23-Dec-2009

BIAL PPP - More Public Less Private

From The Hindu:
Bangalore: The notion that the public-private partnership (PPP) model is the salvation for Bangalore’s infrastructure deficit has been sharply questioned by the report of the Joint Legislature Committee on Bengaluru International Airport (BIA).

The report, tabled in the Legislative Assembly on Monday, reveals that the Karnataka Government spent a significant proportion of the project cost for the construction of the BIA without incurring any returns for a project that was promoted by three private companies — Siemens, Larsen and Toubro and Unique (Flughafen Zurich AG) Zurich Airport.

What the report establishes is that although the Government held only a 13 per cent share in the company, it spent substantial amounts, which, rightfully, should have been counted as equity in the project. If this had been done, the Government would have been entitled to its share of profits.

...

In effect, after having invested Rs. 50 crore as its share of share capital, the Government spent at least Rs. 600 crore more.

22-Dec-2009

Govt Not To Involve Itself in Land Grab

From FT:
India’s top business organisation is warning that a bill on land purchasing due to be introduced in parliament this week would hinder industrial development by making it more difficult for private companies to buy sites for big factories.

Under the proposed bill, state power to acquire land for infrastructure or defence would be enhanced and protections would be put in place to ensure fairer compensation for farmers whose land was taken.

The state, however, would no longer take the lead in buying land for factories, office parks, residential areas or economic zones. Instead, that would be left to private groups, with the condition that once the buyer was able to secure at least 70 per cent of the required land, the state could step in to compel those holding out to sell.

Nice. But as expected, the business world doesn't like it one bit. Too bad.

16-Dec-2009

News to Cheer You Up

Something to cheer one up on a cold cloudy day. Violence and threats bring a government to its knees:
Through the second half of October and for most of November this year, Rajasthan was engulfed in an unusual form of protest, spearheaded in the main by gram panchayat officials. Joined in some places by elected MLAs and MPs, and backed covertly by a section of District Collectors, the panchayat staff held meetings, sat in dharna, issued threats, and when these did not suffice, blocked highways, to get a single point across. They would not tolerate civil society participation in social audit of works done under the National Rural Employment Guarantee Scheme (NREGS).

The protestors filed cases in two courts and obtained stay orders against the inclusion of non-governmental organisations (NGOs) and social activists in future social audit exercises. It would have been easy enough for the Ashok Gehlot Government to convince the courts that civil society participation brought credibility to the audit exercise. Not only did the government not do that, it went a step further and called off the audits it had announced for one panchayat each in 32 of the State’s 33 districts.

15-Dec-2009

Nuclear Liability Bill

Soli J. Sorabjee warns against a new bill that is being planned to appease foreign companies who want to get into the Nuclear power generation sector in India:
It is claimed that foreign companies are reluctant to invest in India as they do not want to run the risk of having to compensate without a cap for a nuclear accident on account of imposition of absolute liability. It is understood that the government to appease the foreign investors proposes to introduce a Civil Nuclear Liability Bill whereby inter alia the compensation payable in case of a nuclear accident is capped at $450 million.

In effect, this means that in case the actual damage and the cost of remedying environmental degradation exceeds the proposed ridiculously low cap of $450 million or any other sum, the government would have to bear the remaining burden. This would be directly contrary to the Supreme Court’s ruling that it is not the role of the government to meet the costs involved. The effect of a cap in reality would be to shift the financial burden of the consequences of the accident to the taxpayer. According to the Polluter Pays Principle that has been embedded in our jurisprudence, the liability and responsibility for compensating the victims of accident and remedying the environmental damage caused is that of the offending industry alone. No part of the liability can be limited nor passed on to the government.

There can be two views about the advantages or disadvantages of foreign investment in India in the nuclear energy sector. But there can be only one view: health well-being and protection of our people are paramount and must override dollar considerations. Foreign multinationals are not solicitors of the fundamental rights of our people. The Bhopal Gas case is a burning reminder.

Indian Telecoms Run to Mamma

Rock bottom rates and tariff wars among mobile operators might soon be a thing of the past with sector regulator Trai deciding to intervene in the market and end years of forbearance. Operators would then have to present a business case each time they come out with a tariff package. Only once the regulator is convinced the new tariffs are profitable would they be approved.

With the Indian telecom market's growing maturity, Trai had moved to a orbearance regime in 2004, wherein operators did not require prior approval for tariff packages, but were left to market forces. Operators simply had to file their tariffs with the regulator within a week of implementing them.

Bharti Airtel (BHARTIARTL.BO: 319.850) CEO Manoj Kohli had recently urged Trai to look into predatory pricing, where operators offer tariffs at below cost.

Well, well, well. Who'd have thought that the market couldn't work it all out? The predator would be bankrupted over time leaving the strongest competitor in the field. Right? Apparently not. Markets work in mysterious ways. Link

04-Dec-2009

Is Electricity Different?

[This was posted to Hasiru Usiru mailing list]

Physical Demands of the System: Is Electricity Different?

Proponents of electricity markets point to gains from restructuring in the airline industry, trucking, telecommunications and natural gas to support their cause [Malloy 2005], but electricity has several characteristics that make it stand out. Since electricity cannot be stored, demand must match production at any given moment in a manner that keeps voltage and frequency stable across the whole network [Joskow 2003a; Sioshansi and Hamlin 2004]. Sprawling transmission networks help achieve this task by providing scale over which to smooth supply and demand; network congestion reduces the efficiency of the network at performing this role. Moreover, the AC transmission network is like a gigantic commons, in which bilateral contracts between two parties can introduce externalities through loop flow effects [Joskow 2003a; Van Doren and Taylor 2004]. The balancing task is further complicated by slow supply responsiveness because generation capacity has a long lag time, and low system elasticity of demand because consumers tend not to be price responsive. Congestion in transmission networks can shrink the geographic scope for competition, exacerbating the problem of matching demand to supply. For several of these reasons, system reliability requires provision of "ancillary services" and complementary, and complex, markets for these services [Joskow 2003a; Lave, Apt, and Blumsack 2004].

On the generation end, the capacity mix matters to how electricity markets work. For example, in hydropower based systems, reservoir discharge along a river has to be coordinated to maximize production, which may result in dispatch quite inconsistent from the demands of market competition.

In brief, electricity systems are machine like in their nature. Under vertical integration, coordination is achieved through direct control, while electricity markets have to indirectly ensure technical coordination through economic relationships. Commenting on this challenge, U.S. deregulation guru Alfred Kahn, has observed "I am worried about the uniqueness of the electricity markets. I've always been uncertain about eliminating vertical integration. It may be one industry in which it works well" [quoted in Kahn 2001].

(All italics/emphasis mine)

Regards,
Dinesh.

03-Dec-2009

Electricity reforms - an alternative approach

[This was mailed to Hasiru Usiru mailing list]
This Prayas report discusses reform of the electricity sector (i.e., "standard model" which is: unbundling utilities, preparation of unbundled entities for competition by management/ownership changes possibly full privatization, lowering entry barriers by liberalization, stronger regulation) with respect to India. All italics/emphasis mine.

Of Rocks and Hard Places: A Critical Overview pf Recent Global Experience with Electricity Restructuring:Navroz K. Dubash and Daljit Singh: December-2005)

On competition
Competition, albeit poorly understood and poorly defined, is well on its way to becoming the contemporary magic formula to a healthy power sector. The tone is set by the Electricity Act, 2003, the preamble of which states that "promoting competition" is an end in itself, or at least as a taken-for-granted means to a better electricity sector. The Act is written to enable, if not mandate, competition in electricity although it does also encompass several other types of reform measures in its ambit.
...
Editorials in the business newspapers are unanimous in urging adoption of competition; a recent sample from the Business Standard declares "… critical if India is to remain competitive … is that competition be introduced in the [electricity] sector" [Business Standard 2005]. Commenting tariff hikes and their subsequent roll-back in Delhi during the summer of 2005, one of only two states to have privatized distribution, news commentators confidently assert "…competition is the only alternative" [Karnik 2005] and "competition … must be allowed in residential areas" [Times of India 2005].
...

empirical evidence suggests that "aggressive but plausible" estimates of price savings from wholesale electricity competition are 10%, translating to retail price savings of about 5% [Wolak 2004]. By contrast, subsidy reform, loss reduction, and a host of other more prosaic improvements are likely to result in savings many times greater, with far fewer downside risks. From this perspective the preoccupation with electricity competition in India is somewhat perplexing.

...
An alternative approach for India
The Indian electricity sector is between a rock and a hard place. The recent past of state- led dysfunction offers few reasons for hope, and the future, at least in the form of the international model of restructuring and competition, promises more confusion and only uncertain success. Electricity market optimists declare the problems with the model can be fixed. Pessimists suggest that once all the fixes are in place, the costs may well outweigh the benefits, and price signals will have been considerably muddied. Both agree that electricity markets have been far more challenging to implement than anyone had earlier thought. In this context, organizing the sector around improved regulation becomes a viable alternative option. In reality the long-term choice for India is not the easy one between a discredited state-led past and a shining market future, but the far more difficult one between flawed regulation and imperfect competition.

For countries like India, there is a strong case for stepping back to look at specific national priorities, rather than examining every option only through the lens of a market- based structure, which in the case of India is anyway a distant and uncertain dream.

First, it would be wise to adopt a "no-regrets" strategy on reforms that goes beyond the wish list approach of the National Electricity Policy to more concrete and time bound steps. Debate over competition should not be a delaying tactic or hindrance toward progress on more prosaic and necessary reforms. Leading the list of "no-regrets" measures is certainly management improvements in the distribution sector, whether under public or private ownership. Closely related is the need to strengthen the ability of regulatory institutions, which have already improved transparency in the sector and are undoubtedly critical to ensuring distribution improvements. Again, even if competition is introduced in the future, investment in strong regulatory institutions will certainly not have been wasted. Similarly, investment in transmission upgrades will be beneficial irrespective of industry structure.

Second, the sector is currently trapped between the ephemeral promise of the invisible coordinating hand of the market, and the reality of weakened and uncertain planning institutions. In the short to medium term, more deliberate planning is inevitable, particularly for generation capacity. Indeed, one of the weaknesses of fully restructured markets has been inadequate incentives for generation. Open access for a small proportion of demand in India is unlikely, by itself, to result in the desired investment. Instead, there is a strong case for use of Integrated Resource Planning (IRP) techniques to ensure that low cost generation (or demand side) options are fully explored. Additionally, there is no reason why IRP cannot be mated to competitive bidding mechanisms to enhance efficiency. However, planning needs to go beyond the short term needs of the sector, to develop and embrace a cohesive long-term vision.

Third, a preoccupation with organized electricity markets and in particular the full standard model obscures a more productive discussion to be had on emergent new directions in electricity reform that stress hybrid approaches. For example, experience in major developing countries such as South Africa, China, and Brazil suggest that both the state and the private sector will continue to play a major role in electricity through mixed or hybrid structures.

...India would be better served by focusing on fundamental, if unexciting and challenging, basic management reforms in the sector, particularly at the distribution end. Under the right conditions, competition can be a tool to an end. It is unlikely to be a shortcut.

Regards,
Dinesh.

02-Dec-2009

Brookings Institute/UTI Bank study on power distribution in India (2007)

[This was posted to Hasiru Usiru mailing list]
Apparently, Brookings Institution & UTI Bank did a study in July 2007, mainly concentrating on the distribution aspect (The Power Sector in India: An Inquiry into the Efficacy of the Reform Process). Here are two interesting observations from that study:

Following a series of policy interventions instituted after a default crisis in the power sector around 2000-01, the rot in the power sector has been stemmed. The financial situation of the sector has eased, and together with the improved fiscal position of states, the strain on the states' fiscal deficits has lessened. Deficits as a share of GDP have declined [note : the policy interventions were not necessarily moves towards privatization. They were steps like unbundling, revenue orientation, management changes etc].
....
While the data in the paper shows evidence of only a weak relationship between ownership and profitability, it is important to bear in mind that the more successful subset amongst the discoms which have been privatised (i.e., Delhi) is a relatively nascent experiment, which has still managed to outperform many of its more mature peer utilities, while having started from a more disadvantaged initial condition.

Their finding on privatization/profitability is interesting, even though they apparently were not able to resist giving a thumbs up to private players. I mean, the private discoms in Delhi got a clean balance sheet, loads of loans/subsidies [note: there is very little data on how much of the loans have been repayed etc], extremely low target loss %, a guaranteed return on equity of 16% - that is a disadvantaged position?!

Regards,
Dinesh.

01-Dec-2009

Power sector reforms - global experience

[This was posted to Hasiru Usiru mailing list]
Prayas has reports on their site, laying out the experience of various regions/countries in the area of power sector reforms (http://www.prayaspune.org/peg/energy_pbl.php?cat_id=1&sub_cat_id=10&#links). They provide conclusions for each region/country. They look not only at distribution but the entire electricity sector from generation onwards. In fact they give much priority to generation (makes sense since generation cost is 70% or so of total power cost). I've extracted summary/conclusion parts of the reports below form the individual reports with links to the full reports.

ASEAN
---------------
In the mid-to-late 1990s, several ASEAN countries initiated wide-ranging programs to reform their electricity industries. Such reform, argued its proponents, would improve the productivity of the electricity industries, and attract much needed private investment. A review of these reform experiences suggests that there is a significant disparity between the expected and actual outcomes of reform. Explanations for this disparity [tend] to be narrow, industry-centric, and ideological. This is unhelpful as it obscures the real challenges confronting the electricity industries and precludes consideration of meaningful policy prescriptions. There is a need to develop a broader perspective on electricity reform. This paper is an attempt in that direction.

[From the Epilogue]
.... much of the underlying arguments for reform in the region are untenable. The planners in the ASEAN expected to achieve a rather diverse and sweeping range of objectives from reform - attracting foreign investment, providing mass electrification, improving affordability, developing capital markets, and ensuring economic prosperity. There does not appear to be any compelling logic behind these expectations. For example, how does one restructure the existing (below marginal cost) tariffs and achieve price reductions? There also appears to be a general lack of understanding about the differences between the means and ends of reform. The privatization of the industry and the introduction of full competition appear to have emerged as the ends in themselves rather than the means to achieve technical and economic efficiencies. Further, the technical characteristics (for example, capacity constraints, fragmented systems, technological backwardness) and, more importantly, the socio-political contexts (for example, rural settings, institutional weakness) in the region do not appear to be positively disposed to the creation and sustenance of fully competitive and privatized electricity markets. These reforms therefore are unlikely to yield desirable outcomes.

The remedy, this author argues, resides in acknowledging the importance of the regional socio-cultural context; discarding the existing puritanical approach to reform that sees the world in 'black' and 'white' only and does not recognize the 'grey' where the multitude of humanity lives and strives, on a day-to-day basis, to carve out a dignified existence; and developing institutions and policy prescriptions that accommodate the interest of the wider citizenry in a culturally sensitive, yet responsible, manner. (Italics mine)
(http://www.prayaspune.org/peg/publications/global_reform_asean_epw_066A09.pdf)


Latin American Countries & the Carribbean
-------------------------------------------------------------------------------------
The main proposition of this paper is that power sector reform has made significant progress to overcome problems that plagued the pre-reform sector in LAC. But it still faces significant challenges, some of which arise because of the technological features of electricity markets, while others arise because many LAC countries lack the institutional development and the human resources implicit in the adopted models. Gains from the reform have varied. Success of the reform should be measured with a pragmatic yardstick, weighing the desirable against the feasible.
...
Although the starting points and objectives were different, reforms in LAC followed the pioneering OECD countries. The possibility that OECD experience was dependent on context seems to have been given scant attention. Reform appears to have been based on ideology, which assumed that the market could be trusted to solve the problem. While some basic elements are essential, a cautious approach might have been to say that no universal model exists, and that success of sector reform depends upon the institutional setting and the timing of reform. Unless those tacit elements, crucial to success in the original, are replicated or replaced with local versions, and unless reforms are coherent across the economy, transferring a model out of context is a gamble. While blueprints, best practices, international codes and standards and harmonization may prove useful for some narrow technical issues, large-scale institutional development requires a process to discover local needs and capabilities. (http://www.prayaspune.org/peg/publications/global_reform_latin_epw_066A06.pdf)

The Norwegian experience
-------------------------------------------------------
[They talk very little about distribution in respect to the Norwegian experience. In any case, ownership was not changed in Norway. The State plays the dominant role].
(http://www.prayaspune.org/peg/publications/global_reform_norway_epw_066A04.pdf)

South Africa - From State to Market & Back Again
--------------------------------------------------------------------------------------------------
The "standard" model of power sector reform of the past decade—vertical and horizontal unbundling, wholesale and retail competition and privatisation—has, in effect, been abandoned by South Africa, and increasingly by many other developing countries. This does not mean that governments will accept inefficient utilities. There is a still a commitment to ensure improved performance by state-owned enterprises through appropriate governance and regulation. Capital constrained countries will also open up space for private investments – mostly within the framework of a "hybrid market" where the state utility remains dominant. What remains to be seen is whether the investment mistakes of the past can be obviated and whether security of supply can be achieved at an acceptable price.(http://www.prayaspune.org/peg/publications/global_reform_sa_epw_066A08.pdf)

United Kingdom
--------------------------------
There was little apparent need for reform in 1987. Service was reliable, prices were in line with European countries, the industry was profitable and investment needs could be readily financed. However, there were three strong non-sector objectives that influenced the decision: generation of government revenues; widening of share ownership; and breaking trade union power.
...
In 2003/04, the 'honeymoon' period for the privatised British electricity industry came to an end and the price reductions from 1987 onwards were almost wiped out in only a year. The good results up to 2002 were based on three factors:

• Good luck, particularly extremely advantageous fossil fuel markets;
• A significant improvement in the performance of the British nuclear power plants; and
• A transfer of resources from tax-payers to electricity consumers.

The criterion on which the reforms must be judged is whether efficient markets have been created. On this criterion, they have failed. The wholesale market is not competitive. Confidential contracts and self-dealing within integrated generator/retailers dominate wholesale purchases leaving the spot market with no liquidity
and unreliable prices. The failure to develop a competitive wholesale market places the onus on the retail consumers to force competition on the industry. Large consumers can do this and have done well from liberalisation. But, these gains have come at the expense of small consumers and, unless government strengthens regulation at the expense of markets, this exploitation will get worse. The industry is dangerously close to an oligopoly with a veneer of competition and there will be an increasing need for consumers to pay for the replacement of written off pre-privatisation assets at full price.
</quote> (http://www.prayaspune.org/peg/publications/global_reform_uk_epw_066A03.pdf)

United States of America
-------------------------------------------------
In the 1970s, the U.S. electric utility industry was faced with rising costs and sluggish demand. Efforts at lowering costs and revitalizing the industry through competition have largely been disappointing. Consumers have not seen prices fall, except where regulators have intervened. The merchant [generating] sector has suffered a financial crisis, hurting competition in both wholesale and retail markets. Advocates for deregulation assert that minor changes to market rules and regulations will yield the benefits promised. We argue that things are not so simple. Successful deregulation requires markets to be competitive and complete, neither of which is true in the U.S. Creating competitive markets is not impossible, but doing so imposes costs on the system which may outweigh the benefits of deregulation.

Policymakers in countries (particularly developing countries) considering a competitive electricity-market model should take a hard look at the challenges faced by the United States, and think carefully about the underlying goals of electric sector reform. In particular, will competition serve as an aid or impediment to achieving the stated goals? What costs would be involved in the transition to a competitive market structure? (http://www.prayaspune.org/peg/publications/global_reform_usa_epw_066A05.pdf)

India related lessons in the next two mails.

Rgds,
Dinesh.

Delhi power supply (cont'd)

[This was posted to Hasiru Usiru mailing]
Dear Mr Muralidhar, Thanks for your compliments & for taking my response for what it was meant to be, viz., an attempt to dig deeper into the whole issue and then to put out what I found so that those interested may in turn judge for themselves. I would be a pigmy among the biggies who (I assume) make up the KERC advisory panel currently. Better would be to have a public and transparent consultation before taking these decisions.

You mention that you want to omit Delhi's experience and only consider North Mumbai's experience when discussing Karnataka ESCOMs' privatization, on the grounds of comparing oranges to oranges and not oranges to apples. I'm sorry but that is just cherry picking the evidence to prove a point. I'm saying consider all the cases. The only conclusion then becomes that privatization/reforms is not a silver bullet and that everything depends on the context. The World Bank report I mentioned in an earlier mail (in the context of Rajasthan) says that, Prayas clearly says that, and a Brookings Institute study I'll quote in later mails says that. And the Delhi discoms were given sweet deals - they should be doing better. The govt stake is not a hindrance at all.

You say BEST is running losses & Reliance Infra is running profits. Compare the figures for 2007-08 in these two links: http://www.bestundertaking.com/finance0506.pdf and http://www.rel.co.in/Rel/newsmedia/RInfra_APR_FY_09.jsp . You'll find that the gap for BEST for that year is Rs 221 crores (lower than earlier year). Gap for Reliance Infra is Rs 550 crores. (note: Reliance consumer base is larger than BEST's). Where are the profit numbers? In fact, the last study I mention above finds no relation between ownership and profitability, very reluctantly I might add (link & excerpt in later mails).

Regulators are supposed to be independent. They could lean towards public discoms, but equally they can be won over by the private discoms.

It is heartening that one person, Mr Jairaj, made such a difference. If one person can do so much then the quest should be to retain such people and empower them. It would surprise me that he would advocate privatization when he has seen the improvements that are possible within the current setup. Indeed, he does not mention private distribution in this July 2009 interaction with Bangalore Chamber of Industry and Commerce: http://www.bcic.org.in/files/Interactive_Session_with_Mr_Jairaj.pdf.

I wouldn't mind putting it on Praja, in addition to HU. These mails have grown so huge that I'm not sure they would make sense there.

Regards,
Dinesh.

Delhi power supply (cont'd)

[this was posted to Hasiru Usiru mailing list]
Dear Mr Dinesh Kumar

My compliments to you on an excellent and fairly well researched analysis of the overall power scenario in the country, even if not quite complete. Like I had some time back suggested to HU to nominate Rohan D'Souza to be on the board of the LDA, I would now like to request HU to nominate you to the KERC advisory panel. I believe there's a vacancy there, and if HU members are agreed, I can, in fact, take the initiative in getting other civil society organisations in Bangalore to also pitch in. This is particularly significant in view of the impending privatisation of the Karnataka ESCOMS.

Very clearly, there's hardly any defence of the way the Delhi power distribution privatisation has been taken through. But, that doesn't mean that the idea of privatisation itself is bad. In fact, if I recall correctly, it was Mr Gajendra Haldea himself who was the prime mover of the idea, when he was in the government. And, the PRAYAS report, I had read some 5 years back, had many recommendations for the way Delhi should go, based on the learnings from the mistakes committed in Orissa. Apparently, neither PRAYAS nor Mr Haldea were consulted, but instead TATA Consultancy was engaged, even while one of its sister companies was very much in the picture as one of the major contenders for the job - crony capitalism in full play. The problem lies largely there. And, subsequently, in the powerful players getting a very pliable 'regulatory commission' put in place, quite as much as in California.

49% equity ownership is more than good enough to ensure a say in the goings on, and if the Delhi government has not used its position to prevent the misdeeds cited, it certainly is guilty. I wonder why the civil society, and the opposition parties have not made enough of a noise. Whether with a government service provider or a with a private one, if the people (civil society) are not vigilant, between the mafia's and the lobbies, they will indulge in their loot.

My stance on privatisation comes largely from this clear example - comparison of oranges against oranges, and not against apples, viz Bangalore power distribution vs North Mumbai power distribution. Bangalore has always been with the government servise provider - BESCOM, successor to the earlier KSEB. Mumbai North has from long been with BSES, which was taken over by Reliance, some ten years back. Resulting from it all, Bangalore today is a Rs 1500/- cr market for gensets, inverters, converters, batteries, emergency lamps, candles, etc, whereas these products hardly have a presence in the Mumbai market. There lies the difference. Whereas Mumbai enjoys quality power, we are suffering the incapacities of the government-owned BESCOM.

Admittedly, even South Mumbai is in a similar happy state as North Mumbai, even with the supply there being in the hands of the city-owned BEST. But, BEST is losing money heavily, whereas Reliance is making fair profits, the playing field being uniformly level for both the players, ensured by the MERC. Given the scenario, the Mumbai city administration is now under pressure to hand-over the distribution to another private player.

Another major factor is that the government has an important role to play as the regulator, besides that of the facilitator. If it's to play the role of a player in addition, it can never be effective or impartial in its more important roles.

Yes, BESCOM is doing better now, compared to a few years back. But, I would attribute this largely to one person - Mr K Jairaj, the current Principal Sec, Power, whose stature ensures that even the neta's generally listen to him. But, it's the same Mr Jairaj who is piloting the privatisation efforts in the state in full appreciation of the fact that that's the only sustainable way to ensuring efficiency. And, PRAYAS is very much on the advisory panel in Karnataka. All we need to do is to ensure that they are not side-lined at the last minute, and some interested party brought in.

And, lastly, for now, why don't you want to put these on PRAJA? Please understand that I am not the voice of PRAJA. There are more people who question my views there than here, and in a more studied way like you do. Besides, by putting it on PRAJA, there's perhaps a better chance of your views reaching the likes of Mr Jairaj himself - just my view; I may be wrong.

Muralidhar Rao

30-Nov-2009

re: Delhi power supply (cont'd - 2)

[This was posted to Hasiru Usiru mailing list]
Continuing, some more points raised earlier , which I could not reply to. The red-colored text is my original points to which you replied (marked blue).

BESCOM has the corresponding figure at 9.5%.

In the Hindu report (to which a link was provided) the line "Power theft was being accounted for as T&D losses, the Minister said" is significant. In power sector parlance, T&D losses have from long been known as "theft & dacoity losses", and the incapacity of the government to curb it is the root cause of all the problems. In fact, when Delhi power supply was under DESU, a state cabinet minister was operating a high-consuming battery charging unit from an unlicensed connection, right in the heart of Delhi.

The following excerpts from the KERC site, in this connection, are significant:

a) BESCOM distribution losses (FY09) for cities is 8.73%; for rural areas - 26.22%; Aggregate - 16.81% - shows they have not been too successful in curbing the theft in the rural areas

I don't get the point that you are trying to make.

AT&C losses = T&D losses + collection losses.

T&D losses include theft losses. Collection efficiency for BESCOM is 97%, very much comparable to NDPL (Delhi's Tata discom). Hence the 15% AT&C figure of NDPL & BESCOM's 9% figure are comparable.

And Bescom's Bangalore figures are better to use for comparison rather than taking the Bangalore + rural figure, because Delhi is supposed to be 95% urban. But even taking the urban + rural figure for BESCOM, 16.81% is not that far away from 15% (for NDPL). Especially considering that BESCOM serves a geographical area of 41,092 sq km (population of 139 lacs), because of which technical losses would be expected to be higher, whereas NDPL covers a compact area of 510 sq km (with a population of 50 lakhs). (See KERC Annual Report 2009 for the state ESCOM details, including BESCOM details).

I'm wondering what if BESCOM was broken down into smaller ESCOM's? Wouldn't it perform better? Another point is that BESCOM's regulator (KERC)'s loss target for BESCOM for '09 was 19%. BESCOM has achieved 17.94% (KERC Annual Report 2009). By the way MESCOM's numbers are even better, around 10% I think!

Also, as noted in the previous mail, interesting that NDPL's projected surpluses for '07-08 & '08-'09 vanished in the face of higher input cost etc(see page # 3 http://www.derc.gov.in/ordersPetitions/Petitions/MYTARR20092010/Distribution/NDPL.pdf). Not sure what the minister has got to do with it other than illustrating that politicians can be thieves too. Not hot news for sure.

I am very wary of privatization, especially since private players are not covering themselves in glory nowadays.

How many of the government players are covering themselves in glory, even when they have monopoly? And, I am largely against monopoly - government players can remain as long as the field is not sloped too much in their favour, which is rarely the case, like in the case of BSNL - check here

So the point is : private companies have issues, public utilities have other issues. We need a in-between solution. Being a public utility, BESCOM has improved its performance significantly over the same time period that Delhi 'privatization' has gone on. It even turns a profit. A public utility is doing well in Mumbai (BEST). So privatization is the solution to what problem exactly?

My own take is, the power generation is a bottleneck and unless that improves, it doesn't really matter. Both public or private players will have problems. Of course, we could privatize power generation - don't know if it has been done. If yes, has it succeeded? Again, facts would be welcome.

There are enough players, and the ones that are not dependent on the state-run distribution utilities alone, are all doing well - Reliance's Dahanu 500x2 MW plants for instance.

I concede the point. But there are problems even when the power generation companies depend on 'private' players. Delhi Transco (DTL) has a Rs 1500 crore revenue gap for 2009 (see Coming soon: power tariff hike 'from 5 to 50 paise'). Meantime, it is fighting for money due to from the private discoms (see Power tariff likely to go up):

DTL's plea was also that if the money was to be remitted to it, it would reduce the overall revenue gap in the sector. DTL had urged the Tribunal to ensure that the money was released by DPCL or by DERC after directing the discoms to raise the money.

And, required tariff hikes (so the discoms can pay up) were not and are not happening smoothly (as noted in an earlier mail).

Alternatively, we could have purely intellectual arguments about publicization/ privatization, without regard to facts. I'm not sure if I would be able to contribute myself, but I'm sure there are other capable folks who can pitch in.

My arguments are all backed by facts - check this and this

I don't think so.

Both are links to Praja. In the first link which is a post by you on Praja these are the facts I found, after sifting through lots of opinions:

  • You mention a co-op in Belgaum buying power from KPTCL & doing a good job of supplying it to rural areas (No link provided). This fact is not correct – the co-op buys at bulk rate from HESCOM a PUBLIC escom (Reject rise in tariff, society urges KERC). (They made a petition to KERC to ask HESCOM not to raise tariff & KERC made some interesting observations - see KERC order).
  • Then, a commenter posted a long article from India Today about Vasundhara Raje's efforts in the power sector – which mentions that 22000 villages are getting 20 hours of residential power supply & 5 hours of agricultural supply. (Rajasthan experience discussed below)
  • someone asks for T&D losses in Karnataka & BESCOM
  • You mention transmission losses of 30-40 percent (not mentioning if the number is for India or Karnataka or BESCOM, no link provided). I'm not sure what this transmission loss refers to. BESCOM's T&D losses are 9% for Bangalore, and 17.94 % overall.
  • You quote an article that quotes an anonymous industrialist who mentions that the state has lost 180MW of power co-generation capacity because politicians were corrupt. Well, anonymity is a great thing.
  • You mention Bangalore has 80% recovery. I'm not sure what this means. BESCOMS collection % is 97%.
  • Then there are some facts about power theft. They mostly mean little - instead of number of cases of power theft, we could just talk about distribution losses (T&D + collection losses, AT&C etc)
I get a mostly anti-public utitlity angst from reading all that than anything else. As for Rajasthan's experience, the World Bank seems to have been involved in the power sector restructuring there. They were not able to privatize distribution (WB report from 2007):

One of the covenants, "offering majority equity stake to private sector in the distribution companies", which was also a key performance indicator, was deleted, by agreement with all parties, during the project implementation. The reason for this was that the prevailing conditions in the Indian market were not conducive to privatisation of distribution assets.
...
Discoms are projected to achieve a turnaround with subsidy support by FY2009 and full financial turnaround without subsidy support by FY2012."

In "lessons learnt" , they say:

The expectation of the pace at which the reforms can be implemented and the outcomes realized should be realistic. Given the socio-political constraints the pace of reforms will be determined by the willingness and capacity of the governments to address key reform issues. Expectations of financial turnaround and phasing out subsidies should, similarly, be realistic. In reality, the government would generally need to provide substantial financial support during the transition period to meet the cost of reforms (e.g. financial restructuring costs, employee liabilities, explicit provision of subsidy as per regulatory directives etc.). This would thus require prudent prioritisation of the government's expenditures and public policy decision-making during the transition.

Subsidized power supply to agriculture is a broad public policy issue, not just a sectoral issue. The problem of subsidized power supply to agriculture and resistance to metering is embedded in the political economy of distorted agricultural policies.

Sustainable improvement in power sector requires this complex economic and political problem to be addressed.

That is about Rajasthan's attempt. Ms Raje I'm sure will be thinking what went wrong in more ways than one.

The second link is about bussing, and includes a comment by me also. There you promote private competition & take it for granted that BMTC will not be able to resolve the issues come what may (which is a bit naive considering that they are carrying around 40 lakh people per day). A commenter named Vasanth brings in some valid counter-points which I mostly agree with.

As for the transport situation, the problem as I see it is again lack of road space for buses. Once buses can move freely without getting jammed up, I feel public or private - anyone would do a good job. But a public player would keep fares down.

May be you should read about the extent of pilferage in BMTC, in today's Indian Express. Besides, what justification is there for the monopoly?

Pilferage will always be there – whether a conductor does it in BMTC, or a private company does it by 'creative' accounting. I still maintain that lack of road space is the problem. Again, there can not be a true competition – we would have to have various levels of roads in the air above us to support 100's of transport companies. So in the end, there will be effective monopolies or duopolies or some such. And if we restrict artificially the number of private players, we knowingly welcome collusion & cartelisation.

Witness lowering of broadband rates on account of BSNL.

It is because of open competition, and inspite of the non-level playing field.


Anyway competition is eating into the financial statements of the telecom companies. They are complaining that there are too many competitors :-) As to non-level playing field – I'm sure BSNL does enough to operate on a different level – connecting remote areas, rural areas and so on.

In subsequent mails, I'll put up some of Prayas' findings & a study by Brookings Institute/UTI Bank.

Regards,
Dinesh.

27-Nov-2009

re: Delhi power supply (cont'd)

[This was posted to Hasiru Usiru mailing list]
Some more replies.

And, quite like PRAYAS, what I have stated (in the concluding para) is appended below:

It's nobody's case that privatisation is the panacea for all the ills. There will continue to be problems. But, like the late Sri C Subramaniam had once stated, atleast these will be new problems, and not the same old ones for which we have no solutions for over half a century.

Prayas (http://www.prayaspune.org) has refused to take a strict pro- or anti- reforms/privatization stand since they feel that would be unhelpful (note: reforms may or may not include privatization). But they do suggest abundant caution & re-thinking.

However, unlike them, pushing for privatization of everything (power, water, waste management, transport) even while admitting that it may not solve all the ills, is like wanting to eat the cake and to keep it too. And while Sri C Subramaniam was entitled to his opinion, I'm not sure I'm ready to invite new problems when I can't solve current known problems. Then again, they may not be new problems at all. At least some of the more intractable ones will not be new problems. I list some of these below:

  • Greed & questionable behaviour
1. Selling power for higher returns: All three discoms sold power for profit outside Delhi during days of power cuts lasting 12 to 15 hours a day (see Power of profit). Apparently this type of thing even has a name. From Prayas' Of Rocks and Hard Places': Enron took advantage of the two part market in California by overscheduling load such that they could sell more power in the lucrative hour ahead market, a strategy they called 'Fat Boy'.

2. Inflating capital expenditure (which has a direct bearing on tariff) : Reliance discoms can't pass on Rs.535 crore to Delhi consumers - APTEL: "A senior DERC official explained after power distribution was privatised in the Capital, discoms had been directed to invest in capital goods — equipment among others. The purchase of Distribution Transformers by BSES discoms from its sister concern M/s Reliance Energy Ltd was at inflated rates, The transformers were purchased from Reliance Energy and found to be exorbitant and the rates were higher by 68 percent from the market rates. The regulatory commission which procured the VAT bills showed that the material was sold for 731 crores and the discoms showed an inflated price with profit margin of 68 percent and tried to pass on the buck to consumers. Procurement of equipment by Reliance backed discoms at higher rates amounts to loading the extra cost on the consumers of Delhi and further to give undue profit to the Discoms as well as the supplier which is the sister company of BSES." The Apellate Tribunal of Electricity agreed.

This has been happening from the beginning. Inflated capital expenditure claims: Capex affects tariff rates the discoms can charge, higher the capex, higher the tariff. Prayas notes in their 2007 Prayas' Delhi Summary Report that the Reliance companies are notorious for their exaggerated capex claims. For instance for '04-'05 they claimed Rs 800 crores, DERC cleared only Rs 525 crores.
  • Manipulating numbers to boost profits:
In their summary report on Delhi's experience written in 2007, Prayas notes that ABR figures for BRPL/BYPL (the Reliance companies) were not matching DERC's projections. According to Prayas: The unexpected behavior of Annual Billing Rates and consumption that we have discussed here all have significant effect on the revenues and tariffs, and are also linked to the validity of the AT&C loss reduction calculations. (see Prayas' Delhi Summary Report). And while NDPL (Tata discom) didn't use this approach, their distribution costs were the highest, inspite of having a good network (see Prayas' Delhi Summary Report)! Prayas urged regulatory vigilance on this aspect.
And no, saying only Reliance is bad (while praising the same company's performance in Mumbai) doesn't cut it. Two private players. If one of them is bad, that is a bad-to-good ratio of 1.
  • Regulatory lapses/capture/incompetence
Inspite of the Delhi Transmission company (Transco) pointing out the ABR issue to DERC (the Delhi regulator), the latter did not investigate(see Prayas' Delhi Summary Report ). Why? Prayas has pointed out that regulatory action is wanting. Will it every become sufficient?

No, if the US experience is anything to go by. Private utilities have existed in the US for a century or more. I'll quote here from Prayas' report on the US power sector reforms (Prayas' US Report): "As another point of comparison, the US Federal Electricity Regulatory Authority (FERC) has a staff of about 1200 [Hunt 2002]. Despite these considerable resources, the Chairman of FERC was quoted in the aftermath of the California crisis as saying that US regulators had "a long way to go" to match the sophistication of the companies it regulates [Egan 2005]."

In the 'Fat Boy' context, Prayas (same report) notes: Indeed, the example of Enron in California suggests market designers will be hard pressed to stay ahead of those who seek to game the market".

  • Framing of rules tilted in favour of the private companies (Sweetheart deals)

1. A 16% Return on equity is guaranteed to the Delhi Discoms! NDPL makes profits even when it shows a revenue gap, as it does in this recent 2008-end presentation ( http://www.derc.gov.in//ordersPetitions/Petitions/MYTARR20092010/Distribution/NDPL.pdf). (The revenue gap is typically filled by tariff revisions.)

Interestingly, revenue surpluses of Rs 8 cr & Rs 208 cr were estimated for NDPL for 2007-08 & 2008-09 respectively. They turned out to be a mirage and turned into revenue gaps of Rs 213 cr & Rs 155 cr (see page # 3 http://www.derc.gov.in/ordersPetitions/Petitions/MYTARR20092010/Distribution/NDPL.pdf) No doubt they will get this back through tariff hikes or failing that through subsidies.

Why is this such a big thing? An article from 2005 in Business Standard, Chronicle of a crisis foretold explains it, quoting Haldea from National Council for Applied Economic Research:

According to Haldea, this ensures the firms will earn 59 per cent on their capital base and this could go up to 181 per cent in case they are able to lower losses to the level of, say, NDMC! [note: NDMC is the public utility supplying Lutyens' Delhi] (To understand how this works, in 2002-03, NDPL had equity of Rs 368 crore but free reserves of another Rs 50 crore; in the next year, the equity has remained the same till date but the "free reserves" has gone up to Rs 224 crore.)

The article also notes the problem with the process for setting targets for AT&C losses when the deal was finalised. This has an big impact on the profits that these companies make. The consultants (Tata Consulting Engineers) to the privatization projected 20% reduction in losses in the first five years. Reliance & Tata wanted only 13-14% reductions (see Prayas' Delhi Summary Report). 13-14% of the 50+% of the then losses - that would leave AT&C losses at around 40%! Why were they so reluctant?. As the above article explains:

What makes the deal even sweeter is the incentives given for loss reduction. After a certain level of reduction (the 17 per cent or so reduction that the firms have agreed to over 5 years plus a few percentage points more), the firms get to keep half the gains from the reduction (this works out to roughly Rs 30 crore for every one per cent reduction in ATC losses).

This, in fact, is the biggest problem with the deal signed by Dikshit's government in 2002 since, even five years after privatisation, the BSES twins [BRPL/BYPL] and NDPL will still have losses of around 33-34 per cent — so, customers will end up paying 50 per cent more than what power costs even in 2007-08. To put this in perspective, Mumbai has a loss level of around 11 per cent, Ahmedabad is around 14 per cent, Surat 15 per cent and the NDMC area in Delhi is around 16 per cent. While both BSES/NDPL and the government of Delhi argue that the loss reduction agreed to in 2002 was the best they could have got since it was got by bidding and no company bid higher than this, this is contested by Gajendra Haldea, chief advisor on infrastructure at the National Council of Applied Economic Research (NCAER). Haldea had argued then that when there were just two players left in the bidding process, the Delhi government changed the rules of the game — an additional loan of Rs 850 crore was provided to lower power supply costs, the minimum performance requirements were lowered by Rs 1,000 crore, among others — and had these been offered to everyone, there would have been better bids.

2. And then, the companies were given a clean balance sheet to begin with, and allowed to collect DVB's arrears and keep 20% of those (see next point)! Also, they got their majority stake in the discoms paying up a smallish Rs 481 crores for all three discoms combined ( see A Challenging Phase). Valuation of DVB's assets & other interesting happenings during the privatization itself are covered in Accountability, my foot & The Way to Accountability (there might be an element of politics involved if one notes the author of these two articles. But still - he does not make up any fact & quotes the PAC draft report).

One of the critical features of the power sector restructuring in Delhi has been the large financial support provided by GNCTD. Through the transfer / restructuring scheme the GNCTD provided clean balance sheets to successor companies. In this massive financial reengineering process, nearly all past liabilities (around Rs. 19,000 Cr.) were taken over by GNCTD (i.e. essentially written off). Additionally, the government provided Rs. 3450 Cr. as transition support (over a 5 year period) and also contributed Rs. 886 Cr. towards employees pension trust.

For the first five years from 2002, the discoms were basically allowed to pay whatever they had left after all their expenses were covered (see Prayas' Delhi Summary Report). Rest would be made up by the govt in the form of subsidy. The total amount was estimated to be Rs 3450 Crores (the same Rs 3450 crores mentioned in the previous paragraph), not sure what the actual figure was. I will safely assume it was at least that much. After the transition period (first 5 years), the loan was supposed to be paid back. Interest on the loan at 10% works out to Rs 345 Crores. What about the repayment of the loan? I can't find any info on it. Meantime there are questions (see Tribunal strikes down Delhi Electricity Regulatory Commission move to create "regulatory assets" and avoid a tariff hike):

"The Rs.3,450-crore support granted by the government was intended originally as a loan that would have to be returned on terms decided by the two parties. While the details are yet to be made public, the funds will probably have to be raised through further tariff hikes."

2. Delhi Transco (one of the firms from which the dicoms buy power) is projecting revenue gap of Rs 1,500 crores in 2009 (see Coming soon: power tariff hike 'from 5 to 50 paise').

3. Then in 2005, Delhi govt gave a three-year subsidy of Rs 90 crores per year (see Amid outages, Delhi govt ends power subsidy). That has apparently been rolled back, after the three years. Who knows when it will be back? Power or opposition benches - difficult choice to make.

4. Then there is a annual subsidy Rs 184 crores subsidy for weaker sections & agricultural sector which is ongoing Delhi to give power subsidy for domestic, agricultural consumer).

So we can count the subsidies as : One-time pension trust donation of Rs 886 crores + annual interest of (at least) Rs 345 crores + pending principal amount of Rs 3450 crores + Rs 180 crores (for '05, '06) + Rs 184 crores (for weaker/agri sectors).

This does not include loans given to these discoms by the govt etc. This also does not include hidden subsidies to the private discoms like land etc... Tata's are looking for land to build gas-based generating stations in & around Delhi. So subsidies go on, privatization or not.


  • Collusion/cartelization between the private discoms

    1. Collusion started right at the beginning. The AT&C loss reduction estimates provided by Tata & Reliance in their bids for the license, were suspiciously in the same narrow range – 13-14% (see Prayas' Delhi Full Report). Prayas notes that this is very surprising. These were below the 20% minimum required by the bidding process, but the govt did not reject the (only) two bids, but renegotiated with the two bidders to 17%! (see ).

    2. And, NDPL (tata company) buys power for both NDPL & BRPL/BYPL (see Prayas' Delhi Full Report). Nice work! But weren't they supposed to be competitors? Moreover the tariff is same across the discoms. So if one is successful in fixing things so that it can get a tariff hike, the other can benefit form that. I just can't see any problem with that arrangement!

  • Unaccountability/transparency

    The Delhi Govt has a 49% stake in NDPL & BRPL/BYPL. Hence, according to some people, they should come under the RTI Act. The CIC agreed. But the discoms went to high court and got a stay (see DERC report). What are they so afraid of?

  • Tariff setting
Then there will always be the problem of tariffs (from Chronicle of a crisis foretold):

That is, by now (Year 4) tariffs would have risen by 40 per cent. The actual hikes, on the other hand, are just around 11 per cent. In fact, in order to keep the tariffs hikes low, the Delhi government provided Rs 3,450 crore of taxpayers' money to give BSES and North Delhi Power Ltd (the two companies which bought over DVB's assets) power at a subsidised rate.

And furthermore, besides these generic problems, there will be problems specific to the power sector. And they are not trivial problems (as the Prayas reports point out).

Delhi apparently is now paying a high price for having delayed the reforms process. Bangalore will perhaps have to pay an even higher price. Actually, it's already doing so, if one takes into account the enormous cost of stand-by (in many cases - mainstay) power that the entire city (as well as the state) population is dependent on - check this

BESCOM is not doing too bad. More on that in the next mail.

Regards,
Dinesh.

26-Nov-2009

re: Delhi power supply

[Note: these were posted to the Hasiru Usiru mailing list. It is a follow-up to earlier exchanges on need for privatizing power distribution in Karnataka/Bangalore]

Sorry for the delay in responding. I took some time to get a bit more informed on the subject. I went through the reports by Prayas and also tried to look at what information is available online. It has been interesting & eye-opening. It is a complex issue. There is no silver bullet, including competition/privatization. There are alternatives.

To present the other side of the argument, I've gathered your comments (marked blue) from a couple of unanswered mails & tried to address them in this mail and in subsequent mails over the next few days. Then some general lessons on power sector reforms put forward by people who've looked at this issue closely. I've provided backing external links to mostly everything. Unfortunately some of them are PDF files - can't help that.

I feel this is relevant to HU so am posting on this list too.

To begin with, a comic aside in the Delhi 'privatization' saga, from a July 2009 (i.e., after 7 years of successful "privatization") newspaper article: NDMC power still in sarkari hands:

With performance of the power discoms coming under scrutiny most often from the Government and citizens, Lutyen's zone has been spared the 'erratic' privately managed distribution network that rules other parts of Delhi. The electricity supply in Lutyens' Delhi will remain in sarkari hands.

The Government has turned down the request of private parties seeking distribution of electricity in NDMC area stating that the area is inhabited by the VVIP's and VIP including foreign dignitaries.

Delhi Cabinet on Monday approved a policy direction to Delhi Electricity Regulatory Commission (DERC) for not granting license to private operators for distribution of power in the Lutyens' Delhi area.


Now to some of your points.

Further, apart from Delhi and Mumbai, the cities/ areas that 'enjoy' power supply from private companies are Ahmedabad, Surat, Kolkata, Greater Noida, and in all these places, the customer satisfaction and profitability levels are far higher than elsewhere where the supplies are with government companies/ agencies, all being subject to uniform regulation by the respective SERC's. So, there must be enough merit to it. And, perhaps learning from the experiences in Delhi, the switch-over in other cities can happen more smoothly.

First point, on Delhi as an example of privatization. The distribution companies (discoms) BRPL/BYPL (Reliance), NDPL (Tata) are all joint ventures with the Delhi Government. True, they are run by private players, but the Delhi government has a 49% stake in each of the three companies BRPL/BYPL (Reliance) (see Fresh Equity for Reliance Discoms), NDPL (Tatas) (see NDPL Profile). That is, they get all the upside of being a private company while they also get the backing of the government stake (I'm guessing this will result in eaiser/cheaper financing at the lest). A nice deal for the discoms. And on top of that they are effectively monopolies (discussed below).

Second point - it doesn't make sense to say only one player (Reliance) of the two is bad so it is OK. One player out of two is 50%. And when you support the same player in Mumbai, inconsistencey results. An reasonable way to resolve the inconsistency would be to seriously consider the possibility that the approach taken (in Delhi) may have its limits, based on local contexts etc

Now for list of cities 'enjoy'ing power supply from private players. Just repeating the same thing over and over doesn't make it true. Show me a reliable study that claims that for all the cities & I'll concede the point. Information is available for Delhi. In Delhi, after 5 years of 'privatization', 60% of consumers reported problems as regards load shedding (see page number 4 of this DERC report).

Why wouldn't the consumers complain? Load shedding is happening apace! Look at this document which lays out the scheduled outages from Oct 2009 to Apr 2010 for NDPL: NDPL Load Shedding schedule. However, they mention in that schedule that these will be the likely outages if power shortage occurs. But on their main site (http://www.ndpl.com) they list ongoing maintenance work & resulting outages for the current day and one day before. It is a pretty long list with hours of maintenance at each location (the list of outages for 26th Nov 2009 are attached to this mail)! Maintenance or load shedding – who knows! Loadshedding has apparently been so problematic, that as recently as 10 Nov 2009, DERC has threatened to impose fines for unnecessary loadshedding :DERC decided to fine private discoms for unjustified load-shedding

Of course, following that 60% statistic the DERC document simply asserts that consumers are happier with private supply as compared to earlier times: "However, the Survey found that the consumers preferred the services rendered by the Discoms over those of the erstwhile DESU/DVB." Well, why no % number to that statement? If the % of users saying that was, say, 100% then I'm sure that statistic would have found its way into the report. I'm guessing even if it was 51% it would have. But apparently it didn't, so they've gone ahead and just made up a blanket statement.

As for other cities 'enjoy'ing private supply. In Mumbai, BEST & the Reliance discom are doing well as you point out. Tata Power supplies only to bulk customers. BEST is a public utility. Its distribution losses stood at 10.5% for 2007-08 & 2008-09 (see Final Copy of APR Petition ). I couldn't locate loss numbers for the Reliance discom, but they surely won't be better than BEST's. 10.5% loss percentage is better than Delhi NDPL. Kolkata is left with a monopoly (RPG group) and lots of google'able news reports on issues with load-shedding. This old article in Outlook discusses how unsavoury the privatization itself was and what good terms the RGP group got out of it: High-Powered Immunity . This article from The Telegraph shows how power shortages persist: Ahead: Loo & loadshedding. Torrent Power supplies to Ahmedabad & Surat. It is half the size of BESCOM, supplying 10 billion units anually over an area of 408 sq km (see Torrent website), vs BESCOM's 19 billion units over 41092 Sq. Kms (see BESCOM website). And their users are mainly better paying industrial & commercial units (since Ahmd & Surat are industrial & commercial hubs as they themselves claim on their website).

Also, let us not forget that privatization of the distribution business in Kanpur was unsuccessful (apparently because there were no bidders, see Prayas' Global Reform Overview). Orissa & MP gave up on electricity reforms (see Prayas' Delhi Summary Report.). In Orissa, private discom AES just up & left, leaving it to the Orissa govt to pick up the pieces including a Rs 400 crore due to the Grid Corporation of Orissa (House panel to review Orissa-AES share pact). So at best, experience with reforms/privatization is mixed & heavily local context dependent (something borne out by other observers). Of course, there is international experience too which I'll put up later.

That's true - it's a natural monopoly situation. But, what you do in such situations is to divide the total area into two or three districts/ zones, and allocate it to different players, and the regulator periodically publishes comparisons of their performances based on given parameters. And, that's what Delhi has done. And, with the Reliance's performance showing to be poorer than that of TATAs, there's pressure on them to do better.

That still leaves us with private monopolies, instead of state monopolies. Same seems to be the case in Kolkata (RPG group). For true competition, the end-user should be able to choose his power provider. We are aeons away from that. And in any case, the benefits of open access are themselves not proved & the costs could be prohibitive (more on that in later mails). And when distribution companies integrate generation, market power results.

As for pressure to perform, what does the pressure do? For example, after seven years, the Reliane discoms' T&D losses are at 23% & 27%, for BRPL & BYPL resply (see India Infoline news report ). Those numbers are excluding collection losses I presume, meaning a slightly bigger loss % if that is factored in. It's been seven years and lots of money & effort but BYPL & BRPL (Reliance) haven't been replaced. So when will it change?

Only two companies (namely Reliance & Tatas) submitted bids when distribution was 'privatized' (see Prayas' Delhi Summary Report ), why will the other competitor come in now? Or should their license be canceled & their areas go to Tata's NDPL, making it a total private monopoly instead of a duopoly as of now? Or do we give them 60 years (since we've gone with public utilities for at least that many years after 1947)? And meantime the 'competitors' are competing well, with the Reliance companies allowing NDPL (the Tata discom) to procure short/medium power on their behalf (see DERC report). A bit like Wipro & TCS asking Infosys to do recruitment for them. And they end up purchasing power from a company in which majority stake (76%) is held by a Tata company, Tata Power (this was approved by DERC, see DERC report).

Resulting out of it all, the quality deteriorates, and whereas the rich can then switch to genset, inverter, converter, etc, the poor are left at the mercy of the weather gods. Apart from this is the burgeoning subsidy bill, which ultimately gets passed on to the consumer.

On the other hand, when an Anil Ambani controlled Reliance sends its bills, even Dawood Ibrahim's henchman in Dharawi and Bal Thackeray in Matoshri, better up on time, failing which they will face disconnection as much as any ordinary human being. As a result of it all, power supply is so reliable in Mumbai, that not many people even know what a genset is.

Real life is not so simple. Let hear what the distribution companies (discoms) in Delhi have to say on commercial losses (see DERC Report). In the report, DERC mentions a public hearing involving DERC, discoms, the public, DTL etc, in 2008 (i.e., after 6 years of 'privatization'). From the 2008 DERC annual report (DERC report):

Some of the consumers expressed apprehension on the evaluation of energy losses by the Discoms because the Discoms had neither carried out audit of energy supplied by distribution transformers nor on the corresponding connected consumers. In act, they questioned that as AT & C losses are due to inefficient management of business, the consumers cannot be made to pay for such inefficiencies. They also requested that those areas where the AT & C losses were below 20% should be spared of power cuts.

[Note: No energy audit after 6 years (the commission had to ask them to do energy audit! In response, the discoms listed their achievements, then they had this to say]

the discoms...also expressed the following difficulties in achieving the desired AT & C loss reduction:
i) Effect of socio-political environment and public resistance in certain areas.
ii) Presence of a large number of unauthorised colonies and JJ clusters.
iii) Level of theft in unauthorised areas is high due to limited infrastructure.
iv) Use of domestic connections for industrial purposes.
v) High costs incurred for using technical solutions in rural areas, thus rendering the whole exercise cost ineffective.
vi) Non electrification of unauthorised areas even though residents are willing to pay for electricity, thus, leading residents to use power from neighbouring networks.
vii) Public resistance to the replacement of electro-mechanical meters with electronic meters.

Well, forget Dawood, they are helpless in front of less sinister people! And they have reason to be helpless , they are getting attacked when they go checking theft : Mob Attacks NDPL Enforcement Team. Let's face it - it is a deeper problem, technology and force can only get the discoms so far.

I have shifted the entire debate here. Perhaps it is best furthered there.

Please don't shift the debate to Praja. Please put all the arguments & facts here itself (backed by a working link to the source and also Praja if necessary). Privatization & reforms, especially of essential services, is of relevance to HasiruUsiru. At least, I presume it is. And I really don't feel like sifting through lots of opinions to get to some facts.

I'll address other points raised, in later mails. It is a dry topic but interesting nevertheless.

Regards,
Dinesh.