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It is increasingly becoming clear that the Arvind Kejriwal-led Aam Aadmi Party (AAP) put little thought in announcing its freebies, especially in the power sector.
In a conference call by foreign broker Jefferies, former Chairperson of Central Electricity Regulatory Commission of India and the longest serving electricity regulator in the country, Dr Pramod Deo, said Delhi cannot afford to meet the subsidy burden announced by AAP.
The way the Kejriwal government has managed it is by giving only Tata Power the subsidy amount and adjusting the amount due from Reliance Infra. This is contestable as the law is clear that any subsidy amount announced by a political party has to be paid upfront. The section 65 of the Electricity Act 2003 is clear on this part that if the state government announces subsidy, then they have to pay the amount upfront, says Deo.
If the state government wants to give benefit to any consumer, they are free to do that but they have to pay the difference to the distribution company.
The idea being that whatever the political decisions are taken they should not affect the performance/commercial operations of distribution companies, Deo pointed out in the conference call.
The former CERC chief made it very clear that if the state government does not give subsidy, tariff cannot be reduced.
Kejriwal had said that Tata Power will be given a Rs 61 crore subsidy while the amount due to Reliance will adjusted against payment dues to government owned generating and transmission companies.
The Delhi government will have to pay much more than what was announced by the chief minister, Deo said, if Reliance contests the mode of subsidy payment.
On the issue of CAG audit, Deo said that all items in the P&L related to sales, operating and maintenance cost are approved by the regulator and are based on normative tariff, so these cannot be inflated.
CAG audit can be mainly related to the capital expenditure incurred by these companies over the years to improve the service and availability of power in the state. Distribution companies have been accused to gold plating their capital expenditure.
In the case of distribution companies, capital expenditure is important as the amount is transferred to the equity capital of the company based on which they get a return of 12%. Thus gold plating capital expenditure would mean higher profits for the companies.
