Sunil Jain: Give us a break, Mrs Dikshit

RATIONAL EXPECTATIONS

Newspaper reports suggest Delhi Chief Minister Sheila Dikshit is livid with the private power distribution companies' performance. One newspaper quotes her as saying the Anil Ambani-owned BSES Yamuna Power Limited (BYPL) was "bad", there were issues with BSES Rajdhani Power Limited (BRPL), while the Tata-owned North Delhi Power Limited (NDPL) was "better". She's assured the assembly that her government would take "the last step also" if need be""the "last step" means revoking their licences. While that makes for great copy, Dikshit is largely responsible for the situation the power sector is in today.

Of course, she's absolutely right that it is the poor theft-reduction performance (of the BSES twins essentially) that is responsible for the huge power bills. Let's assume BSES spends Rs 100 to buy 100 units of power and sells this to 100 consumers. If it has no other costs, it will charge each customer Re 1. If, however, as in the case of BYPL, just 36.8 persons pay for their power (BYPL says the loss levels were 63.2 per cent five years ago though the government cites a lower figure of 57.2 per cent), then each one has to pay Rs 2.71 for the power that BYPL bought for just Re 1. If theft levels are down to 39.95 per cent, as they are today, each consumer will have to pay a lower Rs 1.67. And if BYPL's theft levels come down to NDPL's 24 per cent, the tariff falls to Rs 1.33. So, theft reduction is critical to lowering tariffs.

But the problem here is that when Dikshit's government privatised the Delhi Vidyut Board, it accepted very low reductions in theft levels, of just around a third, with the average theft levels to come down from 51 per cent to 34 per cent. Worse, this low level was accepted after the government gave huge concessions to the firms (see "Huge post-tender benefits to discoms," 1/9/05), so much so that even the CAG had a lot to say about the deal. And while the law allowed competition through "open access", Dikshit decided to give the companies a five-year monopoly to begin with. Given this, what other levels of price was Dikshit expecting?

Indeed, at the time of privatisation, the papers prepared by her consultants indicated to potential bidders that they could expect an average hike in billing rates of more than 44 per cent over five years (it was 70 per cent in the case of household consumers!)""the actual hike has been around half of this. So, while the political system can now rave and rant about the poor reduction in theft by the BSES firms and the excessive prices they're charging, the loss reduction has exceeded Dikshit's targets and the price increases are also much lower. So, if Dikshit does decide to take the "last step", she'll be hard-pressed to justify just which parameter in their contracts the companies have defaulted on.

The current problem that has got Dikshit so worked up, of course, is about BYPL saying it needs some more concessions if it is to survive, and the loadshedding, expected to get a lot worse with a shortage in the availability of power. Both are linked to theft reduction since this is what will make firms profitable, and it is only then that suppliers will be willing to come forth with greater amounts of power. Now that the Delhi government has stopped supplying subsidised power, BYPL's cost of purchase is likely to rise from Rs 2 per unit in 2006-07 to Rs 2.5-2.6 per unit this year. Given this, BYPL needs to charge around Rs 5.3 per unit to be viable (that's Rs 2.5 divided by 0.60, which is the proportion of paying customers, plus another Rs 1.1 or so for other costs such as employee salaries, depreciation, profit, and so on). That's a huge hike over the current tariff, and it is unlikely Dikshit will allow it to go through.

Dikshit, it appears, now plans to ask BRPL and BYPL why they have not reduced power thefts more aggressively. While BRPL has reduced its theft levels by 35.6 per cent and BYPL by 30.2 per cent, NDPL has managed a much higher 50.1 per cent. But if BRPL and BYPL are to aggressively target those stealing power, the question is whether the government, both Dikshit's and Manmohan Singh's, will tolerate the law and order situation that will undoubtedly arise. Despite the promises, special electricity courts were set up only last year and there is still no police protection for these firms""in one horrible incident last year, power thieves tied up officials of a power company who were trying to cut off their supplies, and urinated on them. In any case, if the government's response to the protests against the sealing of properties in Delhi is anything to go by, BYPL will not be allowed to go about its task with any great vigour.

So how's the matter to be resolved? The government's big hope now lies with the electricity regulator in Delhi. For one, now that the five-year monopoly is over, the regulator is no longer bound to give BYPL or the other two firms fixed returns of 16 per cent. Second, the regulator could disallow some expenditure shown by BYPL and hence lower tariffs. None of this is likely to work. For one, the Appellate Tribunal has ruled, earlier this month, that a regulator can't just disallow legitimate expenses. And even if the regulator gives a lower return, of say 12 per cent, this will reduce tariffs by just a few paise. Dikshit has to allow the huge tariff hike, or subsidise BYPL. There is no other choice.

suniljain@business-standard.com