Huge post-tender benefits to discoms

The theft-reduction target that the Delhi government has set for power distribution companies is being seen as the main reason why tariffs have continued to be high in the Capital, even three years after privatisation.

If five years after privatisation, theft levels continue to be around 34 per cent (a 17 per cent point reduction target was agreed to for a five-year period), the discoms, to break even, will still have to charge Rs 1.5 per unit of power that it buys for Re 1. That is, the paying customers will still have to pay 50 per cent more in order to make good the losses arising out of power pilferage.

What complicated matters is that, when the Delhi government originally examined the bids for privatising the Delhi Vidyut Board (DVB), most bidders did not accept the criterion that the loss levels would have to be reduced by at least 20 percentage points.

Only two bidders, BSES and NDPL, agreed to reduce the losses only by 13-14 per cent each. So, in order to get them to agree to reduce the losses by a greater amount, the government entered into talks, arguing that negotiations with the lowest bidder were acceptable under CVC guidelines.

According to a CAG report on power privatisation in Delhi, post-bid sweeteners such as an extension of the moratorium period on interest and principal repayment lowered costs by Rs 340 crore and allowed firms to utilise a loan of Rs 1,416 crore for two additional years without interest.

It also said the lowering of loss-reduction targets deprived government-owned Transco, which sold power to the discoms, of around Rs 3,930 crore.

Besides, an additional support of Rs 850 crore was provided in order to lower the cost of power for the discoms. In addition, the CAG said, DVB had receivables of around Rs 3,107 crore that had not been taken into account by the consultant while setting the value of the utility.

DVB’s last chief Jagdish Sagar, who presided over the privatisation programme, said these criticisms were not valid. All of these, he argued, either lowered costs for the discoms or increased their non-tariff revenues.

The valuation of DVB’s assets by SBICaps, the consultant, is another contentious issue. According to the erstwhile DVB’s accounts, its assets were Rs 5,600 crore, yet when SBICaps did a “business value”, it arrived at a lower figure of Rs 4,263 crore of which Rs 3,103 crore were allocated to the discoms.

SBICaps then decided to deduct Rs 743 crore of “accumulated depreciation” from this, a departure from the usual practice of either using the book-value-minus-depreciation method or the business-value method.

Also, though the “business value” of DVB was arrived at before the post-bid sweeteners were thrown in, the “business value” itself was never revised upwards.

Another problem area is the 16 per cent return assured to BSES and NDPL through a directive of the Delhi government. While this has been defended by saying that even the original Electricity Supply Act of 1948 prescribed this, the Act defines returns as the RBI rate plus 5 per cent.

Today, with interest rates plunging, this no longer adds up to 16 per cent. However, since the 16 per cent rate has ben set by the government, the regulator has no power to reduce this.

Curiously, prior to DVB being privatised, its loss levels were hiked quite dramatically, from around 51.9 per cent for the year 2000-01 to 57.1 for 2001-02.

What this means is that the loss-reduction target of the discoms also changed, and they could show higher reductions without actually having achieved them, and could claim a bonus payment. Sagar denied this was a fudge and said the increased level was genuine.

The bottom line, however, is that the regulator did not believe it either, and so set the initial loss level at somewhere between the figures for 2000-01 and 2001-02 after the privatisation deal was signed. DOESN'T ADD UP DVB’s assets were worth Rs 5,600 cr, yet SBICaps arrived at a lower figure of Rs 4,263 cr Firms utilised a loan of Rs 1,416 crore for two additional years without interest