DVB Privatisation Scam

IThe Public Accounts Committee has asked the Delhi government to initiate CBI and CVC proceedings against those officials who've robbed the DVB and enriched the private distribution companies by thousands of crores.
The problem is: the harm's already been done—along
with the blackouts in the national Capital, a whitewash is
in progress.

By Amar Drall

Echoing what it perceives is the grief that the Delhi government and the capital's residents have been put to by the power privatisation programme, the Public Accounts Committee (PAC) of the Delhi Legislative Assembly has recommended that the Delhi government conduct an inquiry for criminal breach of trust against all those officials who not only landed the Delhi Vidyut Board (DVB) in a financial quagmire but caused a colossal loss to the exchequer.

Accusing them of criminal breach of trust, the PAC report has found fault with every stage of the process, right from the appointment of consultants to the DVB's asset valuation to the evaluation of the bidders' methodology and logistics for the recovery of outstanding dues.

The standing committee, headed by Dr SC Vats, has also weighed in, saying that had the DVB been provided the incentives that were showered on the private distribution companies (discoms)—led by the Tatas and the Reliance group—the board would not only have been put back on the rails but also been raking in the profits. In stark contrast to the DVB, the committee says, was the performance of the New Delhi Municipal Committee, whose tariff realisation yielded revenue results of 95 per cent; aggregate technical and commercial (AT&C) losses were down to 16 per cent—about the lowest in the country—showing how, with proper management and support, government agencies could outperform the discoms.

The PAC, which quotes heavily from the report of the Comptroller and Auditor General (CAG), wants the matter referred to the Central Vigilance Commission (CVC) and the Central Bureau of Investigation (CBI), so that the misconduct of the officials who managed the erstwhile DVB in
the three years prior to privatisation could be put under the microscope—their criminal breach of trust, dereliction of duty, negligence and lack of supervision, all of which led to the improper maintenance of accounts, asset registers and stock inventories. The power department not only acted inefficiently, but negligently, too, reducing a public utility agency to a "miserable organisation" incapable of producing even its asset register and audited accounts for valuation. Thanks to the absence of those vital records, DVB property worth several thousand crores was transferred to the discoms for a pittance.

The PAC calls the government's privatisation of the DVB an "escapist measure", considering that even its own "strategy paper on the power sector in Delhi" had listed the numerous ills that plague the system. Yet, rather than rectify them, the government chose to privatise the board—either because it "did not have the will or had some vested interest in allowing the privatisation at the cost of the common man".

The PAC also notes acerbically that had the department shown "similar haste and efficiency in controlling the rot in the DVB, there might not have been a need for privatising at all". What the power department should have done was get professionals and technocrats to manage the DVB's affairs; if at all privatisation had to be carried out, the correct way to go about it would have been to proceed in a phased manner.

Right since the onset of the privatisation process, the methodology had been skewed in favour of the private parties. The PAC notes that while the "request for qualification" (for the pre-qualifying investors), was sold to 32 companies in February 2001, only seven firms submitted statements of qualifications (SOQ) for the purchase of 51 per cent equity in the three discoms, the South West Delhi Electricity Distribution Company, the North-North West Delhi Electricity Distribution Company and the Central East Delhi Electricity Distribution Company. Of these seven, six were shortlisted, and, in November 2001, the department issued its request for proposal (RFP), indicating the minimum AT&C loss reduction level target. Of the six pre-qualified companies-BSES Ltd, Reliance Industries Ltd, CESCON Ltd, Tata Power Company Ltd, AES (India) Private Ltd, and CLP Power International Ltd-only two submitted their bids. While Tata Power Company Ltd submitted its bid for the South West Delhi Electricity Distribution Company and the North-North West Delhi Electricity Distribution Company, BSES Ltd did so for all three.

Under the RFP, the bids were to have been unconditional-conditional bids were liable to be rejected: "It is a condition of the bid that the bidders accept the documents (including the tripartite agreements) and agree to be bound by the terms and conditions therein." The government would not be obliged to discuss or negotiate with the bidders "any agreement or terms thereof, either before or after the submission of the bids". But, ignoring this RFP clause, the government negotiated with the two bidders, both of who had made conditional bids—and then made drastic alterations in the offer documents to suit the two.

When questioned by the PAC, the power department argued that it was only following the CVC guidelines, which allow negotiations with the highest bidder. What it conveniently forgot to add was that it was negotiating with bidders who had already violated the RFP terms and conditions. Even the government's core committee— comprising the principal secretary (power), principal secretary (finance) and principal secretary (planning)—that was set up to evaluate the bids acknowledged that the department had seriously erred. Yet, Janus-faced, it went ahead and amended the bid conditions in the transfer scheme rules to accommodate the bidders without seeking the approval of the competent authority, the lieutenant-governor.

Says the PAC report: "It appears that the government was in such a desperate haste to privatise the distribution business that it had no time to fulfill procedural obligations. The department appeared to be desperate to get rid of the DVB at any cost. It accepted the conditions imposed by the bidders and diluted the bid conditions to suit the bidders' purpose. The interest of the government and the consumer was sidetracked."

The PAC has also asked the department to explain why it agreed to pass on to the discoms funds received under the Accelerated Power Development and Reforms Programme (APDRP). The PAC has asked why, considering that crores of rupees had been pledged to the discoms as grants and soft loans, these weren't taken into account while determining the AT&C loss targets. What the PAC is saying is that, in effect, a new source of funding had been made available to the discoms, with the government getting nothing in return.

The PAC notes that even before the bids were invited, the power department had violated the rules—and even the CVC guidelines—by appointing a consultant for the entire programme. Why was the consultant appointed unilaterally, without tenders being invited? "The fact that the minimum AT&C loss levels (the basic criteria for selection of bidders) as recommended by the consultant were not matched in the bids, reflects poorly on its recommendation," said the PAC. "The government should refer this matter to the CVC for a thorough probe to determine the complicity and motive of the officials involved in the appointment of consultants, which seems to have been done in an indecent haste, flouting the CVC guidelines in this regard."

It calls the DVB's asset valuation questionable in the absence of proper records, such as audited balance sheets, the fixed assets register and stock inventories. Also, the consultant's "computer model of business valuation methodology contained merely approximate conclusions based on assumptions and weightages, which were not objective". When the committee questioned the consultants, it found that they were unable to justify the basis on which they had calculated the final figures. As a result, prime land in Delhi, costing several thousand crores, was handed over to the discoms for a license fee of just Re 1 a month for a period of 25 years. And this was done without providing for legal safeguards that would disallow the lands' commercial exploitation.

"The government in its agreement, and the DERC [Delhi Electricity Regulatory Commission] in its license, should have clearly stated both in terms of minimum percentage and quantum of distribution business, that the discoms can carry out from the aforesaid land. Also, 137 grids costing around Rs 1,200 crore and 10,000 transformers costing around Rs 500 crore have been transferred to the discoms on lock, stock and barrel basis. Today, all these assets stand transferred to the discoms practically for a song."

If the Delhi government had to transfer these assets, it could, says the PAC, have struck a better bargain for consumers in the form of lower tariffs and better services. It further notes that the "the terms used for leasing out erstwhile DVB land, like revocation of licence, authorisation and sanction, have no legal sanctity and have been used to confuse the public mind. Why should the government forget that the discoms are majority stakeholders with 51 per cent equity and they are here to stay! As per the terms of agreement, it has also been agreed upon by the government that discoms can increase their share in due course of time. In the event of the government being reduced to a minority stakeholder, what shall happen to this land, which is presently in possession of the discoms? This issue has not been addressed in any of the agreements that have been signed."
Again, in the matter of "outstanding receivables", the PAC notes that the "government seems to have succumbed to the discoms' whims. Not only were the discoms allowed to sit on the funds of the government but also allowed to make adjustments without the prior approval of the competent authority". The PAC asks the power department to quantify the actual receivables within three months and to compel the discoms to adhere to the transfer scheme.

Of the three discoms, the PAC feels that the North Delhi Power Ltd (NDPL), a Tata Power and Delhi government joint venture, was the only one with "some sense of responsibility" towards paying government dues. But the BSES Rajdhani Power Ltd (BRPL) and the BSES Yamuna Power Ltd (BYPL) defaulted in each case and delayed payments on various pretexts. The PAC also urges strict disciplinary action against the Transmission Corporation (TRANSCO) officers who allowed the adjustment of rebate, in the first instance, and failed to take corrective action till it was pointed out in the audit.

The PAC regrets that even the core committee set up by the government to negotiate with the bidders appears to have acceded to all the major concessions sought by the bidders. Instead of addressing the concerns of the government and the consumers, it seems to have been bending over backwards to protect the bidders' interests. "The language of the modifications recommended by the core committee is more or less identical to the conditions imposed in the bids. The committee is firm in its view that had the revised conditions and liberal concessions (lower AT&C targets, increase in moratorium period, cap of Rs 1 crore on account of liabilities, funds under APDRP, etc) been made public at the time of issue of bids, more bidders would have entered into the fray, and enabled the government to strike a better deal in favour of the consumers."

It finds the role of two core committee members—the finance secretary and the power secretary—particularly questionable and worth a CBI probe. "It appears from the records that the department of power, in a clandestine manner, managed to get doctored the legal opinion to regularise its malafide act of effecting sweeping changes in the Transfer Scheme Rules, policy directions, bid documents and contractual agreements, without the approval of the competent authority, the Lieutenant Governor, to suit the needs of the discoms."

Over time, even the DERC seems to have lost its independence, autonomy and credibility. Rather than protecting the consumer's interest, it has functioned as a hidden hand of the government and the discoms. As the PAC observes, despite the discoms claiming excess rebate in violation of the bulk supply agreement, no penalty, interest or late payment surcharge was collected from the discoms. Instead, according to the DERC order, the Transco will have to pay, within a day, penal interest if it failed to calculate the rebate due to the discoms.

"Surprisingly this issue was not before the DERC at all," says the PAC. The Legislative Assembly's standing committee on energy, too, has passed severe strictures against the working of the DERC and the discoms. It would like the DERC's functioning to be strengthened and made more transparent. "At present, there is no mechanism to ensure that the discoms have made the necessary investments, utilised APDRP funds diligently, achieved the loss targets or accounted properly for the government dues in matters of recovery of arrears, stores etc."

It's the consumer, says the PAC, who has had to pay the price in the form of extensive power cuts, low voltage and exorbitant bills. "The tariff hike has become an almost annual affair for him. The government extended a subsidy for a select category of consumers as a temporary relief, only
to withdraw it later. The government should constitute a technical committee to look into the issues." There is also an impression that despite holding 49 per cent equity, the government has lost control of the distribution business. With no checks and balances in place, the government has throughout relied on the discoms' necessarily tilted version of the scheme of things when it came to payment of dues.

In effect, what we have here is not a government blackout, brownout or any other way out the mess it now finds itself in: and it's only got itself to blame for the expose of the whitewash it forced upon the consumers.