THIS MEMORANDUM OF UNDERSTANDING is made between Ministry of Power, Government of India and the Government of Andhra Pradesh to affirm the joint commitment of the two parties to reform the power sector in the State of Andhra Pradesh, and to set out the measures which AP will implement in addition to the reforms initiatives already taken up by the Government of A.P, and the support that the Government of India will provide.

I. PREAMBLE:

Andhra Pradesh is committed to reforming its power sector in order to,

a) to provide good quality power to all the people of Andhra Pradesh at affordable cost.

b) achieve commercial viability in the power sector so that the sector can finance its investment needs and is not dependent on budgetary subsidies.

To achieve this objective, Government of Andhra Pradesh has taken following steps :

1. Andhra Pradesh Electricity Reforms Act facilitating restructuring of the power sector has been made effective from 1st February, 1999.

2. The vertically integrated monolithic APSEB has been unbundled into two Corporations, namely APTRANSCO for transmission and bulk supply & distribution and retail supply & APGENCO for generation.

3. 4 distribution Companies have been incorporated under Companies Act as subsidiaries to APTRANSCO and the assets, liabilities and personnel have been allocated to the distribution Companies. The licenses for distribution and retail supply to the distribution companies have been issued by APERC.

4. The Government of Andhra Pradesh has established the Andhra Pradesh Electricity Regulatory Commission (APERC). APERC is functional and has issued its first tariff order for 2000-2001 which has come into effect from 4-6-2000.

5. State Government has made effective an ordinance on 31.7.2000 which lays stringent punishment and penalties for theft of electricity.

With these steps Andhra Pradesh has become one of the pioneering States to implement power sector reforms with vigor and a sense of urgency.

1. Government of Andhra Pradesh would work to achieve 100% electrification of all villages and hamlets by 2007.

2. The Distribution Companies will be converted into Joint Venture Companies with Private Sector Participation. In all these Companies the Joint Venture partner will hold the majority shares and management control. The selection of JV partner will be through international competitive bidding. The process of formation of first Joint Venture Distribution Company is expected to be completed by June 2002 with Joint Venture partner in position with management control.

3. Andhra Pradesh will achieve break even in the distribution operations in two years and positive returns thereafter. For this purpose energy audit will be undertaken at all levels taking the sub-station as a unit by December, 2001 . The correct assessment of T&D losses will be made as a follow up of energy audit and steps taken to eliminate theft in two years.

4. Andhra Pradesh shall draw up time bound program of metering as follows :

a) Metering of all 11 KV and above feeders by March, 2001

b) Metering of all distribution feeders by December, 2001.

c) Efforts shall be made to complete 100% metering of all consumers by March, 2002.

d) Development of an effective distribution Management Information System.

5. Andhra Pradesh will implement an effective program of demand side management through energy efficient bulbs, tube lights, agricultural pump sets and time of the day metering and differential peak and off peak tariffs.

6. Andhra Pradesh will maintain grid discipline, comply with grid code and carry out the directions of Regional Load Dispatch Centre.

7. Government of Andhra Pradesh will secure outstanding dues of CPSUs as per scheme approved by Government of India. After  securing Government of Andhra Pradesh will ensure that CPSU outstanding dues does not cross the limit of 2 month’s billing

8. The tariff orders issued by APERC will be implemented fully unless stayed or set aside by court orders. The GoAP will ensure timely payment of subsidies required in pursuance of GoAP’s orders on the tariff determined by the APERC.

9. The decision of the Chief Ministers/Power Ministers Conference to have a minimum agricultural tariff of 50 paise per unit will be implemented immediately.

1. Government of India will extend support to Government of Andhra Pradesh through the mechanism of APDP/PFC to undertake Renovation and Modernization of Hydro Electric Station of Machkund HES (3 x 17+3 x 33 MW), Tunga Bhadra HES (TB Dam PH 4 x 9 MW +Hampi PH 4 x 9 MW), Thermal generating stations of BTPS, KTPS – A. The schemes are estimated to cost approximately Rs. 354 crores.

2. Government of India will support through APDP execution of schemes of strengthening of sub transmission and distribution in three identified circles through short term medium and long term measures to reduce T&D losses to 18% and make these model circles.

3. Structural Adjustment

The Government of India will extend its support to GoAP in getting the funds from the financial institutions for structural adjustment during the transition period before the power sector makes a turn around.

4. Supply of Additional Power

Government of India will allocate additional 40 MW of power from Southern Region and 100 MW from Eastern Region subject to completion of following transmission lines by necessary to evacuate the power from this region by Andhra Pradesh.

400 KV Khammam - Hyderabad Double Circuit Line

220 KV Nidadavolu – Bhimabolu Double Circuit Line

220 KV Lower Sileru – Bommur Double Circuit Line

5. GoAP will secure out standings dues of CPSUs as per scheme approved by Government of India. After  securing GoAP will ensure that CPSU outstanding does not cross the limit of 2 month’s billing.

6. Government of India will assist GoAP in execution of critical transmission projects described in Annexure – I(A) through PFC and PGCIL and consider assistance for transmission lines at Annexure – I(B).

7. The Government of India would allocate additional power from new central sector generating stations directly to the commercially viable distribution companies which demonstrate their capacity to pay for the power they purchase with the consent of Government of Andhra Pradesh.

9. In recognition of Andhra Pradesh being a reforming State, Power Finance Corporation would be prepared to finance its investment needs in relaxation of normal conditionality relating to exposure limit, ROR and DSCR.

 Implementation of the MOU would be monitored every three months.

 This Memorandum of Understanding will be for a period of five years, and will be subject to review annually.

 Through this Memorandum of Understanding, both parties affirm their commitment to fulfill the reform activities and achieve the objectives mutually agreed upon in this Memorandum.

Signed this day the of ,2001 at New Delhi.

For and on behalf of For and on Behalf of

Government of Andhra Pradesh. Government of India.

Chief Secretary Secretary Ministry of Power