Delhi’s power privatisation & public interest litigation

The Economic Times, November 12, 2007

Alas, in India, the word privatisation sounds foul and so we call it disinvestment. In the current government, there is much less appetite today than in the past due to political economy constraints, say Pradeep S. Mehta

It is not the business of government to be in business. Hence privatisation has been one of the reforms adopted with a slew of measures since the 1990s to unlock the capital in public sector units and hand them over to the private sector.

Alas, in India, the word privatisation sounds foul and so we call it disinvestment. In the current government, there is much less appetite today than in the past due to political economy constraints. But, in many such past cases, such as Centaur Hotel in Mumbai or the IPCL, eyebrows have been raised, thus the whole process has come into questioning.

The latest to hit the headlines is the privatisation process of the Delhi power sector. It was challenged by Gajendra Haldea, a civil servant, who filed a writ petition before the Delhi High Court, as soon as the privatisation happened in 2002. The scathing judgment stopped at undoing the privatisation, as the clock cannot be turned back. An appeal before the Supreme Court is yet to be resolved.

Haldea’s petition rested on the report of the Comptroller General of Accounts and Audit and the Public Accounts Committee of the Delhi legislature, which found the whole process dirty and said that the actions taken by the Delhi government were without due diligence. Haldea used these reports as the basis of his petition.

Though the court has made it clear that, at this stage, it is not feasible to turn the clock back, but has addressed all the issues in depth after a long trial. These include functional autonomy of regulatory body, poor negotiations during bidding process, huge concessions offered to private companies and faulty valuation of assets.

It provides important lessons for the other states, which are in the process of further restructuring the power sector in their respective states. For example, the electricity regulator was not consulted at all, and the government decided on its own the core regulatory parameters such as the level of energy losses, rate of return (RoR) on capital and depreciation rates. All these parameters are key determinants of tariff payable and should have been decided by the regulatory body.

During the bidding process, it seemed that the government had surrendered before the private players to ‘speed up’ the process. This is because, initially, the loss reduction target, offered at 20% for five years for the period from 2001-02 to 2006-07, was reduced to 17% in the post-bid period. Like this, the amount of concession loan payable to transmission company (Tranco) was increased from Rs 2,600 crore to Rs 3,450 crore for bulk supply subsidy. The purpose of this loan was to prevent tariff hikes in the transition period.

The valuation of DVB assets for privatisation was also questioned. Assets were valued on the basis of unaudited DVB accounts for many years. Further, valuation took place on the basis of book value that was quite low than market value or replacement cost of the assets. Asset valuation alone has deprived the public exchequer of over Rs 3,000 core. At the expense of public exchequer, Rs 5,119 crore was spent to give post-bid concessions. This shows the huge wastage of scare economic resources at the public cost.

In another CAG report it was stated that private distribution companies have misutlilised the funds and failed to achieve the target of reducing energy losses. The loss levels in some circles of Delhi were reported to be in the range of 44% to 73%. Observing so many other irregularities, PAC has demanded an enquiry of officers involved in the bidding process and responsible for poor recordkeeping.

PAC has also expressed its concern over the functioning of DERC. It has says in the report that instead of protecting consumers’ interest, DERC appeared to be acting as a hidden hand of the government as well as private distribution companies. It has lost its independence, autonomy and credibility. Expressing its limitation to examine technical matters, the Court has instructed the Government to act in a more transparent and accountable manner. So what Haldea could not do proactively for the Delhi power privatisation, he has done through the tool of public interest litigation.

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