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.

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