State Government must take over the distribution companies without compensation!
The power distribution companies (discoms) of Delhi are on a warpath against the people of Delhi.
State Government must take over the distribution companies without compensation!
The power distribution companies (discoms) of Delhi are on a warpath against the people of Delhi. Two of the three distribution companies, BSES Yamuna (BYPL), BSES Rajdhani (BRPL), owned by Reliance ADAG have declared that they have no option but to resort to prolonged blackout in the areas of their operation. The reason — inability to clear their dues to the state run generation companies — NTPC, NHPC, Pragati Power Corporation Limited (PPCL) and Indraprastha Power Generation Company Limited (IPGCL). NTPC had announced it would stop supply of power if its dues were not cleared. BRPL and BYPL control distribution of electricity to approximately 70-75% of Delhi.
Intervening in this crisis, the Supreme Court has ordered NTPC to not cut off power to the BSES discoms till March 26, when the next court hearing will take place. It has also asked the BSES to pay Rs. 50 crore to the NTPC within two weeks. Meanwhile, the BSES discoms have sought government subsidy to ‘tide over the crisis’ (i.e. continue with their profits unscathed).
According to government sources, BSES has outstanding dues of Rs. 3400 crore towards the generation companies – PPCL and IPGCL and the Delhi Transco Ltd. (the State Transmission Utility for the National Capital Territory of Delhi). BSES also owes more than Rs. 600 crore to the NTPC.
Meanwhile, all the three discoms, BRPL, BYPL and Tata Power Delhi Distribution Ltd (TPDDL) have challenged the decision of the Delhi government to initiate a CAG audit of their accounts in the Court.
Earlier, at the end of January, the Delhi Electricity Regulatory Commission (DERC) granted a hike of 6-8% by way of a surcharge, to the three distribution monopolies. This hike is expected to be reflected in the bills paid by consumers from February 1. Electricity tariffs in Delhi have been hiked repeatedly since the privatization of the Delhi Vidyut Board (DVB) in 2002. Between August 2011 and August 2012, the hike was between 51-63%.
Privatisation of power distribution
Electricity distribution in Delhi was privatized in 2002 with the justification that the private discoms, Reliance ADAG owned BRPL and BYPL and Tata Power owned TPDDL would reduce distribution losses, provide more efficient power distribution and reduce tariff rates. The assets of DVB, which was public property, were handed over to the private companies at a pittance. According to a CAG report, they were undervalued by a whopping Rs 3,107 crores! The government is paying the discoms huge subsidies running into several thousand crore, many times higher than what they brought in as equity capital, on which the discoms are guaranteed a 16% rate of return. The discoms got huge hidden benefits through recoveries of outstandings of DVB, which were not shown in the accounts of the privatized companies.
It is widely suspected by people of Delhi that the distribution companies have installed fast meters, and have been fudging their accounts to show losses on a regular basis, to justify annual increase in power cost. The BSES discoms have even stopped showing any reduction in distribution losses. In fact, the distribution losses reported by BEST, a state owned power distribution company in Mumbai, is far lower than that of the private discoms of Delhi.
The discoms sell power to the consumers at a rate much higher than what they purchase it for. They have made significant capital investment in real estate while investing nothing to improve the system so as to reduce T&D losses and breakdowns. They have been repeatedly claiming losses to justify hiking the tariffs, to bleed the consumers more and more. In this they have been fully assisted by the erstwhile Congress Party government of Delhi and the DERC.
The discoms have been allowed to get away without proper auditing of their accounts. They have not been penalized for violating their promises of cutting losses, making power distribution more efficient and reducing tariffs.
Once more, at this time the DERC has conceded to the demand of BRPL and BYPL to hike power tariffs, at a time when the TPDDL did not even ask for a hike. And the Supreme Court has acted in the interests of the private distribution monopolies, and asked the gencos to not cut off power supply to the discoms, in the name of “concern for the people of Delhi“.
Monopoly “right”
The entire mechanism of tariff setting by the DERC is aimed at ensuring the “monopoly right” of the private discoms to pocket at least 16% profit on their capital, no matter what quality of service they provide to the public. This principle of guaranteeing super-profits for private monopolies is written into the Delhi Electricity Reforms Act, 2000, and the figure of 16% was set by the Delhi Government in its initial directive to DERC. It is a principle that the working class and people of Delhi cannot and must not accept. We must demand that the Delhi State Assembly debates and amends the law to remove this monopoly right.
The discoms submit a plan to the DERC. In this, they put forth their estimate of Aggregate Revenue Requirement (ARR), calculated as the amount required for covering all costs, including the cost of purchasing power, operation and maintenance, depreciation, and to provide on top of this a profit equal to 16% of the equity capital and “regulatory assets” of the private discoms..
On the basis of reviewing the ARR demand of the discoms, and taking into account any budgetary subsidy that the state government commits to provide, the DERC fixes a tariff structure for the ensuing period. If the estimated ARR approved by the DERC is not fully met by budgetary subsidy and/or the tariff adjustment in any particular year, the shortfall is added to the “regulatory assets” of the discoms, thereby adding to their capital base and hence their claim of profit on capital invested, even though these so-called regulatory assets are only a book entry and not any real productive investment.
In addition to the 16% guaranteed rate of return, the discoms make monies in the sale of surplus power. Normally, the discoms buy power at two rates — one a long term lower rate, and a second, a higher rate to deal with peak loads. The unused power is sold to other distribution companies. Till 2008, figures show that the surplus power was sold at rates higher than the peak purchase rate, resulting in net profit is purchase of power. But since 2009-10, the discoms have been showing that they are selling surplus power at very low rates. It is widely believed that this power is being sold within their own group of companies, as these discoms have refused to reveal to whom they have been selling power.
In the slums and resettlement colonies across Delhi where the bulk of the working population lives, the discoms promised to provide regular power supply, but have instead handed this over to private contractors. These private contractors charge arbitrary rates, install faulty meters and use their political and criminal connections to fleece the poor people and hold them to ransom. If a contactor changes, the residents of the slum colony have to pay for installation of new meters and cables all over again. Clearly, the private discoms are not interested in providing proper power supply to the people living in the slums and resettlement colonies. Instead, on the basis of their claim to provide electricity to the slum dwellers, they demand and receive huge subsidies from the government.
Delhi Government must take over the distribution companies without compensation!
Why should any private company be allowed to loot the public in the process of distributing power? Why should a private investor be guaranteed a rate of return by the State?
The main reason that was advanced for handing over power distribution to private companies was that the State Government is incapable of tackling the systemic corruption and providing efficient services to the public. After more than a decade of experience with privatisation, should this original assumption not be revisited?
Privatisation of power distribution has been one of the biggest assaults on the people of the capital. The working class and people of Delhi demand that the Delhi government immediately take measures to take over these distribution companies, without paying any compensation and organise the distribution of electricity in the public interest.