Reliance and Tata Looted Delhites of 8,000 Crores: Prabir Purkayastha

Newsclick interviewed Prabir Purkayastha, member of the Delhi Science Forum about the CAG draft report to the Delhi government on the Delhi electricity companies. Prabir said the concerned companies Reliance and TATA played fraud and cheated the consumers of Delhi. The companies made huge profits by looting the public money. Therefore it is not just reparation that must be demand of the culprits but they should also be punished. He said the regulatory system itself is not feasible for electricity and water: these are basic resources and so these cannot be considered to be a part of the market system. This is what the experience has shown all over the world. Prabir advocates the privatisation policies followed by the UPA and NDA governments to be stopped to rectify this.                                                

Rough Transcript:

Rishab Bailey - Hello and welcome to Newsclick. In what surely we seen is a vindication for the Aam Aadmi Party government in Delhi, the CAG draft report released this week has stated that the Delhi electricity companies have defrauded the consumers to the extent of around 8000 crores. To discuss this issue, we join by Prabir Purkayastha, member of the Delhi Science Forum and Editor of the Newsclick. Now, how was this huge fraud committed on the people of Delhi? The AAP during the election campaign had alleged tampering with meters, inflated bills, costly purchase agreements of electricity and so on. On what ground this CAG actually held that fraud has been committed?

Prabir Purkayastha- Well, we really don't have access yet to the draft report. It is not been made public, what we have got is press reports. But there is a history to this from the earlier report that came out, the draft tariff order with Bijendra Singh, who was a former DRC chairman and want to place in 2010 and that was stopped by the other members of DRC and then this is held up till he was replaced by the Sheila Dixit govt. His term had expired at that time. So the basis of this has been in public demand for quite some time and there the following. One is that you buy expensive power from your group company. So Reliance and Tata, the two owners of the distribution companies in Delhi, also have the power generating companies. They also own power trading companies. So they buy expensive power from these companies to sweet heart deals and then it also transpires that Delhi has surplus power, because it also has what is called long term power purchasing agreements so during summer for instance, it did power cuts and sold because the market prices high at that time, sold power much expensive than they bought from others. So you are able to do these kind of deals, you are able to make quote and unquote super profit, which you don't show in your books because your profits go to other companies. So that is one part of what they have been charged with. The second part of it is of course the infrastructure costs and infrastructure costs meaning, the equipment they buy again from the sister companies. For instance, what they bought Chinese meters with fairly high price and apparently the sister company made a profit of 350 crores on the transactions. So there are various ways of it, as a middle man as it work. So what you are doing is passing it on to the Delhi consumers. The profits that your other group companies are making and this is really core part of the accounting, that what you can call the creative accounting of your will. Really malpractice, Trans, whatever you want to name it. So this is one part of the fiddle that is the major part. I must also point out the 80% cost of power which Delhi consumer bills comes from essentially the power purchase. So that is the central part of whats happening in these transactions.

RB - How do you expect the scenario AAP play out politically? The AAP will be clearly, quietly is that their apprehensions are proved correct but will they have the political capability and acumen to actually make something of this situation in terms of changing the way the electricity is currently distributed in Delhi?

PP - Simply put, the AAP has the legal authority to cancel these agreements because these agreement is only with the Delhi govt. So because they are now the Delhi government, they have the rights to cancel this agreement. Of course, we have the ongoing quarrel between the Lt. Governor and the AAP govt. right now, who is the Delhi govt. Technically, of course, it is the President or the Governor who are at the governance but as we know, it is the elected representatives, the Chief Minister, the Cabinet which takes the decision. Which they are supposed to then rubber stamp. That’s the way government should be working but at the moment there is been these ongoing conflicts so we don't know how that will play out?  But otherwise they should have the legal authority to cancel the contract.

RB - Electricity is state subject so in that sense, it should be squarely within the state.

PP - It is concurrent subject. Bu the Delhi Vidyut Board was an arm of Delhi govt. Even today, 49% of the shares of these distribution companies are owned by the Delhi govt. And plus they have given the right to have 51% shares through some agreement. So failure of the agreements, corruptions, any of this could be used but you know taking over the public utility, is a very simple task. That the Legal authority should be there with the government because it is essential services. So they should have the legal authority to take it over. They could argue on different ground that they are taking over the management of these companies, which means they don't even have to quote-unquote nationalize them. So they could take over the management and take that fully within their rights.

RB - Is that something you would advocate?

PP - I would advocate that is the only way right now because trying to sit-in place an alternative set of companies to take their assets over is a long term process. And if these companies are going to be running that set-up for the time being, then I don't see how that can really pan out.

RB - So what redress can the citizens of Delhi will hope for if any at all? I mean, will this become an entirely political fight or will they actually be any real effects to the consumers?

PP - Bijendra Singh, the former DRC Chairman in 2010 had said that the tariff should cut by 23%. He is now the one member committee which AAP government has set-up to examine what can be done. And he has again said that the tariff should be cut by drastic amount. I would expect this 8000 crores fraud of the people of the Delhi are established then the next DRC will find very difficult to stick with the current tariffs and not lower them. So yes, I think the consequence of this should be, lowering of the tariffs but it will dependent on how the Aam Aadmi government handles the three distribution companies.  

RB - Is there any hope of recovering this huge amount of money or in fact even putting in place? I mean charging any of these companies or the directors so on with criminal offenses or fraud, so on and so far?

PP - I think the time has come for us not only look at the Redressal in terms of lowering the tariffs but also criminal violations that have taken place because this has been done in connivance with the Delhi government officials, it has been done with connivance with the DRC members, honest members were shunted out of this places. So there has been connivance of the government's' part in these matters. The second part of it is obviously the perpetrators of the fraud are the two distribution companies' owners cum officials.

RB - Now, you briefly alluded to the role that the independent regulators had in this entire fiasco. So could you explain that a little further, what role did this state government actually have along with the independent regulator in this entire matter? I mean shouldn't be, for instance monitoring the agreements that was signed by the sister companies and so on?

PP - Well, the regulator has the power to set tariffs and if they have rights to set tariffs then they have the rights to examine the accounts. One part of the examining the accounts is, what should be the practice followed. Should we have open tendering or shouldn't we have open tendering. If you have purchases done through sister companies, what is the legal status of it? At the legal, that be a practice at all. The second part of course is that, when you are buying expensive power, and again the reports, the facts are that the average power exchange price was 50% lower than the price they have bought the power. So these are obvious issues which have taken up time and again by various bodies, including the former chairman of DRC, so these are publicly known fact. The fact that regulator did nothing about it, would seem to show that they acted as virtually a rubber stamp of the distribution companies and OK whatever they did. I think this is something which shows that the regulator in bad light. But that is private failing of regulator as it where and whom you place over there, what is the complexity they have with the companies. I think the bigger issue is the regulatory system itself in India, which has function in the way that it assumes that the consumers and the companies are on par. And both come and make their representations and the regulator that quasi-judicial body then adjudicate between the two. Talking about two stake holders, assumption is that both stake holders are of equal capability. The reality is that the regulator is to protect the consumers. The regulator is not to adjudicate between two contenting parties because on one side, you have companies of thousands of crores; has the ability to hire all kinds of people, cook up the books, make their presentation. Other side, you have ordinary consumers who don't have where with all resources or the capability to really fight these things.

RB - But this brings you to sort of large question of how should electricity companies or in general, public utility be regulated and held accountable to the public? I mean is this extend regulation insufficient to ensure that there are transparency and accountability?

PP - I think there are two sets of issues here. One is that certain things you can consider, can be regulated even though they are public utilities. For instance, telecom is a public utility. There is competition between telecom companies. It is possible to consider that the landlines and cellular operators are also in competition. So you can even think that there is even market for this. But there are other areas where the markets really do not operate, the utilities are actually monopolies. It could be case of water, it could be the case of electricity, it could be in the case of railways. So there, when you try to create a so called market, which is what the privatisation policy of the government, which is really 2003 electricity act puts in place that you can create a market for electricity and ordinary consumers can buy the electricity as they buy soap. This is in fact one of the architect act said in one of the meeting where I have attended. Now the point is, the electricity is not like soap because electricity cannot be stored. If you cannot store then it is not possible for you to actually go and treat it as if market, because you would need electricity, you need it instantaneously. You cannot store in advance or forgo some days like you can forgo buying of soap for some days. So this is the problem. The electricity at every instant has to balance and I think these are utilities which are not possible to consider as markets and the whole electricity reforms which assumes that market can be created, therefore private players can be inducted, if the private players are inducted, competition, open access, using the wires for anybody supplying electricity to anybody in a market like scenario will work isn't really working because unfortunately electricity obeys the laws of physics, not the laws of market. The last point is the regulator is therefore the tasks, the task of creating the pseudo market, which does not exist in practice. And what you are finding time and again across countries that, this so called electricity market, the regulator is trying to create is not working. It is not working because regulatory capture, the nature of the market, the gaming of the electricity companies which were happened, for instance what happened in California which lead to a huge crisis in 2000-01. So the whole scenario is this privatisation position, the privatisation policies that both the BJP, the NDA and UPA government followed for last fifteen years have really come to an end; should come to an end. And don't forget, Orissa distribution company privatisation has failed earlier.

RB - So I think that is the good note for leave it on. Thanks for joining us today and thank you for watching Newsclick.

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