Act on CAG Report on Power Discoms and Let Market Forces Operate

A leaked CAG report unearths the flawed revenue model being followed by Delhi’s power discoms. Read here.

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• Power theft and half supply not being paid for were flaws that privatisation of power distribution in Delhi sought to correct
• Independent regulator, DERC, did not champion the cause of consumers who could choose preferred discom
• Leaked CAG report on discoms in Delhi seems to be believable since one of the two power distribution companies seems to be the culprit
• Previous Congress government in Delhi didn’t bat an eyelid when it came to recovery of loans from the discoms given earlier
• On the lines of power distribution in UK, consumers in India should be given a free hand to choose their power suppliers

Those with long memories will remember frequent breakdowns, callous service and officials immune to accountability under the state-owned Delhi Vidyut Board (DVB) and its predecessor, Delhi Electricity Supply Undertaking. Power lost by these companies increased from 7% in 1953 to 50% by 2000.  Few would wish a return to those days.

In July 2002, Delhi’s Congress government took a bold decision to privatise power distribution in the city. The government had the majority, the opposition was weak and discontent ran high with DVB, which had also acquired a reputation as the city’s most corrupt entity.

The utility was broken into six companies – but the government went beyond corporatisation. It privatised all three distribution companies (discoms). It was a difficult but wise decision. Thirty-one companies showed interest, six were shortlisted, but in the end only one remained in the fray. The other had to be persuaded to join in. The Reliance Group (later Anil Dhirubhai Ambani Group) got two of the discoms, the Tatas one.

Delhi’s Large Network

The network that the private companies inherited was larger than that of their peers in Mumbai or Kolkata in terms of employees, number of consumers, area served or energy demand. Unlike most states, there was little agricultural load; users were almost entirely urban. But theft was high; half the power supplied was not paid for, so little investment had gone into the network, which affected the quality of supply. But people were impatient for change, change for the better, and the credibility of the privatisation programme hinged on how well the private successors of the state utility rose to the challenge.

The Tatas settled down to business quickly. They invested huge sums in upgrading the network, installing electronic meters, replacing transformers, conducting quarterly consumer surveys, holding monthly open houses to address grievances, and increasing bill collection points from under a dozen to more than 1,000 in five years. It was a huge change.

The BSES companies were affected by a rift in the Ambani family, frequent changes in top management and a stiff decision-making style. Chief Minister Sheila Dikshit publicly chided them. Her admonition, public outrage over deficient service, and the media glare, seemed to have persuaded the BSES companies to put their houses in order. In a survey conducted on the fifth anniversary of the privatisation exercise by Delhi’s power regulator, DERC, consumers gave them high approval ratings.

Political Pressures

Tariffs were supposed to be fixed by the regulator independent of political pressures, but stiff resistance from the city’s vocal middle class forced the government to bear half of the 10% hike in 2005. The agitation was stoked by the BJP opposition and the CM’s detractors in the party, but citizen groups felt that the gains from reduction in theft had not been passed on. The discoms also had to reckon with the city’s culture of entitlement.

Curbing theft was a fraught exercise. The national law was amended to make it a criminal offence punishable with a jail term. In five years 25,000 theft cases were detected in the Tata area, Rs 406 crore penalty was levied and 17 convictions secured. In the BSES areas, there were 55,000 cases and 160 people were jailed.

There seemed to be little odium attached to thievery in Delhi. The discoms had to engage the services of the CISF. Attacks on raiding squads were not uncommon.

Replacement of electromechanical meters with electronic ones was hugely controversial. People thought this was a conspiracy to over-charge them. Tests which the regulator got done independently said this was not so, but the suspicion remained.

Flawed Privatisation

For all the immense good that it did, Delhi power privatisation was a flawed exercise. Despite claiming a reduction in power losses from a high in east Delhi of 63% in 2002 to 19% now, a generous loan of Rs 3,450 crore that has not been repaid, interest on the loan forgone, and frequent tariff increases, the discoms claim consumers owe them nearly Rs 14,000 crore as of March 2013. If their demand is conceded there will be a huge public backlash because tariffs already are high.

The CAG draft report leaked out earlier this week reportedly states that the discoms have inflated their dues by nearly Rs 8,000 crore. They dispute the veracity of the leaks. They say they have not been heard. They should be in all fairness. But the discoms have not been virtuous. They have resisted audit.

The government should be even-handed; not vindictive as it appears.

CAG Shashi Kant Sharma must make the charges stick. On the face of it the leaks seem believable. One of the two groups that distributes power to the city does not score high on the index of public interest. It has a reputation for grabbing infrastructure projects and dropping them at a hint of losses. Delhi’s airport metro line is an example. A previous DERC chairman found one of the discoms had cooked up the cost of equipment by Rs 533 crore. It was let off without being severely punished.

Regulator Has Failed

The regulator has failed its duty. Large consumers should have been allowed to choose their power supplier after 2008. This was one of the mandates of privatisation. The regulator initiated the process but dropped it, saying the response was poor. But it had imposed a high wheeling charge on them. That was perhaps a deterrent.

The Congress government also did not bother to recover the loan given to the discoms at the time of privatisation. This was to prevent tariffs from shooting up. The loan was to be repaid with interest from revenue earned from the reduction in losses. This was never done.

The private companies are not as nasty as the state-owned beast they have replaced, but saintly behavior cannot be expected from companies with captive consumers.

When Arvind Kejriwal incited consumers not to pay bills in 2013, the discoms said Delhi’s power rates had grown at a compounded annual rate of 7.5% since privatisation for those in the lowest slab, while for those in the highest bracket they had risen by 5%. Over an 11 year period, the rate per unit for the poorest consumers had more than doubled from Rs 1.70 a unit to Rs 3.70.  It seemed reasonable.

The rates now range from Rs 4 to Rs 8.75 a unit for those consuming 200 and 1,200 units a month respectively. This is not cheap power.

Choice to Consumers

If Delhi’s discoms have indeed cheated, criminal action must follow. But mere policing will not help. Consumers must be given a choice of discoms so they can opt for the one who is least likely to rip them.

Gajendra Haldea, an official who had helped draft the Electricity Act 2003, says universal open access, as it is called, is indeed possible. Bulk consumers in the UK were allowed to choose their supplier in 1990. Since 2009, all British consumers have choice.

Sadly, India does not have a common market for electricity. Consumers cannot buy power from whoever they want. Exporting states impose restrictions. High wheeling charges make cheap power expensive. Power traders are raking it in. Nationwide electricity reform remains an unfinished task.

The Kejriwal government wears honesty on its sleeve. Only an honest government can end cronyism. It can bring systemic change to provide lasting relief to consumers. Kejriwal must not blow the chance.

(The writer was economic policy editor with CNBC-TV. He is now consulting editor to www.smartindianagriculture.in)