The day may have been saved by activist citizens and a chief Minister intelligent enough to understand just what the writing on the wall says-that she may still lose her job is another issue-but the recent fracas over a proposed hike in power tariffs in Delhi has more to do with how governments in the country view reforms in the power sector than anything else. It's easy enough to list the objectives of such reforms: lower cost and better service to the end-user, who should, ideally, also be able to choose a power company.

The difficulty in translating this wish-list into anything that vaguely resembles an action plan lies in the fact that power is what is called a concurrent subject in India, something that falls under the control of both the Central government and the state government. Most states provide free power to farmers. Power theft is also rampant in India, with average transmission and distribution (T&D) losses of 45-48 per cent. That makes the job of distribution companies such as bses Rajdhani Power Limited (BRPL), BSES Yamuna Power Limited (BYPL) and New Delhi Power Limited (NDPL), the three private sector distribution companies in Delhi, very difficult. Over the past three years, details provided by these three companies show that only four of the 30,000 complaints they have registered over the theft of power have resulted in convictions. In West Bengal, in the same period, some 1,300 people have been convicted for the offence. And although some states have respected the Electricity Act 2003, which stipulates that states must have a framework in place by 2008 for an open access policy (whereby industrial consumers who have an installed capacity of over 1 mw can choose the vendor from which they want to buy power), they have done so with several spoilers of the fine print variety.

Unwilling to tackle the politically contentious issues of user-charges and t&d losses, but pragmatic enough to realise the need for private sector participation in both power generation and distribution, governments have sought to balance the equation by resorting to that old tool of governments, subsidies. The desire to simultaneously balance its own books and meet some internal target for reducing subsidies seems to have driven the Delhi Government to increase power tariffs; in ideal circumstances, the local electricity regulator, Delhi Electricity Regulatory Commission, should have nipped such a move in the bud, but like all electricity regulators, DERC has always worked with the government's interests in mind.

As this magazine goes to press, the five-year-old privatisation of what was then the Delhi Vidyut Board has been exhumed. A Comptroller and Auditor General (CAG) report has been conveniently unearthed showing that in its hurry to privatise the distribution company, the state government may have overlooked several financial considerations. The three private distribution companies are trying to distance themselves from the proposed tariff hike that went all wrong ("We never asked for it" is the chorus).

Activists are questioning why the Delhi Government has promised the three companies a return on equity of 16 per cent when the terms of the legislation it cites in its defence of doing so clearly states that this should be the "RBI rate plus 5 per cent" (that would make it 11.5 per cent).

Still, given that the distribution companies buy power from Transco, the transmission company, at a rate that varies between Rs 1.97 and Rs 2.21 a unit and charge consumers an average of Rs 4.20 a unit, something, somewhere, still doesn't quite add up.

INSTAN TIP
The fortnight's burning question.

Q. Is there a real estate bubble?

Yes, but... Deepak Parekh, Chairman, HDFC

There is a bubble in Mumbai, Gurgaon and Bangalore.

In cities like Chennai, Hyderabad and Kolkata, the price rise is reasonable. If such price escalations continue, something has to give in-either the prices, or the buyers.

Maybe, but it's justifiable. Pranay Vakil, Chairman, Knight Frank India

Economic buoyancy has lent optimism to the real estate boom. This boom can be termed a "justifiable bubble". Real estate rates will continue to rise on the back of new projects, better construction, amenities and locations

No. Sushil Ansal, Chairman, Ansal Properties & Infrastructure

According to the Planning Commission, there is a shortage of over 22 million dwelling units in urban areas. The boom will last till the gap between supply and demand is met.

--compiled by Swati Prasad

Delisters' Party II
The multinationals are at it again.

Last fortnight, even as the benchmark sensex hurtled towards the 8,000 mark, a bunch of stocks surged northwards at a much faster pace than the index. Shares of some multinational corporations (MNCs) shot up by 15-26 per cent in just six trading sessions till September 2 (the Sensex climbed by 3.12 per cent). The run up had little to do with some display, by these companies, of their oft-articulated belief that India is the next big thing. It came in the wake of an announcement by the Securities Exchange Board of India (SEBI) that all listed companies will be required to maintain at least a 25 per cent shareholding with the public.

Now, there's a fair number of MNC stocks on the Indian markets in which the overseas parents hold over 75 per cent equity (see table). The expectation in the market is that, rather than dilute their holdings, most foreign parents would prefer to delist altogether from the Indian markets (by buying back from small shareholders), a trend that's anyway caught on in recent years. As Amit Rathi, Director, Anand Rathi Securities, puts it, "The buying spree in MNC stocks is purely on the expectation of them getting delisted." "The SEBI announcement just added fuel to the ongoing rally," says Hemang Raja, Managing Director & CEO, IL&Fs Investsmart.

If punters have been betting big time on MNC stocks, it's because they sense a win-win: In any delisting, it's the small shareholder who dictates the price; and if the MNCs choose to follow SEBI's diktat and dilute their holdings, liquidity will increase and valuations improve. The MNCs will clearly need more time to react to SEBI's order, but the delisters' bandwagon will doubtless gather steam. Clearly, the delisters' party isn't over yet.

-Mahesh Nayak

Party Versus CM
The simmering ideological debate in the CPI(M) is far from over.

Two shades of red: Buddhadeb Bhattacharjee (L) and Prakash Karat

Prakash Karat is the unbending commissar, the high priest of a dogmatic and anachronistic faith, who is determined to maintain the ideological purity of his doctrine. Buddhadeb Bhattacharjee, on the other hand, is a popular mass leader grappling with the very real problem of re-industrialising his struggling state. The former lives in a world of precepts; the latter has to deliver in practice what he promises from the podium.

Their worldviews had to diverge at some point. But both are senior leaders of a party that prides itself on its discipline. No wonder the Communist Party of India (Marxist) is at pains to deny any ideological rift at the top.

Bhattacharjee suddenly finds himself the new poster boy of economic reforms. His no-holds barred wooing of foreign capital on his recent visit to Singapore and Indonesia, his views on 100 per cent foreign direct investment (FDI) in ports and airports (he later clarified that he meant 100 per cent privatisation and 49 per cent FDI) and most crucially, his statement that Marxism needs to be re-examined in the light of current political developments, all point to a man in tune with the mood of the country.

Industry leaders, who accompanied Bhattacharjee on the trip, are still gushing. "The Chief Minister had done his homework. At every forum-a dinner hosted by (global audit giant) PricewaterhouseCoopers at Raffles Hotel's East India Room in Singapore, at his meeting with Singapore Prime Minister Lee Hsien Loong and in his interaction with Salim Group Chief Executive Officer Anthony Salim-he was extraordinarily candid on the need for FDI in housing projects, special economic zones, logistics, ports and airports," says Roopen Roy, Managing Director of PWC India, who was part of the delegation accompanying Bhattacharjee.

Karat, on the other hand, comes across as a man caught in a time warp, who will brook no deviations (revisionism, in Marxistspeak) from the script laid out in his Holy Book. His main "contribution" to the country's economy, as the chief prop of the United Progressive Front government, has been to stifle every reformist move made by the Central government.

To the credit of the party, it brushed aside the reservations of hardliners and endorsed Bhattacharjee's reformist agenda at its three-day Central Committee meeting in New Delhi from September 2-4. Bhattacharjee downplays the differences. "The CPI(M) is trying to reach a consensus on these new issues (a euphemism for junking communist dogma)."

There's clearly a growing chasm between the party's hardliners and its liberals. It'll be interesting to watch who has the last word on this.

-Ritwik Mukherjee

TESTER'S CHOICE
American edu-testing companies eye Indian acquisitions.

A Princeton Review institute: Eyeing CAT now

A market worth Rs 10,000 crore is lure enough for companies such as Princeton Review and Kaplan that prepare students for examinations such as GRE, GMAT and TOEFL to consider diversifying into very Indian examinations such as cat (the common admission test required for admission into the Indian Institutes of Management). Indian test-prep companies will have to be ready to ward off or welcome acquisition-minded callers, says Satya Narayanan R., Chairman, Career Launcher (For the record, his response would be, "Not interested."). The smaller companies, however, will continue to do brisk business, says Aradhana Khaitan Mahana, Managing Partner, Manya Group, which runs Princeton Review institutes in several parts of India. "There will always be price conscious customers who will go to the neighbour for lessons."

-Supriya Shrinate