Before the MAHARASHTRA ELECTRICITY REGULATORY COMMISSION World Trade Centre, Centre No.1, 13 th floor, Cuffe Parade, Mumbai 400 005. Tel. No. 022 22163964/65/69 Fax 022 22163976 E-mail mercindia@mercindia.com Website: www.mercindia.com CASE No. 47 of 2003 In the matter of Appointment of foreign firm as Management Consultant by Maharashtra State Electricity Board. Shri P. Subrahmanyam, Chairman Shri Jayant Deo, Member Dr Pramod Deo, Member ORDER Dated: 8th July, 2004 Under their Petition dated 3rd November, 2003, M/s N.N. Kale & Associates (through Shri N.N. Kale) and Dr B.R.Sabade have prayed as follows: "i) ii) iii) iv) As MSEB is suppose to maintain the transparency in all its dealings under the Electricity Act, 2003, under Section 86(3) and the Electricity Regulatory Commissions Act, 1998. Kindly order MSEB to forward all the documents related to the order to us, as we are the Petitioners in the case. In addition, we are under privilege under the Maharashtra Right to Information Act, 2002 to get all the documents as said under para 15 above as MSEB is covered under the Act. We would like to have the copies of main agreement with all related other documents with details of payments before the hearing of the Petition. The merits of the Application need to be examined by MERC. We pray to the Honourable Commission to grant stay on the operations of the agreement of MSEB and Deloitte Haskins & Sells until the matter is heard and decided by the Honourable Commission. Further order MSEB for not making any payment to Deloitte Haskins and Sells and progress the matter until the Petition is heard and decided by the Honourable MERC Further, it is prayed to direct MSEB to submit copies of the agreement between MSEB and Deloitte Haskins & Sells to MERC for its approval. MSEB is not suppose to enter such agreement in future directly without MERC s prior approval as all the standards of the operation are to be decided by MSEB with G:\adn\COMMISSION ORDER\Order-Shri NN Kale [Case No. 47 of 2003] - Appt.of foreign firm.doc Page 1 of 6
approval of MERC as per Section 57 of the EA, 2003 which is in the operation from 10.6.2003. v) To order the cancellation of the appointment of foreign firm Deloitte Haskins & Sells, apparently a foreign firm as Management Consultants after the Application is heard by the Commission and the merits of the case has been understood. MSEB needs to be directed to appoint Indian Consultants. vi) vii) To give the guidelines to MSEB for the appointment of Indian and foreign consultants. Further it is necessity for the Honourable Commission to direct MSEB to appoint the Public Information Officer under the Maharashtra Right to Information Act, 2002. To recover the cost of this illegal appointment from the officers of MSEB who are responsible to taking such wrong decision and order GoM to conduct the inquiry by appointing independent High Court or Supreme Court judges and take disciplinary action against all such officers and especially Members of the Board of MSEB." 2. The Petition states that, according to press reports, the Maharashtra State Electricity Board (MSEB) have appointed M/s Deloitte Haskins & Sells, who are apparently a foreign firm, as Management Consultants. It also refers to press reports to the effect that foreign consultancy firms cannot offer services in India in their own name merely by inducting Indian professionals. Some of the matters assigned to this firm overlap with the scope of Cost and Management Audit, which is the subject matter of separate proceedings before the Commission. Moreover, it is not clear whether the appointment has been made in a transparent and competitive manner. 3. The Petition states further that, as per Section 57 of the Electricity Act (EA), 2003 all the standards of operations and management of MSEB are to be decided in consultation with the Commission. Thus, such an agreement with a consultancy firm requires the Commission s prior approval. Moreover, under the WTO General Agreement on Trade and Services, unless there is a reciprocal agreement between India and the country where M/s Deloitte Haskins & Sells are registered, it needs to be examined whether MSEB can enter into an agreement with them. The Petitioners also state that, when Indian professionals capabilities are available, it it not appropriate to engage a foreign firm. According to the Petition, the agreement between MSEB and such foreign consultants requires Government of India (GoI) approval, which will not be granted unless there is a reciprocal opportunity for Indian firms. The Reserve Bank of India may also not grant permission without a No Objection Certificate from various agencies. Further, the Articles / Rules and Regulations of MSEB, in the Petitioners' opinion, do not permit them to enter into such contracts. 4. In the context of MSEB's submission dated 15th September, 2003, on an earlier letter from the Petitioners, the Petition states that MSEB are required to appoint a Public Information Officer and provide to them copies of the agreement, details of appointment, etc., under the provisions of the Maharashtra Right to Information (MRI) Act. G:\adn\COMMISSION ORDER\Order-Shri NN Kale [Case No. 47 of 2003] - Appt.of foreign firm.doc Page 2 of 6
5. In their reply dated 14th January, 2004, MSEB have stated that a consultancy contract has been awarded to M/s Deloitte Haskins & Sells, Mumbai to assist them in developing and implementing internal reforms and related activities. The firm has submitted a document of their registration dated 22nd October, 2002, issued by the Institute of Chartered Accountants of India. The scope of work of the contract is different from the scope of the Cost and Management Audit Committee sought by Shri N.N. Kale in his separate Petition (Case No. 32 of 2001). The contract has been awarded through public tender following MSEB s prescribed procedures, and copies of advertisements are attached to the reply. 6. MSEB also submitted that the Petitioners' reference to Section 57 of EA 2003 is irrelevant and misconceived inasmuch as it relates to standards of performance of a licensee which are to be specified by the Commission. This has nothing to do with the engagement of consultancy services by MSEB. The Commission, as a regulatory authority, is entitled to regulate various matters relating to the supply of electricity and, to that extent, supervise MSEB s functioning. It would, however, be absurd to suggest that every contract entered into by MSEB required the Commission s approval. Thus, no provisions of EA, 2003 have been indicated under which the Petition is maintainable and it should, therefore, be dismissed with compensatory costs. MSEB have stated further that they would consider any request made under the provisions of the MRI Act to provide copies of the agreements, etc., with M/s. Deloitte Haskins & Sells. In fact, the Petitioners earlier request was forwarded to MSEB on 20th November, 2003 by the Secretary to the Commission, and Shri N.N. Kale was asked by MSEB to pay the required costs, which had not been done so far. 7. With regard to the nature of the consultancy assignment, MSEB's reply states that MSEB and their Unions have signed a Memorandum of Understanding (MoU) with GoM to undertake an internal reform programme. GoI, Rural Electrification Corporation and Power Finance Corporation have also sanctioned financial assistance under APDRP to improve MSEB s system network and reduce the T&D losses, which is one of the main components of internal reforms. M/s Deloitte Haskins & Sells have been appointed to advise MSEB on various further reform activities, setting up systems for O&M circles as profit centers, setting up of consumer facilitation centres, etc. (Subsequently, under letter dated 22nd January, 2004, a copy of which has been endorsed to the Commission, MSEB have provided copies of various agreements to Shri N.N. Kale.) 8. The admissibility hearing was held on 21st June, 2004, which the Petitioners regretted their inability to attend, but urged the Commission to proceed and decide the matter thereafter taking into account the record. At the outset, Shri Gaurav Joshi, Counsel for MSEB challenged the maintainability of the Petition. He brought to the Commission's notice the relief clause in the Petition (set out at para 1 above), which outlines its scope. A reference is made to Section 86(3) of the EA, 2003 and also to the Electricity Regulatory Commissions (ERC)Act, 1998, which has been repealed. Section 86(3) reads as follows: The State Commission shall ensure transparency while exercising its powers and discharging its functions. G:\adn\COMMISSION ORDER\Order-Shri NN Kale [Case No. 47 of 2003] - Appt.of foreign firm.doc Page 3 of 6
Counsel drew attention to the fact that this Section does not apply to MSEB at all but to the Commission, and reliance on it is, therefore, misconceived. 9. MSEB Counsel further submitted that the ERC Act has been repealed by the EA, 2003. He submitted that, in fact, as per a ruling of the High Court in the case of a challenge by MSEB to an Order of the Commission passed under the ERC Act, even that challenge must be under the provisions of the EA, 2003. Counsel submitted that, primarily, the old Act survived for 1 year only in terms of existing licences under the 1st proviso to Section 14. Moreover, the Petition makes only a general reference to the ERC Act. 10. Counsel further submitted that relief claimed under the MRI Act does not lie before the Commission, since (i) (ii) that Act has a separate procedure by which an application has to be made to the concerned officer of MSEB and, upon rejection, there is a separate appeal procedure, upto the Lok Ayukta. any Order of the Commission to disclose documents would be restricted in scope, unlike the MRI Act which provides general powers, since it would have to consider the nature and relevance of such information to the matter at hand. 11. Counsel urged that the grounds asserted for granting stay on the agreement of MSEB and Deloitte Haskins and Sells were based on a resolution that had not been ratified. It had only been passed by the Working Committee of the Chartered Accountants Association, and awaited approval from the Executive Committee as well as the GoI. In any case, there would be a separate dispensation governing these matters. The main grievance of the Petitioners was that the firm was a foreign firm, which was baseless. All the partners were Indian. It was also registered with the Institute of Chartered Accountants of India. The consultants were appointed by MSEB for internal reforms after following due procedure. MSEB Counsel submitted that the relief clause also demanded that copies of the agreement between MSEB and Deloitte Haskins & Sells be furnished, which they had been willing to do. 12. The Petitioners contention that approval for entering into the consultancy agreement was needed from the Commission was based on Section 57, which MSEB Counsel quoted as follows: 57(1): the appropriate Commission may, after consultation with the licensees and persons likely to be affected, specify Standards of Performance of a licensee or a class of licensees. 57(2): if the licensee fails to meet standards specified under sub-section (1) without prejudice to any penalty that may be imposed or any prosecution that may be initiated, compensation would have to be paid to the person affected. G:\adn\COMMISSION ORDER\Order-Shri NN Kale [Case No. 47 of 2003] - Appt.of foreign firm.doc Page 4 of 6
Counsel submitted that Section 57(1) was inapplicable. It dealt with what the appropriate Commission had to do and not what the licensee had to do. He submitted that the objective of Section 57 is that, upon failing to meet certain specified standards, compensation would have to be paid to the consumer, without prejudice to any other penalty. He also submitted that, firstly, the standards of performance had not yet been specified by the Commission. Secondly, such standards would relate to the supply of electricity, and not to the appointment of consultants for advising the licensee (in this case with regard to internal reforms). The Commission observed that it has a mandate to ensure economical and efficient working, and for this purpose it can be argued that the Commission can look into many other aspects of a licensees working such as procurement of professional services, etc. MSEB Counsel reiterated that Regulations laying down standards of performance such as to promote efficiency and economy would have to be issued by the Commission, and their breach would result in penalty. Moreover, unless a law existed to that effect, a Regulation cannot be made under the electricity statute prohibiting the appointment of a foreign consultancy firm. 13. MSEB Counsel submitted that, while it had various powers to make Regulations or oversee the functioning of MSEB, the Commission cannot take over the supervision of the day-to-day internal management functions of MSEB. Counsel submitted that the process of appointment had been transparent. The consultants had been selected after following due procedure, through open tenders. He recalled an instance where a supplier had approached the Commission complaining that MSEB were not awarding him the contract for supply of meters, and that the Commission had rejected the Application stating that it was not the proper forum. 14. MSEB Counsel drew attention of the Commission to the rejoinder filed by the Petitioners dated 18 th May 2004. A reference was made to Section 181(2)(za) and (zb) which require the Commission to specify Regulations on matters set out in Sections 57 and 59. However, the contention that these deal with Regulations governing appointment of consultancy firms is incorrect. Instead, these provisions deal with framing of Regulations for standards of performance and the period within which information regarding the levels of performance achieved are to be submitted by the licensee to the Commission. 15. Counsel also drew attention to MSEB's reply dated 14th January, 2004 (page 7/12). He submitted that the functions which Deloitte Haskins & Sells were supposed to perform related to assistance in internal improvements and had nothing to do with standards of performance Regulations. The detailed scope of work has been set out. The Commission observed that the scope of work includes matters relating to energy accounting, cost audit, etc. in which the Commission was keenly interested and had referred to in various Orders. In that background, such engagement for taking assistance on these matters was important to the Commission. MSEB Counsel stated that he appreciated this, but queried as to whether there was any provision or cause for the Commission to prohibit engaging such consultants. For cost audit systems, the Western India Regional Council of ICWAI had been appointed. Counsel submitted that the Petitioners had raised objections to that also in their rejoinder, which was not a part of the Petition and outside its purview. G:\adn\COMMISSION ORDER\Order-Shri NN Kale [Case No. 47 of 2003] - Appt.of foreign firm.doc Page 5 of 6
16. The Commission notes that the Petitioners have cited Sections 57 and 59 read with Section 181(2)(za) and (zb) of EA, 2003 to claim its jurisdiction to intervene in MSEB's engagement of M/s. Deloitte Haskins & Sells to advise and assist them in various matters relating to internal reform, details of which have been furnished by MSEB. These provisions have also been cited to urge the Commission to frame guidelines for the appointment of consultants by MSEB. Under Section 57 read with Section 181(2)(za), the Commission can specify (i.e. by Regulations) the performance standards which licensees are required to maintain, failing which compensation is liable to be paid to affected persons. These Regulations are being formulated separately. Section 59 inter alia requires licensees to furnish information to the Commission regarding the level of performance achieved. Such standards of performance clearly relate to end-results and not to the internal management and executive processes and means by which a licensee seeks to achieve them. These processes may include seeking outside advice and assistance in effecting improvements or on other matters, irrespective of whether or not they relate to the specified standards of performance. Interfering in internal processes such as the engagement of consultants for such purposes by licensees, either directly or through Regulations, would be tantamount to the Commission taking over their day-to-day executive functions, and is not mandated by any provisions of EA, 2003, leave alone those which have been cited. 17. Similarly, the questions of whether or not M/s. Deloitte Haskins & Sells are a foreign firm, and whether or not foreign consultancy firms can offer services in India, are outside the purview of the Commission and the ambit of EA, 2003 itself. There may exist a separate dispensation for these matters under which remedies may be sought. In any event, the Commission is not concerned with them. 18. It appears from MSEB's letter dated 22nd January, 2004 that copies of documents sought by the Petitioners have been provided to them. In any case, the Commission has no powers under the MRI Act cited by the Petitioners, which provides for separate remedies. 19. The Commission has generally refrained from awarding costs to one party or another. It has seriously considered doing so in this case, since the Petitioners have sought to stretch the interpretation of its jurisdiction under EA, 2003 to absurd lengths, resulting in infructuous expenditure of time and money by all concerned. However, the Commission has decided not to do so since the Petitioners have not approached it with any vexatious or malafide intent. With the above observations, the Commission declines to admit the Petition. Sd/- Sd/- Sd/- (Jayant Deo) (Pramod Deo) (P. Subrahmanyam) Member Member Chairman, MERC Sd/- (A.M. Khan) Secretary, MERC G:\adn\COMMISSION ORDER\Order-Shri NN Kale [Case No. 47 of 2003] - Appt.of foreign firm.doc Page 6 of 6