Privatisation In Power Sector Imposes High Costs On The Citizens

THE failure of restructuring of the electricity sector and the privatisation of erstwhile DVB are now becoming clearer by the day. It has imposed very high electricity costs on the citizens, as shown by the recent steep 25 per cent overall increase in tariffs declared by Delhi Electricity Regulatory Commission (DERC), without improving the quality service. Frequent and prolonged power cuts, high losses, inefficiency of operations, innumerable billing problems have now combined with very high tariffs, one of the highest in the country. The outflow from the state exchequer for providing subsidies after privatisation is far higher than the losses of DVB earlier: in two years, the Delhi government has provided a subsidy of more than Rs 3,500 crore in the name of power reforms. The cost of electricity per unit in the Capital (including purchase and supply cost) comes to 505 paise per unit, a result of the restructuring it carried out by which the Transco has no generating capacity and has to buy out its entire power. This is the highest cost that any SEB has for supply of electricity in the country. The T&D losses are in the region of 45 per cent, and this along with the high cost of purchased power, is the cause of this exorbitant cost of supplying power to the Delhi consumer. The electricity tariff for industry in Delhi is now more than twice that of Canada and the US, and only below that of Japan amongst the advanced economies.

 The recent CAG Report has also shown how during the privatisation exercise the Delhi government favoured the private parties – BSES and Tata Power which finally impact the consumer tariff and the outflow from the state exchequer. For the Delhi government now to show unhappiness with the private distribution companies is hypocritical as they disregarded all earlier criticism of the privatisation measures. We and other critics had pointed out the failure of privatisation in Orissa involving precisely these two parties. The Delhi experience reads no different from the Orissa experience showing that the Delhi government learnt nothing from this and has inflicted the same ruinous policies on the people of Delhi.

The citizens of Delhi in JJ clusters, involving 30 per cent of Delhi’s population, continue to be discriminated with complete criminalisation of their electricity supply using the thekedar single point delivery scheme. The thekadars are charging arbitrary rates, and quite often abscond after collecting money from the JJ colony residents and not paying the distribution companies. Neither the Regulator nor Delhi government has made any effort to redress their problems.


The tariff increase this year alone, after taking into consideration the withdrawal of subsidies, is of the order of 25 per cent and not 10 per cent as claimed by DERC and Delhi government. And this increase comes after successive increases by DERC in tariffs in Delhi, which were quite high to start with. Those consuming below 100 units will be hit even harder, the increase in tariff for them being a whopping 33.33 per cent.

DERC has also clubbed categories of consumers from originally four to three-merging the lowest category of 100 units with the next highest one. In all this, the low-end consumer has suffered a higher rise in tariffs then other segments of consumers. For consuming 200 units now, (the bulk of Delhi consumers draw less than 200 units) the increase in their total bill will be Rs 490 instead of Rs 390 earlier, an increase of more than 20 per cent. While the Delhi consumers continue to suffer under repeated power cuts and savage hikes in electricity rates, the private companies are being given special incentives with guaranteed return on equity of 16 per cent amounting to hundreds of crores, and relaxation on the reduction of losses, the supposed basis of privatisation. To compound all this, the Delhi electricity regulatory commission (DERC) has admitted that BSES has spent only 146 crore for improving the system out of the sanctioned amount of Rs 761 crore. Despite this, DERC has agreed to enhance their budget on this head to Rs 1,100 crore. The question that we need to ask the regulator is why has this amount not been considered as a rebate for the consumers who have already paid this amount through the high tariffs? What steps has DERC taken to see that the private distribution companies do not siphon off unspent amounts?

Comparison of Current and Earlier Domestic Tariffs

Consumer Categories Fixed Charges Old Fixed Charges New 2003-04 Rates
Without Subsidy
2003-04 Rates With 10 per cent Subsidy New Rates
   (Units/Month) (Rs/kW/ month) (Rs)/Month (per Unit) (per Unit) (per Unit)
 JJ Clusters
<50 Units
60 1.25 1.25 175/month
0-100 10 <2   20
2-5   50
>5    10/kW
1.75 1.50 2.20
101-200 2.36 2.10 2.20
201-400 3.25 2.92 3.60
401+ 3.85 3.85 4.10


It is estimated that thirty per cent of Delhi’s population is living in JJ colonies. These sections have been denied access to proper electrical connections on various pretexts and were put under single point connection scheme of the erstwhile Delhi Viduyt Board. The contractors have taken and continue to take arbitrary amounts for providing connections. The meters are faulty and there is over charging of the consumers. The contractors collect dues from the consumers and do not pay the distribution companies leading to disconnection. The contractors quite often abandon their consumers and who then may be asked to pay a second contractor or the distribution companies, therefore incurring recurring development/installation charges.

Once distribution was privatised in Delhi, the private distribution companies: BSES (now Reliance Power) and Tata Power were entrusted with the responsibility for all such schemes of DVB as DVB’s legal successors.  DERC, in its order dated March 26, 2004 had fixed a development charge of Rs 2,400 for providing connection out of which Rs 1,200 is to be borne by the consumer in JJ colonies for non-electrified JJ colonies. In spite of this, the March 26 Order of DERC is being misused by the private distribution companies who are demanding an additional Rs 1,200 from the consumers in the JJ Colonies.


The CAG Report for the year 2002-03 on the Delhi government has substantiated what the CPI(M) had pointed out earlier. The most important observations in the CAG Report are as follows:

  • The amount that DVB had outstanding differed by a massive Rs 3,107 crore leading to a serious under valuation of DVB
  • The target for loss reduction figures were diluted to 1.16 per cent per year as against 3 per cent per year, that is only 5.8 per cent in five years as against the original target of 15 per cent
  • Changing the scope of the tender after receiving bids

One of the causes of high tariff in Delhi is high level of theft and technical losses. It is clear that the private distribution companies and the Delhi government acted in collusion to maintain the current high theft regime imposing heavy electricity rates on the consumers.

The restructuring and privatisation exercise for Orissa earlier and now Delhi shows that the electricity reforms have taken a wrong path. The entire exercise that privatisation of distribution and encouraging independent private power producers in generation did not improve supply and bring down costs. This has shown the privatisation exercise to be bankrupt. Both Delhi and Orissa have very low agricultural demand, so subsidy to agriculture cannot be trotted out here, as is the usual excuse for the failure of the electricity reforms. Injecting high private cost and handing over state assets at a pittance to private power companies obviously help private capital. It has only added to the woes to the consumers through exorbitant power tariffs, which are now one of the highest in the world.