Delhi Discoms Vs People's Power Punch

B S Meel

FACING massive public outrage over the steep tariff hike charges, the DERC had said that it could not revoke the order but did accept that services of BSES in particular needed improvement on many counts.  DERC, which declares the annual tariff had first asked the government if it would give some subsidy to the consumers to “minimise the tariffs impact”.  The government’s initial response was that it shall not be extending any subsidy under section 65 of Electricity Act: 2003. Considering this the DERC increased the tariffs to meet the uncovered revenue gap of Rs 320 crore.

TARIFF HIKE

Unfortunately it is not so well-publicised, or at least remembered that the consultant hired by the Delhi government to do the privatisation exercise had envisaged something much worse. The Delhi regulator (DERC) while delivering last year’s tariff order envisaged a tariff hike of 10 per cent each year for the first three years, a 5 per cent hike in the fourth year and 3 per cent in the fifth year. Thus, by now tariffs would have risen by 35 per cent. However, in order to keep the tariffs hikes low, the Delhi government provided Rs 3,450 crore of taxpayers’ money to BSES and NDPL (the two companies which bought over DVB assets). Naturally, when this money ran out, the tariffs had to be raised.

There is also a little bit of fudge here. Last year, to keep the tariff hike low, the Delhi regulator disallowed a certain amount of expenditure which BSES and NDPL incurred, but he didn’t allow them to build it into their tariff and it was carried over to this year. This has now been taken into account this year in the current hike!

Part of the problem, of course, is that while painting a rosy picture of the post-DVB world, the consultants got the figure for the investments that would be required to fix the system hopelessly wrong. Once again, we have the DERC’s tariff order for bringing this out so clearly. In the case of BSES Rajdhani Power Limited (BRPL), one of the two BSES companies, the consultants envisaged an investment of Rs 352 crore in the first five years — the projected investment was Rs 357 crore for BYPL and Rs 310 crore for NDPL. But these figures of projected investment turned out to be lower is clear from the fact that, BRPL alone has invested Rs 650 crore.

Why this matters so much is that consumers have to pay for it through higher tariffs. Roughly 12 per cent or so of the total amount has to be given to the company each year (3.75 per cent depreciation and another 8-9 per cent for interest on borrowings).

Every extra investment of Rs 100 thus requires the company to be paid Rs 12. On the assumption that BRPL, will sell 545 crore units of power this year. This --- that means customers have to pay 2.2 paise extra per unit of power, that is, about 0.5 per cent of their current tariffs. Since, in the case of BRPL, the total non-envisaged investment will be around Rs 1,700 crore by the end of this year (though it is true that all of it will not be factored into the tariff this year), that will cause a pretty hefty increase in tariff.

POWER THEFT

The biggest problem, of course, remains that of the very high theft levels that hike costs dramatically. BRPL, for instance, will buy power at Rs 2.21 per unit this year but will sell it at Rs 4.35 while BYPL will buy at Rs 1.77 but sell at Rs 4.32. Similar orders of magnitude hold for NDPL. That sounds like extortion.

In reality, BRPL will buy the power at Rs 2.21 this year from the government-owned Transco. Assuming it has an average loss of 38.65 per cent for the year (the average of 2004-05 and 2005-06), it will need to charge Rs 3.6 per unit just to break-even on the cost of purchase of the power.

Since the deal signed by Delhi government in 2002 that is, even five years after privatisation, the BSES twins and NDPL will still have losses of around 33-34 per cent so, customers will end up paying 50 per cent more than what power costs even in 2007-08.

To put this in perspective, Mumbai has a loss level of around 11 per cent, Ahmedabad has around 14 per cent, Surat 15 per cent and the NDMC area in Delhi around 16 per cent.

While both BSES/NDPL and the government of Delhi argue that the loss reduction agreed to in 2002 was the best they could have got since it was got by bidding and no company bid higher than this. But it can be  argued that when there were just two players left in the bidding process, the Delhi government changed the rules of the game – an additional loan of Rs 850 crore was provided to lower power supply costs, the minimum performance requirements were lowered by Rs 1,000 crore, among others — had these terms been offered to everyone, there would have been better bids.

What about the remaining 75 paise or so that companies like BRPL get per unit of power (that is difference between the the sale price of Rs 4.35 approved of by the DERC minus the zero-loss piece of Rs 3.6 just arrived at)? This is given to the companies by the DERC for salaries and other expenses including assured profits at a 16 per cent rate, not just on the equity but also on “free reserves”.

This ensures that the firms will get a profit of 59 per cent on their capital base and this can go up to 181 per cent in case they are able to lower losses to the level of, say, NDMC!

What makes the deal even sweeter is the incentive given for loss reduction. After a certain level of less reduction (the 17 per cent or so loss reduction that the firms have agreed to accomplish over 5 years plus a few percentage points more), the firms could keep half the gains from the loss reduction (this works out to roughly Rs 30 crore for every one per cent reduction in ATC losses).

While that is meant to provide incentive to them to lower losses. However, the quipment installed to lower losses (more meters, transformers and so on) is in any case paid for by consumers as part of the tariff!

STANDING COMMITTEE ON ENERGY

All this, of course, is in the past, in the sense there is little that can be done about the original contract. However, if parliament has its way, high tariffs that have driven Delhi’s electricity consumers to boycott bill payments might tumble. Slamming the    government for the way power distribution has been privatised, the standing committee on energy headed by Congressman Gurudas Kamat has asked it to change laws so that consumers do not have to pay for the failure of private companies to boost efficiency and losses due to theft.

“The discoms (like Anil Ambani-controlled BSES and Tata-controlled NDPL) follow the practice of loading their transmission and distribution (T&D) losses on the honest consumer which is not his concern”, the committee said in its 9th report tabled in the parliament. The standing committee wanted legal changes to stop the practices.  It said the current billing method which impose all financial liabilities on paying customers and taxpayers - would never encourage discoms to cut losses because they can pass the buck to consumers. It also wanted the state government to fight on behalf of the people.

The report asks the government to reconsider funding private distribution companies with taxpayers money under a scheme called Accelerated Power Development Reform Programme (APDRP) meant to improve distribution networks and their efficiency. “ These private discoms have neither shown any tangible results even after using cheaper government funds under APDRP, nor have these private players passed on any benefit to consumers.  The government of Delhi has not been able to persuade BSES and NDPL to work according to terms and conditions of the tripartite agreement between utilities, state government and central government”, the standing committee’s report said.

“DERC has sanctioned tariff hikes to Ambanies and the Tatas without the NDPL asking for the same.  This is indeed surprising, as consumers under the NDPL are sufferers for no reason – the government must intervene and restrain powers of DERC and investigate the same in Delhi and RECs if such orders have been issued and why?” , the committee says.

CENTRAL ELECTRICITY AUTHORITY

The Delhi DISCOMs have got a bad review from the Central Electricity Authority. The authority feels that the discoms are not doing enough when it comes to prompt action on public complaints.

In the yearly evaluation of power distribution system  for upto March ’05 carried out by CEA the city’s three discoms NDPL, BSES Yamuna and BSES Rajdhani have been ranked lowest in terms of public response and action specially during power crisis.

In CEA’s monthly evaluation of power distribution system to monitor the performance of discoms in cities with more than 8 lakh population, NDPL has been ranked lowest among the 22 discoms.  BSES Yamuna and BSES Rajdhani were at no. 18 and 19 respectively. 

The study also said that the number of trippings in three companies was very large.  NDPL had 1.11 trippings, BSES(Y) 1.12 and BSES(R) 1.53 trippings per feeder. Trippings /per feeder.  In cities like Kolkata, Surat, Mumbai suburbs, Ahmedabad, Vizhakhapattanam the situation was better than in Delhi.

Consumer Grievances Redressal Mechanism

PROTEST MEET

For the past several days, the city has been a witness to protest meets of power consumers. The protesters are meeting in colony parks and street-corners across the capital to register their refusal to accept the 10 per cent hike in power rates. The agitation is also stepped up on account of erratic power supply and long hours of power cuts.  Most residents and resident welfare associations (RWAs) now think that privatisation has worsened the already deteriorating power scenario in the capital.  One of the biggest problem that has come with privatisation is the installation of electronic meters. With privatisation bills of the power users have escalated and power cuts remains as bad as ever.

The Delhi chief minister when asked whether the tariff hike had been done under pressure of discom BSES, she replied the tariff was hiked by the regulator.  She had nothing to comment on this.  Meanwhile, more RWAs went on participating in the campaign and refusing to pay the increased tariff.  In fact they were in a dilemma and did not know whether they should pay power bills minus 10 per cent hike or not pay at all.

In the wake of the city wide protests and now politicians too began protesting against the Delhi government attitude towards consumer interest, which seems to have taken a back seat. At last the Delhi government was awakened due to the heat generated by the public outcry against sloppy and expensive power and a formula was worked out to enable a tariff hike roll back. One proposal was to fork out a subsidy to discoms to be passed on to consumers. Regulator came up with another option, saying discoms were free to offer a rebate to consumers, since discoms claimed to that they had not asked for a hike.

Around 28 MLAS and 70 councilors from Congress Pradesh Committee expressed unity with the public on the electricity situation. And with political pressure building, both from the CM’s own party and others, two committees were set up on August 29, 2005, to fight the raging fire. The first committee headed by finance minister A K Walia, with power minister and MLA as a member was asked to go into power muddle and come up with solutions.  The second committee will go into various issues including the one of faulty meters. The Congress Legislative Party inDelhi forced the chief minister of Delhi to withdraw the tariff hike of 10 per cent. Criticizing the tariff hike they decided that in consumer’s interest no other solution was available. The Delhi chief minister has finally succumbed to people pressure to roll back the tariff hike announced on July 7, 2005, bowing to an unprecedented civil disobedience by the citizens of Delhi. However, 5 per cent subsidy granted to private electricity supply companies has become a contentious issue

LESSON TO LEARN FROM THE UK

The United Kingdom began deregulating its electric market years before the US and India.  Thus, the UK provides the best example of what can be expected in the deregulated residential retail electric market in India. The available evidence from the UK is as follows:

1. Questionable price savings: Large drops in wholesale market prices were not fully passed on to residential consumers in the deregulated electricity marketplace.

2. Increase in complaints: The volume of complaints about energy companies rose after deregulation, and new types of complaints such as unauthorised switching of service ("slamming") arose.

3. Failure of Competition to develop: Rather than compete for new customers, companies are relying on customer inertia to keep their existing customer base.

4. Higher tariff for low- income consumers: Since deregulation begain in 1990, there has been a marked increase in the use of prepayment meters, resulting in low-income customers paying more for their electricity.

These findings and experience of the people of Delhi has encourage them to organise themselves and fight against neo-liberal powers of the government with vigour and determination. The ultimate purpose of this struggle is to force the government to retrace its step and keep electricity in public sector.