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The Consultant and Advisor General

In his clever response, Mr. Jagdish Sagar, one of the key figures in securing those post-bid concessions for the single bidders in the Delhi...

In his clever response, Mr. Jagdish Sagar, one of the key figures in securing those post-bid concessions for the single bidders in the Delhi Vidyut Board privatisation, says not a word about double-standards adopted by the CAG in assessing what was done in regard to the DVB privatisation and those of the hotels in Mumbai. He says not a word about the gross illegalities that were committed in the former — that the terms of the privatisation were completely changed after the bids had been rejected; that the alterations amounted to thousands of crores; that the new terms were not communicated to the other qualified bidders; that these terms were made available to the single bidders even when the only authority that was competent to approve them had not done so.

The cleverness consists in writing a response that does not address even a single one of these facts, and yet somehow conveys the impression that what I had written about the CAG’s double standards was not based on facts! Indeed, Sagar accomplishes more. He conveys the impression that what was done had my endorsement! Yes, he and his colleagues gave me a general briefing about the need to privatize distribution of electricity in Delhi, and about the ‘‘model’’ that would be followed. Did he by chance also brief me that concessions worth thousands of crore would be made over to the private companies after their bids had been rejected, and that also through private negotiations with those single bidders? That this would be done without the sanction required by law? That stores and other assets would be turned over free? Did he educate me to the fact that those two single bidders were being guaranteed a post-tax rate of return of sixteen per cent, which comes to a guaranteed pre-tax return of twenty four per cent? And did I perchance endorse these twin boons — that the single bidders would be guaranteed a return, and that too a pre-tax return of twenty four per cent?!

There is an even more telling fact, and it would be good to learn whether I endorsed this sleight of hand too. Recall that in the final bids that were accepted the private distribution companies were guaranteed a post-tax return of 16 per cent. But in the Policy Direction that the Government of Delhi gave to the Regulator, and the Notification it issued — on November 22, 2001 — the Government stated that ‘‘tariffs shall be determined such that the distribution licensees earn, at least, 16 pc return on the issued and paid up capital and free reserves …’’ When, and by whose grace did those two words get added so that the guarantee became, not of ‘‘16 pc return’’, but of ‘‘16 pc post-tax return’’? Was that done on the analogy of the NTPC? In that case, was the NTPC norm not available when the Policy Direction was issued to the Regulator?

Sagar’s cleverness recoils! He makes out how the Delhi electricity privatisation was so much a greater accomplishment as the amounts involved were so many times the ones involved in the two hotels. But surely that fact works the other way round! As the amounts involved were so much larger, as the impact on the common man was going to be so much greater, the investigation by the CAG should have been more thorough.

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His sarcasm about valuation is equally misdirected. The figures I cited were those of the CAG himself, and the conclusions — so watered down, as we now know — that the post-bid largesse caused huge losses to the Government and ensured that consumers of electricity would have to bear tariff-hikes two to three times what they would have had to bear otherwise, those conclusions too are of the CAG himself!

The commitment of Sagar and his colleagues to transparency was such that on September 15, 2003, the Accountant General (Audit) for Delhi, R. K. Ghose, was constrained to write to Sagar, who was then Principal Secretary, Power, Government of Delhi, personally, and put on record, ‘‘I would like to bring to your notice that many critical records required for a comprehensive conduct of audit and framing of holistic comments were not furnished to the Audit Party though repeatedly requested for …. In this context, I would like to invite your attention to Section 18(2) of the CAG’s (DPC) Act, 1971, which stipulates that the person in charge of any office or department, the accounts of which have to be inspected and audited by the CAG, shall afford all facilities for such inspection and comply with requests for information in as complete a form as possible and with all reasonable expedition….’’

This was elaborated at several places. Sagar’s assertion about Rs. 3,107 crores of receivables having gone missing from the balance sheet passes even his high standards of obfuscation! He says that receivables are not largesse as they would come into the reckoning as and when they are collected. Assume an enterprise to be privatized is working at 43 pc of its capacity; or, if that makes it easier, recall that the Mumbai hotels were functioning at 43 pc occupancy. Were valuation to exclude the prospective improvement in capacity utilization or in occupancy on the ground that such improvement would become relevant as and when it happens, the CAG would certainly come down heavily on the calculation. Of course, in the Delhi electricity case the CAG is unable to do so, as he chooses to be content with the assurance of the Delhi Government that the details are in the computer modeling of the Consultant and this worthy ‘‘normally’’ regards computer modeling as his business secret! And if Sagar’s argument is to hold that a higher valuation of the operations would have meant an even higher tariff for consumers, why not put the value at zero, and benefit the consumers totally?

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But there is another point about receivables — one which directly concerns officials who handled the privatisation of Delhi electricity distribution. The records of amounts that had to be recovered from different consumers were in offices at Rajghat, Delhi. These were made over entirely to the two single bidders. Therefore, today Government has absolutely no way to cross-check what the private distribution companies claim they have recovered, or have not been able to recover. And those claims directly contribute to the revenue-deficits on the basis of which they demand, or, as it now seems, are, without their demanding, granted tariff increases.

There was dilution after dilution in the targets that those single bidders were to fulfill. In the Inception Report, Transmission and Distribution losses were to be reduced by a stern and fixed schedule — the technical losses were to be reduced by one per cent every year and the non-technical losses, that is thefts pure and simple, were to be reduced by five per cent every year. That is, by the fifth year, cumulative reduction in the losses was to be twenty seven per cent.

This was the central feature of, and the central rationale for the privatisation. But in the Agreement that was eventually signed, total ‘‘Aggregate Technical and Commercial’’ losses were now targeted to be reduced by only seventeen per cent by the end of the fifth year. ‘‘This,’’ the Accountant General observed, ‘‘resulted in a significant dilution of the targets as originally envisaged in the Inception Report thereby undermining one of the primary objectives of the privatisation process, which was reduction of misuse and theft of power.’’ Does responsibility for these dilutions not fall on the persons who claim so much credit for this ‘‘model privatisation’’? Indeed, to quote the website of the Delhi Government, for ‘‘the crowning achievement’’ of the Government?

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‘‘The justification for not abiding by the recommendation of the Council of Ministers were (sic.) not on record’’, the Accountant General observed. ‘‘Further, modification of the conditions without the approval of the competent authority was also irregular. In fact, if the conditions were to be modified, then all the six pre-qualified bidders should have been approached to submit bids.’’

I have it on high authority that the revised terms were deliberately kept from the then Lieutenant Governor — the one person who was authorized under law to approve such changes. And, I have it from the same high authority, that there were two officials who goaded the Chief Minister to disregard the law. One of them is well known to Sagar, and the other is even better known to him! This by-passing of the only authority who was authorized by law to approve or disapprove these massive changes, and concealment from him became such a major problem within Government that the Home Ministry — of the Central Government — had to issue a notification making it amply clear that the approval of the Lieutenant Governor in such matters was mandatory.

JAGDISH SAGAR’S ARTICLES

PART 1: WHO VERSUS CAG?

PART 2: WHO VERSUS CAG?

First published on: 02-09-2005 at 12:00:00 am
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