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

I. PREAMBLE:

The objective of the reform program of Rajasthan is 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 Government of India believes that reforms in the power sector are imperative and can no longer be postponed.

The Government of Rajasthan have taken bold initiatives towards reforming its power sector and has taken number of strategic steps. Some of the major initiatives taken are :-

1. Issuing the Policy Statement on Power Sector Reform Program in Rajasthan in May, 1999. The Policy Statement details the reform objectives, structural changes envisaged in the power sector, various elements of reform and the impact of these reforms on the development of the State.

2. Passage of the Rajasthan Power Sector Reforms Act by the State Legislative Assembly on 25th September, 1999.

3. Establishment of an Independent Regulatory Commission to regulate the functioning of the Power Sector on sound commercial principles in January, 2000.

4. The State Electricity Board has been unbundled and its activities, assets and liabilities and staff have been transferred to the RRVPNL, RRVUNL, and three distribution companies, i.e. JAIPUR VVNL, AJMER VVNL and JODHPUR VVNL in July, 2000. Rajasthan is so far the only State to have taken up complete restructuring in a single stage.

5. The restructured transmission and distribution companies have already filed tariff petitions before the Regulatory Commission.

With the above, Rajasthan has now acquired the status of a front runner in the reform process in the Power Sector in the country.

This Memorandum of Understanding between the Ministry of Power, GoI and the GoR sets out the steps that the Government of Rajasthan will undertake in a time bound manner to further the process of reform and restructuring of its power sector and the support which the GoI would extend to the Govt. of Rajasthan.

1. Rajasthan would issue RFQ for privatisation of the distribution companies by December, 2001 and RFP by July, 2002 and redeploy the proceeds of privatisation in the power sector.

2. Rajasthan would undertake Energy Audit at all levels in order to reduce system losses. This would be done in a time bound manner with the following milestones:-

i) Endeavour to install meters at all 11 KV feeders by 31st March, 2001, but in no case later than 30th September, 2001.

ii) Endeavour to complete 100% metering to all consumers by 31st December, 2001 but in no case later than 30th June, 2002.

iii) Energy Audit of loads above 1000 KVA by 30th September 2001.

3. Computerised billing and effective energy audit in selected towns by 30th June, 2002.

4. Rajasthan would achieve 100% electrification of potential villages by 2007.

5. Rajasthan Rajya Vidyut Utpadan Nigam Ltd. Would strive to further increase PLF of KTPS beyond 85% and in the case of STPS in 2001-2002.

6. The electricity companies will maintain grid discipline, comply with Indian Electricity Grid Code and availability based tariff when it comes into force and carry out the directions of the Regional Load Despatch Centre.

7. Government of Rajasthan will ensure timely payment of subsidies in case Government of Rajasthan decides to subsidise any category of consumers after the tariff is determined by the RERC.

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

1. The Ministry of Power will take immediate steps to supply additional 100MW of surplus power from the eastern grid on firm basis to Rajasthan once the Sasaram-Sarnath AC line becomes operational.
2. The Ministry of Power will allocate power produced from 220 MW Unit IV of RAPP to Rajasthan on the basis of agreement that may be entered into between RVPN and Nuclear Power Corporation.
3. While PGCIL does not invest in intrastate transmission lines, it would be willing to do so for Rajasthan in recognition of its being a reforming State.

4. The Ministry of Power will extend financial support under Accelerated Power Development Programme (APDP) to Rajasthan :

(a) to upgrade its sub-transmission and distribution net work in three identified circles with ultimate objective of bringing down the T&D losses to the level of 18% and

(b) to undertake R&M and LE of thermal plants.

5. The Ministry of Power would assist in arranging funds to the State of Rajasthan for 100% electrification of potential villages by 2005.

6. The Ministry of Power would allocate additional power from new Central 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.

IV. FINANCING :

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

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

3. The Rural Electrification Corporation (REC) would also extend financing assistance to newly formed distribution companies for their investment needs.

4. The Government of India will support proposals relating to additional investment in power generation in the state and central sector. 250 MW unit V has been sanctioned by the GoR for installation at STPS as an extension to the existing power station, for which GoI will consider granting techno-economic clearance by CEA expeditiously.

V.STRUCTURAL ADJUSTMENT

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

III .IMPLEMENTATION:

• The above is the broad understanding reached between GoI and GoR. The Modalities of detailed implementation shall be worked out jointly.
• Implementation of the MOU shall 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 complete the reform activities and achieve the objectives mutually agreed upon in this Memorandum.

Signed this day the 23rd March, 2001 at New Delhi