Let a thousand Enrons bloom

While the Union government is crying itself hoarse over the sweetheart deals Enron managed to get for its Dabhol power plant, there’s an Enron-type power sector deal being crafted under its very nose in New Delhi. Indeed, the government is abetting the deal, but more of that later. I’m talking of the proposed privatisation of Delhi’s power business. Delhi’s ex-chief minister Madan Lal Khurana is opposing the deal, though it’s debatable whether he sees the genuine problem or whether he’s just playing Opposition.

Essentially, Delhi’s power supply business is to be broken up into a generating company (the Genco will generate electricity), a transmission company (the Transco will carry this electricity to smaller sub-stations), and three distribution companies (the Discos will buy power from Transco, and will carry the electricity to your house and bill you for it). While the Genco and the Transco will remain government-owned, the Discos will be privatised. Since over a third of Delhi’s power supply is currently stolen, reducing this will be the criterion for deciding which firms win the Discos. If firm A, for instance, says it will reduce theft by 5 per cent, but firm B says it will cut it by 10 per cent, then B will get the Discos. Sounds good, because power theft is a really serious problem all over the country.

Where consumers will get hit — the same way they did in Maharashtra — is in the manner in which the Delhi government is planning the privatisation. First, while all of us think there will be great competition once there’s privatisation, the firms which buy the Discos are to be given a fixed return of 16 per cent — that is, the price you’ll pay for your power will be calculated in such a way as to ensure a 16 per cent return for the Disco.

After that, the returns really skyrocket. Let’s go back to the example of Firm B which said it would reduce the theft by 10 per cent. Now let’s say it manages to cut it by 11 per cent. The returns the company will earn on its equity will increase by half — the return on equity will now be 24 per cent. And if it reduces the theft by 12 per cent, or 2 per cent more than what it had committed to, the returns double — that is, they’re now a whopping 32 per cent. Even Enron’s worst critics never said its returns were so high. By the way, any money spent by the Discos make to reduce theft, like say installing of new equipment, will be paid for by the consumer — remember the 16 per cent return? Also, the Delhi government has no reliable data on the theft that actually takes place today, so if a disco says it has cut theft by more than it had committed to, there’s no actual way of verifying this.

(The rate of return calculations, by the way, are those of Gajendra Haldea, the former joint secretary in the finance ministry who power developers like Rebecca Mark of Enron hated, as he single-handedly reduced the concessions they got in terms of Union government counter-guarantees. In retrospect at least, it would appear that Haldea did the right thing by stalling the other fast-track power firms. His calculations are contained in a submission he has made to the Delhi Electricity Regulatory Commission on the matter).

It gets worse. The Delhi government has stated, for instance, that there’s just no way the Discos can afford to pay the full price of the electricity they buy from the Transco — so though it costs over Rs 2 to generate each unit of power, the discos are to pay between Rs 1.27 and Rs 1.48 for this. The balance is to be made good by a loan of Rs 2,600 crore from the government. Haldea, by the way, calculates the loan required will actually be double of this. And, when the loan has to be repaid, consumers will have to pay around Re 1 extra for each unit of electricity consumed.

But where’s the Union government’s complicity? If anything, it’s the Delhi government that’s pushing a flawed project, the reader might well say. After a chief ministers’conference on March 3, 2001, the government appointed an expert group headed by Montek Singh Ahluwalia to examine various issues in the power sector. Ahluwalia came up with two reports — one on settling the outstanding dues of the state electricity boards and one on restructuring these SEBs. The panel examined data from across the world, and concluded the only way to lower power prices was to introduce more competition. That is, allow more companies to sell power to the final consumer instead of allowing just one (as proposed in the Delhi model where each circle will have only one Disco). Even in Mumbai, the panel said, both BSES and TEC supply power to parts of the same market, and that’s why tariffs have really come down there. In exactly the same way, for example, that in the telecom market, tariffs have come down sharply with different suppliers (like Airtel, Essar, MTNL) competing for the same consumer.

Guess what the Union government did with the Ahluwalia reports? It cleared a proposal based on the one on electricity dues, but continues to sit on the one on greater competition at the distribution-end. Greater competition, it’s obvious even to a blind man, will simply kill the windfall profits the power companies hope to make. And we’re still complaining only about Enron.

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