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BEFORE THE ORISSA ELECTRICITY REGULATORY

COMMISSION,
BIDYUT NIYAMAK BHAWAN, KALYANI COMPLEX, UNIT-
VIII,
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.
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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
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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.
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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
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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
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Respondent no – 6 are erroneous and berets of facts. The arrears dues

of Govt is as under
WESCO NESCO SOUTHCO TOTAL
Arrears as 71.59 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
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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
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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
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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
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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 "input-
based" 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
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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 pre-
privatization 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
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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
FY 2006 4202 190
-2007
FY 2007-2008 4366 58
FY 2008-2009 4687 47

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.