Delhi: Increasing Tariffs to Help Privatisation

The current power policies being followed in the country have been able to address neither the problems of shortages of supply in various parts of the country nor provide power to the people at affordable rates. The last one-decade has seen the average rate of power rise from Re.1.00 to Rs.2.50, the tariff to industry at Rs.5.00 is already one of the highest in the world. The Central Government is starving resources to the states and forcing private power at exorbitant prices on the State Electricity Boards (SEBs). The financial crisis of the SEBs has increased even more in the last 10 years. Instead of addressing the real issues of the power sector – providing adequate good quality power at affordable costs – the government is talking of ‘unbundling’, ‘restructuring’ and ‘competition’ and a new Electricity Act to facilitate the same. Such measures, instead of strengthening the basic infrastructure in the power sector and focussing on the efficient use of existing resources, will only lead to a California type melt down of the system, endangering the economic and political stability of the country.

Unfortunately, the Delhi Government is proposing to apply the same bankrupt policies to the state, which will lead to very high rates for power without any possibility of reducing outflows from the state exchequer. The recent separation of generation, transmission and distribution, is unlikely to lead to any improvement in the performance of these entities. Private companies will only take over the distribution companies if all the current losses are borne by the state, power is given to them at assured prices and the assets are transferred virtually gratis. The Greater Noida private power company has done precisely this. It is getting power from UPSEB at subsidised rates (Rs.1.40 per unit against UPSEB’s cost of supply of Rs.2.00), collecting high tariffs while running up Rs.180 crore of unpaid dues to UPSEB. Inviting in IPPs to generate power will also mean very high cost power being provided to Delhi and lead to similar problems now being encountered in Maharashtra.

A stock taking of the Independent Power Producer (IPP) route and fast track projects will show that it has failed completely. The three fast-track projects that have come on-line have taken more than 7 years to start. As the Enron case has shown, the cost of such IPP power is bankrupting the State Electricity Boards (SEBs). The capital costs have been grossly inflated for these projects and most of the capital costs have been met from loans advanced by public financial institutions. The foreign exchange outflows are 30 times the inflows. Thus, none of the premises of the policy for promotion of IPP projects have been fulfilled. Instead, viable boards such as MSEB have been rendered bankrupt by imposing Enron like projects on them. It is instructive that in the same period that the Government was focussing on IPPs, National Thermal Power Station (NTPC) has added 10,000 MW, all of it without any budgetary support. All this speaks volumes for the lopsided priority of the Government.

The experience of unbundling and privatisation of generating and distribution companies carried out in the country, as in Orissa, has shown that it has also completely failed. The transmission and distribution losses have not come down and the private distribution companies owe the state-owned Gridco an excess of Rs.450 crore. After the super cyclone that hit Orissa last year, the private distribution companies refused to restore electricity to the rural sector unless helped by a hefty loan from the government and a 200% rate increase. After unbundling, the average price of electricity has also doubled in the last three years. The annual losses to the state-owned Gridco are now higher than the earlier losses of the Orissa SEB. This shows that the drain on the State exchequer does not stop after privatisation.

The Delhi Vidyut Board has currently submitted a proposal to the Delhi Electricity Regulatory Commission (DERC) for an upward revision of the power rates. The increase of rates is to cover its operating losses currently running around Rs. 1000 crore. The DVB admits that its high losses are due to huge Transmission and Distribution losses, which are currently running around 50%. This figure has risen from 22%, which it was in 1992-93 to this level within the last few years. Thus, as DVB is unable to control theft and the Delhi Government has little political will to punish defaulters and collect revenue, the honest electricity consumer is being penalised. If this were not enough, the current proposals seeks to increase the rates of the low end consumer by the highest amount – a whopping 200% over the current rate while increasing charges of the high-end consumer the least. We give below our calculations to show the deeply anti-poor policies that the Delhi Government and DVB want to follow.

Table: Impact on Proposed Changes on the Bills of the Consumer

Categories Connected Load (Assumed) Existing Proposed

Consumer Bills


50 1 KW 1.00 150 1.75 50 150 200%
100 1 KW 50 1.00 150 2.50 100 250 150%
200 3 KW 180 1.75 450 3.00 275 550 100%
400 5 KW 300 2.50 450 4.00 775 1350 74%
600 10 KW 600 3.00 900 4.50 1375 2250 64%
800 15 KW 900 3.00 1350 4.50 1975 3150 59%

Instead, the DVB and the Delhi Government must chalk out a crash policy of how to bring down losses. In this, it must involve the workers and other employees in such schemes and not use them as scapegoats. It is well known that the big defaulters and those stealing electricity have political patronage and that is why thefts have increased sharply. These losses can be brought down in two to three years to the 20-22% level that it was before these so-called reforms started in the electricity sector. Secondly, instead of chasing high cost power, it must negotiate with NTPC to set up dedicated power stations for Delhi. Instead of privatising, it must focus on how to bring the distribution companies to health. Any increase in rates, if required, must burden the low-end consumer the least.

The Delhi Government must also share with the people of Delhi the impact of privatising of the transmission and distribution companies on current power rates in Delhi. According to experts, the cost of such privatisation will be to increase the rates by a further 75% to the increases proposed. The people of Delhi will not be able to pay for this high cost power.

We call upon the Delhi Government to take note of the serious situation that will develop if such sharp rate increases take place. It is time that the Delhi Government looks at the power policies from the people’s point of view and not with the objective of privatising the power sector, irrespective of its costs to the consumer.

(Article published in Peoples Democracy after DERC’s Consultation paper, 2001 before the Tariff Order increasing the rates of power considerably)