DELHI’S TRYST WITH POWER PRIVATISATION: Sweltering Heat And Swelling Bills

EVERY year when Delhi is sweltering in high heat and humidity conditions with frequent load shedding, the Delhi Electricity Regulator makes a further present to its people in the shape of increased rates of electricity. It is bad enough that people should be made to suffer for long periods without electricity, that they should be made to shell out more for something, which they get only intermittently, is rubbing salt in the wound. It is not surprising therefore that after three years of the new privatised regime, the middle class citizens of Delhi who listened to the siren song of liberalisation and had welcomed privatisation, are now on the warpath. The Resident Welfare Associations and others have come together to oppose the increased tariffs passed by DERC in its Tariff Order for 2005-06 and are asking that the government hold the private distribution companies accountable for their failures. They have also opposed the other gift that the Sheila Dixit government was proposing to the citizens of Delhi: privatise the water distribution system.

The failure of Delhi electricity privatisation was foretold in these columns right in the beginning. We had pointed out that with guaranteed 16 per cent return on capital, inflated losses shown in order to give private companies fictitious efficiency improvements later and with Rs 3,500 crore subsidies promised to them for the first few years, they would have no incentive to improve performance. It is ironical that while power cuts and breakdown of supplies have increased significantly in areas covered by Reliance Energy, it has made a 20 per cent increase in its profits in the same period. Despite this, it has asked and secured a 10 per cent increase in tariffs this year from DERC. It is a very strange scheme of privatisation where you are provided subsidies presumably to cover revenue losses, allowed to increases tariffs substantially and yet make such huge profits, all at the same time.

Let us look at some of the figures with respect to domestic tariffs. This is the third successive year that tariffs have gone up substantially. The first increase was made in 2002 when the tariffs were raised by a whopping 16 per cent, followed 20 months later by an-other hike of 9 per cent. This year, the hike for domestic consumers is of the order of 10 per cent.

DERC, which fixes the tariffs, has been quite soft on the private distribution companies. The key question, which we have asked time and again, is why should the citizens pay for the inefficiency of the distribution companies? Why should the bench mark of a bogus privatisation scheme where the private companies committed to reduce losses to only about 40 per cent after 5 years of their take-over – a net reduction of only 12.5 per cent — when the losses that existed in the mid nineties was of the order of 25 per cent. The increased losses took place when the Delhi government had decided to privatise Delhi Vidyut Board (DVB) and was more interested in showing how bad it was than in trying to control the down slide. This should never have been the benchmark. NDPL has improved its revenue collection, put in some capital investments and reduced some technical losses and has more than fulfilled its target. Reliance has spent minimally, improved revenue collection and is milking the system by claiming high revenue gaps and therefore the need for higher tariffs. Their improvement of technical losses and breakdowns are virtually non-existent as they have made very little capital investments in improving the network. Both are making huge profits though using different approaches while the citizens suffer power cuts and pay through their nose for this botched privatisation exercise.

Let us for the time being forget the bad privatisation done in DVB, where its assets were handed over to the private companies at a pittance. The CAG Report says that assets of Delhi Vidyut Board were undervalued by a whopping Rs 3,107 crores! Let us forget that we are paying the private companies 10 times more as subsidy – 3,500 crore – than what they brought in as equity capital on which the Delhi government has committed a 16 per cent return. Let us also forget that hidden benefits that the private companies received in terms of recoveries on outstandings of DVB, which were not shown in these privatisation accounts. Let us also forget the manner of the transfer, which has already been castigated by the CAG. Let us also overlook that the distcoms purchase power at Rs 1.32 per unit from the government owned Transco and sell it at Rs 4.16 per unit to the consumer. Let us also forget that tariffs have been hiked 3 times since privatisation and people are forced to pay at least 44 per cent more as tariffs than they did in 2002.

Let us look now only at what the private companies have submitted as their requirements of revenue and what the regulator has done in fixing tariffs.

The first question is how did the regulator fix the tariffs? The regulator has been quite harsh on government owned Delhi Transco whose revenue requirement has been slashed by about Rs 1,100 crore. This is based on Transco having succeeded in securing lower cost supply last year. With rising shortages and a power market, the cost of electricity may rise and could manifest itself as a much higher loss on Transco’s account and would be in fact a hidden subsidy to Reliance and NDPL. The regulator has slashed the claims of the private distribution companies somewhat, but nevertheless as we will show, there are major discrepancies between what has been claimed and the reality. Interestingly enough, NDPL, which covers about one third of Delhi, did not ask for any increase in power tariffs. However, Reliance asked for a hefty increase and as Reliance’s demands were accommodated, Tata owned NDPL is being given a bonus, which it did not even ask for. The question is if one of the two parties did not want an increase, why should the other have been given any increase at all? It is an elementary regulatory principle that a utility, if it has performed poorly, needs to be penalised. Using Tata’s performance, it could easily be shown that Reliance was performing poorly. Instead, the regulator has chosen to penalise the consumers. Using NDPL as benchmark, the least the regulator should have done was to ask Reliance Energy to forego its profits. Instead, the regulator has decided that Reliance needs an increase in its profits even if it has performed badly and the citizens should shell out more.

Let us look at the major heads under which Reliance Energy seems to have fudged its accounts. As was pointed out by a number of consumer groups during public hearings, there is a suspicious drop in industrial consumption in Reliance Energy areas while no such drop is visible for NDPL areas. The drop is quite substantial; from 30 per cent industrial consumption earlier, it has been shown to have dwindled to about 15 per cent, a dramatic drop indeed. If the figures were re-worked with higher industrial consumption, Reliance would have had no shortfall in revenue as they have projected. The second problem with its revenue projection is that Reliance has installed electronic meters, which are known to be running faster than the original electromechanical ones. While DERC has claimed that this problem is only of the order of 5 per cent, there is evidence the problem is much larger. Apart from this, the electronic meters run faster if the neutral of the supplies going to different consumers are joined, a common practice in a number of buildings. Even if the meters are correct, they will run faster if the wiring in such houses is not rectified. Reliance Energy made no attempts to inform the consumers of this. The third problem with their revenue projection is that they have not shown the amount they are collecting as “misuse” charges that DERC has allowed them to collect. We believe this is of the order of 10 per cent of their total revenue (based on past DVB figures).

The other major problem with Reliance Energy figures is the amount they claim they are spending (or will spend) on capital investments to improve the distribution network. While NDPL has spent the major part of what they had budgeted in their revenue requirement as actual expenditure, Reliance Energy has spent far less. In 2003-04 Reliance was allocated Rs 761 crore for infrastructure development and spent only Rs 146 crore. As per DERC, this year also, Reliance, for BSES Rajdhani Power Ltd. (BRPL) has capitalised only Rs 265.63 crore in 2004-05 as against a claim of Rs 923 crore as expenditure and a sanctioned amount of Rs 525.28 crore in DERC 2004-05 Tariff Order. For BSES-Yamuna Power Limited (BYPL), against a claimed capital expenditure of Rs 415.78 crore, the actual amount that was capitalised was only of the order of Rs 226 crore. DERC has also noted that BRPL and BYPL have shown much higher amounts as expenditure than sanctioned by DERC for specific schemes, put in money where there were no sanctions, etc. Despite these obvious shortcomings, DERC has accepted the entire claim of Rs 415.78 crore of BYPL and Rs 528.28 crore for BRPL for 2004-2005. The problem with this kind of accounting that DERC has accepted is that of accumulates; it has cascaded into this financial year also with a much higher capital cost being considered for these companies for 2005-06 than waranted. For BRPL, DERC has accepted a capital investment of Rs 558.18 crore for 2005-06. For BYPL, the corresponding figures are Rs 451.28 crore. That is DERC has agreed to a figure of more than Rs 1000 crore as against an expenditure for 2005-06 while its expenditure in 2003-04 was Rs 146 crore and less than Rs 500 crore in 2004-05! And all this then translates to higher tariffs for the consumers.

What does high capital cost figures, which are not spent actually mean in terms of tariffs? DERC adds these higher figures into the cost of electricity supplied. Of course, it does not mean that these extra amounts are realised only from this year’s bills, it is spread over 5-6 years. But they all add up to higher tariffs as they are recovered from the consumer through higher tariffs. Therefore fudged figures of capital investments are one way of raising tariffs.

The problems do not end here for the consumers. While Reliance Energy has admitted that there have been problems with wrong and inflated billings, it has not spelt out how much they overcharged the consumer and how they propose to give this money back. They have yet to improve on the large number of faults occurring in their network and speedy rectification of such faults. There is no redress of consumer grievances. Despite all this, DERC and Delhi government is quite happy to play footsie with Reliance and even finding excuses of brotherly love gone wrong as the reason for Reliance Energy’s non-performance.

If these issues were not enough, there is the other major issue of 30 per cent of Delhi’s consumers being left to fend for themselves by DERC and Delhi government. While the DERC’s Tariff order says that no change is being made for the tariff to JJ clusters, the reality is that private distribution companies have handed these over to local “contractors” or “dadas” who are allowed to charge arbitrary rates. The entire distribution of electricity in JJ clusters has been criminalised. In spite of repeated attempts, DERC has refused to address the problems of the consumers in JJ clusters and deals only with the issues of middle class colonies and the distribution companies. As a result, quite often when a contractor changes, the consumers in these areas have to pay for new installation meters and cables again. The meter quality and calibration are in the hands of the contractors. Private distribution companies are interested in not supplying power to these clusters at all and are taking measures to make it difficult for these colonies to get power. However, while making the revenue projections, the distribution companies project the JJ clusters consumption also and thus generate larger margins than they are disclosing to DERC.

The problem with DERC has been that it is fully a party to the decision to privatise the distribution in Delhi and therefore is going the extra mile like Sheila Dixit and company to cover the failure of privatisation of DVB. While people pay the price of poor quality of supply, the private companies continue to make huge profits, a scheme ensured by a pliant regulator and a complicit Delhi government.