Power Sector News
Indian Express
Reliance discoms can’t pass on Rs.535 crore to Delhi consumers - APTEL
Tuesday, 13 October 2009

It would be disastrous if consumers were forced to pay just so that a firm can make profits
The Appellate Tribunal of Electricity(APTEL) ruled that Reliance owned power distribution company (discom) BSES cannot pass on Rs 535 crore it had paid to its sister concern to buy capital goods to the consumer. This Tribunal has upheld a Delhi Electricity Regulatory Commission (DERC) ruling in this direction.

A senior DERC official explained after power distribution was privatised in the Capital, discoms had been directed to invest in capital goods — equipment among others. The purchase of Distribution Transformers by BSES discoms from its sister concern M/s Reliance Energy Ltd was at inflated rates, The transformers were purchased from Reliance Energy and found to be exorbitant and the rates were higher by 68 percent from the market rates. The regulatory commission which procured the VAT bills showed that the material was sold for 731 crores and the discoms showed an inflated price with profit margin of 68 percent and tried to pass on the buck to consumers.

Procurement of equipment by reliance backed discoms at higher rates amounts to loading the extra cost on the consumers of Delhi and further to give undue profit to the Discoms as well as the supplier which is the sister company of BSES. The controversial issue was first discovered by DERC in 2004 and the commission alleged that the discom had committed a fraud and initiated an inquiry. The discom stuck to its stand that the transaction was done through competitive bidding and it had not favoured its sister company.

A DERC member said: “It would be disastrous if consumers were forced to pay just so that a firm can make profits. In response, BSES has submitted us documents to show that it followed norms of competitive bidding while selecting the provider. But their evidence is flimsy, and as our affidavit states, the documents are inconsistent.”

When BSES presented its accounts to DERC, the regulator cleared the base cost of capital goods but refused to clear the 68 per cent additional expenditure (Rs 535 crore), the DERC official said. In its appeal, BSES said REL deserved the profit being the intermediary. But the Tribunal turned down BSES’s appeal saying the discom did not carry out its purchases through competitive bidding and instead went directly to its sister concern.

“With the Tribunal upholding DERC’s decision to disallow this expenditure, BSES will not be able to pass on this cost to consumers by way of tariff,” the official added.