Column: Is BSES really the culprit

Written by Sunil Jain | Updated: Feb 5 2014, 10:05am hrs
Given the agitation from which it was born, as well as its relative youth, it is difficult to separate the Aam Aadmi Party from its government in Delhi. While the government has, for instance, just asked the Delhi Electricity Regulatory Commission (DERC) to prepare to suspend the licenses of both BYPL and BRPL for talking of stopping power supplies to parts of the capital, and to prepare to appoint Administrative

Officers to run them, an AAP founder member Madhuresh Lakhaiyar has filed a public interest litigation against the DERC in the Delhi High Court. The petition accuses the DERC of colluding with the power companieshe includes NDPL in it as well, presumablyto hike the Power

Purchase Cost Adjustment Charges (PPAC) last week. While it is not certain whether chief minister Arvind Kejriwal approves of this, in an interview to Reuters, Kejriwal had said, though not specifically in the context of the power sector, that having a regulator didnt always help in a public monopoly since the regulator could also turn corrupt.

While the confusion and the blame game over who is at fault continueincluding a side one on whether the DERC is the handmaiden of the electricity distribution firmsa few points need to be kept in mind.

* Since the current problem can get resolved if NTPC decides not to stop power supplies to BYPL and BRPL, it is evident that suspending the licenses of these two firms will not do the trick. After all, just because the government takes over the two companies doesnt mean NTPC is going to not cut off supplies on February 10.

* And nor is the problem restricted to NTPC, since the two firms owe suppliers R5,200 crore, it is likely some other company will stop supplies at some point.

* In which case, the Delhi government obviously believes the firms have the cash, but are deliberately not paying NTPC so as to provoke a crisis. Once an Administrator is appointed, the logic goes, she/he will pay NTPC and others and life will go on as usual, perhaps even the 50% cut in power tariffs the AAP had promised will materialise.

* Though not explicitly offered as proof of the fact that BRPL and BYPL are misbehaving, that NDPL is facing no payment difficulty does suggest there is more than meets the eye.

Take the Tata Groups NDPL first. The fact that, with Tata Power's Mundra ultra mega power plant (UMPP) in trouble over tariffs, the Tatas have chosen to sell off one of their mines in

Indonesia to bridge the (hopefully for them) temporary gap suggests the group does act a bit differently from others. NDPL itself has power losses that are around 7-8% lower than the two BSES firmsin which case, the firm has a better cash flow, perhaps allowing it to ride out the storm a bit better.

But it cant be that simple. At some point, even the benevolence of the Tata Group has to come to an end. After all, while NDPL has borrowings of R3,800 crore, it is owed R4,700 crore by the citizens of the capital. In the case of the BSES twins, BYPL and BRPL, they are owed R14,770 crore and they owe R5,200 crore to suppliers like NTPC. Give them back this money, and it is obvious, they will pay off the suppliers, and life will go back to normal.

But who has decided these firms are owed R19,500 crore This is where the AAP members PIL and the chief ministers statements come in. On February 1, 2013, DERC put out a statutory advice to the Delhi government, at that time a Congress one, saying the regulatory assets of the three electricity distribution companies added up to R19,500 crore. Of this, R6,919 crore was something DERC itself had recognised based on its examination of the accounts of the firms till FY11. The balance was something, the advise read, the companies had projected for FY12 and FY13 and the DERC had not been able to confirm this since it had not finalised the accounts.

So unless it is being alleged that the DERC is hand in glove with the companies, it is a pretty straight forward conclusion that the companies need to be paid their money back.

But there is some confusion here. In FY11, the DERC chief Berjinder Singh had said the companies actually had a surplus of R3,577 crore. How can there be a shortfall if there is a surplus What complicates matters further is that while the head of the DERC had said firms should lower tariffs as there was a R3,577 crore surplus in FY10 (the other members disagreed), his order was never implemented and the new DERC chief (with the members concurring) said there was a shortfall of R3,299 crore.

While mere columnists cannot determine whether the earlier DERC chief was right and the later one wrong, it is interesting to know the DERC issued an order in August 2011 explaining why the previous order was wrong. Given Annexure XII was called

Analyses of purported surplus of R3,577 crore during FY 2010-11 (as per draft tariff order 2010-11), you can understand it doesnt quite agree with what the draft order said. The order can be read at goo.gl/EF6DgS, but the gist is:

* A large amount of surplus power was assumed to be coming up in Delhi, and since this could be sold at a higher price in the open market, the discoms would earn R5,395 crore out of this, according to Berjinder Singh.

* The plants that were to generate this power, however, never came up on time, so as compared to the 19,315 million units of extra power, what actually was available was 5,826 million units, according to the August 2011 order.

* Thanks to orders of the Central Electricity Regulatory Commission which imposed a very high penalty for overdrawing/underdrawing from the grid, there was a significant reduction in this, so power rates collapsed.

* It would thus be seen that the assumptions on which the surplus of R3,577 crore was based no longer holds good, the DERCs August 2011 order reads.

* The order then goes on to talk of how power costs assumed in the past no longer held good. In the case of even the NDMC which is government-run, the order says the cost of power purchased as a proportion of total revenues billed rose from 65.55% in FY09 to 76.25% in FY10 and 114.05% for April to September 2010 (thats the first half of FY11). For BRPL, the rise is from 83% to 94% to 132%; for BYPL, from 73% to 77% to 135% and for NDPL, from 76% to 98% to 104%

In other words, whether or not the BSES licenses are suspended or cancelled, the final arguments will boil down to whether or not the regulator was complicit. In which case, while the CAG audits of the electricity distribution companies are going on, perhaps the next thing the Delhi CM will do is to ask for CAG audit of the regulator! It would be a good idea though, to read DERCs tariff order before going down this path.

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