Power privatisation a replicable bet?

20 June 2007

Orissa was the first to privatise power distribution, but it was an unhappy experience. Delhi made amends but is the model replicable? Here is the second report in a series, on the occasion of five years of power privatisation in Delhi.

When the monopoly of the state utility was dismantled in July 2002, Delhi not only corporatised the component entities, but also privatised the distribution companies. Unlike most states, the utility was not just unbundled, but restructured.

Private companies have invested Rs5,300 crore in upgrading the network, and cut "transmission and distribution losses" - a euphemism for theft - by 22 per cent, exceeding the target.

Adi Engineer, chairman, NDPL, said, "It is eminently replicable. Before Delhi we had the Orissa model, which had quite a few shortcomings."

>Delhi improved upon the unhappy mistakes of Orissa, which was the first to privatise distribution. Unlike Orissa, it settled for a minority 49-per cent stake in the distribution companies and provided a bridge loan of nearly Rs3,500 crore to keep tariffs down in the initial years.

>Unlike Orissa, which has not allowed a tariff hike for six years, in Delhi, they have risen by 23 per cent in these five years. Police support has come late, but the Central Industrial Security Force can now be hired to check theft and special courts have been set up.

>Rakesh Mehta, principal power secretary, Delhi, said, "It is replicable in all one million plus cities. This is an urban model. Not for rural scenario."

>The suggestion that Delhi could be a model for 31 cities with a million plus population, has sceptics in the government itself. Principal energy adviser Surya Sethi, , Planning Commission, who was earlier with the World Bank, says the improvement in Delhi''s power situation cannot be quantified because there is no base line data, the consumer mix was not frozen at the time of privatisation and distributors get assured 16 per cent return on investment, which is not efficient.

Ssys Sethi, "It is not replicable. It is a heavy cost. Not many states have that money."

>Sethi has a point, the bridge loan was to prevent an immediate spike in tariffs and make privatisation acceptable. This was to be repaid subsequently, when reduced theft improved revenues. There is no talk of repayment now. The bridge loan is being considered a subsidy.