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Friday, Feb 15, 2002

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Karnataka power supply cos' equity put at Rs 28.5 cr

C. Shivkumar


THE combined value of the equity in the four power distribution circles in Karnataka — Bangalore, Mangalore, Hubli and Gulbarga — has been fixed at Rs 28.5 crore.

The consultants comprising a consortium led by Cameroon Mckenna, Rothschild and Deloitte were entrusted with the task of working out a formula for financial restructuring of the power sector, corporatisation of the distribution circles and valuation of these circles for the purpose of divestment.

The Government has already set up the four electricity distribution companies by splitting the Karnataka Power Transmission Corporation Ltd. Sources said the consultants arrived at the value of the distribution business after netting of debts and security deposits. Such a low equity valuation will now imply that any divestment is unlikely to realise non-tax revenues for the State Government beyond this amount forecast.

"In case the State Government realises more revenues than what is estimated, it will be a miracle," sources said. The reason for the abysmally low equity valuation was on account of the high losses in the State, they said. However, it is not just the losses — transmission and distribution — that is keeping the distribution valuation down. The key reason was that the data provided by the State Government on the actual losses could be extremely unreliable, they added.

At present, the loss estimates made by the State Government are 38 per cent. But such a loss does not factor in some critical revenue risk elements for potential private sector investors. Further, the sources said, that this unreliability of data implied that private investors were not likely to come into the distribution business if the State Government expected higher valuation than what had already been estimated.

Higher losses would mean that the capital expenditure requirement by investors for loss correction at the distribution end would be high. Consequently, any escalation in the capital expenditure would imply an erosion in the return expectations of investors.

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