Delhi's Power Privatisation Partners
Scamsters or turnaround artistes?

The privatization of the capital’s power distribution system has reduced the incidence of theft and proved naysayers wrong about its benefits

By Indranil Banerjie

It was once billed as a huge scam. Politicians raved against it, consumers cried foul and sections of the media slammed it. The decision to privatise the capital's power utilities in 2002 was suspected to be a gigantic sell-out. Yet, state controlled power, a spin-off from the socialistic policies of newly independent India, had clearly not worked. Everybody knew that power companies in Delhi were in a state of shambles. Long hours of power cuts and poor quality electricity had brought the country's capital to its knees. Socialism in practice, most would admit, was a catastrophe. Yet, a niggling suspicion of the private sector remained. Even the public-private partnership proposed by the Delhi government to rescue the city's wrecked power utilities was viewed with suspicion by some. Today, five years down the line, even the worst critics of the privatisation decision would admit that it has worked: Delhi's power situation has seen a complete and remarkable turnaround.
The successful transformation of Delhi's once moribund power utilities has become a new paradigm. Today, more and more state governments want to enact similar magic in their states. And many are looking at the men and the organisation that effected the turnaround. Even management gurus in some of the country's top management schools consider Delhi's power success as a case study. As for consumers, most have forgotten what it used to be like in the bad old days of dark evenings and sweaty nights. If they have any issues, it is with billing. It is still hard to accept that there is no such thing as a free lunch or free power.

What is little appreciated is that the metamorphosis of the capital's power situation did not quite happen automatically or that it was inevitable. There are several examples of privatisation not working in various parts of the country. In fact, in most cases privatisation has invariably led to high power tariffs without reliability or quality of supply. In the NCR alone, for instance, Noida and Greater Noida are two stark examples of private sector failure. In Delhi, however, the private sector has delivered. Ironically, few people today care or know why this is the case.

One reason for Delhi's success is the partners chosen: Anil Ambani's BSES and Tata Power. In 2002, when power distribution in the capital was privatised, Delhi was divided into three zones, two of which went to BSES and one to the Tatas. BSES operates two companies: BSES Yamuna Power Ltd (BYPL) and BSES Rajdhani Power Ltd (BRPL). The third company is the Tata's New Delhi Power Ltd (NDPL). Together, the BSES companies service the greater part of Delhi and have by far the largest consumer base (about 2.3 million compared to about 0.85 million for NDPL). The focus therefore has always been on BSES and Delhi's success is BSES' success story.

The Turnaround Artistes
Little known are the men behind the success. When the Anil Dhirubhai Ambani Group got the contract to manage the capital's two discoms, Anil Ambani called one of his most trusted lieutenants, management and information technology whizkid Lalit Jalan, and told him to go and fix Delhi's power problems. Ambani wanted his companies to be known as those responsible for lighting up the capital. For Jalan, revamping Delhi's power distribution was a huge challenge. It was not just the investments required but changing the mindsets of people: both old employees and consumers. Much of the existing equipment and wiring was junk. It had to be gradually changed and new systems installed.

Much of the changes involved introducing new systems and processes. Technological change had left the government run power companies far behind the times. The BSES brought in state-of-the-art technologies in the form of a centralised control system (SCADA), geographical information system (GIS) applications, theft detection devices and fault passage indicators, among others. The company's operations were computerised using the well known SAP programme. Personnel were retrained and taught to do old jobs more efficiently. In all, some Rs 3,500 crore was pumped into the system by the two BSES companies.

The result was a gradual but definite fall in load shedding – down 85 per cent between 2002-03 and 2006-07 – as well as distribution faults – down 88 per cent in the same period. Massive action was taken against defaulters and power thieves. This resulted in an average loss reduction of about 23 per cent. This not only saved the Delhi government thousands of crores but also obviated steep tariff hikes. For, earlier, honest consumers were actually subsidising power theft. The discoms have also met increasing electricity demand (6-8 per cent per year) and steadily reduced losses by about 5 per cent a year. Today, the BSES discoms boast of being self-sustaining, viable and more consumer friendly than ever before.

A Rip Off?
Privatisation critics continue to claim that the Reliance controlled BSES discoms are actually ripping off the public and the Delhi government. Some members of the state legislative assembly alleged on the floor of the house that BSES was transporting bags full of money taken from Delhi's hapless power consumers to Mumbai, which is the Reliance headquarters. Quite apart from the fact that Delhi's consumers pay very little for the power they consume, what the lawmakers chose not to make public is that Reliance each year cannot in fact take away more than 14 per cent of the capital they have invested in the company. This is the agreement and it does not matter how much the company raises from consumers. At any rate, the discoms cannot decide what the power tariffs should be. For, that is essentially still a political decision. The easy way out would be to give power free because even then the BSES companies would get their fixed annual return on capital and they would save money by not maintaining a billing staff or system. But that would defeat the very purpose of privatisation: ending subsidies and making the discoms self sustaining. It would also usher in a system very like the one privatisation replaced.

The irony, as one BSES insider pointed out, is that even the 14 per cent due to the company annually has been held up by the electricity regulator set up by the state government (Delhi Electricity Regulatory Commission). The regulator has been maintaining that this money is needed to beef up the assets of the discoms. The discoms have gone up to the Supreme Court and won their case but are yet to see the colour of their money.

The other charge relates to the assets acquired by the discoms. Critics of privatisation claim that they have acquired assets worth thousands of crores for a song. Again, what these critics forget is that the discoms are not entirely private: they are a public-private partnership with a 49 per cent government stake. Moreover, the government's agreements with the BSES and the Tatas forbid the use of discom property for any other purpose than those related to power distribution. When BSES Rajdhani decided to demolish a set of condemned apartment blocks at Janakpuri, some MLAs alleged that the Reliance group was going to raze these apartments in order to build a shopping mall when the fact was that the old buildings had to be pulled down to build new apartments for discom employees.

The other perception is that the government has helped out the discoms by giving them a subsidy of Rs 3,450 crore over the last few years. This too, BSES officials contend, is a falsehood. For, the money never came to their companies but went as subsidies for the government owned transmission company, Transco, which need the subsidy because some of the power it bought for Delhi was way above the selling price. And who decided on this convoluted, regulated pricing mechanism? The government. Because it insisted on pampering the capital's populace. It is another matter that people living in Gurgaon, Noida, Kolkata or Mumbai have to pay more for their power (see table). This is not considered iniquitous because most powerful politicians live in Delhi and would like to enjoy subsidised power. Clearly, if anybody is getting ripped off, it is the country's honest taxpayer from whose salary powerful politicians feed their constituencies and pet subsidies.

Power Tariff in Different Cities
Delhi 2.73
Mumbai 3.10
Noida 3.33
Gurgaon 3.77
Kolkata 3.90

Winners and Losers
It cannot be argued that the BSES discoms have solved all problems and are operating completely optimally. Sure, billing complaints remain, so do power cuts from time to time. Theft and transmission losses are yet to be brought down to the lowest possible levels. Arguments and allegations aside, few would be able to rationally refute that most stakeholders in the Delhi power scene are winners. The losers are those who opposed the privatisation and must perforce continue their campaign against it. The losers also include the rich and powerful who are now forced to pay for the power they have either been stealing all these years or getting at very subsidised rates. The biggest winner,at the end of the day, is the average Delhi citizen who has been paying his bills and is still suffering from long hours of black outs and voltage fluctuations. An entire generation of children have grown up in semi darkness and distress. Privatisation has ushered in a new era for the young generation growing up with a better expectation of the future unlike the cynical politicians who have milked the system for what they can get.

The winners include discom employees who can look forward to continued employment and better conditions. It includes the government which can show it has worked for consumers interests, reduced subsidies and, at the end of the day, saved money which could be used for the poor and under privileged. The Delhi experiment has also opened frontiers for other state governments and private investors who now realise that it is possible to invest in infrastructure and still get an decent return on their money.

At the end of the day, it has meant a lifestyle change for Delhi and its citizens. Its not just homes being powered but lives being augmented, streets, markets and offices being lit up. The sputter of innumerable gensets have died down and their diesel fumes have dissipated. Citizens are also beginning to become more responsible as they learn that they must pay for what they use. The entire system has become more civilised: complaints are attended to, bill payment is easy (through the Internet, mobile vans, drop boxes and 120 fixed collection centres) and redress is available through an regular system. The dangerous jumble of random overhead wiring, messy cabling and decrepit distribution boxes have been organised, repaired or renewed. The Delhi consumer today can rely on an ever improving, world class electricity distribution system. The government has saved Rs 12,000 crore. Investors are making money. So, everybody should be happy? Right? Wrong.

Epilogue
The dramatic turn around of the Capital's power sector should normally have been the happy ending of a once tragic story with consumers, the state government and the power companies all happy with the outcome. But there could still be a twist in the story. For, now the state's politicians are beginning to view the power sector as a golden goose. Privatisation has started generating surpluses. In the middle of December 2007, the state reported that its power transmission company, Transco, which is responsible for the bulk transmission and sale of power had actually made a profit of Rs 197 crore – a feat unthinkable in the bad old socialist days. The generating companies too were looking at rising bottom lines thanks to the timely and substantial payment of their dues. All the revenues buoying the system were coming from the three distribution companies, mostly from BSES. One of the basic aims of privatisation had thus been fulfilled: the system is now no longer dependent on government subsidy.

Instead of applauding this achievement, the legendary cupidity of politicians is coming to the fore. They are looking anew to reap political capital from this success. Instead of phasing out subsidies altogether and making the power sector independently viable, as was the original aim, Delhi's politicians have begun to re-introduce subsidies. After three years of privatisation, the government introduced a 5 per cent subsidy. And now with elections approaching, they wish to further dilute their commitment by introducing arbitrary subsidies. For starters, they have promised not to effect any hike in tariff for consumers using less than 250 units a month. At the same time, as mentioned earlier, the state has not kept its promise of hiking tariffs. All this makes for terrible economics. The sad part is that ultimately politics undo the Delhi power miracleang plunge the nation’s capital again into depression and darkness.