BSES chairman and managing director RV Shahi said given the resistance to privatisation of power distribution in almost every state, the government may do this in towns and cities under the existing provisions of Indian Electricity Act and gradually expand to semi-urban and rural areas.

Simultaneously, the Centre must go ahead with the overall restructuring of the power sector.

Mr Shahi told The Financial Express that the Centre should not privatise distribution segment at one go but do it selectively. "If the profit-making NTPC, and the Power Grid come into the distribution business, people will gain confidence.''he added. Mr Shahi said a fair measure of competition can be brought in by involving additional players.

Further, the distribution business may be allowed with generation project for enlarging the private sector role in distribution and for bankability of power projects. "Strengths of NTPC, PowerGrid, Power Finance Corporation and the advantages states are getting out of them can be used to enforce reforms and restructuring," he added.

Mr Shahi said a comprehensive regulatory and tariff policies was essential for the success of private power distribution. A steep tariff increase might be required during the initial two to three year period to cover the cost and to secure a part of the rate of return (RoR). Mr Shahi emphasised the need for the introduction of efficiency-linked rate of return, which would motivate companies and reduce the tariff burden on the consumer in the long-run.

Dwelling on BSES' experience in Orissa, Mr Shahi said Gridco's net loss, which was Rs 85 crore in 1992-93, rose to Rs 405 crore. He pointed out that higher billings had made at the time of corporatisation to show low distribution loss which resulted in higher outstanding figures. Only 20 per cent of the outstandings were recovered. Mr Shahi said cross-subsidisation cannot be stretched beyond a point. At least in the initial period, "adjustment loans" for funding working capital needs may be required from the World Bank, the International Finance Corporation and the Power Finance Corporation, he said. Meanwhile, BSES, in a recent presentation to the union power minister Suresh Prabhu, suggested nine alternative models to restructure the power sector.

Some of the alternatives suggested were: corporatisation of state electricity boards (SEBs) with government control, corporatisation of SEBs through the formation of public limited companies with government stake less than 50 per cent, trifurcation of SEBs into three companies, each involved in generation, transmission, distribution.