July 2, 2002
Where have all DVB’s assets gone… you could well sing about the Delhi Vidyut Board (DVB), as the Bombay Suburban Electricity Supply and Tata Power took over its three distribution companies on Monday. Over Rs 1 crore worth of assets seem to have disappeared between one set of accounts and the other. That DVB accounts have not been audited for a decade is another matter.
To protect public funds the Constitution has created an elaborate structure. It requires the Comptroller and Auditor General of India(CAG) to audit the annual accounts of public entities such as DVB. The audited accounts with the CAG report are to be placed before the Legislative Assembly for ensuring accountability of the elected government. And, of course, there is the judiciary as the custodian of rule of law. In addition, a Regulatory Commission has been set up under the Delhi Electricity Reforms Act, 2001 (DER Act). Then there is the CVC and Lokayukta to act as watchdogs.
Yet, if public assets disappear, a citizen could well say in frustration that there is a failure of the constitutional machinery. In Delhi, about 55 per cent of the power bought by DVB is lost in the so-called ‘T&D losses’. Not more than an estimated 15 per cent are technical losses; and the rest is plain theft, some of it in collusion with DVB employees. So if 40 per cent of the power supplied gets stolen, you are virtually living in a lawless jungle. This failure should normally have spurred some response from the government. But what you see is an attempt to escape lawlessness through the privatisation route.
Even if privatisation was happening for the wrong reasons, it could have been supported in larger public interest. But here much seems wrong; and an example is the case of vanishing assets aimed at reducing the price to be paid by private bidders for acquiring the power distribution companies. The Commission had, after a public hearing, determined the gross fixed assets of DVB at Rs 3841 crore in its order of May 23, 2001. In addition, capitalised works were valued at Rs 484 crore while works in progress were valued at Rs 1,078 crore. This added up to Rs 5,303 crore as the closing balance on March 31, 2002. Assuming that a modest Rs 100 crore would have been incurred as capital expenditure in the three months that followed, the total gross fixed assets would be Rs 5,403 crore as on July 1 — when DVB was restructured and split into five companies.
As against DVB’s capital assets of Rs. 5403 crore, the gross fixed assets included in the Transfer Scheme notified by the Delhi Government on November 20, 2001, aggregate Rs 4263 crore only. This includes Rs 650 crore and Rs 510 crore of the transmission and generating companies respectively; the remaining Rs 3,103 crore have been allocated to the three distribution companies that are being privatised. A gaping hole of Rs 1,140 is apparent between the two sets of figures — one approved by the Commission and the other notified by the Delhi government.
Where have assets worth Rs 1,140 crore gone is a mystery. DVB argues that it followed the ‘business valuation’ method for determining the transfer price of its assets. That, however, cannot explain this disappearance from its account books. The only way books can be cleaned up is by writing off these assets in the prescribed manner. DVB should have made a ‘dying declaration’ and come clean on this issue before it was extinguished. Yet another blow to the exchequer was administered by a further reduction of Rs 743 crore in terms of accumulated depreciation. The value of these companies was thus reduced from Rs 3,103 crore to Rs 2,360 crore. As a result, private bidders would acquire 51 per cent of the equity of distribution companies by paying only Rs 481 crore for the vast network, real estate and monopoly business with a revenue potential of over Rs 7,000 crore per annum.
‘Business valuation’ relates the value of an asset to the present value of expected future cash flows. It expresses the present value of a business as a function of its future cash earning capacity. The future cash flow streams are discounted to the present at an appropriate discount rate. Obviously, the valuation done on this basis cannot be further reduced by accumulated depreciation of the past, as that is irrelevant to the net present value of future cash streams. Significantly, too, the benefit of reduction in capital costs will not flow to consumers. The Commission had hiked the consumer tariff by a hefty 22 per cent in May 2001 and one of the components of this tariff was the capital cost. Though the capital cost has been substantially reduced under the Transfer Scheme, consumer tariffs will remain unaltered.
Whichever way you look at it, public assets of more than Rs 1,000 crore seem to be vanishing between the Commission’s order and Delhi Government’s notification. The public exchequer is also set to lose another Rs 743 crore to private companies in the guise of accumulated depreciation. Will all this happen with impunity or will any of the statutory authorities prevent it?
(The writer is chief advisor, NCAER)
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