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GOVERNMENT OF THE NATIONAL CAPITAL TERRITORY OF DELHI
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PRESS HANDOUT
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Unbundling and privatization of DVB.
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Status
and Road Map
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GOVERNMENT OF THE NATIONAL CAPITAL TERRITORY OF DELHI
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The Delhi Vidyut Board is being unbundled
into six companies, viz. one holding company, one generation company (GENCO), one
transmission company (TRANSCO) and three distribution companies (DISCOMs). The Pragati
Power Corporation Ltd. which is setting up the Pragati Power Plant will later be
amalgamated with the generation company.
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The three distribution companies
which are the key to improving consumer services and commercial viability of operations
are being privatised on 31st May, 2002. Share Acquisition Agreements are being signed
with BSES Ltd. and Tata Power Company. BSES will acquire a controlling interest
in two of the distribution companies, viz. South-West Delhi Electricity Distribution
Company Ltd. and Central-East Delhi Electricity Distribution Company Ltd., and the
Tata Power Company will take over the management of the third distribution company,
viz. North-Northwest Delhi Distribution Company Ltd.
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Following the Share Acquisition Agreements,
the Transfer Scheme will be made effective by the end of June, 2002 i.e. DVB will
actually cease to exist and its operations will be transferred to the new companies;
the management of the new companies shall be transferred to BSES and Tata by 30th
June, by which date the Shareholders Agreement will have to be executed.
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Milestones
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GOVERNMENT OF THE NATIONAL CAPITAL TERRITORY OF DELHI
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The Govt. of National Capital Territory
of Delhi (GNCTD) issued a strategy paper in Feb. 1999
highlighting the need to urgently reform DVB.
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The Delhi Electricity Regulatory Commission became operational
in December, 1999.
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The Delhi Electricity Reform Ordinance
was promulgated on 28/10/2000. This was replaced by the
Delhi Electricity Reform Act, 2000(Act 2 of 2001) notified after
receiving the assent of President of India.
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A Tripartite Agreement was executed
on 28.10.2000 between the Government of Delhi, DVB and representatives of DVB employees,
whereby the parties mutually agreed to accept the conditions laid down in the Agreement
to achieve the goal of smooth implementation of the policy for reorganization and
restructuring of DVB.
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Based on the inception report of
the consultant, M/s SBI Capital Market Ltd., on 6th January 2001, the Council of
Ministers, GNCTD approved the unbundling of DVB into six successor entities.
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An investors' conference was jointly
organized by the Government of Delhi and Power Finance Corporation Ltd. on 17th
January, 2001 to inform the prospective investors of the new opportunity for investment
in the power sector in the national capital.
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Advertisements were published in
leading national and international newspapers and journals in February, 2001, highlighting
the opportunity for private sector participation in electricity distribution in
Delhi and inviting Statement of Qualifications against the Request For Qualification
(RFQ). Out of 32 purchasers of the RFQ, only 7 submitted their Statement of Qualifications
(SOQ), out of which 6 bidders qualified for the Request For Proposal(RFP) stage.
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The Final Report on restructuring
of Delhi Vidyut Board of M/s SBI Caps, the consultants, was received on 16/7/2001.
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The Council of Ministers, GNCTD,
approved the restructuring model on 5.10.2001
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The Delhi Electricity Reform (Transfer
Scheme) Rules 2001, were notified on 20th November 2001.
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The order on classification and allocation
of residential colonies and sub-stations flats of Delhi Vidyut Board to successor
entities was notified in Nov. 2001.
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The order on classification and allocation
of the personnel of DVB to the successor entities was notified in Nov. 20001.
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To guide the reform process, the
Power Department issued policy directions to the Delhi Electricity Regulatory Commission
under the provisions of section-12 of the Delhi Electricity Reform Act, 2000. This
was done in consultation with the Regulatory Commission.
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The Request For Proposal (RFP) was
issued to the pre-qualified bidders on 22-11-2001, inviting them to submit their
Statement of Proposals(SOPs) by 10.04.2002. The bids were invited on the Aggregate
Technical and Commercial Loss (AT&CL) reduction for the next five years i.e. 2002-03
to 2006-07.
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The
Package
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The package that was structured for
the privatisation had the following major elements:
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GOVERNMENT OF THE NATIONAL CAPITAL TERRITORY OF DELHI
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Employee consent was ensured by guaranteeing
(i) non-retrenchment of employees and continuance of service in the successor companies
on the same terms and conditions prior to their transfer and (ii) taking over liability
for retirement benefits of the existing employees and retirees of the Board by establishing
a Pension Trust Fund to which the Government has contributed Rs.860 crores (supplementing
Rs.442.52 crores available with DVB). Employees have consistently supported the
unbundling of DVB and the privatisation of distribution.
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Liabilities: All past unserviceable
liabilities and past losses of DVB not to be passed on to the successor companies.
The restructured entities start with clean opening balance-sheets.
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Valuation of assets.
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Although DVB has now finalised its
accounts up to 2000-01, they remain unaudited. Also, no State Electricity Board
has Fixed Asset Registers, with all the necessary details. (Attempts through Consultants
to value East Delhi in 1997 for purposes of privatisation proved unsuccessful for
this reason).
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The value of assets is reflected
in the tariff, which has to be fixed allowing a return on the assets. Over-valuation
as compared to the actual earning ability of the assets therefore can create difficulties.
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The business valuation method is
appropriate because of the nature of the business viz. the licensee is not able
to strip the assets and must operate the business under the scrutiny of the Regulatory
Commission.
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The asset value of Rs.3160 crores
of DVB as a whole, arrived at by the business valuation method is close to the book
value of Rs.3024 crores (based on unaudited accounts of DVB).
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Policy Directions:
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The most important feature from the
bidders' point of view is the policy directions issued under Section-12 of the Delhi
Electricity Reforms Act, 2001. Here it is necessary to describe the main features
that are unique to the Delhi reforms. The key issue in reform is that the heavy
loss which any State Electricity Board is incurring currently cannot be borne by
a private company; it will take time for the private investor to reduce the loss,
yet it is difficult to pass this burden on to the consumer immediately since the
consequent tariff shock would render the reform process unacceptable. Secondly,
it is absolutely necessary to get the correct picture of opening loss levels; in
Orissa, incorrect information about opening losses created serious problems later.
Thirdly, the most basic problem for the investor is to know how rapidly he is expected
to reduce losses, since if the level of losses allowed from year to year is too
high to achieve, he will lose heavily (as also happened in Orissa). The DVB reform
package incorporates the following measures to take care of these issues.
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Since the core issue is commercial
efficiency, instead of transmission and distribution (T&D) losses the new concept
of Aggregate Technical & Commercial (AT&C) Losses has been introduced. The former
is the difference between energy supplied and energy actually billed, and is subject
to errors because of erroneous or false billing. In DVB we have used the concept
of AT&C losses, namely, the difference between energy supplied and energy for which
payment has actually been recovered. As is evident, this is clearly a measure of
commercial loss. This figure will always be higher than the T&D losses, but will
be more accurate. The opening level of AT&C losses for the DISCOMs was fixed by
the Delhi Electricity Regulatory Commission as follows:
GOVERNMENT OF THE NATIONAL CAPITAL TERRITORY OF DELHI
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DISCOM
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CEDEDCL
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57.2
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NNWDDCL
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48.1
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SWDEDCL
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48.1
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All DISCOMs
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50.7
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The loss reduction targets were established
by competitive bidding. The bidders were required to bid on the basis of efficiency
improvement, viz. the reduction of AT&C losses that they would achieve year-wise
over a five-year period, and the bidder whose bids yielded the highest net present
value in terms of consequential benefits becomes the highest bidder. Tariffs would
be set annually by DERC on the basis of the accepted targets.
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The distribution licensees shall
be entitled to retain 50% of the additional revenues from any AT&C loss reduction
over and above the minimum targets fixed by the Government. The balance 50% of any
excess efficiency gain shall be passed on to the consumers of the company. Since
the Government also holds 49% of the equity of the company, effectively only about
25% of the additional revenue will accrue to the private investor. On the other
hand even a single percentage point under achievement over the loss level bid by
the selected bidder will result in substantial erosion of the returns of the company
which would act as a safeguard to ensure improvement in performance over the transition
period of five years.
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Distribution licensees will be allowed
16% return on the issued and paid up capital and free reserves (assuming the company
succeeds in reducing the AT&C loss targets set by the bidding process and if the
Regulatory Commission allows all expenses and investments that the company makes).
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To avoid a tariff shock, the Government
initially made a commitment of Rs.2600 crores of loan assistance to Transco to keep
the tariff down for the first five years. As the losses decrease every year, the
level of assistance diminishes and the losses would be low enough for the consumer
to bear the cost of supply (and loan repayment) at the end of five years. With the
negotiated rate of improvement in AT&C loss, this figure of support will now increase
to a maximum of Rs.3450 crores.
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Two out of the six pre-qualified
bidders dropped out at the RFP stage. Only two bids were received on the date of
opening, viz. BSES Ltd. and Tata Power Co. Ltd. both offering AT&C Loss reduction
much lower than the targets set by the Government. While BSES Ltd. bid for all the
three companies, M/s. Tata Power submitted bids only for North-Northwest and South-West
companies. As these bids were not satisfactory, a Core Committee consisting of senior
officers have negotiated with the bidders in pursuance of the directions of the
Cabinet for the last six weeks and a negotiated agreement has now been reached.
The minimum AT&C loss reduction targets set by the Government, the original bids
received and the revised negotiated and accepted bids are given in the table below:
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(figures in Percentage)
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2002-03
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2003-04
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2004-05
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2005-06
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2006-07
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DISCOM
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MI NM
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ORGL
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RVSD
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MI NM
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ORGL
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RVSD
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MI NM
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ORGL
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RVSD
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MI NM
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ORGL
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RVSD
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MI NM
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ORGL
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RVSD
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CENTRAL EAST (BSES)
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1.50
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0.75
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0.75
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5.00
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1.75
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1.75
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5.00
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2.50
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4.00
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5.00
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4.50
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5.50
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4.25
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4.50
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5.00
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SOUTH WEST (BSES)
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1.25
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0.55
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0.55
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5.00
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1.55
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1.55
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4.50
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2.05
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3.30
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4.50
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4.55
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6.00
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4.00
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4.65
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5.60
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NORTH NORTH-WEST (TATA)
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1.50
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0.50
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0.50
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5.00
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1.25
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2.25
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4.50
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2.00
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4.50
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4.25
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4.50
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5.50
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4.00
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5.25
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4.25
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MINM - Minimum prescribed
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ORGL - Original Bid
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RVSD - Revised Bid
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Some other minor adjustments given
below have also been agreed to in the terms of the agreements.
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The moratorium on repayment and interest
waiver on Holding Company debt will be extended to the fourth year instead of three
years in the original structure. In case a DISCOM underachieves in the fourth year,
the moratorium on Holding Company debt will be increased to fifth year for that
company.
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With regard to over-achievement/underachievement
for the transition period of five years, the cumulative effect till the end of the
relevant year shall be taken and appropriate adjustments made. The method of treatment
will be as follows:
If the AT&C loss reduction
of a DISCOM is better than the minimum AT&C loss levels stipulated by the Government,
it shall be allowed to retain 50% of the additional revenue resulting from such
better performance and the balance 50% shall be counted for the purpose of tariff
fixation. On the other hand, if the actual AT&C loss reduction of a DISCOM is worse
than the AT&C loss reduction level quoted in the bid, the entire short-fall on account
of the same shall be borne by the DISCOM. In the event the actual AT&C loss of a
DISCOM is worse than the minimum AT&C loss reduction level stipulated by the Government
but better than the loss reduction level quoted in the bid, the entire additional
revenue from such better performance shall be counted for the purpose of tariff
fixation.
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Liabilities arising out of litigation,
suits, claims etc. pending on the date of the takeover and/or arising due to events
prior to takeover shall be borne by the relevant distribution company subject to
a cap of Rs.1 crore per annum. Any amount beyond this cap shall be to the account
of the Holding Company if the same has not been allowed by the Commission.
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Till 31st March, 2004, the priority
of payment of salary, wages and other statutory payments will rank above the payment
due to Transco in the Escrow Arrangements. Other than this, the Escrow arrangements
would remain the same as stipulated earlier.
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A mechanism, be put in place to ensure
that DISCOMs receive timely payment for electricity dues from Delhi Jal Board only
in respect of HT connections.
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Transparency
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The whole reform process in Delhi
has been conducted in a transparent manner. To begin with, a conference of potential
investors was organised in January, 2001 with the assistance of the Power Finance
Corporation, which was well-attended and various issues related to privatisation
and the expectations of potential bidders were raised and discussed. The basic pattern
of reform was considered, and the bidders pre-qualified by an Empowered Committee
constituted by the Government of Delhi with representatives drawn from the GNCTD,
DVB, the Union Power Ministry, the Central Electricity Authority, the Power Finance
Corporation and the Administrative Staff College of India, under the chairmanship
of the Chief Secretary, Delhi. The Delhi Government has constantly kept the Union
Government informed about developments in the process of privatisation of distribution.
The Union Minister of Power joined a meeting in the Delhi Secretariat with the prospective
bidders. A presentation on the entire reform package and the restructuring model
was made before the Union Disinvestment Minister. The entire reform process has
also been debated at length in the Delhi Assembly and in various seminars before
reaching the present final stage.
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