GOVERNMENT OF NATIONAL CAPITAL TERRITORY OF DELHI
(DEPARTMENT OF POWER)

NOTIFICATION

No.F.11(118)/2001-Power/ In exercise of the powers conferred by section 12 and other applicable provisions of the Delhi Electricity Reform Act, 2000 (Delhi Act No. 2 of 2001), and after considering the views expressed by the Delhi Electricity Regulatory Commission (hereinafter referred to as "Commission"), the Government of National Capital Territory of Delhi hereby notifies the following as policy directions to enable restructuring of the Delhi Vidyut Board and privatisation of the distribution business, relating thereto, namely:-

1.

The Delhi Electricity Reform Act, 2000 (hereinafter referred to as the "Reform Act") has been enacted by the Legislative Assembly of the National Capital Territory of Delhi, inter alia, to provided for the restructuring of the electricity industry, of Delhi, inter alia, to provide for the restructuring of the electricity industry, rationalisation of generation, transmission, distribution and supply of electricity, increasing avenues for participation of private sector in the electricity, increasing avenues for participation of private sector in the electricity industry and generally for taking measures conducive to the development and management of the electricity industry in an efficient, commercial, economic and competitive manner in the National Capital Territory of Delhi and for matters connected therewith or incidental thereto.

The Reform Act has been enforced with effect from 3^rd November, 2000 after receiving he assent of the President of India under the proviso to article 239AA(3) (c) of the Constitution of India.

Part V of the Reform Act (Sections 14 to 18) deals with the reorganisation of the electricity industry. These provisions provided for incorporation and setting up to companies under the Companies Act, 1956 to take over the existing generating stations, transmission and distribution functions and assets from the Delhi Vidyut Board as provided in section 14. Sub-section (6) of section 14 also provides for the companies to be Joint Venture Companies through a process of disinvestment in accordance with the Transfer Scheme to be notified under the Reform Act.

Section 15 speaks about the Transfer Scheme, namely, transfer of properties, interest in properties, rights, liabilities, etc of the Delhi Vidyut Board to the companies incorporated for generation, transmission, distribution, etc. as the case may be. It is envisaged that the Transfer Scheme may provide for formation of Joint Venture Companies and other scheme of division, amalgamation, merger, reconstruction and arrangement. Section 16 of the Reform Act deals with the transfer of personnel of Delhi Vidyut Board to the above successor companies.

The powers in regard to re-organisation of the Delhi Vidyut Board including in regard to the notification of the Transfer Scheme, transfer of properties, interest in properties, assets, etc. have been vested in the Government as per the provisions of sections 14 to 18 of the Reform Act. In this connections, it is also relevant to note that clause (g) of sub-section (2) of section 60 of the Reform Act empowers the Government to issue rules concerning preparation and implementation of the Transfer Scheme, transfer of assets, liabilities, personnel, etc. The Government is, therefore, empowered to determine the terms and conditions of the transfer.

As a part of the reform and restructuring of the Delhi Vidyut Board, the Government has been considering the terms and condition of the Transfer Scheme to be issued, transfer of functions and assets, etc. of the Delhi Vidyut Board to the successor companies and also the process of disinvestment/privatisation of the successor companies. These are policy issues for the Government to decide as per the statutory powers vested therein under Part V of the Act. In addition to the above, the Government has the statutory powers to issue policy directions under sub-section (4) of section 12 of the Reform Act which the Government considers to be in public interest.

The Government has been deliberating on the effective disinvestment and privatisation of the distribution activities. The Government has received advice from various sources who have, consistently, maintained that for the effective re-organisation of electricity industry there is a need to privatize distribution. The Government has, therefore, decided as a matter of policy that the distribution activities of Delhi Vidyut Board shall be privatised and the same is to be achieved as under:

The Government, after extensive and careful deliberation and taking into account the advice received, is of the opinion that the following aspects are important for effective re-organisation of the Delhi Vidyut Board and for the sale of 51% equity shares in the distribution companies, namely :-

The Government is of the view that the clearest measure of overall efficiency of the distribution business is the difference between units input into the system and the units for which payment is collected. The Government is of the considered view that losses of any kind, technical, non-technical or non-realisation of payments, ultimately, amount to loss in revenues. Efficiency gains must embrace all these aspects. Hence, the losses should be measured as the difference between the units input and the units realised (units billed and collected) wherein the units realised will be equal to the product of units billed and the collection efficiency, where, collection efficiency is defined as the ratio of actual amount collected and amount billed. The difference between the units input and the units realised are hereinafter referred to as "AT&C Loss" (Aggregate Technical and Commercial Loss). The Government, as a matter of policy, decides that the AT&C Loss shall be the basis for determination of tariffs and also for computation of incentives for better performance.

The AT&C loss level for each distribution company for the year 2000-01, based on the above, has been worked out as under :

The Commission will consider the above percentage of AT&C loss level and determine the base AT&C loss levels, which shall be the opening levels of losses for the purpose of bidding and shall reflect the actual levels, on the principles set out above and based thereon determine the tariff, wholesale, bulk, grid or retail, as the case may be.

For the years 2002-03 to 2006-07, the AT&C loss levels for the purposes of tariff computation for the distribution licenses shall be the lower of the following:-

For the years 2002-03 to 2006-07, in the event that the actual AT&C loss level of a distribution licensee for any particular year as determined by the Commission is better (lower) than the level proposed in the bid, the distribution licensee shall be entitled to retain 50% of the additional revenue resulting from such better performance. Notwithstanding the provisions of resulting from such better performance. Notwithstanding the provisions of para 11, the balance 50% of additional revenue resulting from such better performance shall, however, be counted for the purpose of tariff fixation. While generally the incentive to be allowed to the licensee (including additional incentives by deviating from the principles laid down in the Sixth Schedule to the Electricity (Supply) Act, 1948), should be determined by the Commission on an annual basis, the Government is of the considered view that in the larger public interest and to effectively achieve the proposed disinvestment and privatization, it is necessary to impart certainty to the incentives payable over a specified period and to make these incentives attractive as a part of the transfer arrangements, in order to ensure successful disinvestment. In the absence of such a certainty it may not be possible to attract private sector participation in the distribution of electricity.

From the date issuance of these directions till the end of 2006-07 and subject to provisions of paras 11 and 12 above and all expenses that shall be permitted by the Commission, tariffs shall be determined such that the distribution licensees earn, at least, 16% return on the issued and paid up capital and free reserves (excluding consumer contribution and revaluation reserves but including share premium and retained profits outstanding at the end of any particular year) provided that such share capital and free reserves have been invested into fixed or any other assets, which have been put into beneficial use for the purpose of electricity distribution and retail supply and provided further that such investment of such share capital and free reserves has the approval of the Commission.

The reorganisation of Delhi Vidyut Board will result in three separate distribution licensees. The Government, as a matter of policy, has decided that retail tariffs for the three distribution licensees shall be identical till the end of 2006-07, i.e., consumers of a particular category shall pay the same retail tariff irrespective of their geographical location.

The Government will make available to the Transmission Company an amount of the order of, approximately, Rs. 2600 crores during the period 2002-03 to 2006-07 as loan to be repaid by the Transmission Company to the Government in a manner agreed to between that Transmission Company and the Government. The Transmission Company will use the loan to bridge the gap between its revenue requirement and the bulk supply price which it may receive from the distribution licenses.

To summarise, the Commission will decide on performance standards and other factors related to the discharge of the obligations by the distribution and retail supply licensees and determine the tariffs subject only to the requirements of consistency with these policy directions being the basis of the bidding process, viz., by taking into account the following :-

Issuance of a tariff order of the distribution licensees will facilitate investors to have a full idea of the various elements (revenues, expenses) in the fixation of the tariffs. It is necessary for the Commission to issue order(s) determining the bulk supply tariff applicable to each of the three DISCOMS for purchase of electricity from TRANSCO. Such a tariff order for the DISCOMS may be issued before bidding. However, in order to ensure that the time gap between corporatisation and privatisation is minimal, the Transfer Scheme shall be made effective as close to the date of privatisation as possible. Thus, the Commission may issue the tariff order on the basis of the notified (but not effective) Transfer Scheme and in accordance with the provisions of these policy directions.

These policy directions have been issued in public interest so as implement the re-organization of the electricity industry and privatisation of the distribution companies.

All the stakeholders, including the Commission and other authorities shall be bound by the above policy directions from the date of issuance thereof till the end of year 2006-07.