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My 13th September 2005 Article against Power Tariff hike by Private Companies

‘Power Reforms-Aware Customers will take us through’ 

By Ajay Maken MP Dated 13th September 2005

 

130905 Article on Power Reforms

Hike in tariff by the DERC has triggered a volatile debate on the efficacy and success of Power Reforms in Delhi. As a Power Minister of Delhi at the time when these Power Reforms were being inked in June 2002, I perhaps would be the happiest to see these reforms succeed.

 

Privatization or Reforms were never meant as a license for reckless tariff hike, absence of government intervention to check fast running meters, or dubious and needless spending on capital works outsourced through their newly created subsidiaries by the privately managed DISCOMS (Distribution Companies).

 

I am strongly opposed to the present power tariff hike and feel that it was totally uncalled for. Soon after the power tariff hike by 15.5 % in 2001 before privatization, in 2001-02, the annual revenue collection was Rs 3018.27 cr. With the present tariff order, the annual revenue collection in the ensuing year would be whopping Rs 5475.73 cr. This is Rs 2457.46 cr more, which is 81.41% rise in just 4 years. Pertinent to mention here is that the total power consumption increased by 17.49 % only.

 

‘Projections’ in consultants’ report at the time of privatization are very often cited as the reason for tariff hike. Supporters of tariff hike taking refuge in financial projections made by the consultant are perhaps knowingly or unknowingly not divulging the other assumptions and other projections made by the consultants. This puts a big question mark on their intentions.

 

The consultants had projected for DISCOMS a much higher power purchase costs; much lower R&M (repair and maintenance), A&G (administration  & general) and Capital Works expenses; much higher depreciation. When all these assumptions are way off the mark, then why only tariff hike projection is considered? This too is despite the fact that the revenue to be earned by Distribution companies would be whopping Rs 2457.46 cr more than during DVB days. While requesting the State Government to make public the consultants report, I would like to just give the following two tables, which are self explanatory:-

 

Table 1: Power Purchase costs for the DISCOMS for the year 2004-05

2004-05 BSES Yamuna BSES Rajdhani NDPL (TATA)
Consultants Projection 1106 cr 2062 cr 1405 cr
Actual 798.4 cr 1654 cr 1104.7 cr

 

Thus the power purchase cost last year was Rs 1015.9 cr less than what our consultants anticipated at the time of privatization. Then why the tariff increase this year?

 

Table 2: Capital Expenditure Costs

  2004-05 2004-05 2005-06 2005-06
  Consultants Projection Actual Consultants Projection DISCOM Demands
BSES Rajdhani Rs 66 cr Rs Rs 923 cr Rs 74 cr Rs 1400.01 cr
BSES Yamuna Rs 67 cr Rs 415.78 cr Rs 75 cr Rs 1165 cr
NDPL (TATA) Rs 58 cr 303.36 cr Rs 65 cr Rs 361.11 cr

 

Before coming to the issue of erring meters, I would like to voice concern for aggressive and accelerated capital expenditure by the DISCOMs. BSES in particular has been projecting inflated capital costs. Newly created subsidiaries of these companies are outsourced most of the work in the absence of competitive bidding process. I would like to quote the latest DERC orders on this issue. For BSES, the DERC has said:-“As against the scheme wise approval for capital investment of Rs651.27cr (BYPL 367.18cr and BRPL 284.09cr) cr), the Petitioner has incurred total capital expenditure of Rs1338.78 (BYPL 415.78 cr and BRPL 923 cr) including capitalisation of interest and employee expenses during FY 2004-05. On examination of details of actual capital investments, the Commission has observed that most of the capital expenditure incurred by the Petitioner does not correspond to the schemes approved by the Commission. While examining the actual capital expenditure for FY 2004-05, the Commission noticed that the capital cost as claimed by the Petitioner for the various approved schemes was higher than the costs approved by the Commission.”

 

Why are the Government and Regulatory authorities turning a blind eye towards the fact that against the consultant’s projection of Rs 143 cr and regulatory authorities permission of Rs 651.27 cr, the BSES companies have spent Rs 1338.78 cr mainly through their own subsidiaries without transparent competitive bidding process? My views about the opaque bidding process stems from the observation made by the Delhi Government owned Delhi Transco Ltd. (DTL). In reply to this year ‘s petition to DERC by DISCOMS, the DTL has opined: – “It has been observed that the procedure being adopted by the DISCOMS for selection of vendors for procurement of material and award of work contract is not transparent, as it is not based on established competitive bidding process”

 

Now coming on to the most important aspect of meters. I am all for electronic meters. But I am opposed to the way these meters are being installed. Nine lakh new electronic meters have been so far installed in Delhi. Around thirty lakh is the final requirement. Can any amount of sample survey or random survey by BIS or any other agency in or without the presence of engineer from private DISCOMS do justice?

 

All electronic meters in autos and taxis are mandatory checked by the weights and measures department of Delhi government. It is mandatory for any of the weights used by any shopkeeper to be checked and stamped/certified by weights and measures department. Clause 8 of ‘The Standards of Weight and Measures Act, 1976’ provides for measurement of electric current. Through Section76 of this Act, the Central Government has already established ‘Indian Institute of Legal Metrology’ for imparting training and guidance. Section 50 to 70 (2) provide for various penal provisions for using erring meters.

 

Why is the Government not invoking The SOW & M Act, 1976 for these meters? Is it because the government prefers sample and random survey instead of mandatory survey? Is it because the government wants to shield private companies from penal clauses of The SOW & M Act, 1976? In the absence of infrastructure at weights and measure department, the Government can always outsource this job to IIT or DMRC. It is not done elsewhere in the country because power supply still at almost all the places is under the government.

 

Since last one year the Regulatory commission is without its chairman. Earlier the DERC had its chairman but did not have members. The government should very soon appoint an honest and upright person as the chairman of DERC.

 

Thus, despite the fact that power outages on account of breakdowns have become less; theft and inefficiency levels have come down by 14.60%; more than 6000 employees have been given VRS, we are still in a situation where people are not very happy with the way these reforms have proceeded so far.

 

I am very optimistic that the things will improve in the near future. We have two of the very best power supply companies in Delhi. A vibrant media and aware RWAs coupled with receptive government and regulatory commission will take us through this difficult phase. There are so many other things to discuss about this sector. The generation aspect has to be given adequate attention. Our achievements in the post power reforms scenario have to be reviewed and fine-tuned. I hope that the decision makers do it with a missionary zeal. The whole country is keenly watching our power reforms. Let us not fail them.

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