The investment is needed to strengthen the present transmission and distribution system as also setting up additional infrastructure to sustain the growing power load in the area, says IL&FS.

MSEB has, in fact, been planning to set up a joint venture with a private partner to undertake T&D in New Mumbai for over a year. The board had assigned IL&FS to prepare a detailed plan for setting up the venture.

The terms of the survey included the legal and financial structure of the new company and the structure of the bid document. The company would also provide projections on the demand load and economic viability of the joint venture.

IL&FS has recently submitted a preliminary report where MSEB's equitycontribution can be done through its assets in the area. The board has a well-established T&D network which will be evaluated and used against its equity. The private company will have to bring in the additional funds.

MSEB will supply the bulk power to the joint venture licensee which, in turn, will do the retailing distribution. While MSEB will earn from the sale of power, its revenue from distribution will be reduced to the extent of its equity share in the joint venture which is yet to be decided. The board may even restrict itself to a minority stake.

New Mumbai largely has industrial and domestic consumers. There is no agriculture base in the area which may attract private investment in the company, said industry sources. They added that the demand of electricity in this area is growing fast since the state has shifted the wholesale market there.

The selection of joint venture partner will be made through a competitive bidding. There are already two power utilities in the state including the TataElectric Companies (TEC) and BSES which have shown interest in the proposal.

TEC supplies power to Mumbai while BSES caters to consumers in suburban areas. Apart from generation, transmission and distribution in Mumbai, the power licensees also operate in other states.

While IL&FS will submit the final proposal on setting up of the joint venture shortly, experts believe that there is a long way to go before MSEB sets it up. Apart from probable opposition from employees, they also point out to the bureaucratic hurdles in implementing power sector reforms. The government has been dragging its feet for a long time for setting up the state electricity regulatory commission (SERC).

MSEB to get a boost

The arrangement will be excellent for MSEB as well as the state. MSEB's contribution to the JV will be the assets it owns. MSEB simply does not have the funds to modernise T&D system, which is why outside contribution is necessary. The recoverability of the dues will certainly be as high as in Mumbai.Any improvement in T&D loss will contribute to the bottomline of MSEB as it is the supplier of power in the area and will generate revenue for power which is simply lost. The track record of BSES in its licensed area proves that it will not be too hard to bring down the loss substantially.