Capacitors are commonly used in distribution system for reactive power compensation so that it reduces the losses, increases the maximum flow through cables and in transformers, and also improves the system power factor and voltage profile. This thesis presents the way of improving the performance of distribution network by minimizing the reactive current flowing through the distribution networks with optimally allocating shunt capacitors. The optimal shunt capacitor allocation problem is the determination of the location and size of the capacitor to be placed in distribution networks in an optimal manner to reduce the peak power losses of the networks. Single capacitor is connected at each bus and repetitive loss minimization technique is applied to identify the sequence of nodes to be compensated. Optimizing the loss saving equations with respect to the capacitor current for multiple capacitors is used to identify the global capacitor size needed for compensation. To obtain the energy savings, a power flow for radial distribution network is executed using MATLAB programs before and after compensation. The study of this work was conducted on two primary distribution feeders having 82 and 26 buses of woldia distribution networks. Through optimal locating and sizing of shunt capacitors on 82 and 26 buses radial distribution feeders 60.63 % and 33.66 % of the total loss is reduced respectively.