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A new kind of power-broking

Company documents also show that REL sold most of the material and equipment to the two subsidiaries in the last month of the financial year, reports Nagendar Sharma.

business Updated: Jul 30, 2007 03:02 IST
Nagendar Sharma

The Delhi Electricity Regulatory Commission (DERC) has directed the three private power-distribution companies in the Capital not to purchase electrical material and equipment from their group companies without its prior approval.

The directive has been issued after the DERC received complaints of Reliance Energy Limited (REL) having made a hefty profit from intra-group deals.

Documents with HT show that REL sold BSES Rajdhani Power Ltd and BSES Yamuna Power Ltd material and electrical equipment worth over Rs 1,233 crore in 2004-05 which it had purchased for only about Rs 831 crore, helping itself to a trading profit of about Rs 402 crore from its Delhi operations.

The deals took place in what was then a grey area, with no rules to increase transparency or bar conflicts of interest.

“After having received complaints of these purchases, we wrote to all the distribution companies, making it clear that they would have to take prior approval for any financial transaction with their respective group companies under the same management which exceeds a figure of Rs 1 crore,” DERC chairman Berjinder Singh said.

While documents show REL as the sole dealer-seller to its two subsidiaries in 2004-05, company officials said others too had the option to bid.

“The companies from which purchases are to be done are decided through a process of open bidding. The reality is that REL also gets some work but it is not fair to say that it gets all the work. All costs are in line with DERC-approved rates,” a spokesman for BSES said.

The DERC has, however, rejected the claim of “approved rates” being mentioned by the BSES. “There is nothing called DERC-approved rates. The purchases by BSES from its parent company were prima facie a case of irregular invoicing. They have been told not to indulge in such purchases again,” said a DERC official.

“They have told us no purchases are being made from any sister or parent concern now,” a DERC official said.

BSES Rajdhani and BSES Yamuna, REL’s majority-held joint ventures with the Delhi government, control 70 per cent of power distribution in the Capital. The Tata group’s North Delhi Power Limited (NDPL) controls 25 per cent. The remaining stake is with the NDMC. In 2005-06 also, BSES Rajdhani and Yamuna made purchases worth Rs. 611 crore rupees, of which Rs. 244 crore were spent on purchases from REL, corporate documents show. That year, the company’s cash profit alone was Rs 999 crore, though it declined to reveal the profit from its Delhi operations. BSES says accounts for each financial year are thoroughly audited. “All accounts are audited and approved by the BSES board, which has two nominees from the government of Delhi. All details have been vetted by the DERC and audited by government auditors,” a BSES spokesman said.

Company documents also show that REL sold most of the material and equipment to the two subsidiaries in the last month of the financial year, burdening the two units with high inventories.

BSES Rajdhani did not make any purchases between April and November. Purchases worth nearly Rs. 868 crore were made between November 2004 and March 2005, a majority of them in March. Similarly, BSES Yamuna started the purchases only in December, and a majority of these, worth nearly Rs. 364 crore, were again made only in March.

BSES officials admitted that equipment bought in the last few days of a financial year could not have been installed immediately, but described it as a business need. "This is a normal business practice. While doing such big purchases, rates of articles etc. are kept in mind. If the inventory is maintained, then what is wrong in doing purchases at a particular time of the year? Electrical goods are not perishable," a BSES spokesman said.

Capital expenditure figures for the last four years available with the DERC show a steep hike in the amount spent by BSES Rajdhani and Yamuna in 2004-05, the year during which these distribution companies made the highest purchases.

While the three distribution companies in Delhi have been making profits in the past three years, it is the Delhi-government-owned transmission unit, Transco, which has shown losses.

Transco, which was buying power from various sources for these three companies to distribute, showed a loss of Rs. 550 crore in 2005-06 alone. The total projected loss for Transco currently stands at 1,303 crore rupees. The losses are due to the Rs. 3,500-crore total subsidy the Delhi government had promised to pay the three distribution companies over four years since 2002 when the deals were signed. Transco has been its buying electricity at 2.13 rupees per unit and selling it to the three companies at 1.32 rupees per unit. The Delhi government says since Transco is no longer buying power, its losses would now come down. “The losses of Transco were mainly due to buying power for distcoms at a lower rate. Also there are outstanding arrears of DESU and DVB (Delhi Vidyut Board). From April 1 (2007) onwards, Transco has not been buying power, therefore this figure would come down. We have taken up with the government the issue of outstanding arrears that are not ours,” Delhi's Power Secretary Rakesh Mehta said.

The three companies were expected to start buying power themselves, but they expressed inability in doing so. Now, Delhi Power Procurement Group, a joint venture between Transco and the companies, has been formed for this purpose.

Official figures show the government provided a subsidy of Rs 2,500 crore to the three companies between 2002 and 2005 during which all of them were making profits. BSES, however, says it did not benefit from the subsidy.