MAR 2009

MERC’s Public Hearingin the matter of

Reliance Infrastructure LtdCase Nos. 119, 120 & 121 of 2008

BySandeep N. Ohri

Moderator-Bijlee Yahoo Group at http://groups.yahoo.com/group/bijlee

sandeep.ohri@ymail.com9833097575

MAR 2009

2

No Sanctity of MYT Tariff Orders• Existing laws require Multi Year Tariff (MYT)

principles to be followed– Electricity Act 2003, MERC Tariff Regulations 2005,

National Tariff Policy 2006

• In April 2007, MYT Orders have been passed for 3 years 2007-08, 2008-09 and 2009-10

• However, electricity companies have been – Increasing expenses every year …

– Increasing additional capex every year …

– Making a complete mockery of the law, every year …

MAR 2009

The Result: Tariff Shock !!

Units Sep 2006 Jun 2008 Proposed Tariff

% Up in30 mths

% Up in12 mths

100 Rs. 205 Rs. 290 Rs. 419 104 % 45 %

400 Rs. 1,577 Rs. 2,189 Rs. 2,924 85 % 34 %

Has the weighted average of all input costs increased @ 34-45% since June 2008 ??

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MAR 2009

Key Indicators – Past 30 monthsSelect Indicators,Indices & Prices Sep 2006 Q1 2009 % Up /

(Down)Official Inflation (Mar 09) 7.02 % 3.03 % (57%)BSE Sensex (Mar 09) 12,454 9,668 (22%)Central Excise Rate (Mar 09) 14 % 8 % (43%)Service Tax (Mar 09) 12.36 % 10.30 % (17%)Bank PLR 11.00/11.50 12.00/12.50 9%WPI-based Inflation 5.16 % 4.9 % (5%)CPI-based Inflation 6.30 % 10.5 % 67%Coal, Australia (per m.t.) $ 47 $ 80 70%Crude Oil, Brent (per bbl) $ 63 $ 46 (27%)Aluminium (per m.t.) $ 2,473 $ 1,413 (43%)Copper (per m.t.) $ 7,602 $ 3,221 (58%)Lead (per m.t.) $ 134 $ 113 (16%)

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MAR 2009

and going ahead …??% change over previous year 2009 2010

Energy (25.0) 0.9Oil (26.4) 1.8Natural Gas (10.8) (4.2)Coal (23.1) (10.0)Raw Materials (14.9) (2.7)Copper (32.2) (4.2)

As per the latest World Bank report entitled ‘Global Economic Prospects 2009’

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MAR 2009

Energy Purchase DataParticulars FY 06 FY 07 FY 08 FY 09 FY 10

Gross Energy Input (MU)Gross Energy Input = Power Purchase Cost (Rs. Cr.)Standby Charges (Rs. Cr.)Transmission Charges (Rs. Cr.)

SLDC Charges (Rs. Cr.)Total (Towards Power Generation & Transmission in Rs. Cr.)Avge Cost of Power (Rs/unit)Sales (MU)Sales (Rs. Cr.)

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R-Infra did not

provide this data …

MAR 2009

Consumer Data

Financial YearNo. of Residential

Consumers (LF1 + BPL)

Consumption (in MU)

Sales Revenue (in Rs. Cr.)

FY 10 (Projected)

FY 09 (Actual/Est)

FY 08 (Audited)

FY 07 (Audited)

FY 06 (Audited)

FY 05 (Audited)

FY 04 (Audited)

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R-Infra did not

provide this data …

MAR 2009

Capital Expenditure Data

CapEx Item

Pending execution at the time of

the MYT Order

New projects taken up after the MYT

Order (which were not approved in the

MYT)

Tariff Impact of the new Projects

(in Rs. cr) (in Rs. cr) (in Rs. cr)

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Well … be prepared to provide all this data under RTI

R-Infra did not

provide this data …

MAR 2009

9

New Category for Railways• On an application from Metro One (its own

company), a new separate categorization for ‘Railways’ has been asked for– Rate not proposed and/or mentioned

– No Consumption figures given

– No Revenue projection made

• Metro One project may be allowed to ‘develop’ the surrounding land/built-up space for commercial purposes

• Should not be allowed, unless rate is on par with highest commercial / industrial tariff

MAR 2009

10

Intervention under Section 23• BEST and TPC-G already have a LTPPA in place

• Reliance has not signed a PPA even for 500 MW

• MERC has been asked to intervene (under Section 23) and redistribute the allocation of power supplied by TPC-G

• Why should MERC ask Reliance to submit a legal opinion ?

• Doesn’t it have its own methodology and access to legal resources?

MAR 2009

11

Intervention under Section 23• Section 22. (Provisions where no purchase takes

place)

• Section 23. (Directions to licensees)

If the Appropriate Commission is of the opinion that it is necessary or expedient so to do for maintaining the efficient supply, securing the equitable distribution of electricity and promoting competition, it may, by order, provide for regulating supply, distribution, consumption or use thereof.

• Section 24. (Suspension of distribution license and sale of utility)

MAR 2009

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Intervention under Section 23• It is an established principle that interpretation of

sections of an Act are to be done with respect to the position with respect to adjacent sections and not to be applied in isolation

• Objective behind S 23 was to empower the Commission to step in and take appropriate steps to ‘regulate’ supply in the event a licensee’s business was closing down, or was to be closed down and/or disposed off

• It has got nothing to do with the allocation, distribution and/or ‘regulation’ (of supply) under any other circumstance

MAR 2009

13

Intervention under Section 23• Reliance states that tariff shock has resulted, since

MERC is not intervening under Section 23!– Citing increased number of Appeals being filed at ATE by

Multiplex Association, Spencer & Co., Inorbit Mall, Trent Limited, Hypercity, Shopper’s Stop, etc.

• Facts being twisted – all Appellants are in the Retail Shopping business– Appeals are on account of NEW categorization LT-IX that

was done specifically for Shopping Malls!

• Sure, these consumers are facing tariff shock – but because their category has been changed by Reliance and not because of any other reason

MAR 2009

NAME CHANGES & THE LICENSEBSES, REL, R-INFRA …

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MAR 2009

May 1926: The First License

• The License for the Mumbai Suburban area is called

“The Bombay Suburban Electric License, 1926”

• It was granted to M/s Killick, Nixon & Company and

M/s Callender’s Cable & Construction Company

Limited on 29th May, 1926

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MAR 2009

May 1930: The First Assignment• Assigned to “The Bombay Suburban Electric Supply

Company Limited” on 13th May, 1930

• New company formed just to take over the whole operation of the old business

• Condition imposed by Government:

– No future assignment was allowed, without prior written permission

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MAR 2009

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Assignment Clause

• “At any time after commencement of this License,

the Licensee may, with the previous consent in

writing from the Government and subject to the

compliance with such conditions upon which such

consent may be given, assign this License, and

transfer the whole of their undertaking...”

– Clause 14, Bombay Suburban Electric License, 1926

MAR 2009

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More Legal Conditions• “No licensee shall at any time assign his license or

transfer his utility, or any part thereof, by sale, lease, exchange or otherwise without the prior approval of the Appropriate Commission” – Section 17 (3), Electricity Act, 2003

• Electricity business must not subsidize ‘other business’– Section 51, Electricity Act, 2003

• One-third of the profit of such “other business” to be deducted from ARR of Electricity business– Regulation 79.1, MERC Tariff Regulations, 2005

MAR 2009

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Multiple Name Changes• Dec 1992: Name changed from ‘Bombay Suburban

Electric Supply Ltd’ to ‘BSES Ltd’ – Even though required, Electricity License not amended

• 1992-2003: Reliance starts buying up BSES Ltd

• Feb 2003: New Businesses included in MoA of BSES Ltd (Real Estate, Infra, DTH, Cellular, Mutual Funds)

• Jun 2003: Electricity Act 2003 comes into force

• Feb 2004: ‘BSES Ltd’ changes its name to ‘Reliance Energy Ltd’– Even though required, Electricity License not amended

MAR 2009

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Jul 2004: MERC’s Order

• “Mere change in name in terms of the

provisions of the Companies Act, 1956 has no

other legal implication and that, the entity

remaining otherwise the same, no fresh issue

of License … is required..”

– MERC Order, Case No 18 of 2003 dt 1.7.2004

MAR 2009

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But the Law is very clear !• The Electricity Act supercedes the Companies Act, if

there is a conflict – Section 616 (c) of the Companies Act, 1956

• The Electricity Act has an over-riding effect on the Companies Act– Sections 173 & 174 of the Electricity Act, 2003

• Even though Companies Act permits transfer of rights on change of name, the Electricity Act needs an application for License transfer– In this case, NO transfer was ever asked for, nor ever

done!!

MAR 2009

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Oct 2005: RTI Reply

MAR 2009

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Dec 2005: RTI Reply

MAR 2009

Dec 2006: RTI Reply

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MAR 2009

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May 2006: ATE Order

• “It is seen that Reliance has not placed a copy of license in its favour, so also the contract entered … has not been placed before MERC or before us. It is stated, licenses and the contract are lost and not traceable.”

– Para 40, Page 22, Hon’ble Appellate Tribunal for Electricity Order in Appeal No. 31 & 45 of 2005, dated 22.5.2006

MAR 2009

Mar 2008: New Name..New Vision!

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MAR 2009

Jun 2008: RTI Reply

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MAR 2009

Jul 2008: Rel-Infra Ad

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MAR 2009

Aug 2008: MERC’s Regulations

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“Provided that the Appropriate Commission shall, within one year from the appointed date, specify any general or specific conditions of licence applicable to the licensees referred to in the first, second, third, fourth and fifth provisos to section 14 after the expiry of one year from the commencement of this Act.”

MAR 2009

Aug 2008: MERC’s Regulations

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But ‘Reliance Energy Ltd’ has ceased to exist!!If MERC wanted to draw a reference to REL’s original

application for transfer, it could have issued the Regulations in favour of ‘Reliance Infrastructure Ltd (formerly known as Reliance Energy Ltd)’ – which is

the correct legal manner..

MAR 2009

Nov 2008: MERC’s ‘Recognition’

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Is ‘recognition’ of name change = Assignment/Transfer/Issue of License?

Doesn’t the License itself have to be endorsed / stamped / amended ?

Oops, I forgot…the License is LOST, right ??

MAR 2009

March 2009: REL’s website

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What is meant by ‘Reliance Energy companies’ – As per R-Infra, ‘Reliance Energy’ is a brand name – but in Delhi their name is BSES! Yet their website states that ‘Reliance Energy companies distributes electricity … including Mumbai & Delhi’

MAR 2009

Mar 2009: Rel Infra’s website

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R-Infra’s Registered Office is the same ‘Reliance Energy Centre’ at Santa Cruz (E). Yet R-Infra claims that ‘none of the licensed assets are used for other business’. When the Office building itself is the same, how can we be sure our tariff is not paying for the other investments in Road, Urban Infrastructure, Specialty Real Estate, etc. ??

MAR 2009

Mar 2009: MERC’s website

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• MERC’s own website still lists REL in their “List of Utilities / Licensees”

• R-Infra claims that “Reliance Energy” is their Brand Name. Did MERC grant Licensee status to a Brand Name?

• Can MERC clarify which ones are ‘Utilities’ and which are ‘Licensees’?

MAR 2009

JUST THE FACTSA Recap…

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MAR 2009

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Just the Facts • The Mumbai Suburban License is LOST and not

traceable !

• In any case, as per RTI, this License never belonged to BSES Ltd – so how could it now belong to REL?

• An Electricity License MUST be assigned, on transfer, as per Electricity Act

• For assignment, prior written permission must be taken

• The Electricity Act supercedes The Companies Act

• License Business must be taken over as a whole, not piecemeal

MAR 2009

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Just the Facts • Electricity companies must take permission for

doing ‘Other business’

• ‘Other business’ profits must subsidise electricity business

• REL has been doing ‘Other business’

• MERC rules that ‘mere name change’ does not require a fresh License

• BSES to REL and REL to R-Infra were much more than just a ‘name change’

• Till Jun 2008, R-Infra was NOT a ‘Licensee’ as per MERC

MAR 2009

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Just the Facts • In Aug 2008, MERC issued Regulations stating that

was treating REL as a Licensee under proviso to Section 16 – ‘recognises’ name change to R-Infra

• R-Infra tells its consumers that ‘Reliance Energy’ is a brand name, while Reliance Infrastructure is the company name

• MERC still lists REL in list of Utilities/Licensees

• R-Infra has ONE Registered Office (building) for Electricity business and Other business, yet claims that “licensed assets are not being used for other business”

MAR 2009

MORE QUESTIONSFinally …

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MAR 2009

Isn’t anybody answerable ??• Since REL itself is admitting (publicly and proudly)

that it has been doing other businesses for the past 2 ½ years, does MERC still feel that ‘BSES Ltd’ to ‘Reliance Energy Ltd’, was a “mere change of name”?

• Can a Public Hearing for issue of License (u/s 16) be held in the name of REL, and subsequently License be issued to (valid for) R-Infra?? Was legal opinion on this matter taken ??

• Since R-Infra claims that “Reliance Energy” is their Brand Name, did MERC grant Licensee status to a Brand Name? 40

MAR 2009

Isn’t anybody answerable ??• Can LT PPA be signed for 5 or 10 years when the

present License, whoever it belongs to, will expire on 15th Aug, 2011 (in 2 years)??

• Can MERC interpret the EA 2003 to infer that “submission of separate accounts” is the same as “reconciling accounting figures” ? Has MERC taken legal opinion on this or provided any justification ??

• Why haven’t the ‘Consumer Representatives’ raised any of these issues during the validation sessions?

• Isn’t MERC guilty of MISUSING Public money while conducting such farcical sessions??

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MAR 2009

Let’s change the perception..

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MERC

MerelyEnhancingReliance’s Coffers

MinimisingElectricityRates Continuously

MAR 2009

43

Tamasoma jyotir gamaya(From darkness unto light)

Contact: Sandeep N. OhriEmail: sandeep.ohri@ymail.comMobile: 98 33 09 7575Moderator: http://groups.yahoo.com/group/bijlee

I sincerely thank the Hon’ble Commission for this opportunity, the time and their patience!

Happy Gudi Padva !!