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.

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).

• Hidden subsidies/financial transfers
  

  1. Prayas (See Prayas' Delhi Full Report) notes:
  

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.

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.

Three ills

That afflict the country. And the third one is not any less dangerous than the other two:

Red tape tops the list of reasons for this comatose state, and is widely cited. The second reason for this is what only I seem to talk about, and that is a most extraordinary and appalling incompetence. The third is talked about by only those in the know, namely, the influence of business lobbies.
...
Incompetence and corruption have combined to produce the third element, lobby power of big business. Go to any ministry today, even something as noble as the ministry of women and child welfare, and you will see how the lobbies have moved in.

It is they, who along with the think tanks assist the senior bureaucracy in justifying decisions that the Minister wants taken. In far too many instances the staff-work is now done by the lobbies.

We are slowly moving the way of all democracies. Laws get written by lobbies in the US. Even if not, they get neutered by the lobbies who add/delete whatever the concerned industry biggies want. It is going the same way here.

Erasing The Difference

Between itself and the other parties. That is what the BJP has done according to one of its own leaders in the state.

Stating that party workers were of the view that the BJP had ceased to be a party with a difference, he said dynastic rule, casteism and electoral malpractices were the issues with which the Congress and the JD(S) were being targeted. "However, by fielding the kith and kin of sitting ministers, the BJP has lost the moral authority to take on other parties over this issue," he said.

Referring to allegations of the party employing money and liquor to woo voters during elections, Eshwarappa said he would appeal to State President Sadananda Gowda to constitute a committee of senior leaders to look into the charges.

"I am elated that the party won 19 seats in the elections. But, I do believe that means are as important as the ends. More than development and ideological issues, distribution of money and liquor were prominently discussed during elections in Shimoga.

Loyal BJP voters who were not used to this political culture, lost motivation to turn up at polling booths. The party had similar experience in other constituencies also."

I confess I never bought into the 'party with a difference' bs even as far back as 1990. When you haven't tasted power, you tend to be a bit different. After all, power corrupts and absolute power corrupts absolutely etc. But I did think it stood for 'partying with a difference'. With a saffron tinge if one may put it that way. And one did hear about the parties during the Pramod Mahajan days. However, the blatant use of liquor and money in the recent polls as reported in the newspapers did surprise me.

We live and learn.

Movement

The CM visits the Beggars Colony in the city and which ultimately results in headline from DH:

Plight of beggars in colony moves CM

So one expects a lot of sympathy and a firm commitment to help improve the plight of the people in the colony. Instead one realises that the CM was so moved that all he could think of was to move the colony to some other, "better", place:

The government is now contemplating to shift the Colony to a new location, a better place. The Chief Minister has now proposed to shift the Beggars’ Colony and establish a ‘Mini-Lalbagh’ along with a government hospital on a five acre land in the location.

“Being in the centre of the City and worth around Rs 1,000 crore, the land can be used for various purposes. This would be decided in the next Cabinet meeting,” he said.

Land worth Rs 1000 crores! The possibilities are endless and the imagination goes wild. Will be interesting to see how and to whom they sell it off.

America: Where Even The Prostitution Is Better

From the NY Times:

Prostitution in America isn’t as brutal as it is in, say, India, Nepal, Pakistan, Cambodia and Malaysia (where young girls are routinely kidnapped, imprisoned and tortured by brothel owners, occasionally even killed).

But the only problem is, it isn't!

“If you don’t earn enough money, you get beat,” said Jasmine, an African-American who has turned her life around with the help of Covenant House, an organization that works with children on the street. “If you say something you’re not supposed to, you get beat. If you stay too long with a customer, you get beat. And if you try to leave the pimp, you get beat.”

The Nuclear Deal

And all that it was to do for the Indo-US partnership are in reality far from the touted ideal. Who could have known!

The United States-India nuclear deal was promoted as a transformative initiative — one that would put the bilateral relationship on a much-higher pedestal. In his valedictory speech, President George W. Bush declared: “We opened a new historic and strategic partnership with India.” By contrast, Prime Minister Manmohan Singh has not made a single statement on the deal — not even to Parliament — ever since the vaunted deal came to fruition, othe r than to admit recently that he got his party to back the deal by threatening to resign.
...
Seven months after the deal’s realisation, there is no sign of its transformative power. Rather, doubts have arisen over the supposed “global strategic partnership” with America. The policy frame in which Washington is viewing India is not the larger Asian geopolitical landscape, but the southern Asian context. But even on regional matters of vital interest to India, the U.S. has sought to ignore New Delhi or pursue antithetical policy approaches. To the chagrin of Indian neocons — who ingenuously marketed the nuclear deal as a U.S. move to build India as a world power and counterweight to China — Washington has declared that its “most important bilateral relationship in the world” is with Beijing.

Link.

The Class Dialectic

Class:

Declasse:

It's Official, The Banks Own the US Government

DURBIN: And the banks -- hard to believe in a time when we're facing a banking crisis that many of the banks created -- are still the most powerful lobby on Capitol Hill. And they frankly own the place.

And that's a serving Senator speaking, no conspiracy theorist. Link.

Update: And the Vice-Chairman of Berkshire Hathaway thinks so too:

May 2 (Bloomberg) -- Berkshire Hathaway Inc. Vice Chairman Charles Munger, whose company is the largest private shareholder in Goldman Sachs Group Inc. and Wells Fargo & Co., said banks will use their “enormous political power” to prevent changes to the industry that would benefit society.

“This is an enormously influential group of people, and 90 percent of that influence is being spent to gain powers and practices that the world would be better off without,” Munger, 85, said yesterday in an interview with Bloomberg Television. “It will be very hard to accomplish the kind of surgery that would be desirable for the wider civilization.”

...

Munger said the financial companies spent $500 million on political contributions and lobbying efforts over the last decade. They have a “vested interest” in protecting the system as it exists because of the high levels of pay they were earning, he said. The five biggest U.S. securities firms, only two of which still exist as independent companies, paid their employees about $39 billion in bonuses in 2007.

Our Media

From The Hindu:

Over the last few months, just as the economy entered its current recessionary phase, the mainstream media, which till then had been uniformly unswerving in their antipathy to NREGA (National Rural Employment Guarantee Act), suddenly began to sing its praises.

Because rural people don't really matter till they are required to bail out the economy!

Talking Movies (Not Really)

It may seem tame considering what has come since, but Henry Levin's 1960 teen romantic comedy Where the Boys Are was fairly revolutionary for its time.

... the movie tells the tale of two college co-eds, Merritt (Dolores Hart) and Melanie (Yvette Mimieux) on spring break in Fort Lauderdale, Florida. Merritt hesitates on taking the penultimate step in the game of what she calls "backseat bingo" in order to win the heart of a special beau; Melanie fairly explicitly affirms (for the time, anyway) that she intends to show no such restraint.

Of course, it ends very badly for Melanie. Lured to a party at aroadside motel where she believes that her new boyfriend will be present along with other desirable young Ivy League "Yalies", she is next seen wandering aimlessly in the middle of a busy highway, hair and clothes disheveled - as the then movie morals code would not allow the word that described her obvious violation to be explicitly uttered, the audience was left to draw the obvious inference as to the terrible price she paid for her licentiousness.

She gets hit by a car; in the hospital, she confesses the worst part of her sin to Merritt. "They weren't even Yalies!" she sobs.

But it is not really about the movie.

Thirty eight years later, in 1998, US Commodity Futures Trading Commission chairwoman Brooksley Born, in seeking to uphold the integrity of the financial system, was similarly accosted. However, in contrast to poor Melanie, the gang that attacked her possessed just about the highest imaginable academic pedigrees. They were the then deputy secretary of the Treasury (and now the chair of President Barack Obama's National Economic Council) Laurence Summers (BA Massachusetts Institute of Technology, Phd Harvard); Federal Reserve Board chairman Alan Greenspan (BA, MA Columbia, Phd New York University); and the leader of the gang, Treasury secretary Robert Rubin (BA Harvard, LLB Yale - yes! he was even a Yalie). After the attack on chairwoman Born, the gang carelessly hopped into their souped-up hot rod and proceeded to further make the preparations for their rich-kid, thrill-kill firebombing of the world financial system we see occurring today.

Lessons From The Crisis

One interesting thing about the global screw-up is that one sees how things work more clearly. One sees what clothes the various emperors are wearing, with the help of people in the know. Like former IMF chief economists.

The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.

Oligarchy

When will the revolution happen here? Or has it already occurred and we don't even know about it?

The reality is that the worldwide economic meltdown and the bailout that followed were together a kind of revolution, a coup d'état. They cemented and formalized a political trend that has been snowballing for decades: the gradual takeover of the government by a small class of connected insiders, who used money to control elections, buy influence and systematically weaken financial regulations.

Link.

Cloning Mr Reddy. a.k.a. The West Knows Best!

From The Business Line:

For adhering to the general view more staunchly than was expected by a mere governor of a central bank, the Reserve Bank of India and its then Governor, Dr Y. V. Reddy, drew enormous flak. Such was the bad blood that was created — largely by hired guns — that even his deputy governor, Dr Rakesh Mohan, was not spared. In the end, the campaign came in the way of his becoming Governor.
He was, it is reliably learnt, seen as being a “Reddy clone”. Ironically, today, every central banker in the world is dying to be labelled a “Reddy clone.”

And these are relevant questions too:

Why is it that if India has an approach to something, Indian economists wait for it to be validated by the West before they accept it? Indeed, why do they attack the Indians who advocate that view before such validation is bestowed by the West? I genuinely believe that the Finance Ministry, which funded the Mistry report, and the Planning Commission, which funded the Raghuram Rajan report, have some serious explaining to do. As indeed do the economists who toed their line and kept up LeT like attacks on the RBI.

Could it be because we have our own share of maroons, blowhards, people with hidden agendas, and people talking their books? Or is it just that we believe the west knows best?

Corruption

From FT:

There was a steady erosion in business ethics and moral standards in commerce and trade. Regulatory capture and corruption, from petty corruption to grand corruption to state capture, became common place. Truth-telling and trust became increasingly scarce commodities in politics and in business life. The choice between telling the truth (the whole truth and nothing but the truth) and telling a deliberate lie or half-truth became a tactical option. Combined with increasing myopia, this meant that even reputational considerations no longer acted as a constraint on deliberate deception and the use of lies as a policy instrument.

Regulatory Capture is defined as:

... situations in which a government regulatory agency created to act in the public interest instead acts in favor of the commercial or special interests that dominate in the industry or sector it is charged with regulating.

State Capture is defined as:

State capture is the phenomenon in which outside interests (often the private sector, mafia networks, etc.) are able to bend state laws, policies and regulations to their (mainly financial) benefit through corrupt transactions with public officers and politicans. The notion of state capture deviates from traditional concepts of corruption, in which a bureaucrat might extort bribes from powerless individuals or companies or politicians themselves steal state assets (see kleptocracy). State capture is recognised as a most destructive and intractable corruption problem, above all in transition economies with incomplete or distorted processes of democratic consolidation and insecure property rights.

We're not talking about transition economics though. We're talking about the US & UK - submerging economies. So it is only to be expected that it would be called something else, rather than just 'corruption'.

'Slumdogs and Negative Lists'

Ramesh Ramanathan from livemint:

As the film Slumdog Millionaire graphically depicts in an early scene, the plight of the urban poor can be sickeningly sad. Unfortunately, policymakers believe that the challenges of poverty are still in rural India, and the market finds urban India’s burgeoning middle class too attractive to pay attention to the urban poor.

I want to focus on a practice in the banking industry—relatively unknown outside the sector—that I believe can cause enormous damage to the lives of the urban poor: negative lists in credit appraisals. A negative list is a list of areas of a city that a bank has identified where residents would not qualify for credit approval, just by virtue of the location.

This is a relatively new development in India. Historically, banks relied on customer relationships and on-the-ground assessments by local staff to make credit decisions. However, a more rule-based approach to the credit approval process, de-emphasizing individual judgement and focusing on credit scores is now being practised, led apparently by some foreign banks and private sector banks (and possibly some public sector banks as well). Such a process can—while delivering many risk management benefits and scale economies—create an insidious form of systemic discrimination against the poor.

The data on negative lists is very hard to come by, given that much of this is proprietary within each bank, and no formal paper trail can really be established. However, the urban microfinance organization that I am involved with has stitched together some sketchy information for Bangalore, and the results are troubling:


*
There are a total of 153 negative list areas, spread across 43 pin codes accounting for about 40% of the total pin codes in the city.
*
These are common to many banks since they use common local agents.
*
A qualitative analysis of the negative list areas indicates high overlap with the low-income and slum areas of the city.
*
Factors that apparently go into the definition of the negative list include crime statistics.

To put it bluntly, negative lists are discriminatory. Consider the implications.

Lack of access to formal credit can have damaging consequences—on a personal level, it can drive people into debt traps from informal sources who can charge interest rates up to 10% a day. On a larger level, though, the consequences are even more destructive. As formal funds get sucked out of these areas, commerce gets bogged down, the entire neighbourhood deteriorates, driving a downward spiral of economic decay where the whole community—residents, traders, labourers— become dependent on an informal ecosystem of financial support to keep them afloat. This is the breeding ground for the mafia and criminal networks.

I’m not trying to sensationalize the problem. The US had a practice similar to our negative lists, called “redlining”, where areas of a city that were poor or dominated by blacks were credit-quarantined. Consider this quote from a book titled When Work Disappears—The World of the New Urban Poor by William Julius Wilson, professor of social policy at Harvard, “Redlining paralysed the housing market, lowered property values and further encouraged landlord abandonment. Abandoned buildings would serve as havens for drug dealing and other illegal activity.”

I don’t believe there is a sinister motive behind negative lists—just a natural evolution of seemingly logical business rules to ensure a systems-based process for low-risk credit growth in banks. This is especially true given that we don’t have reliable information on individuals, and credit history data is just beginning to get systematically compiled and shared. Unfortunately, we don’t always understand the downstream consequences of our actions.

Given the seriousness of the negative list issue, it needs to be stopped. This is not going to happen with corrective action from market forces—it will require policymakers to enact legislation to set the right framework, and then enormous patience, persistence and creativity to ensure compliance.

A bit of comparative history is useful. When the redlining practice in the US became public in the 1960s, there was enormous pressure for several years to get corrective policies. The Fair Housing Act of 1968 and the Community Reinvestment Act of 1977 were seminal pieces of legislation that addressed redlining discrimination.

We need to initiate a similar process here in India. First of all, RBI needs to formally confirm the existence of the practice of negative lists. The onus is then on RBI and the ministry of finance to establish the necessary regulatory checks to protect against this.

Discriminating on the basis of location means not giving people an equal shot at improving their lives. In this sense, these people are doubly damned: first by their birth into a poor household— what Warren Buffett evocatively calls the “ovarian lottery”—and second, by our systematic biases in denying opportunities to them. If India is to be a country where we want to embrace the power of the market, we need to ensure that the rules of the game are fair: that is, everyone gets equal opportunity to fulfil their full economic potential.

Udayan Asks For $10 Bn

He wants the government to spare this amount and buy up what the FIIs are selling. Let's see. The government buys up all those shares in all those private firms. I'm guessing that it then becomes a major shareholder in said firms. So, it can decide what they should do and not do. Like keeping cement prices low.

I say, just do it.

Free Markets 0, Greenspan 0

...in a tense exchange with Representative Henry A. Waxman, the California Democrat who is chairman of the committee, Mr. Greenspan conceded a more serious flaw in his own philosophy that unfettered free markets sit at the root of a superior economy.

“I made a mistake in presuming that the self-interests of organizations, specifically banks and others, were such as that they were best capable of protecting their own shareholders and their equity in the firms,” Mr. Greenspan said.

Referring to his free-market ideology, Mr. Greenspan added: “I have found a flaw. I don’t know how significant or permanent it is. But I have been very distressed by that fact.”

Mr. Waxman pressed the former Fed chair to clarify his words. “In other words, you found that your view of the world, your ideology, was not right, it was not working,” Mr. Waxman said.

“Absolutely, precisely,” Mr. Greenspan replied. “You know, that’s precisely the reason I was shocked, because I have been going for 40 years or more with very considerable evidence that it was working exceptionally well.”

OK, that's that then.

Welcome To The USSRA!

Man is this guy angry! Nouriel Roubini (who's he, eh? Let's just say, The Man Who Saw The Future, or since we are already in it, The Man Who Saw The Present Before Almost Anyone Else. More info here, and here, and indeed here):

For the last twenty years after the collapse of the USSR, the fall of the Iron Curtain and the economic reforms in China and other emerging market economies the world economy has moved away from state ownership of the economy and towards privatization of previously stated owned enterprises. This trend was aggressively supported the United States that preached right and left the benefits of free markets and free private enterprise.

Today instead the US has performed the greatest nationalization in the history of humanity. By nationalizing Fannie and Freddie the US has increased its public assets by almost $6 trillion and has increased its public debt/liabilities by another $6 trillion. The US has also turned itself into the largest government-owned hedge fund in the world: by injecting a likely $200 billion of capital into Fannie and Freddie and taking on almost $6 trillion of liabilities of such GSEs the US has also undertaken the biggest and most levered LBO (“leveraged buy-out”) in human history that has a debt to equity ratio of 30 ($6,000 billion of debt against $200 billion of equity).

So now Comrades Bush, Paulson and Bernanke (as originally nicknamed by Willem Buiter) have now turned the USA into the USSRA (the United Socialist State Republic of America). Socialism is indeed alive and well in America; but this is socialism for the rich, the well connected and Wall Street. A socialism where profits are privatized and losses are socialized with the US tax-payer being charged the bill of $300 billion.

Read it all.