The Tau Of Reforms

Updated: May 30 2002, 05:30am hrs
Around this time tomorrow, the Delhi government will be deciding on whether or not to finally go ahead with the privatisation of the Delhi Vidyut Boards three electricity distribution companies. Earlier this year, the government had asked for bids for these companies, stipulating that the winner would have to reduce whats called Aggregate Technical and Commercial losses by 20 percent over five years. The bidders, however, offered to reduce ATC losses by a much lesser amount, and the government now has to decide if it wants to accept this or not. The arguments being made in favour of the capitulation is essentially this: DVBs failed to provide adequate power consistently through summer, so its best to get out of it. And, okay, is the argument, the theft wont be cut by 20 percent, but even 15 is a lot, isnt it

But, as this column has argued earlier, accepting the bid, even at the original terms, will be a blunder. Its not as if Im a big supporter of DVB in its current form, but privatising on the current terms isnt going to help anyone except the bidders. Heres why.

The bidders are to be guaranteed a rate of return of 16 percent (on their investments) for this any reduction over this, and they get superlative returns of the kind that even Enron never got from Dabhol. Its, of course, also difficult to understand why a 16 percent return is being offered considering that RBI bonds offer around half this the only rationale seems to be that this was the rate offered to companies like Enron in the early nineties. Except, since then interest rates have fallen by around four percentage points. This, by the way, is very important for consumers since the price youll pay for electricity will be determined by how much is paid to the private distributors the higher the returns guaranteed, the higher will be the cost of your electricity.

The biggest scam, of course, is the ATC losses themselves. An example from neighbouring Haryana should help illustrate this. Two years ago, the Haryana government decided that the Orissa model of privatisation-is-the-panacea wasnt going to help for a variety of reasons the proof of this lies in the fact that the Orissa model is in complete shambles today, with the privatised distribution companies owing the state government upwards of Rs 1,600 crore. So, a team of five bureaucrats was put in place and just two years later, the bureaucrats themselves have cut ATC losses by ten percent. Commercial losses for the Haryana power sector have fallen dramatically, and the sector is poised to actually break even this year.

This team of bureaucrats then went further and showed just how much fat there is in the system. Power generating stations, for instance, used to consume 18.6 ml of oil for every unit of electricity they generated when this was scrutinised carefully, the figure came down to 3.3 ml, or a total saving of Rs 180 crore. Similarly, consumption of coal also fell, to save Rs 110 crore.

In the case of the DVB, this problem is compounded further by the fact that the DVB doesnt even have exact figures on what its revenues are, or what the ATC losses are. On December 21 last year, for instance, DVB filed a tariff application with the regulator, saying its revenues for 2001-02 were Rs 2,779 crore this was revised on January 3, to Rs 2,948 crore! The ATC losses, correspondingly, were reduced from 60.5 in the earlier filing, to 57.1 per cent! And yet, the returns for the bidders are to be based solely on the shaky ATC numbers, and on ATC numbers that, as the Haryana example show, can be cut quite dramatically with a little bit of will.

It gets worse. The privatised firms will pay just between Rs 1.27 to 1.48 per unit for the electricity they buy from the government owned transmission company. The transmission company then is to be compensated through a Rs 2,600 crore five year loan, for supplying the power cheap. Experts like Gajendra Haldea of the NCAER estimate the amount required will actually be double. This will have to be eventually recovered through a tariff hike.

Delhi already has the highest tariffs in the country and theres little in the privatisation scheme to really lower them in a meaningful manner. So whats the privatisation for