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

I. PREAMBLE:

The Government of Himachal Pradesh is committed to reforming its Power Sector with a view to achieve commercial viability and provide reliable and quality power at competitive prices to all consumers in the State.

The Govt. of Himachal Pradesh has already taken following notable steps in this direction:-

1. The Govt. of Himachal Pradesh has already set up one Member Himachal Pradesh Electricity Regulatory Commission (HPERC). The Chairman/Member has also been appointed.

2. HPERC has started functioning w.e.f. 6th January, 2001 with independence and appropriate support from Government of Himachal Pradesh.

3. Himachal Pradesh has provided electricity to all its census villages in the year 1988.

4. Himachal Pradesh has achieved unique distinction of 100% metering, billing and collection.

5. Himachal Pradesh has achieved highest household coverage ratio in the country i.e. about 98%.

6. Himachal Pradesh has the lowest tariff in the country.

1. The Government of Himachal Pradesh has prepared a frame work/blue print of restructuring under the overall aegis of H.P. State Electricity Board by creating independent centres with separate accounts for its major wings combined with administrative, financial and technical measures to achieve the main objective of reforms which is to put into place commercially oriented systems and provide quality services to the consumers.

i) Generation & O.M. of existing plants.

ii) Transmission

iii) Distribution System

2. There is over employment leading to high establishment cost. Himachal Pradesh shall endeavour to progressively reduce the surplus manpower.

3. The Government of Himachal Pradesh through HPSEB will securitise outstanding dues of CPSUs as per scheme approved by Government of India. After the securitisation the HPSEB will ensure that CPSU outstanding does not cross the limit of 2 month’s billing.

4. Himachal Pradesh will ensure that current operations on distribution reach break even by 31st March, 2003 and achieve positive returns thereafter.

5. Himachal Pradesh will develop an effective Distribution Management Information System.

6. Himachal Pradesh will undertake energy audit at all levels. To achieve this, the following steps will be taken :

(a) All efforts will be made to provide electronic meters on all 11 KV Distribution feeders and LT side of Distribution transformers by March 2001, but in no case later than June, 2001.

(b) Himachal Pradesh has completed 100% metering of consumers. Electronic meters will be provided to all consumers with 20 KW and above load by March, 2002.

(c) Transmission & Distribution losses which are presently at the level of approximately 25% will be reduced to 20% by end 2003-04.

7. Himachal Pradesh will implement a programme in the field of demand side management through energy efficient bulbs, tube lights, time of the day metering etc.

8. Himachal Pradesh State Electricity Board will maintain grid discipline, comply with Indian Electricity Grid Code and carry out the directions of the Regional Load Despatch Centre.

9. Himachal Pradesh already has computerised billing for some urban consumers and all the consumers of 100 KW and above load. Himachal Pradesh shall undertake computerised billing of all urban consumers by 31st March, 2003 and in the entire State complete computerised billing, accounting & audit system shall be in place by March, 2005.

10. Himachal Pradesh shall ensure filing of Tariff Petition before HPERC by 30th April, 2001. Tariff orders issued by HPERC will be implemented fully unless stayed or set aside by court orders.

11. The Government of Himachal Pradesh is not in a position to provide subsidies for consumption of electricity. However, if at any time in the future it is in a position to do so and decides that tariff for a category/categories of consumers be lower than that determined by HPERC, it would ensure timely payment of subsidies.

1. The Govt. of India will provide financial support through APDP for -

(a) R&M and LE of Hydro Power Stations.

(b) Strengthening of sub-transmission, distribution and metering.

2. TRANSMISSION & DISTRIBUTION

The Govt. of India will assist in arranging funds through PFC / other Financial Institutions for undertaking augmentation, up-gradation and improvement critical transmission lines in Himachal Pradesh.

3. HYDRO POWER DEVELOPMENT

Himachal Pradesh has presently identified potential of 20376 MW out of which 3856 MW stands harnessed, projects with aggregate capacity of 6953 MW are under execution of which 3251 MW are in the very initial stage, DPRs are ready for projects totaling 1415 MW, projects of 1438 MW are under investigation and for 6714 MW investigations are largely yet to be taken up, meaning thereby that potential totaling 9566 MW from the total identified potential is still to come to execution state.

Himachal Pradesh has drawn up a short and medium term plan after a detailed methodological exercise for development of 10,035 MW of hydel power in the State by 2011-2012. The Ministry of Power will support Himachal Pradesh in this endeavour.

The Ministry of Power will also work closely with Himachal Pradesh to fully develop exploitable hydro-potential by 2020.

The Ministry of Power will actively assist the Government of Himachal Pradesh in raising resources including external aid for development of hydel projects.

4. FINANCING

In recognition of Himachal 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.

Himachal Pradesh will prepare an action plan for implementation of the MOU,

which 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 31st March, 2001 at New Delhi.