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A challenging phase

Published : Jul 06, 2002 00:00 IST

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The Delhi Vidyut Board finds buyers for its power distribution companies, but several hurdles, including petitions before the Delhi High Court, may yet derail the privatisation process.

THE distribution network of the Delhi Vidyut Board has been privatised. The companies that will now undertake the function, BSES Ltd. and Tata Power, however, will face some tough challenges. There are several hurdles, which include the changing of numerous faulty meters; the enactment of strict legislation to stop power theft, and the managing of DVB staff who allegedly facilitate power theft. Besides, petitions filed in the Delhi High Court against the entire plan threaten to reverse the privatisation process at a future stage.

An agreement on the privatisation of power distribution in Delhi was signed between BSES, Tata Power and the Delhi government on May 31. The signing of the memorandum of understanding came after much anxiety with some experts calling the final agreement a "distress sale". The government initially found no takers for equity in the new distribution companies. It then formed a three-member committee, which was given the task of negotiating with the bidders.

After hectic parleys that went on for six weeks, the government came to an agreement with the private companies. The proposal to privatise power distribution met with such lukewarm response mainly because the DVB is among the electricity boards that make the highest losses, particularly on the distribution front. At the meetings the private companies demanded that the government support them during the transition period of five to six years on a sustained basis as the level of risk involved was too high. In the end the government had to relent.

The Delhi government and the two companies, which had some differences over the rate of reduction of losses, finally agreed on a mutually acceptable figure. BSES agreed to reduce Aggregate Technical and Commercial (AT&C) losses by 17 per cent in five years for the South and West Delhi distribution company and by 17.25 per cent for the Central and East Delhi company. Tata Power has also agreed to reduce the total loss in its distribution area by 17 per cent within the next five years. With the deal having been finalised, the onus of dealing with power thefts has been passed on to the private companies.

Under the agreement, a 51 per cent stake was given to the private companies for a consideration of Rs.481 crores. BSES won the bid for taking over the management of the South and West Delhi distribution company for Rs. 235 crores, and the Central and East Delhi company for Rs.59 crores. Tata Power will pay Rs.187 crores for the North and Northwest Delhi firm.

By June 30, the DVB would be split into six companies, including three distribution companies (discoms), a holding company, a generation and a transmission company. The bidders will have to execute the shareholders' agreement and take over the management of the three distribution firms by then.

A common retail tariff has been ensured for all of Delhi during the initial five years of operations by the privatised distribution companies. This means that there will not be any sudden rise in the electricity tariff. During this time the transmission company will receive a loan support of Rs.3,450 crores from the Delhi government to bridge the possible gap between the bulk supply price from the distribution companies and the price of electricity from the generation company.

Tata Power and BSES will now have to cut down on pilferage. This is a difficult task, given the fact that power theft is virtually institutionalised in Delhi. If the DVB, with the coercive power of the state, could not reduce theft, it remains to be seen how private distributors will tackle it. Forty per cent of the AT&C losses in Delhi are owing to power pilferage. Of the total losses of Rs.1,200 crores incurred by the DVB, Rs.900 crores is lost as a result of organised power theft. Small-scale industries and guest-houses are among the biggest culprits. Their contribution to the total power losses is greater than that of the residents of slum and unauthorised colonies.

The challenge before the government is to enact legislation that would help the private companies to counter power theft effectively. Not much has been done in the past one month since Delhi Power Minister Ajay Maken promised such legislation. This is not surprising as power reforms are known to trip on a lack of political will. The government had said that it would introduce special courts to try cases of power theft detected by enforcement squads of the power companies that would run the DVB. These special courts and tribunals would be modelled on similar courts in Tamil Nadu and Karnataka, which were set up after amendments were made to Electricity Supply Act, 1948, he said. An official in the government said: "The pressure lobbies in the Delhi government have already started exerting their force to have a lenient piece of legislation."

Poor billing, a redundant collection system and thin work ethics form another set of problems that the companies have to deal with. BSES and Tata Power see a solution to this problem in replacing existing meters. Of the 26 lakh registered electricity consumers in Delhi, nearly 15 lakh have faulty meters. DVB officials concede that the majority of the electricity meters have been tampered with by consumers in collusion with its staff. The two companies have said that the DVB staff would be retained, but it remains to be seen how they will introduce corruption-free work ethics.

With the share transfer, about 18,000 employees of the DVB, along with office property, buildings and distribution network are to be transferred to the discoms. The Southwest Company will get 7,100 DVB employees. The Central East company will get 5,800 employees, and about 5,200 employees will be transferred to the North-Northwest company. The DVB has worked out a Rs.1,300-crore retirement benefit package for the rest of its employees. The government has promised to contribute Rs.850 crores to this package, leaving the DVB to generate the rest of the money.

PETITIONS have been moved in the Delhi High Court against the Delhi government for the privatisation of DVB. One of them, moved by Gajender Haldea, chief adviser to the National Council of Applied Economic Research, says that the government, with the assistance of the DVB, is proceeding with the creation of private monopolies. It says that the transfer of the DVB assets to private monopolies will result in the exploitation of consumers in the form of higher prices and poorer services. It contends that this would inevitably happen as the generating companies will sell power to the transmission company at a "cost plus" tariff. The "transco", in turn, will sell it to the "discoms" at tariffs determined on a cost-plus basis. The discoms will sell power to the consumers at a "cost plus" tariff. The petition says that in a set-up of cost-plus tariffs at all stages, where price increases would be the sole objective of the licensees, efficiency and competition will be eliminated, resulting in higher prices and poor services.

The petition criticises the "single buyer" model adopted by the Delhi government. It says that in adopting the single buyer model the government ignored the Orissa experience where such a model proved to be a failure. The petition seeks the court's intervention to restrain the Delhi government from creating private monopolies for the supply of electricity.

Another petition, filed by Arun Kumar Datta, seeks a re-evaluation of the assets of the DVB and the revocation of the sale of the Central and East Delhi electricity distribution company. It also wants this particular distribution company's assets to be valued by an independent approved valuer. A ban on the transfer of the DVB's assets without a complete physical inventory has also been sought. The government, the petition says, is rushing through with the award of the tender of privatisation in order to present a fait accompli. The process is being challenged, the petition says, as the companies have been given to chosen bidders in a non-transparent manner.

The petition terms the privatisation process followed by the government "arbitrary, discriminatory and against the public interest and in violation of the Delhi Electricity Reforms Act". It is pointed out that the private companies would start functioning from July 1, 2002, in spite of the fact that until now no register of assets has been made despite the direction of the Delhi Electricity Regulatory Commission.

It would not be surprising if the privatisation plan buckles in the face of such challenges. Maybe then this realisation would galvanise the centre into action. By some estimates India loses the opportunity for up to a 2.5 per cent economic growth every year as a result of inadequate power supply. This situation can be corrected only by an all-out offensive against defaulters. For the time being, all eyes are focussed on Delhi to see if it will be able to cut down effectively on its AT&C losses.

(This story was published in the print edition of Frontline magazine dated Jul 06, 2002.)

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