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Vivian Fernandes
Saturday , March 30, 2013 at 10 : 00

What Arvind Kejriwal should actually fast for


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Are Delhi's three private electricity distribution companies gouging consumers as Arvind Kejriwal of the Aam Aadmi Party claims? Ever since the state monopoly was abolished 12 years ago, power tariffs in the city have risen at a compounded annual rate of 7.5 per cent in the lowest slab and 5 per cent in the highest.

This is more or less in line with inflation. In the lowest slab rate rates have more than doubled from Rs 1.70 a unit to Rs 3.70 over 11 years. For those consuming 400 units or more a month, the rates have risen by 66 percent to Rs 6.40. According to the distribution companies, Delhi's residents are paying less than those in other cities. Power outages are infrequent in the city, unlike when the government was supplying power. In Delhi's neighbourhood, power cuts are common and people pay as much as Rs 11 a unit for captive power in privately-built societies.

Are these rates still exorbitant? When reforms were launched, we were promised that rates would actually fall. This is because, a little more than 50 per cent of power supplied to the city was not billed.

This was partly on account of technical losses, but mostly due to theft. In East Delhi, more than 60 per cent of power was unaccounted for. The private companies have reduced losses by 70 per cent in these 11 years. So Delhi'ites have reason to feel aggrieved, though private suppliers say that the cost of power they buy has risen three-fold during this time.

On paper there are safeguards against profiteering. The power suppliers cannot earn more than 16 per cent return on their equity. And since the Delhi government has a 49 per cent stake in each of them, half of whatever profits they make with return to the citizens.

But the distribution companies have other ways, like cost padding, also known as gold plating, to make money. A former chairman of the regulatory commission found that one of them had inflated their investment by Rs 533 cr, by routing purchases of equipment through a group company.

Power rates are decided by regulators. If they are scrupulous, they will resist inducements to aggrandize the power suppliers at the cost of consumers. And if they are not, they will susceptible to suspect cost data.

Power suppliers say that Delhi's consumers are not paying enough and that there is an unmet revenue gap of Rs 19,000 cr. But while they claim to be bleeding and secure equity infusions from the government, their balance sheets say another story.

For instance, the Tata Power company, which supplies to north Delhi claimed that its revenue fell short of expenditure in 2009-10 by Rs 1,356 cr, when it actually made a profit of Rs 260 cr. Privatization of power in Delhi has been a flawed exercise.

There was very poor response to the bidding process. The government gave a loan of Rs 3,450 cr to the private suppliers avoid tariff shocks. This loan was to be repaid in 13 years. Nothing has been heard of it. The assets of the incumbent which they inherited were also said to be under-valued.

Despite these inadequacies Delhi'ites are better off than before. The state-owned Delhi Vidyut Board's share of unbilled power rose from 7 percent in 1953 to over 50 percent in 2000. Private companies have reversed that trend. And in the ten years to privatization, DVB's losses rose from Rs 203 cr to Rs 1,100 cr.

Power outages are rare; the quality of power has improved a lot and so has the response to consumer complaints. But the true gains of privatization can accrue only when competition is further honed. This means, not trusting the regulators or the power suppliers but reposing faith in the market.

The Electricity Act of 2003 provides for free competition. Delhi's power privatization was premised on open access after 2008. This means, allowing large consumers (of 1 MW and above, like housing societies) to choose their supplier, just as we choose the providers of telecom services.

The regulator did initiate a public hearing for this in 2008 but says the response was poor. It is time that the government lowers the 1 MW limit and takes the initiative to usher in true competition. What we now have are private monopolies in place of a state-owned one.

In 1989, UK reformed its electricity sector and allowed consumers to choose their supplier. The result was that power tariffs fell by 30 percent in the subsequent decade, says Gajendra Haldea, adviser to Planning Commission Deputy Chairman and a key draughtsman of the 2003 electricity bill.

So instead of telling the people of Delhi to be lawless and not to pay for the power they consume, Arvind Kejriwal should demand an audit into the behavior of the power companies and also press for open access. A free for all among suppliers should ensure better price discovery than the current arrangement which can be collusive.


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More about Vivian Fernandes

Vivian Fernandes is a senior journalist with nearly 30 years of practice, 19 of them in television, all of which he spent at TV18. Vivian’s last assignment was as executive editor of a book on India and China written by the founder of the Network 18 group, Mr Raghav Bahl. He has been an observer of Indian business and politics, and had reported on economic policy making as reporter, chief of Delhi bureau of correspondents and economic policy editor. Vivian has traveled abroad with Prime Ministers Narasimha Rao, Atal Behari Vajpayee and Manmohan Singh. He was also reported on the World Trade Organization’s trade talks from Cancun, Hong Kong and Geneva. He continues his association with the Network18 group, but not as an employee.
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