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By
R.N.Bhaskar
June 2007 (published in the
DNA).
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The higher the
capital costs, the
higher will be the tariff. Hence all capital costs need to be done
on an open tendering basis. Public Utility Service Providers cannot
claim the benefit of commercial secrecy like other companies. Other
companies have face competition; a PUSP is a monopoly.
It was
surprising when, barely a month
ago, the power ministry itself chose to re-interpret the Electricity
Act, 2003 in a manner that would allow electric companies to continue
close door negotiations for building new power plants and avoid
transparent bidding processes. Is the power ministry encouraging
corruption and sleaze?
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A public utility service provider
(PUSP)is a monopolist. Except for the initial stages, when it has to
prove its credentials to the government or the local body why it
should be given the charter, the PUSP remains a monopoly. After all,
I cannot ask for my electricity supply company to be changed
overnight. Similarly, I cannot reject my water supply service
provider.
True, I can always go in for
bottled
water, just as I could set up a captive power generating set. But
both those options are prohibitively expensive. They are not meant
to be the solution. Of course, if the water pipes burst, and there
is no drinking water at home, I will be compelled to purchase some
bottled water. And if the power supply transformer in my area gets
burnt, and I am not likely to get power supply for a long period, I
may be persuaded to purchase, or take on rent, a power generator. But
those are meant to be rare exceptions.
In order to prevent a PUSP from
acting
like a monopolist, governments wordwide normally insist on some
critical conditions:
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The quality of service is
clearly defined. Any violation of this norm could compel the government
to cancel (or even nationalize) the mandate given to the PUSP.
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The tariff at which common
people will get the service is also clearly defined. And if there are
variable costs, these too need to be spelt out quite clearly, so that
they do not lead to accounting fudges.
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And when there are costs
related to expansion of capacity, the manner in which capital costs are
incurred also need to be made extremely transparent, along with a
guarantee that the best price deal has been obtained for common
consumers. This is because all capital costs have to be recovered by
any company – a PUSP is no different. The larger the capital costs, the
higher will be the tariff. Hence all capital costs need to be done on
an open tendering basis. PUSPs cannot claim the benefit of commercial
secrecy like other companies. Other companies have to face competition;
a PUSP is allowed a near monopoly with this pre-condition of
transparency and the open tendering process.
That is why it was surprising
when,
barely a month ago, the power ministry itself chose to re-interpret
the Electricity Act, 2003 in a manner that would allow electric
companies to continue close door negotiations for building new power
plants and avoid transparent bidding processes.
It is ironic that this
interpretation
was offered even when the benefit of transparent bidding was clearly
demonstrated in an Ultra Mega Power Project (UMPP) like Mundra. Is
the ministry now encouraging private deals, even in areas of public
interest, where PUSPs are private companies?
One is compelled to adopt this
alarmist
stand in the wake of the news announcement in the first week of June
2007, that the government had decided to cancel the award of the UMPP
Sasan power project contract to Lanco. This is sad because
transparent open competitive bids showed that power could be produced
at much lower costs than any other power utility in India.
For instance, the variable costs
(or
energy) component of the bid for Sasan which at 0.30 per kWh is much
lower than what NTPC pit-head coal plants have to pay. For example,
the fuel cost of power from pithead plants such as Talcher 2 or Korba
was around 48-55 Paisa per kWh, 60% to 85% costlier than what was
agreed for the Sasan plant.
All tenders were publicly called
for,
and all bidding was done in a transparent manner.
Now with almost all major PUSPs
planning expansion of capacities costing several thousand crore
rupees, why is the open tender system and global competitive bidding
being done away with? Could that also explain why Sasan low costs
became a sore inconvenience to both the government and private PUSPs?
Some answers are urgently required.
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