THIS MEMORANDUM OF AGREEMENT is made between Ministry of Power, Government of India, and Government of Karnataka to affirm the joint commitment of the two parties to reform of the power sector in Karnataka State, and to set out the reform measures which Karnaka State will implement, and the support that the Government of India will provide.

I. PREAMBLE:

Karnataka has been a pioneer in the power sector having established the very first hydel generating station at Shivasamudram in 1902. Karnataka has been in the forefront of adopting innovative approaches to the problems of the power sector. Several important steps in restructuring the power sector have been taken by Karnataka over the years, including the separation of Generation of power from Transmission and Distribution, by setting up the Karnataka Power Corporation in 1970. The State is now again on the threshold of vital and far reaching reforms.

The GOK is committed to a time-bound reform and restructuring of the power sector in the State. The objectives of its reform programme are to promote the development of an efficient, commercially viable and competitive power supply Industry, which provides reliable and quality power at competitive prices to all consumers in the State.

The GOI is committed to support the process of reform of the power sector in the State of Karnataka. The Government of India believes that reforms in the power sector are now imperative. Unless reforms are implemented quickly, it may be difficult to even maintain the present quality of power supply leave alone improve it.

This Memorandum of Agreement between the Ministry of Power, GOI and the GOK sets out the steps that the GOK will undertake in a time-bound manner in the process of reform and restructuring and support which the GOI would give to the GOK.

1.UNBUNDLING OF TRANSMISSION AND DISTRUBUTION AND PRIVATISATION OF DISTRIBUTION:

To provide quality power on demand to all consumers, Govt. of Karnataka would undertake.

· Unbundling of the transmission and distribution functions.

· Formation of distribution companies.

· Privatisation of distribution of electricity in a time-bound manner (Annex-I).

2.RURAL ELECTRIFICATION PROGRAMME:

Karnataka would work to achieve 100% electrification of villages and hamlets and extensive coverage of rural households.

3.ENERGY AUDIT:

Karnataka will undetake energy audit at all levels as per the programme to be mutually agreed upon in order to reduce system losses.

4.STATE ELECTRICITY REGULATORY COMMISSION:

Having set up the SERC, the State Govt. would provide full support to the Commission to enable it to discharge its statutory responsibilities.

1. SUPPLY OF ADDITIONAL POWER:

Immediate steps will be taken by the Ministry of Power to allocate anadditional 180 MW from Central Generating Stations (NTPC/NLC). CEA will operationalise the technical and commercial arrangements for supply of this power.

2.TO STRENGTHEN AND IMPROVE THE TRANSMISSION NETWORK AND ENABLE SUPPLY OF ADDITIONAL POWER TO KARNATAKA.

The Power Grid would establish the transmission lines required for

evacuation of power from Talcher Thermal Power station (2000 MW) underexecution by NTPC and Kaiga Atomic Power station (400 MW) which has recently been commissioned. PGCIL and KPTCL will jointly undertake the funding and construction of Raichur – Gooty 400 KV SC line and Nelamangala– Mysore 400 KV DC line by first exploring the possibility of having these lines approved as regional lines. For the other identified lines in the State sector required for system stability in Karnataka Power Grid would enter into mutually satisfactory commercial agreements with KPTCL for developing these lines. (Annex II)

3. STRENTHENING OF SUB-TRANSMISSION AND DISTRIBUTION SYSTEM:

Financial support would be extended to enable Karnataka to upgrade its sub-transmission and distribution net-work in phased manner.

4. REDUCTION IN T&D LOSSES:

· Technical consultancy assistance would be provided for studies for system loss reduction programme, which would include appropriate technology including a high voltage distribution system in a phased manner.

· Financial assistance would be provided for executing the system loss reduction programme.

5. RURAL ELECTRIFICATION PROGRAMME:

The Ministry of Power would through REC provide adquate funding for 100% electrification of villages and hamlets.

6. STRUCTURAL ADJUSTMENT:

Taking note of the need for structural adjustment financing for successful completion of reforms, Ministry of Power would fully assist Karnataka in raising funds for this purpose from financial institutions and other sources.

7. FINANCING:

In recognition of Karnataka being a reforming State, Power Finance

Corporation would be prepared to finance the investment needs in relaxation of normal conditionalities relating to exposure limit, ROR and DSCR.

Studies for reforms and restructuring would be funded by PFC through grants and interest free loans.

8. CENTRAL GENERATING STATIONS IN KARNATAKA:

The Government of Karnataka has made a request for NTPC to set up in LNG-based 2000 MW generating station in Karnataka. Government of India will consider the feasibility of doing so.

9. NEW GENERATING CAPACITY:

GOI will support proposals relating to additional investment in power generation in Karnataka by processing such proposals expeditiously.

10. DEVELOPMENT OF HYDROELECTRIC POWER POTENTIAL OF CAUVERY:

The National Hydroelectric Power Corporation (NHPC) is preparing a plan for optimal utilisation of the untapped hydroelectric power potential estimated at 1150 MWs of the Cauvery River. NHPC would be prepared to execute the four projects which would generate cheap power, subject to the Government of Karnataka and the Government of Tamil Nadu coming to a mutually satisfactory agreement on sharing of power from these projects.

11. DIRECT ALLOCATION OF POWER TO DISTRUBUTION COMPANIES:

The Govt. of India would allocate additional power from new central sector generating stations directly to the commercially viable distribution companies that emerge through the reform process and which demonstrate their capacity to pay for the power they need.

• Some of the modalities of implementation are set out in Annexure – II of this MOA.
• Implementation of the MOA would be monitored every three months.

This Memorandum of Agreement will be for a period for a period of five

years,. And will be subject top review annually.

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

Signed this day, the twelfth of February, 2000, at Bangalore.

I. Installed capacity: Power suply position/peak deficit/energy shortage.

1. The installed capacity as on 1st January 2000 both with KEB and KPTCL is 4216 MW. Besides Karnataka has been allocated a share of 761 MW from the central generating stations owned by NTPC, NLC, MAPP and Kaiga in the Southern Region. In addition, the State has a captive generating capacity of about 1600 MW mostly with large and medium size industrial consumers. The hydel generating capacity constitutes 70% of the total generating capacity of the State. The unrestricted peak demand of Karnataka is 4482 MW and average daily energy requirement of 78 MU per day.

2. With the installed capacity and share from the central generating stations, Karnataka has met a peak demand of 4060 MW, and highest daily consumption of 84.37 MU during January 2000, out of which hydel generation is 36.44 MU, thermal generation is 24.65 MU, and 14.98 MU is supplied from the Southern Regional Grid. In addition, Karnataka is presently importing 7.226 MU; of which MSEB supplies 2.998 MU and 2.784 MU is being received from the Eastern region by utilising the HVDC link between Jeypore in Orissa and Gajuwaka in Andhra Pradesh. M/s Jindal Tracteble is supplying 1.444 MU. Despite these arrangements which have been operationalised, there is a shortage of 6.30 MU (average daily shortage).

3. At present there is no firm allocation of power to KPTCL from the

un-allocated capacity of central generating stations in the Eastern region.However, KPTCL, has signed a PPA with NTPC on 3.12.1999 for purchase of 150 MWs (3.75 MU) on a regular basis from the NTPC stations in Eastern region. This allocation has been made out of the 600 MW capacity which has been made available for constituent States in the Southern Region.

4. NTPC would require a LC to be opened amounting to Rs.15 crores per month so that power could be supplied on an uninterrupted basis. This amount has been assessed on the basis of an average rate of powr exported from the Eastern region at 199 paise/Kwh. The pooled transmission losses due to the power flow in the Easgtern Region has been assessed at 2.5%. there is a subsisting agreement between constituents of the Southern Region and POWERGRID for payment of transmission charges.

II. Additional Power to be made available to Karnataka

1. DVC has been allocated 393 MW from the Generating Stations operated by NTPC in Eastern Region, of which 130 MW has already been surrendered. The DBVC has adequate generating capacity of its own and, therefore, does not require power from NTPC. Therefore, it will be possible to supply 100 MW of

power on a firm basis to Karnataka by NTPC. In view of the transmission constraints which do not permit more power to flow from the Eastern region to the Southern region, transfer of power can be effected by transmitting power from Eastern Region to Northern region and thereafter, to Southern region via the Western region. This would require co-ordination with

UPSEB/NREB. Member (G.O)/CEA, Sri V.V.R.K. Rao will work out the modalities and the nature of agreements to be executed between NTPC/KPTCL/UP Power Corporation/PSEB/PGCIL. This would also require KPTCL to open an additional L/C of about Rs.15 crores per month in favour of NTPC.

2. Karnataka has been allocated a share of 84 MW from NLC Stage-II Mine cut-I and 115 MW from Mine cut-II. There is an “unallocated share” of 220 MW out of which constituents are allocated by CEA. CEA would allocate an additional 80 MW in addition to the existing allocation. This would enable Karnataka to get an additional 2 MU per day from NLC. An agreement has to be executed between NLC and KPTCL for which CEA will have to play a facilitating role.

III. Transmission Systems to be taken up by POWERGRID

1. Karnataka Power Transmission Corporation Ltd. Has suggested several transmission schemes to be taken by POWERGRID, in order to strengthen and improve the reliability of the State transmission system and also to enable surplus power to flow from both the Eastern and Western regions. Some of these lines have already been taken up by POWERGRID and are under execution:-

a) Establishment of Kolar HVDC substation

b) Talcher-Kolar HVDC bipole – for receiving 2000 MW from Talcher for

benefit to the constituent States in the Southern region.

c) Kaiga-Narendra (Dharwad District) 40 KV D/c lines to evacuate power

from Kaiga Atomic Power Station (440 MW) to North Karnataka.

2. Some of the lines are proposed for enabling transfer of power from Maharashtra on a long term basis. A pre-feasibility report will be jointly

prepared by POWERGRID and KPTCL in consultation with MSEB, POWERGRID would

take up the construction of lines after approval of CEA, and after the commercial agreements have been executed. The transmission charges would

have to be borne by KPTCL. These lines would include:-

a) Kolhapaur-Mahalingapur-Narendra 400 KV D/c line along with construction

of 400 KV substations at Narendra in Dharwad District and Mahalingapur

in Bagalkot District.

b) Parli-Hymnabad 400 KV D/c line.

3. The third category includes lines which would benefit Karnataka as well as

other constituents in the Southern region. A pre-feasibility report will be prepared jointly by KPTCL and POWERGRID and there after necessary approvals would be obtained from SREB and CEA. Once these lines are approved as regional lines, it would be possible for POWERGRID to organise the finances and undertake construction. Thereafter, the recovery of fixed monthly transmission charges from the constituent States of Southern region will be done by POWERGRID. The lines proposed to be taken up under this dispensation are:-

a) Raichur-gooty 400 KV S/c line.

b) Nelamangla –Mysore 400 KV D/c line.

4. Efforts will be made to complete the lines envisaged in the next 2-3years.

IV. Strengthening of the Sub-transmission and Distribution System in

Karnataka.

1. A new scheme has been formulated by Planning Commission in consultation

with Ministry of Powr to be implemented with effect from 1-04-2000. Under

this scheme Karnataka along with other reforming States would receive funds for (I) Renovation and Modernisation (R&M) and Extension/uprating of the generating stations (both thermal and hydel); and (ii) strengthening/upgrading/improvement of the distribution system including sub-transmission. In order to derive maximum advantage from this scheme which provides for both grant and loan to be given by the Planning Commission as well as loan by PFC/REC, it would be necessary for Karnataka to prioritize the investments required to undertaken both in urban as well as rural areaas so that the entire State couldbe covered in a phased manner. In the first phase of the programme, Karnataka will cover all cities (population > 5 lakhs, 1991 census) including adjoining rural areas. The investments that could be funded would include (I) Conversion of LT lines to HT lines, (ii) augmentation of transformer capacity, (iii) installation of capacitors at 33 KV, 66 KV and 110 KV substations for providing reactive compensation. This is necessary for improving the voltage profile, (iv) introduction of metering arrangements at major sub-stations and at the premises of bulk consumers and (v) other system improvement schemes.

V. Reduction in T&D Losses.

1. The line losses in different parts of the country based on the actual studies carried out are in the range of 15 to 20%, and power factor is in the range of 0.7 to 0.8. These have resulted in high voltage drop at the consumer end and a typical consumer in the rural area has a voltage drop between 60 to 100 Volts. By converting the extremely long 440 Volt lines to 11 KV lines, losses can be substantially reduced. Under this project the poles, conductors can be reused and only the insulators, cross arms and transformers are required to be modified. The transformers will be of smaller size (10 to 25 KVA) and these will be erected as close to the load centres as possible. Typically, in Haryana every farmer has been given one transformer and in case of A.P. where there are a number of pumps two or three pumps have been clubbed together with one transformer. Along with transformers, the capacitors have also to be installed so that power factor correction is achieved. This also enables capacitors to go on-line when the load is on line and switched off when load is switched off. Additionally, for load management purpose alternate technologies are available. Transformers can be disconnected at different times for necessary required duration to distribute the shortage in an equitable and technically acceptable manner. The investment required will be approximately Rs. One crore per feeder. A district has about 100 feeders and, therefore, Rs.100 crores would be required per District. To evaluate the scheme and to quantify the benefits it would be desirable to select two district which are badly affected by low voltage and line losses. Thereafter, based on the actual results monitored after the implementation the remaining districts can be taken up in phased manner. A feasibility study has to be carried out in the two selected districts to chose the most appropriate system of HVDS taking into account the local constraints. Once the feasibility is established, a detailed project report will have to be prepared with all the technical specifications, requirement of equipment, modification of the system and time frame in which the entire project would be completed. The implementation of the project will be funded by the Energy Conservation revolving fund through a loan at about 7% interest. The repayment period will be seven years, including two years moratorium.

2. The problem of T&D losses including theft can be substantially solved by taking up following activities treating a sub-station as an unit.

a) Installation of pre-paid electronic meter/electronic meters at the sub-station.

b) Conversion of LT line to HT line within the area served by the sub_station.

c) Installation of capactors to improve the power factor at the sub-station.

d) Upgradation/replacement of transformers.

e) Installation of electronic meters on all the consumers lined to high-tension line and the domestic consumers.

The above activities/retrofitting will bring down the T&D losses (including theft and pilferage) in the areas served by the sub-station by 10 to 15% if not more.

3. In athe rural S/S areas the above activities can be combined with a programme of replacement/rectification of the agricultural pumpsets including replacement of suction & delivery water pipes. A large number of studies have proved that replacement of existing low efficiency pumpsets with high efficiency pumpsets and replacement of GI suction & delivery pipes with PVC pipes would refuce electricity consumption straightway by 30 to 35%. Therefore, a combination of rectificaiton/replacement of pumpsets & water distribution pipes and all the activities to reduce T&D losses (including theft and pilferage) as mentioned above, would cumulatively reduce powr consumption in the Sub-station area by 25 to 30% which could easily pay for the investment made in the retrofittings/installation in a short span of time.

4. Similar arraangement can be worked out in the urban areas where instead of replacements/rectification of agricultural pumpsets, energy efficiency in all the major institutional/commercial buildings, water-pumping systems and in the process industries together with reduction in T&D (including theft) losses, would make it possible to get substantial saving in energy conservation. We need to make attempts in both rural and urban areas.

5. It is agreed to create certain demonstrations using funds from PFC/REC/FIs. To begin with, it is agreed to take up energy audit of few urban and rural sub-stations in some districts in Karnataka. The energy audit conducted on lines discussed above will bring about the total investment required in retrofitting and possible savings in energy sub-station-wise. The costs of taking up energy audit and associated activity be funded by the Central Government.

V. Concessional Lending from PFC for Sub-Transmission System

1. Under the Accelerated Generation Programme 9AGSP), PFC had extended concessional lending for some of the programmes of the KPTCL with an interest rate of 9 to 10%. The concessional lending is available for 400 KV transmission line from Shmoga to Nelamangala, Metering, Capacitor Banks. R&M of Shivasamudram/Jog. Other proposals for 220 KV Sub-stations and transmission lines of 110/66 KV have been posed to the PFC for concessional lending. PFC would consider this expeditiously.

2. PFC will also consider suitable finding of KPTCL’s future plans for automation and SCADA covering.

· Expansion of VSATS to cover new generating ans sub-stations, Zonal and Circle offices where video conferencing is also proposed with these offices. (Total cost Rs.10 crores).

· Expansion of SCADA – It is proposed to extend the SCADA system in the State and to have a separate SCADA system for Bangalore. (Total cost Rs.35 crores).

· Expansion of Computerised billing and collection and other packages in 258 sub-divisions, 58 Division offices, 10 Circle offices and 5 Zonal offices besides other offices in the State (Total cost Rs.51 crores).

· Remote reading of meters in Sub-stations: In order to hve a proposer accounting of energy transmitted from sub-stations and sold to the consumers. It is proposed to have remote reading of meters in sub-stations for the purpose of energy auditing. For this, it is proposed to install PCs in each of the sub-stations and associated equipment. (Total cost Rs.18 crores).

· Hand Held Instruments for Meter Reading: In order to effectively read meters of consumers without any error, it is propsoed to provide hand held instruments to all the meter readers in the State. The readings recorded in these instruments will be down loaded onto the PCs in Sub-divisions. (Total cost Rs.7.5 crores).

· Access Control: In order to monitor the movement of staff in major offices, it is proposed to introduce multi purpose SMART Cards.

3. Under the commitment made by Govt. of Karnataka to PFC for reforming the power Sector, PFC will provide the following assistance linked to milestones of Reforms. (R-OFAP).

a) Financial Assistance:

· Comprehensive package of financial assistance and support of the investment plan in relaxation of the current policy in regard to exposure limit, for considering sanction.

· Relaxation in eligibility conditions for State Utilities on ROR, DSCR etc.

· Extent of funding for all types of projects to be 80% of the cost of the project as against lower percentage for different schemes as at present.

· Provide concessional lending for selected projects.

· New private utilities formed as a result of reform process, also be considered for funding.

· Providing support to the financial restructuring plan recommended by reform studies and agreed to by lenders.

b) Grant/Soft Loans – studies – Technical Assistance:

· Grants to carry out reform related and other studies.

· Interest free loans/soft loans provided for studies.

· Grant offered to SERCs for procurement of computers and accessories, conducting reform related studies, seminars and workshops.

c) Technical Assistance:

· Assisting States in finalising Terms of Reference, bidding, evaluation and selection of consultants for carrying out reform related studies.

· Support institutional strengthening of utilities in areas like computerisation/communication, improvements in metering, billing and collection; distribution management; DSM load growth demand patter; tariff reationalisation etc.,

· Conducting workshops/seminars and training programmes on reform and regulation.

VI. Rural Electrification Plan Programme

1. In Karnataka, Govt./KPTCL intends to electrify all the balance hamlets/villages in the State (by the end of the year 2004-05). Un-electrified hamlets as on date are 17,933 and villages to be covered are 52. The programme for 1999-2000 is 3,600 hamlets and the few un-electrified villages. The programme will cost approximately Rs.77 Crs. The REC is presently funding KPTCL for the electrification of villages and hamlets. REC funding will be available for the programme. However the rate of interest charged by REC is high considering the fact that most of the uncovered villages and hamlets are located at far flung area located at a considerable distance from the main grid, therefore, the investments ae not remunerative. Hence, REC need to provide loans for electrification of hamlets/villages at a concessional rate of interest.

2. REC has a Kutir Jyoti Programme with a grant of Rs.800/- per connection without meter. KPTCL is availing funds from REC. it is necessary to integrate the electrification of hamlets and villages in the state so that grant component can be enhanced and metering facility is provided for all connections even though no billing is involved. REC also may fund projects on a subsidised basis for establishing this sub-transmission network to supply electricity to the Rural areas and to undertake electrification of un-electrified villages.