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Delhi Power Distribution privatisation - a model for all cities to follow?

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Written By murali772 - 24 December, 2011

Bangalore BESCOM Privatization Power Supply Citizen Reports Economy efficiency outsourcing

Linked here is a ppt presentation on the transformation of the Delhi power supply scenario, at least in those parts coming under Tata Power Delhi Distribution Ltd (TPDDL), over the 8 years since the taking over from the Delhi Vidyut Board (DVB). The information was obtained from TPDDL themselves. Some interesting highlights are:

  1. AT&C (aggregate technical & commercial) losses dropped by 75%, from 53.1% to 13.2%.
  2. Average retail tariff rose by 40%, from Rs 3.84 pu to Rs 5.38 pu, of which a 22% increase was allowed by the regulator just this September. This should be seen together with the increase in average power purchase price over the period, which was at 179.6% (from Rs 1.52 pu to Rs 4.52 pu). So, while the sale to purchase price ratio during the DVB reign was a whopping 2.53, it reduced dramatically to 1.19 at the end of the 8 years since the TATA take over.
  3. No of consumers went up by 69.1% (from 700,000 to 1184,000).
  4. Distribution Transformation Capacity in MVA went up by 116% (from 1926 to 4160)
  5. System reliability went up by 42.7% (from 70% to 99.9%) - meaning, I expect, the sales of gensets, inverters, UPS devices, batteries, converters, emergency lamps, voltage stabilisers, candles, match-sticks, etc must be dropping drastically.

Can there be a more compelling reason than all of the above for privatisation of distribution, particularly in cities, even with or without a most pro-active and go-getter MD like Mr Manivannan at the helm? After all, how much can he alone achieve given all of these constraints?

Well, the process has evolved over the years, from when the detractors - largely status quoists (some - on account ideological reasonings, plainly misplaced; others - out of vested interests), saw it all as doomed for failure - check this, and this. They will of course now point out to the reduction in the number of employees by 28.9% (from 5600 to 3981). However, that's only in the case of direct employment. As compared to that, the buoyancy that the economy attains, resulting from the ready availability of cost efficient power, is obviously leading to multi-fold employment generation in every other industry, power being a key infrastructural component affecting all of them.

The route for cities thus becoming clear, the route for rural areas can be any of the many models already available - a good one would have been the Hukeri (Belgaum dt, Karnataka) model, if not for the deliberate sabotage of it being carried out by the neta-babu combo in order to perpetuate their rule. Whatever, the route can't be the one adopted by BESCOM (and the other DISCOMs in Karnataka), supposedly to cross-subsidise the losses suffered in the rural networks, but essentially to cover up their inefficiencies (as also plain thefts), all in the name of farmers.

City loads and rural loads have totally different characteristics, and unless these are separated and managed, neither can be met satisfactorily. But, the important question that arises is do you want to meet the needs satisfactorily, or do you want to perpetuate your vested interests?

Muralidhar Rao

COMMENTS

Katiabaazi

murali772 - 29 August, 2014 - 06:06

If you want to get a feel of what the power supply scenario in Delhi was before it was privatised, do go see "Katiabaaz". The movie is all about the current scenario in Kanpur, presided over by the government-owned KESCO.
 
Actually, the scenario in Bangalore is only marginally better, and this is largely because our citizens are comparatively richer (thanks largely to the flourishing IT industry, and the trickle/ flow-down effect thereof), and can readily afford the alternatives like gensets, inverters, converters, batteries, etc etc (indeed, this too contributes to the trickle-down effect). But, there is a large section here too who cannot afford them, and as far as they are concerned, they may as well be living in Kanpur. 
 
Interestingly, there is a different type of "Katiyabaazi" carrying on in Lutyen's Delhi (where the neta's stay) even today, where the power supply has been deliberately retained under the government-owned DESU (which, like KESCO, was the supplier throughout Delhi, earlier). As different from the practice in Kanpur, of hooking wires onto the power lines, in Lutyen's Delhi, it happens through 'payable when able' (or even non-payment) policy, without fear of disconnection. Comparison of actual revenue generation figures for similar sized areas, one supplied by say Tata PPDL, and the other by DESU, should be quite revealing in this aspect.
 
The answer plainly is privatisation. Yes, the regulatory authority in Delhi needs to do better. The way to achieve that could perhaps be through providing for adequate representation there for domain experts from amongst reputed Civil Society organisations. 
 
But, unfortunately, the country (including large sections of the techie population of Bangalore, who owe their high-flying lifestyles to the liberalisation of the economy) seems to remain in the grip of pseudo-socialism, even as the city's poorer sections are paying dearly for it all. 
 
And, for all of AAP's pronouncements supporting private enterprise (check this), had not the ministry fallen fast enough, Delhi would very likely have reverted to the earlier times, with the CM himself playing the role of the chief Katiyabaaz (check my post of 8th Oct, 2012, scrolling above).
 

CAG doesn't understand business

murali772 - 18 August, 2015 - 08:51

The three private power distribution companies (discoms) in the capital inflated their dues to be recovered from consumers by almost Rs 8,000 crore, the comptroller and auditor general has said in its report on the discoms and claimed that there is scope for reducing tariffs in the city.

The 212-page confidential report, accessed by TOI, has indicted the three power distribution companies — BSES Yamuna Power Ltd (BYPL) and BSES Rajdhani Power Ltd (BRPL) controlled by Anil Ambani's Reliance group, and Tata Power Delhi Distribution Ltd (TPDDL) — on several counts.

For the full text of the report in the ToI, click here

For all of these charges, is anyone disputing the overall claims made by TPDDL (check the opening post in this blog), as also the Reliance companies if not to the same extent? The performance parameter levels achieved are close to world class, and at tariff levels comparable to, if not better than, those levied by other DISCOMS across the country, particularly the ones run by the government.

To understand the CAG's observations in lay-man's terms, let us take the case of a restaurant, serving some 500 meals a day. It will very likely have a fixed price contract with a trusted vendor for its projected monthly requirement of 2000 kg of a given quality of rice, for delivery at 500 kg per week. Now, supposing the market price for the same rice drops by some 20% during the period, should the restaurant dump its trusted vendor, buy from the market instead, and give the equivalent benefit to its customers? Not having done so, is more or less what the CAG is holding the DISCOMS guilty of.

Likewise, if during the period, for some reason, the number of meals sold drops to 400 a day, and the restaurant chooses to dispose of the excess stock of rice (rather than allow it to rot, or be consumed by rodents) at purchase price less 15%, and accounts it as a business loss, can the shareholders claim that the same level of dividend should be maintained, by making good the loss from the manager's salary? Well, that again is more or less what the CAG is saying.

And, quite similar are the other charges too. So, now I can understand why the PPP company managements are reluctant to accept CAG audit. No business can carry on if it has to go by CAG audit norms. And, since CAG audit is a must for government set-ups, answerable to parliament as they need to be, it becomes a good enough reason why they need to keep out of business.

Now, the Delhi power supply PPP Discoms have a 51:49 :: private:government share-holding pattern, allowing for a rate of return on equity of 15%, which is as good an arrangement as you can have for a utility as one can think of, with sufficient checks and balances in place, and with oversight by the DERC in addition. There could perhaps be scope for a nominee from the Civil Society in the DERC, if it doesn't already exist.

The city and citizens, incuding the aamest of the aam aadmi, have benefited immensely from it too, to the extent it is seen as a model for other cities in the country to emulate even. In such a scenario, if the Delhi government is going to go on finding fault with the Discoms and deriding them, with the plain objective of gaining brownie points with its vote banks, I wouldn't be surprised if TATA's even opt to pull out of the deal. It'll be interesting to see if the Delhi government can come up with a satisfactory alternative.

Can AAP govt claim credit for lowering of tariffs by Discoms?

murali772 - 2 October, 2015 - 12:41

Following are the excerpts (in italics) from a blog in the ToI, by Mr Pyaralal Raghavan, a Senior Asst Editor, with the ToI (full text may be accessed here1), and an obvious AAP sympathiser (rather, admirer), and my response, para-wise:

Delhi chief minister Arvind Kejriwal seems to have finally managed to shut up his critics and earn new laurels by pushing the Delhi Electricity Regulatory Commission (DERC) to desist from its regular annual hikes in electricity rates for the first time in many years. His continuous efforts to focus on more efficient management of the distribution network and reduce leakages seems to be finally paying off.

Delhi's privatised discoms had already achieved efficiency levels, even comparable to the best in the world (reliability levels of 99.9% - for the rest, check the opening post), long before Arvind Kejriwal came into the picture. If at all any body is to be credited for this, it should be the Sheila Dikshit government, who took bold to go ahead with the privatisation idea, even in the face of every kind of obstacles put up by the well entrenched mafia, as well as the pseudo-Socialists.

- - - But what is best about the new tariff orders is that Delhi power consumers can now even expect a further lowering of the electricity prices. This is because the new numbers show that the outstanding owned to the distribution companies, called regulatory assets in technical parlance, has suddenly dropped sharply by Rs 2000 crore this year prompted perhaps by the closer scrutiny of accounts by the stakeholders including the government which has successfully persuaded the CAG to audit all distribution companies for the first time since their inception.

The cause for the high tariffs (however, still lower than that charged by most government-run DISCOMs in other states), inspite of the improved performance efficiency, was well known as arising from the high power purchase cost (PPC), which constitutes over 80% of the DISCOMs' input costs, over which the DISCOMs had very little control. This had been commented, upon as below, in none other than AAP's "white paper" itself on 'bijli' (accessible here). "The latest power tariff orders passed by DERC throw up very important issues. The rates at which power generators are selling power to Delhi discoms varies between Rs1.2 per unit to Rs 12.21 per unit. Consider this, the newly commissioned Reliance owned Sasan UMPP bagged coal blocks by bidding to supply power at Rs 1.196/ unit. On the other hand Central PSU National Thermal Power Corporation, which have coal linkages with Coal India and which supplies about 75 percent of Delhi’s total power consumption, sells power at rates between as low as Rs 1.75 per unit to as high as Rs 6.15 per unit. Similarly, NHPC plants supplies power at per unit rates varying dramatically between Rs 1.77 to Rs 12.21. The issue is why Delhi does not have access to cheaper power and why it is being forced to buy expensive power!?".

Now, with the Central government facilitating the setting up of UMPP's by the likes of Reliance, as also opening up of the coal sector to private players, the earlier monopoly position of PSU's like NTPC, NHPC, and Coal India, has got eroded, leading to the DISCOMs' input prices becoming competitive, and paving the way for the lowering of tariffs, and simultaneous reduction of the regulatory asset account balance. This is quite in line with my comment "Eventually, that will help bring down the PPC for the DISCOMs, and the regulator can then re-structure the tariff to wipe out the regulatory asset burden in phases, following which the people of Delhi can enjoy the cheapest and highest quality (which is already the case) power, forever", made on 31st Jan, this year, accessible through the link provided in the above para.

Another major factor responsible for the turnaround is the ushering in of financial discipline amongst the stake-holders involved (more particularly the government), resulting out of the reversal of an earlier order by the Supreme Court, after the private players came into the picture (check here), leading to smoother and timely cash flow between them. In contrast, the government-owned BESCOM (Bengaluru) and its sister ESCOMS put together are paying their main supplier, viz government-owned KPCL, in 402 days on an average (ie almost 13 and a half months later - 09-10 figures; they aren't any better even now).

Apart from steady elimination of the regulatory assets the power prices to Delhi consumers will also be driven down by the firm stand taken by the DERC on the reduction in AT&C losses.

It didn't require any firm stand to be taken by DERC in the matter. It was in the interest of the DISCOMs themselves to do it, and they did it, with the support of the Sheila Dikshit government, and inspite of Arvind Kejriwal himself trying to sabotage their efforts (check my post of 8th Oct,'12, scrolling above).

It is also hoped that the move by the DERC to have a physical verification of the assets of the distribution companies and the billing audit will also help contain the regulatory assets.

We'll have to see about that. From what's available so far on the CAG report (check my post of 18th Aug, 2015, scrolling above), there doesn't appear to be any comment in it on asset valuation.

However, the AAP government which question the veracity of the regulatory assets has demanded that instead of accumulating funds to wipe out the remaining balance the DERC should further reduce the electricity prices charged to the consumers. But the DERC, which explains the stability in the electricity tariff to the reduction in regulatory assets and carrying costs and the strict curbs on buying and selling of costly power by the distribution companies, seems to prefer a less radical stand.

That's what regulation is all about. Besides, there are government nominees on the DISCOMs boards too, with their holding 49% stake. And with AAP holding the reins, the comapanies' stand should reflect the government's thinking too.

Whatever be the real reason the Delhi power consumers can heave a sigh of relief. The new power sector reforms being rolled out by the Delhi government will hopefully usher in more competition in the distribution sector will perhaps allow the Delhi government to add to the recent gains.

Very true; but, credit is largely to Sheila Dikshit government, and the Central government that has ended the monopoly of NTPC/ NHPC, Coal India, etc. AAP can perhaps be credited with publishing a fairly objective white paper.

But one person who can claim the real credit for this turnaround is the Delhi chief minister Arvind Kejriwal who made the high electricity prices a major plank of his election campaign.

Pyaralal's 'pyaar' for his 'neta' has apparenty clouded his objectivity, is all I would like to add.

One can only hope that other states where power distribution companies continue to make huge losses learn a few lessons from the Delhi experience.

All of the above only go to reinforce the case for immediate privatisation of power distribution, particularly in cities, as was the theme of this blog, even to begin with. And, if a Karnataka chooses to follow suit, the numerable learnings from the Delhi example (some listed here too) can help smoothen the process, and make it happen far faster. What's required is political will; but that'll not happen unless there's push from the people. And, that's what this petition is all about - do endorse, if you agree!

As for AAP, for all of the benefits Delhi has gained from privatisation of power distribution, it would appear, they would still not want to have much to do with professional players in the field of taxi services, bus transport services, water supply, healthcare, school and college education, etc. Perhaps, they would even want to go back to DESU for power distribution, given half a chance. The why's of it are still a bit of a mystery, and also one wonders how far such an approach can take them.

time AAP govt changed approach

murali772 - 2 November, 2015 - 14:14

Dealing an unexpected blow to the Arvind Kejriwal government, the Delhi high court on Friday struck down its decision to get the accounts of power discoms audited by the Comptroller & Auditor General of India. It pointed out that there was a regulator, Delhi Electricity Regulatory Commission, for auditing the accounts of private discoms for tariff determination and CAG could not usurp that role.

A bench of Chief Justice G Rohini and Justice Rajiv Sahai Endlaw observed that the purpose of the CAG audit - to examine if power tariffs were properly determined - was the exclusive domain of DERC.

"Thus, the purpose of the audit was/is not if privatization has served any purpose or whether the terms of the transfer scheme were in the interest of the Delhi government. The sole purpose/purport of the audit is tariff determination," the bench observed, faulting the process.

The pre-poll promise that resulted in a formal request to CAG to carry out an audit of discoms in January 2014 was described as a "populist measure" by the court which questioned the public interest behind the exercise. Since the state government and Delhi assembly have no power to take action on the CAG findings, the court said it "ultimately may serve no purpose".

- - - - Soon after the verdict, Delhi government said it will challenge it before the Supreme Court.

For the full text of the report in the ToI, click here.

Given the fact that the Discoms are PPP's with 49% government stake (meaning they have sufficient representation on the Company boards), and also the fact that there is the specialised agency, viz the DERC, to look into the tariff fixation (as well as other matters), one should think there are sufficient checks and balances in place already, and a CAG audit in addition is a superfluous exercise and a waste of time and resources.

Having said that, however, there has, from long, been this question mark of the process of selection of the ERC chairman. The post has invariably been filled up by the retired Principal Secretary (Power), from within the state itself, which then raises questions on conflict of interest, as has been brought out clearly in this post. This certainly warrants immediate correction, if the institution of ERC has to gain credibility with the people.

Now, with or without the tariff reductions that the leaked CAG audit findings supposedly warranted (check my post of 18th Aug, scrolling above), the Delhi government should appreciate that they already have a good thing going, resulting out of the privatisation exercise undertaken by the Shiela Dikshit government, compared to most other cities in the country 'served' by government-run utilities. As such, rather than continuing a confrontationist attitude, which perhaps helped them win the elections, they would now do well to build on the partnerships, and make them proper models for oher cities to follow, too. And, this need not be limited to power supply alone. They could extend to other areas, like water supply, public bus transport services, etc, too, with the necessary tweakings to address the peculiarities pertaining to each of these areas. Achieving all of that would be the kind of fulfilment of the promises one had of Arvind Kejriwal.

Transmission - the problem area now

murali772 - 17 June, 2014 - 08:04

Delhi has been suffering outages after the May 30 storm damaged all the three feeder lines that wheel power to the Capital. The lines have been operating partially as repair work is on in full-swing.

Gujarat, Madhya Pradesh and Chhattisgarh— all BJP-ruled states— had offered additional power to Delhi as demand spiked to about 5,800 mw due to soaring temperature. But the transmission company was unable to draw this power due to capacity constraints of the feeder lines.

For the full reoport in the ToI, click here

On their part, the power companies claimed to have been working on a war footing to restore supply. "There was major loss of supply from extra high voltage northern region lines feeding power to Delhi on Friday due to the thunderstorm. A number of 400kV, 220 kV, 66kV, 33kV and 11kV high tension lines also tripped. Delhi was drawing around 5,150 MW and load fell by around 4,000 MW within an hour," said a senior Transco official.

For that report, of 1st June, in ToI, click here

Through these times too, the TATA (TPDDL) company performed relatively better, as the following report excerpts indicate:

Areas under Tata Power Delhi, especially north Delhi, experienced power cuts for a couple of hours on Saturday night (9th June - full report in ToI, here).

Power department officials said no loadshedding was reported in areas where power is supplied by Tata Power Delhi Distribution Ltd (11th June - full report in ToI, here).

So, even as the privatised distribution network has largely become capable of handling emergency situations, the transmission network management handled by the government is found wanting in capacity. But, that's a relatively simpler matter, that can be tackled fairly easily by the government-owned Gridcos, and as such, wouldn't necessarily warrant their privatisation.

But, the need for privatisation of distribution has become even more imperative.
 

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