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

I. PREAMBLE:

Uttar Pradesh is committed to reforming its power sector with a view to providing commercial viability and quality power at affordable rates to all its citizens.

The Govt. of U.P. is undertaking its reform programme with vigour. The Govt. of UP has already taken the following notable steps in this direction:-

- It has enacted its own Reform Act and is implementing it.

- The State Electricity Regulatory Commission has been vested with full powers under the State Reforms Act.

- The State Electricity Board has been unbundled and its activities, assets and staff have been transferred to the UPRVUNL, UPJVNL and UP Power Corporation.

- The distribution business of Kanpur has been handed over to the Kanpur Electric Supply Company (KESCO).

- The Govt. of UP has taken the bold step of writing off of Rs.19,000 crores of liabilities of the erstwhile UP State Electricity Board with a view to starting the new companies created after unbundling with healthy balance sheets.

- With the above UP has now acquired the position 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 Government of UP sets out the steps that the Government of U.P. will undertake in a time bound manner to further the process of reform and restructuring and the support which the GOI would give to the Govt. of U.P.

• UP would undertake segregation of transmission and distribution functions within UPPCL.
• 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) Installation of metering at all 11 KV feeders by 30th September, 2000.

ii) 100% metering of all consumers by 31st December, 2001.

iii) On line billing at 20 selected towns through computerisation by 31st March, 2001.

• Formation of distinct distribution profit centres. Separate commercial accounts/shadow Balance Sheets for such centres would be prepared from 31.3.2000.
• Achieve commercial viability in distribution.
• If commercial viability in distribution is not achieved UP Government will privatise distribution.
• State Government would give full support to the State Electricity Regulatory Commission to discharge its statutory responsibility.

RENOVATION AND MODERNISATION OF THERMAL GENERATING STATIONS

• For the Renovation and Modernisation of thermal power stations of Obra, Panki, Harduaganj, Parichha and Anpara A, PFC would finance the UPRVUNL for this purpose. Financing would be subject to submission of project reports to PFC and these being found viable. This is estimated to cost Rs.2000 crores.

R&M of Hydro Electric Stations

• For R&M of hydro generating stations, the requirement of funds is estimated at Rs.300 crores. PFC will provide assistance subject to the projects submitted by UPJVNL being found viable.

TRANSMISSION

• For undertaking critical transmission and sub-transmission lines an expenditure of Rs.700 crores is estimated. Specific projects would be funded by PFC subject to these projects being commercially viable.

FINANCING

• In recognition of Uttar Pradesh 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.
• Studies for reforms and restructuring would be funded by PFC through grants and interest free loans.
• 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 UP as a pioneer reforming state.
• For metering of all consumers by December 2001 and computorised on line billing the requirement of funds is estimated at Rs.650 crores. PFC would provide funding on concessional terms for this purpose.

STRUCTURAL ADJUSTMENT

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

HYDRO POWER DEVELOPMENT

• The Maneri Bhali Phase II (304 MW) and Lakhwar Viyasi (420 MW) hydroelectric projects would be taken up and completed as joint venture projects between the NHPC and UPJVNL. The investments already incurred by UP would be treated as their share in the Joint Venture. Power from these two projects would be fully committed to UP and would be allocated to the distribution centres/companies which emerge through the reform process in UP and have the capacity to pay for this power.
• Similarly, the hydro-electric power potential of Bhagirathi basin would be fully developed as a joint venture.

THERMAL POWR DEVELOPMENT

• For the Anpara C(1000 MW) thermal project, the Ministry of Power would assist UPRVUNL in arranging financing for the project estimated to cost Rs.3500 crores.

RURAL ELECTRIFICATION

• In order to accelerate the rural electrification programme REC would provide the requisite funds. To the extent necessary rescheduling of past loans would be undertaken.

ADDITIONAL ALLOCATION OF POWR FOR DISTRIBUTION

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

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 25th of February, 2000 at New Delhi.