Delhi power distribution: Regulatory hurdles may deter new entrants

Siddhartha P Saikia New Delhi | Updated on November 23, 2017

Cancellation of licences is not easy, say industry experts

The Aam Adami Party’s move to replace Anil Ambani-owned BSES with other companies to run the electricity distribution utilities (discoms) may fall flat, as any new player foraying into Delhi’s electricity distribution scene would need to pour in equity. In the current environment, banks or financial institutions may not be keen to fund such projects amid uncertainty.

“There could be cautious interest from companies to take over the BSES discoms considering the size of problems. There may be interest, but only after the challenges are understood and entities interested in taking over feel they can address these challenges and that it’s a sound business proposition (they would come forward),” said Salil Garg, Director (Corporates) at India Ratings & Research.

P Uma Shankar, former Power Secretary, said suspension or cancellation of licence may be a long process, but that doesn’t mean that it cannot be done.

“First, the concerned authority would have to issue a show-cause notice. The stakeholder will have to be given proper hearing before any decision is taken,” he told Business Line.

The dispute between BSES and the Arvind Kejriwal-led Government has escalated after the State ordered an audit of the discoms by the Comptroller and Auditor General of India (CAG). The question being asked is if there is high reduction in transmission losses, then is the customer getting the full benefit of such efficiencies in tariff?

Moreover, there are ₹15,000-18,000 crore regulatory assets on discoms’ books. This means the expenses incurred by the discoms have been approved by the regulator, but did not allow them to recover it from customers leading to under-recovery.

May be a special audit by the CAG or any other independent authority can throw light on these issues. “Usually, any private company would not welcome an audit by the CAG as it could be seen as Government interference in the operations,” said Garg of India Ratings.

The discoms buy electricity at an average of ₹5.38 a unit, and the average cost of retail sale is around ₹6.55 a unit. But the actual tariff required is around ₹7.4 a unit. The tariff is decided by the Delhi Electricity Regulatory Commission. Inadequate tariff led to un-recovered cost touching nearly ₹19,505 crore for three private discoms – BYPL, BRPL and TPDDL.

In India, there is limited participation of private companies in the electricity distribution sector. But not all of them are reeling under financial crisis like BSES. For example, Sanjiv Goenka Group-promoted CESC supplies electricity in Kolkata. Torrent Power handles distribution in Ahmedabad, Gandhinagar, Surat, Bhiwandi, and Agra. And, GTL is offering the distribution of Power in Aurangabad.

The reason for financial viability of CESC, Torrent and Tata Power is because they buy electricity from old power stations run by the same group, which sells power at a lower rate. “The power plants are decade old and they have already recovered the fixed cost. So, the discoms pay only the variable price,” said a senior industry official.

Published on February 07, 2014

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