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T N Ninan: Try introducing competition

Source : BUSINESS_STANDARD
Last Updated: Fri, Dec 06, 2013 22:05 hrs
(Blank Headline Received)

In Ruminations last weekend, I had concluded that there was room for only a modest cut in the cost of power in Delhi, unless it was established that the electricity distribution companies (discoms) were exaggerating the cost of power that they bought for onward selling to the capital's consumers. In response, I have got various estimates of what it costs to buy power. One reader pointed out that Maharashtra's state-owned distribution company buys power for much less than what one of Delhi's discoms says it is doing (Rs 2.15 to Rs 3.50 per unit in Maharashtra, compared to Rs 5.37 in Delhi). Meanwhile, the average price at which the National Thermal Power Corporation sells power is Rs 2.92 per unit.



The price trends are also telling. In 2008-09, when NTPC's power selling rate was Rs 2.12, the discom bought power at Rs 2.68, a gap of 56 paise that could be justified by transmission costs, wheeling charges and taxes. Last year, however, NTPC's rate was Rs 2.96 while the discom purchase price had soared to Rs 5.37. The price gap of 56 paise had more than quadrupled in four years to Rs 2.41. This could be in part because NTPC depends more on domestic coal while many generators depend on imports that became more costly. Still, an analyst report on power had said a year ago that the going rate for power (both bilateral deals and merchant power) averaged Rs 4.20. Such figures don't come close to the Delhi discom's stated cost of power acquisition.

Arvind Kejriwal's explanation for the difference in power purchase costs is that money is being siphoned out through inflated purchase bills. However, the discom makes two claims that, if true, rubbish such charges: it buys power only from public-sector companies, and all its power purchase agreements were signed by the Delhi government and novated to the discom. But do note that, some three years ago, BSES in Delhi was caught by the state electricity regulator inflating its bills. Given all of the above, the obvious course of action would be to do a full-scale audit and see what it unearths. If the companies are clean, they will emerge free from the suspicion that now dogs them. If not, Delhi's citizens will get cheaper electricity.

One reason for widespread dissatisfaction with the cost of power and for suspicion of skullduggery in billing - both over-riding the dramatic improvements in efficiency and quality of service that privatisation has brought about - is that Delhi's power consumers have no choice when it comes to their electricity supplier. The privatisation scheme of 2002-03 basically broke up the government monopoly in the capital city into three private monopolies with exclusive distribution zones marked out for each; in other words, there was and is no competition, though there is a power regulator to determine tariffs. Such regulators are necessary and useful, but experience in other sectors (ports, telecom) has shown that they are not a good substitute for plain old competition.

There may have been a case for exclusive distribution zones in 2002-03, in order to facilitate investment in local sub-stations (which were mostly decrepit) and better cabling (to prevent recurring cable faults), and also to tackle the widespread theft of power. Now that modern physical infrastructure is mostly in place, and theft has come down, it is easier to introduce competition and give consumers a choice. It has been done in Mumbai, for instance, though it has led to some legal sparring by the two business houses that handle power distribution in both cities: Tata and Reliance ADA. If it can be done in Mumbai, it can be done in Delhi.

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