AAP's CAG Audit Plan - Another damp squib ?

“Having a Watchdog is ideal, but when it is barking up the wrong tree, theft cannot be stopped”

 Arvind Kejriwal has been quick to create an impression of delivering on AAP’s promises. Reduction of power tariff was one such move, though it was a partial step and only up to first 400 units. However the move to impose CAG audit on DISCOM is amusing if not surprising.

Why this move should not surprise us? Well, AAP had already hinted in their manifesto that something like this would be done. Let’s have a look as to what was promised:

Delhi’s consumers have been getting inflated bills due to malpractices by DISCOMS. AAP promises a reduction of consumers’ electricity expenditure by 50%. This will be done by ordering an audit of DISCOMS, rectifying inflated bills and getting electricity bills checked by independent agencies. Licences would be cancelled of any DISCOMS that refuse the audit.

DISCOMS would be brought under RTI and their accounts made more transparent. DISCOMS monopolies would be ended and consumers would be allowed to choose between two electricity providers. (Source: AAP Manifesto)

In addition, Arvind has often alleged DISCOM of cooking the books to show inflated cost of purchase.

But why do I find this move of CAG audit on DISCOM amusing?

To answer this question, many other questions automatically spring up. They are:

• Is he trying to ride on the credible name of CAG?
• Is he right to assume that CAG audit will unearth malpractices of DISCOMs which would result in the reduction power tariffs?
• Is he right in assuming that fault only lies with the DISCOM and not DERC? For that matter the greater responsibility lies with the one who rules and the one who regulates.

The entire attempt gives a feel that after scaring the hell out of you for a possible tumour in the brain, all your family doctor recommended was a chest X-ray. Similarly the purported CAG audit of DISCOMs may end up looking elsewhere instead of nailing out the main cause.

Now let’s see whether this can really remediate the illness which Kejriwal is trying to cure?

Tariff Fixations, who fixes them?

Dear readers, it is DERC which fixes the tariff and not DISCOMs. To understand the AAP charge that “DISCOMs are sending inflated bills and to investigate this malpractice inflated Bills will be checked by independent agencies.” (Source: AAP Manifesto), the definition of inflated bills need to be more clear.

Inflated bills can be either the price charged or number of units consumed or a combination of both is inflated.

As already mentioned, price charged to the consumer is not arbitrarily decided by DISCOMs, but it is fixed by DERC after taking into consideration various factors, such as past audited financial and costing results, upcoming demand and cost to meet the demand.

Allegation of AAP has hovered more on the inflated tariff and not on the inflated unit consumed which is shown on the power bill. Hence to focus only the DISCOMs and not on the DERC looks laughable.

In his rhetorical style, Arvind Kejriwal  asked if distribution loss has come down from 55% to 15% why has the benefit is not transferred to the consumers. But he doesn’t mention or he seems to be unaware that T and D loss target is fixed by DERC and any excess of T and D loss above target is borne by the DISCOMs.

AAP has alleged purchases from related party of DISCOMs has escalated Power purchase cost however DERC has not found any truth in this allegation.(Source Tariff order issued by DERC for FY 2013-14)

Is there any issue with the DISCOMs?

We don’t know whether DISCOMs alone are to be blamed and whether DISCOMs have really cooked up the books or short changed its consumers. But we do know that DISCOMs provide all the financial data to DERC which are indeed audited by the external financial auditors and cost auditors. DERC pass tariff orders based on this. As the part of Electricity Act, 2003 and rules made under this act, due notice for the tariff revision order information is given to public and their submission is taken in to consideration before passing the final order.

Following additional questions come up

• If DISCOMs are committing any malpractice, is DERC complicit in ignoring the same? And therefore leading to the main question – Why DERC, which is responsible for fixing the price, is not investigated?
  
• DISCOMs purchases most of the power from outside Delhi and most of the power is purchased from the government owned power Generation Companies.Tariff of power Generation Company is fixed by CERC. Does it mean that tariff fixed up by CERC is on the higher side and the power generation companies which are owned and operated by the government are also complicit as DERC is?
  
• Should CERC and other power generation companies also to be investigated?
  
• All purchases, including short term purchases (From group companies) by DISCOMs are subject to approvals from DERC. Why DERC is approving short term power purchase cost if it results in inflated tariff?
  
• Power purchase cost is 80% costs of DISCOMs, which happens to be classified as uncontrollable cost by law. Why the question is not raised to make Power purchase cost as controllable cost, when all tariffs, either by power generation, or transmission or distribution companies are either governed by CERC or DERC or any other state regulatory commissions.
  
• CAG audits are already being done yearly for DERC and CERC.Is that audit rendered toothless in views of AAP? If so, then can they rely on the same CAG to come out with solutions from DISCOM audit?
  
• Would terms of reference of this “new” CAG audit holistically include DISCOMs, DERC, CERC and government owned power generation companies and come out as ONE report?
  

While we seek answers to the above questions, it is also pertinent to note that in each DISCOM there are at least four Government Nominated IAS Officers on the Board of Directors.

Apart from having representation in the board of directors, these directors are/can be part of Audit committee. Audit Committee has power to investigate any matter which has been referred to it by board of directors.

Since Government of Delhi has sufficient representation in board of directors of DISCOMs they can very well ask for investigation of any purchase made by DISCOMs to audit committee. Audit committee can determine whether purchase made from related party was at arm’s length and provide report to board of directors.

Summary

• CAG audit of DISCOM is insufficient measures taken by Delhi Government run by AAP. This audit will more or less confirm audited books of accounts along with finding in tariff orders passed by DERC. However this finding is also dependent on term of reference given to CAG by lieutenant governor of Delhi.
• Investigating books of DISCOMs in isolation without including KEY players like DERC, CERC, power generation companies and power transmission companies is not going to help in overall objective of reducing power bill of end consumer.
• An audit is not an investigation but is a mere review of the facts presented to the auditors. Therefore if AAP was serious it would have constituted a Special investigation team which could have looked beyond mere ‘review’.

To keep a watch is good, but to have a watch dog for this purpose and make him bark at the wrong tree may not recover the stolen treasure or prevent future thefts.