles enunciated by this Hon`ble Commission in its previous tariff orders. Setting up of Police Station: Averments made by the Respondent no – 6 are denied. The impaired functioning of the Special Police Station on account of inadequate staff, absenteeism ( staff are diverted for VIP Duty, festival duty and etc ) and etc have already been placed in the meeting chaired by the

Hon’ble Minister of Energy on

16.07.2008. In the meanwhile GoO has only declared 29 places to be special police stations through Notification dated 23.10.2008. These 29 police stations are yet to be operational. Implementation of Section – 126 : Special Courts

Page 12 of 12 It is submitted that while Section 126 of the Electricity Act’2003 deals with investigation and enforcement., Section – 135 to Section – 152 pertains to offences and penalties and both are provisions are necessary for effectively curbing power theft. Discoms have invoked the Provision of Section – 126, the details of which are as under. Wesco

Nesco

Southco

2006

4202

190

-2007 FY 2007-2008

4366

58

FY 2008-2009

4687

47

FY

Thus by no stretch of imagination can it be stated that Discoms are not taking steps in curbing power theft. Yet, the provision of section – 135 will act as strong deterrent to Power theft, for which the establishment of Special Police Station and Special Court is vital. . It is submitted that Reply to para 21 to 32 pertain to RIL and that the same shall be dealt by them separately.