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Power privatisation lacked transparency, says CAG

By Lalit K. Jha

NEW DELHI, JUNE 19. The Delhi Government has sought to defend its decision to unbundle the erstwhile Delhi Vidyut Board and go in for "privatisation" of power distribution system in the Capital in its reply to the Comptroller and Auditor-General (CAG) of India on "certain queries" raised by it way back in September 2003.

In fact, the privatisation of power distribution in the Capital was discussed by the Audit Review Committee of Public Enterprises on September 26, 2003 and the then Principal Secretary (Power), Jagdish Sagar, who was also holding the charge of Chairman and Managing Director of Delhi Transco and its Director (Finance), Bindu Agnihotri, is believed to have attended the meeting.

The CAG is now believed to have incorporated their views into its report submitted to the Lieutenant-Governor on May 14 according to which the Delhi Government refuted the allegation on any lack of transparency in the entire process particularly in the appointment of consultants. It has also examined the process of unbundling of DVB, the modalities of transfer of assets, reduction of transmission and distribution losses, the reasonableness of incentives provided and the impact of various assumptions on tariffs.

Responding to the queries raised by CAG, the Delhi Government in December 2003 is believed to have argued that there was no rule requiring prior definition of the requirements and scope of work and that they had "sufficient justification" for their decision to appoint SBI CAPs as their consultant. Some two months earlier in October 2003, the Government is understood to have informed CAG that there was never any intention to invite competitive offers and that SBI CAPs had been proactively contacted in view of their experience in Kanpur and their adoption of the Business Valuation Method for valuation of assets. Giving the reasons for rejecting the other bids, the Government is believed to have said while ICICI "did not had a good track record", the ASCI offer "did not include" assistance through the entire process as offered by SBI CAPs and that their scope was limited to a one-time document.

However, the CAG is believed to have disagreed with the Government's reply and said the requirement and scope of the work should have been first defined to the extent possible and then all the three eligible bidders should have been asked to submit detailed offers with reference to the defined requirements / scope of work. "This would have provided a credible cost benefit assurance besides ensuring transparency of the entire process," it said. Countering the Government's argument, it is reported to have said that the gross difference in amounts paid to SBI CAPs and subsequently to ADCI was not justified given the work actually involved.

Responding to the allegations that the approval of the competent authorities were taken for effecting crucial modifications in the transfer schemes, the Delhi Government in October 2003 is believed to have argued that such matters did not require the approval of Delhi Lieutenant-Governor as had been advised by the Law Department in another matter. Referring to Section 2(d) of the Delhi Electricity Reforms Act, which stipulates that the Government means the Lieutenant-Governor, the CAG is understood to have concluded that any substantial change in the transfer scheme should have been effected after the approval of Delhi Lieutenant-Governor and is believed to have asked the Delhi Government to get "post-facto" approval from the Lieutenant-Governor of the modifications made.

The CAG is also believed to have commented on the impact the modification would have. For instance the enhancement of moratorium period from three to five years would result in depriving the Holding Company of interest amounting to Rs. 339.84 crores which would have accrued after the third year. Moreover, it enables utilisation of the loan amount of Rs. 1,416 crore for two additional years without interest.

Making its observation on the crucial changes in the loss reduction targets of the discoms, the CAG is believed to have said this would `deprive' the Delhi Transco of an accrual of Rs. 3,929 crores. On the inclusion of a mechanism to ensure that the discoms received timely payment from the Delhi Jal Board, the CAG is understood to have said that the dues were a secured debt and such a debt should be excluded from the outstanding amount for calculation of collection efficiency. However, the Delhi Government is believed to have defended its decision on loss reduction targets and argued this only meant enhancement of the level of Government assistance from Rs. 2,600 crore to Rs. 3,450 crore reiterating that the choice was between raising the assistance to this level and not privatising. The CAG is learnt to have observed that this increase in financial assistance not only put an additional burden of Rs. 850 crores but also led to an increase in the average tariff by 20 to 30 per cent.

But the CAG seems to have not given enough weightage to these arguments and concluded that the entire process lacked transparency and there has been a `significant dilution' in the various targets fixed for private companies. Moreover, it concluded that the provision of transfer schemes were first modified and then not adhered to resulting in an additional financial burden on the exchequer of the Delhi Government and necessitating an increase in tariff hike more than being contemplated.

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