The draft Stanard Bidding Document (SBD) clearly mentions that the intention of the government is for encouraging and supporting the acceleration of private sector participation in power distribution. The mere transfer of ownership would not be sufficient to realise efficiency gains from the effort.This would imply a transition from ‘public monopoly’ to ‘private monopoly’.
Power distribution networks have strategic importance and electricity is a concurrent subject the central government needs to be first discussed with states on the feasibility of privatizing Distribution. This assertion to support privatization is fundamentally against the federal structure.
In April 2020 Ministry of Power issued the draft electricity Amendment bill 2020 for amending Electricity Act 2003, with several clauses that were pro-privatization. While Amendment Bill -2020 was still in the pipeline, Ministry has issued the draft guidelines in September for SBD privatisation of distribution licensees.
There are huge diversity and variation in the requirement and structure of electricity distribution systems across the country. This variation encompasses differences in agriculture, industry, population profile, terrain, consumption patterns, etc. The States in its constitutional right can adopt the electrical distribution system best suited to that State. It is mentioned in draft SBD that the net assets of Discom will be transferred to the private sector at a value agreed by the state electricity regulatory commission.
Land/ building will be given to the private sector on rental at nominal charges. Rental for the land at a nominal rate implies an invisible subsidy to the private company. This means an incremental hidden profit to the private player who will enjoy the benefits throughout the lease period.
In the case of Orissa privatization in the mid-90s, there was the most spectacular failure of privatization where one American company simply abandoned and fled the state without paying the dues to the state. The most important lesson is that when consultants are made the kings the result is a disaster. The Orissa consultants took crores of rupee as their fee and disappeared without any responsibility or accountability. The central government is now following the same consultancy gameplan in privatizing the Discoms across the country.
There is no clear evidence of previous instances of privatizing distribution having active success. On the opposite, privatization caused further loss to Discom. In Delhi privatization resulted in repeated tariff hikes and huge defaults in energy bill payments by private Discom to state Genco and has reported as ₨. 19000 crore. This inputs that private Discom drew power from states Genco and did not pay for it, while that power was sold to consumers at high tariff and Discom pockets the revenue.
There is a need to review the performance of existing private utilities and past privatisation efforts to understand if the change of ownership alone would improve the power sector. The experience in Delhi and Odisha are vital for any privatisation proposal.
The central government has already issued executive instructions to all the UTs across the country to go ahead with privatization irrespective of ground conditions.
While the employees are guaranteed the same service benefits as on the date of transfer to the private company, the prospective statutory scenario remains somewhat uncertain in view of the adoption of extensive revisions in the labour laws as being presently proposed by the Centre. it is the States that will ultimately have to bear the brunt of the labour problems as and when they arise.
In Delhi, DESU employees who retired after privatization are still fighting for their pensionary benefits. By transferring high earning Discom or industrial cities to private players with 100% equity share, the financial health of Discoms and its employees is going to nosedive and the victims will be rural and BPL consumers.
Section 63 of the electricity Act 2003 does not extend to the evaluation of the distribution utility or its bidding/determination. Most discoms do not have/have not maintained a fixed asset register. The government has adopted a methodology to sell the Discoms which is clearly beyond the scope of Section 63 of the Electricity Act 2003 and thereby it is outside the scope of Electricity Act 2003 itself. These documents cannot be made the basis of any contract.
Draft SBD is proposed only to allow undue profits to private companies, and to sell out costly national assets to private parties at throwaway prices.
The subject of privatization is of fundamental importance. To deal with such a vast and important subject we have to examine past instances and how various authorities have been dealing and commenting thereon.
V K Gupta
Spokesperson AIPEF
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