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Marred by staggering T&D losses, the Delhi Vidyut Board puts up its distribution assets for sale... Any takers? By Ranju Sarkar
The fact that Delhi is the largest growing power market has ensured that the sell off would be a hot deal. Despite the Enron fiasco, seven companies including two transnationals have shown interest. These include Reliance Power, Tata Power, AV. Birla Group, China Light & Power, AES India, BSES, and CESC. All these companies have submitted their statement of qualification (SOQ), an application to be pre-qualified for bidding. Each of them is either an existing big player in the power business or nurses the ambition to be one in the country. On offer is 51per cent stake and management control in three distribution companies---North and North West Delhi, South and West Delhi, and Central and East Delhi---carved out of six distribution circles of DVB. This follows the Delhi Government's decision to unbundle the DVB into one transmission company, one generation company, three distribution companies, and a holding company to which it will transfer all unserviceable liabilities. What attracts these players? Almost 25 lakh ever-increasing consumer base, a high rate of growth in load and consumption, and negligible agricultural load (which is otherwise a problem in most states). Says Surinder Singh, CEO, AES India: ''We are interested, provided the business opportunity is good. It is people like you and me who consume electricity that provide the opportunity.'' But as a city for just distribution, Delhi is not that fair. There are about 1,400 unauthorised colonies, and over 1,200 slums accounting for one-third of the population stealing electricity. Fortunately, many of the bidding players look upon these areas as potential growth areas. Says Jagdish Sagar, Chairman, DVB: ''Delhi offers a lot of potential. In the long run, it is the best place to be in. You will have to cover the unauthorised areas.'' Until 1989, DVB was not allowed to electrify these colonies. No wonder, the T&D losses in some areas are as high as 70 per cent or at some 11KV feeders, it is up to 80-90 per cent. But it's the high T&D losses, which offers investors a huge opportunity. BSES's T&D losses (an industry benchmark in India) are 11-12 per cent; Delhi's is around 48 per cent. Things won't be facile even if a huge scope for reduction of losses exists. Reason: the power distribution system is obsolete, which results in frequent breakdowns. Reducing technical losses itself would require a fair amount of investment, which will ensure that none of the players make any money in the first 3-4 years. The potential acquirers feel that the T&D losses could either be an uncertainty or an opportunity. Uncertainty, because your cashflows are 50 per cent. Opportunity, if the government is willing to support them when they go to disconnect a consumer who's stealing electricity. But more than the T&D losses, acquirers are concerned about the regulatory risk. V. P. Sharma, CEO, Mangalore Power Company (China Light & Power's fully-owned subsidiary in India), remarks: ''It's the regulatory risk, which is the cause of distress. You don't know how the regulator is going to set the tariff. Your return is tied to the regulated tariff.'' To address this issue, DVB had suggested a five-year tariff setting principle so that the bidders know how the tariffs will move. Although the Delhi Electricity Regulatory Commission has taken a sympathetic view on the same, it has not accepted the proposal as yet. That gives bidders a reason to smile. Similarly, the DVB had sought a 35-per cent increase in tariff (not revised since 1997), but was allowed only an average 15 per cent-hike. As it is, the distribution business is less attractive than the power generation. While both get a 16 per cent assured return, as per the sixth schedule of the Electricity (Supply) Act, 1948, the gencos get this return plus incentives. Besides, investments in gencos are covered against foreign exchange fluctuations. In fact, when Orissa unbundled and offered its distribution circles, there were few takers. These are still early days, but BSES, AES, and China Light are reportedly very keen on bagging the deal. Not all the interested parties would eventually bid; a couple of players are likely to drop out. Once the consultant, SBI Capital Markets, prepares the balance sheets for these three companies, the interested parties would take a view on the memorandum of information, and the quality of information. Albeit prospective bidders being
apprehensive on the regulatory risk and the challenge posed by high
T&D losses, they see a huge opening in Delhi. Provided the state and
the people who matter----many of whom are the beneficiaries of the
system----cooperate to enforce payment. Only then, can they convert the
opportunity into a power business proposition. |
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