Distribution networks are typically of two types; radial or interconnected. A radial network leaves the station and passes through the network area with no normal connection to any other supply. However, an interconnected network will have numerous connections to other points of supply. These points of connection are normally open but allow various configurations by the operating utility by closing and opening switches. In distribution systems, the voltage at buses reduces when we leave from the substation, due to high distribution line current thus resulting high power loss in the line.The I2R loss can be, separated into two parts based on the active and reactive components of branch currents. This thesis work presents a method of minimizing the loss associated with the reactive component of branch currents by an appropriate loss reduction mechanism. It includes the objective of identifying the optimal locations and sizes of loss compensator, to be placed in network with the consideration of net cost savings. Finally, it benefits both the utilities and consumers; by improving power system losses, net cost saving, reducing the belling cost and hence saves their equipment failure.