People's Democracy

Brazen Plunder of Public Assets

THE privatisation of Delhi Vidyut Board (DVB) has gone from a public tender to private negotiations. After initially rejecting the bids of two bidders left in the fray, the Bombay State Electricity Supply (BSES) and Tata Power, the Delhi government has now offered them even more concessions. But, according to the Delhi state unit of the CPI(M), these post-tender negotiations are patently illegal as terms of the original tender can only be relaxed through a re-tender. These post-tender negotiations have taken place even after the Delhi government found figures quoted by the two bidders remarkably similar, thus showing evidence of collusion.

On May 3, a press release issued by the CPI(M) lambasted the Delhi government’s claims that privatising the DVB will significantly reduce distribution losses, make more electricity available for the people and cut down losses incurred by the government. The CPI(M) quoted the following facts to show how false these claims are.

(1) The Delhi government has agreed to bear the entire losses of the DVB since its inception in 1993, which amount to over Rs 5,000 crore, by issuing public bonds. Besides, it had set aside Rs 2,600 crore to provide initial incentives for the private companies that take over distribution as well as to guarantee them 16 per cent return on equity on a long term basis. This has been increased to Rs 3,500 crore during the current negotiations. Taken together, these government commitments over the next 3 to 5 years amount to Rs 8,500 crore, which is much higher than the projected losses of the DVB. This is apart from subsidising the private companies by supplying electricity at a cost lower than the average cost of generation.

(2) The DVB’s own calculation of annual losses after the last tariff revision in 2001, amounts to about Rs 550 crore. This is based on the figure of 51 per cent annual transmission and distribution (T&D) losses. The DVB’s internal figures for this year show a reduction of 8 per cent in T&D losses in the past one year. This means that current T&D losses are to the tune of 43 per cent. Annual losses based on this figure would be much lower than Rs 550 crore as is being projected.

(3) The fact that the T&D losses could be cut down by 8 per cent within one year without privatisation also exposes the government’s claim that cut-back in losses is not possible without privatising the DVB. It also lays bare the government’s mal-intent in proposing 20 per cent reduction of T&D losses over 5 years (4 per cent per year) in its public tender. The bidders have refused to accept even this figure and now the government is agreeable to reducing it to 12 per cent over a period of 5 years, that is, to 2.5 per cent per year. It would be worthwhile to recall that the T&D losses stood at 22 per cent in 1993, but increased to over 50 per cent in just 5 years, at an average rate of almost 6 per cent per annum. The BJP, which is crying wolf today, controlled the Delhi government between 1993 and 1998. It deliberately permitted this astronomical rise in T&D losses to build the case for privatisation. Its successor, the Congress state government, has been implementing exactly what the BJP government was out to do, instead of taking steps to cut back the losses.

(4) The main reason for the T&D losses is theft. The CPI(M) note points out that, according to what the DVB’s studies reveal, industry and rich colonies account for over 80 per cent of this theft. Following the Supreme Court’s orders to shut down industries in non-conforming areas, T&D losses had fallen by 15-16 per cent, to 35 per cent for one month, and rose again after the industries went back to business as usual. The government knows these facts. Yet it refuses to act against these well-heeled thieves.

(5) The CPI(M) note also said the Delhi government has closely followed the notorious example set by the central government in disinvesting the public assets. The reserve price quoted in the public tender is grossly undervalued. To top this, the BSES and Tata Power have quoted prices for the assets of distribution companies that are half the reserve price.

(6) Besides, these companies have asked for a 16 per cent rate of return for 30 years, as against the 5 years promised in the original tender. The government is willing to concede to this demand as well. In other words, while providing subsidy for public utilities is anathema for the Delhi government, it has no qualms in subsidising private profit for years on end!

(7) Further, the Delhi government has agreed to supply bulk power to these companies at a tariff of Rs 1.48 per unit --- at a loss of at least 60 paise per unit. The experience of privatisation of power distribution in Orissa and Greater NOIDA shows that such companies default on payment for even these subsidised rates. In Orissa, private distribution companies owe the GRIDCO more than Rs 1,000 crore. In Greater NOIDA, despite getting power at Rs 1.42 per unit from the UPSEB, which is well below the current cost of generation, the private distribution company has continually defaulted on payments to the UPSEB and built up huge outstanding arrears.

(8) Even worse, the BSES, which is being considered for taking over distribution, has already been indicted severely by the Kanungo committee that inquired into the failure of the privatisation of Orissa state electricity board. The BSES had taken over 3 of the 4 distribution companies in Orissa. It ran up almost Rs 600 crore as arrears on payment to GRIDCO. Besides, as the Kanungo committee report states, the BSES and AES (which took over the fourth distribution company) brought in neither superior working skills nor capital. Rampant theft continued and T&D losses remained at 45 per cent --- the pre-restructuring figure. Billing and collection efficiency actually went down. There were sharp increases in tariffs without reduction in techno-commercial losses or improvement in consumer services. Huge amounts were taken out by these companies as consultancy fees and there was complete neglect of maintenance. The CPI(M)’s press note also had attached with it extracts from the Kanungo committee report to substantiate the above points.

(9) The CPI(M) note also pointed out that, most importantly, the costs of privatisation and the Delhi government’s largesse to private profiteers will be realised from the people. The tariffs for consumers are bound to double, as happened in Orissa after privatisation, and the majority of the consumers will see deterioration in electricity supply and services, as also happened in Orissa. Not surprisingly, neither the Congress nor the BJP talk of the impact of privatisation on tariffs.

In view of all this, the Delhi CPI(M) described the DVB’s privatisation as a cruel hoax on the people, involving brazen plunder of public assets with the active connivance of the Delhi government. The party said the move would heap fresh burdens on the people of Delhi in form of sharply increased tariffs and lead to a huge drain on the public exchequer. The CPI(M) has therefore demanded that the Delhi government immediately abandon its perfidious moves to privatise the DVB.