Sucheta Dalal :Mirage of Power Privatisation
Sucheta Dalal

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Mirage of Power Privatisation  

Jun 14, 2004

Experience indicates that the process has only led to soaring tariffs and customer rip-offs

Mirage of Power Privatisation

By Sucheta Dalal

The fallout of the Enron scandal and the California experiment with privatisation in 2000-01, leading to blackouts and brownouts continues in America. Over the last few days, new taped evidence has surfaced from Enron’s West Coast trading desk, which reveals how its executives gleefully created logjams in power distribution to send power tariffs zooming up and raked in outrageous profits from ordinary Americans.

While the Enron tapes, aired by CBS News are certainly damning, other power companies such as Radiant Energy, Duke Energy, Mirant Corporation and Portland General Electric have also admitted to manipulation and entered into settlement deals with the regulator.

So damaging are the revelations that two senators have asked the Federal Energy Regulatory Commission to reconsider the two billion dollar refund and scale it up in line with the new findings. The new findings apparently suggest that Californians ought to recover at least $12 billion from the power companies.

But even as Americans got further evidence last week of the low duplicity of energy traders and their politically powerful companies, there are fresh developments in India’s power sector, where the protests against Enron’s rip-off deal first began.

On the one hand, Enron’s infamous Dabhol Power Company (DPC) remains shut down. And its erstwhile partners remain aggressive about their position. General Electric and Bechtel, who were fully part of Enron’s sweetheart deal, have acquired Enron’s 65 per cent stake in DPC (the shares remain pledged with Indian lending institutions). They have now initiated arbitration proceedings against the Indian government for breach of the Indo-Mauritius agreement.

Sources close to the negotiations say that the technical expertise of the two companies would be required to re-start DPC, especially if some crucial software codes have to be activated. But this alone would not have put them in a bargaining position, especially in light of the California revelations, if the Indian government were to adopt a tough stand. But since various political formations in India have shown great eagerness to strike shady compromises with Enron, the Indian lending institutions are not in a strong enough negotiating position.

Their attempts to acquire the exposure of overseas lenders also remain deadlocked, because the foreigners are holding out for a 30 per cent haircut while the Indian lenders (who already have an exposure of Rs 6,300 crore to the project and have been forced to make substantial provisions for it) want to take over the loans at a 40 per cent discount.

Meanwhile, Mumbai’s power consumers are discovering the horrors of aggressive recovery tactics by private power distribution companies. A week ago, Reliance Energy Limited , (formerly the government owned BSES), had sent goons to recover power bills from the mother of a Mumbai-based activist named Jagdeep Desai, even though there was an on-going dispute being negotiated with the consumer and the company had admitted to its fault. In that case, Reliance Energy apologised to Mr Desai, but many consumers remain outraged at utility companies using strong-arm tactics on middle class consumers, who are normally diligent about paying their bills. REL, however seems unaware about the undercurrent of public opposition to its methods.

Another curious development last week was the Bombay High Court admitting a public interest litigation challenging the revised tariff of Rs 3.38 per unit imposed by (REL). The company charges a lower tariff for consumption below 350 units and Rs 3.38 above 350 units. The petitioner however claims that REL has no business charging the higher tariff of Rs 3.38 for all units, if the consumption exceeds 350 units. On checking with the company, just before the petition was admitted, REL’s chief executive officer had flatly denied that it was guilty of charging higher tariffs and says that it has correctly followed the electricity regulator’s orders. It even offered to explain the billing structure to this writer. But the matter is now in court, and it seems to have been admitted for hearing, even though an independent electricity regulator is in charge of tariff fixation.

The Maharashtra Electricity Regul-atory Commission (MERC), which has been made a party to the dispute by petitioner MR Pillai, was in fact on the verge of announcing a new tariff regime for REL based on its costs. And, energy activists involved with the case are confident that tariff would be revised downwards, just as it was in the case of Tata Power.

The question then is, will Mr Pillai’s petition, after being admitted before the wrong forum, help or hinder his cause? After all, if the Bombay High Court continues to hear the case, the expected tariff reduction may also remain in limbo. The next few hearings will probably provide an answer. What is evident from all the developments listed above is that a decade after Maharashtra embarked on the privatisation of power and began to negotiate the ill-fated Enron project, its power sector remains mired in confusion and distrust. Meanwhile the state continues to suffer large transmission and distribution losses as well as severe power shortages.

The confusion that reigns in Maharashtra is just a microcosm of what is happening in other Indian states such as Andhra Pradesh, Gujarat, Delhi and Orissa, which also experimented with the American model of power privatisation and rushed to create new power capacities instead of improving existing ones. Here too, money has been paid out to independent producers and their consultants, with no concrete benefit to the people.

The Indian experience, in turn, is similar to the disruption that occurred in several South-East Asian countries such as Thailand, Indonesia, Malaysia, Vietnam, South Korea who faced the aggressive marketing assault of the energy multinationals with the support of multilateral lending agencies.

Activists who have been debating the global experience of power sector privatisation are increasingly of the view that instead of leading to more efficiency and cheaper power, it has only led to soaring tariffs and politically motivated customer rip-offs.

However, regulators and policymakers are still reluctant to give up the mirage of privatisation and working on improving existing, government owned distribution networks and power generation utilities.

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-- Sucheta Dalal