Power privatisation: Pigeons come home to roost
by Sandhya Jain on 25 Aug 2015 10 Comments

The Delhi power distribution companies’ (discoms) rip-off of the consumer has finally been established. Under the benign gaze of a regime that gifted 51 per cent controlling interest in the Delhi Electricity Supply Undertaking, the two private companies (three discoms) engaged in a scam whose full dimensions are not yet fully quantified. The Comptroller and Auditor General’s report debunks the myth that private sector delivers better and cheaper power, and raises questions about the wisdom (and legality) of a State Government taking subordinate status to private honchos to whom it has handed over critical public assets.


A draft report of the CAG, that recently became public, notes that the discoms have extracted excess tariff of at least Rs 8,000 crore from consumers; hence there is scope for reducing tariffs. Further, the discoms were slow to furnish records, did not submit data for several financial years, and gave incomplete information in some cases. The scam would thus be larger if all information were available for audit, something the Delhi High Court must insist upon.


Former Chief Minister Sheila Dikshit encouraged the discoms to act with impunity, ordering an outgoing chief of the Delhi Electricity Regulatory Commission not to cut tariffs by 23 per cent in 2010 and permitting the new chief to raise tariffs by 22 per cent in 2011 and 32 per cent in 2012. The Congress party must accept responsibility for this loot, and suggest ways to enable households to recover the forcibly extracted tariff.


Citizens have long complained that fast meters and software manipulation are behind escalating bills, as most households have fixed usage, summer or winter. The Delhi Government must ensure that these aspects are also investigated as the CAG has noted that the discoms especially suppressed these records.


The report reveals that the companies manipulated consumer figures and scrap sale details, and acted against consumer interest by buying costly power, inflating costs, suppressing revenue, dealing with other private companies without tenders and giving undue favours to group companies. Most shockingly, they inflated regulatory assets (RA) - previously incurred losses that can be recovered from consumers if permitted by the regulatory authority. This figure alone was inflated by Rs 7,957/- crore, which means that the overall excess tariff extracted from consumers would be much higher.


It is obvious that there was no justification for privatisation. The DESU could have recovered its losses and made decent profits if power thefts protected by politicians and corrupt officials were curbed. As this writer has often argued, the DERC was created by the Dikshit regime as a smokescreen to favour the discoms. As the chief secretary, principal secretaries (power and finance) and other senior officials were nominees on the boards of the discoms, the state government was aware, and complicit, in every malpractice.


Aggrieved Residents’ Welfare Associations doggedly fought for an audit of the discoms, which was upheld by the Delhi High Court. In fact, the Aam Aadmi Party rose to prominence by articulating public angst over electricity tariffs, an issue ignored by the Bharatiya Janata Party which has lost five successive elections in the capital due to sustained inability to understand citizens’ concerns. Mr Arvind Kejriwal recommended the audit during his 49-day stint as Chief Minister.


Some discoms were found to be inefficient, causing operational losses and negative net worth, leading to low credit ratings and taking loans at higher interest rates. The discoms incurred operation and maintenance expenditure in excess of norms fixed by DERC, which reflected in higher rate of WACC (weighted average cost of capital) and carrying cost on RA, which was passed on to consumers.


Further, the discoms paid huge sums as annual fixed charges to power stations with which they had long-term agreements. Thus, Rs 166.82 crore was paid to Pragati-III till 2012-13; Rs 201 crore to gas-based power plants of NTPC at Anta, Auraiya and Dadri from 2007-08 to 2012-13, and Rs 93.5 crore to the Rithala plant between February 2011 to March 2013 – all without getting power. These ‘dead costs’ were passed on to consumers.


Moreover, the quantum of power purchased by the discoms was more than actually consumed, forcing consumers to pay for higher load (near peak load) for the whole year when extra was needed for only a few hours annually. The discoms made a profit selling surplus power till 2000, but later incurred losses, which became tariff burdens on consumers.


Fast meters are just one problem. The discoms were allowed to include meters installed at consumers’ premises as fixed assets (capitalized) on which they are allowed returns. But the audit found that as on March 31, 2013, the number of meters counted was much higher than the number of consumers billed. There was wide discrepancy in the numbers of meters auctioned as scrap, which too, became a burden on consumers. Worse, the cost of replacing meters within the warranty period was borne by the discoms, not the manufacturers, and passed on to consumers. The audit also noted that bills were issued before the notified billing period – a violation that continues unchecked.


Then, the discoms did business with sister concerns, at inflated costs, and without approval of their board of directors. This raises serious questions about the conduct of the Delhi government, its nominees on the discom boards, and the DERC. The Delhi government injected Rs 744.80 crore in fresh investment – which “was against the spirit of power sector reforms and shareholders agreement to reduce the need for funding by the government” - without demanding effective control over the firms; worse, its nominees did not attend board meetings regularly. Audit norms were flouted openly.


In 2009, the DERC asked the Administrative Staff College of India to verify capital investments by discoms; but the latter refused to furnish details of assets added over the previous seven years, and assets procured from sister concerns. They got away scot-free.


At a recent DERC public hearing, activists noted that in 2006 the Delhi government gave six acres of land free for a gas turbine; the concerned discom booked nearly Rs 100 crore as expenditure, but no electricity has been produced so far. Clearly, the DERC has functioned as an acolyte of a political-corporate nexus.


The capital’s power privatisation is a grand failure. It would be in the best interests of citizens to return power distribution to the old public sector utility. Power is not a luxury but a necessity of life and should remain a responsibility of the government. 

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