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

I. PREAMBLE:

Government of Punjab is committed to reforming its Power Sector with a view to provide commercial viability, reliable and quality power at competitive prices to all consumers in the State.

Govt. of Punjab has already taken following notable steps in this direction:-

1. It has decided to undertake reforms and restructuring of power sector in the State with the technical and financial assistance from PFC.

2. A Committee of officers headed by Chief Secretary, Punjab will act as "Steering Committee" for the reform programme and interact with PFC in all matters concerning reforms.

3. Govt. of Punjab has already taken a decision for setting up of State Electricity Regulatory Commission (SERC). The appointment of Chairman and its members is under active consideration so as to make it operational.

4. It has been decided to treat each power plant and distribution zone as cost & profit centre for greater efficiency and accountability in the working of the Board. MOU's have been signed with the Head of Department of these Power Plants and Zones laying specific targets.

1. Punjab will ensure that current operations on distribution reach a break even by 31st March, 2003 and achieve positive returns thereafter.

2. An effective programme will be launched for identifying and eliminating power thefts in next two years with a view to achieve break even in current operations by March 2003 and positive returns thereafter. For this purpose Punjab will undertake energy audit at all levels to reduce system losses and bring them to the level of 18% by 2003. To achieve this, the following steps will be taken :

(a) Energy meters will be provided on Grid & Generating Stations by 30th Sept., 2001.

(b) All efforts will be made to provide electronic meters on all 11 KV Distribution feeders by March 2001, but in no case later than September, 2001.

(c) All efforts will be made to provide meters to all consumers by 31-12-2001 but in no case later than 30th June, 2002.

(d) Replacement of electromagnetic Meters with electronic meters in respect of HT consumers and consumers having load above 100 KW has already been carried out. Replacement of electromagnetic meters with electronic meters in respect of all other consumers premises shall be carried out.

(e) Remote monitoring of energy consumption of consumers having loads above 100 KW is already under implementation and will be completed by December, 2001.

(f) Punjab shall undertake computerised billing for effective energy audit at all major towns / consumption centres by 31st March, 2002.

(g) Development of an effective distribution Management Information System.

3. State Govt. will establish a functional State Electricity Regulatory Commission and send recommendation to the Government of India for omission of Section 43(2) of Electricity (Supply) Act, 1948 in respect of the State of Punjab by June 30, 2001.

4. Punjab shall ensure filing of tariff petitions by 30th August, 2001. Tariff orders issued by SERC will be implemented fully unless stayed or set aside by court orders.

5. Government of Punjab will ensure timely payment of subsidies required in pursuance of Government of Punjab’s orders on the tariff determined by the SERC.

6. Punjab 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.

7. Punjab State Electricity Board will maintain grid discipline, comply with Indian Electricity Grid Code and availability based tariff when it come into force and carry out the directions of Regional Load Despatch Centre.

8. Government of Punjab will securitise outstanding dues of CPSUs as per scheme approved by Government of India. After the securitisation Government of Punjab will ensure that CPSU outstanding does not cross the limit of 2 month’s billing.

1. RENOVATION AND MODERNISATION OF THERMAL & HYDRO GENERATING STATIONS/SUB-TRANSMISSION AND DISTRIBUTION:

Govt. of India will provide financial support through APDP for -

(a) Life Extension Works based on Residual Life Assessment (RLA) studies of GNDTP, Bhatinda Units and for R&M of Hydro Units at Shanan Power House and UBDC Power Houses.

(b) Upgradation of sub-transmission and distribution including metering in the three identified circles.

2. TRANSMISSION & DISTRIBUTION

(a) Govt. of India will assist in arranging funds through PFC / other Financial Institutions for undertaking Augmentation, up-gradation and improvement critical transmission lines in Punjab.

(b) For metering all consumers in a time bound manner and computerised billing the requirement of funds would be provided on concessional terms by PFC.

3. FINANCING

(a) In recognition of Punjab being a reforming State, Power Finance Corporation would be prepared to finance its investment needs in relaxation of normal conditionalities relating to exposure limit, ROR and DSCR.

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

(c) For R&M of generating stations, sub-transmission and distribution financing would include an element of grant and lending at concessional rates to the extent feasible in recognition of Punjab as a reforming state.

4. STRUCTURAL ADJUSTMENT

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

5. HYDRO POWER DEVELOPMENT

Ministry of Power will assist Punjab in arranging funds for exploiting its hydro-potential.

6. THERMAL POWER DEVELOPMENT

Govt. of India will help in arranging funds for execution of GHTP Stage-II (500 MW) Project.

7. ADDITIONAL ALLOCATION OF POWER FROM CENTRAL SECTOR GENERATING STATIONS

The Govt. of India would allocate additional power from new central sector generation stations subject to the capability of Punjab to fully pay for the power purchased from such generating stations and signing of PPA with concerned CPSU for purchase of such power.

III .IMPLEMENTATION:

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 fulfil the reform activities and achieve the objectives mutually agreed upon in this Memorandum.

Signed this day the 30th March, 2001.