New Delhi: Several state electricity distribution companies (discoms), such as those of Uttar Pradesh and Maharashtra, are expected to revise tariffs to take advantage of the federal government’s ambitious plan to help them restructure short-term debt.
States are already moving towards tariff rationalisation by bridging the gap between the cost of electricity procurement and what they get from consumers, according to several analysts.
This follows an October 2011 judgement by an appellate tribunal that mandated compulsory issuance of tariff orders by states.
At least 19 states, including Andhra Pradesh, Tamil Nadu, Gujarat, Karnataka, Rajasthan, Punjab, Delhi and Madhya Pradesh, have raised tariffs in the past one year.
The distribution sector is projected to require an investment of Rs.3.06 trillion in the 12th Five-Year plan (2012-17) and the proposed increases come as discoms’ net worth turn negative.
“Among major states, all the states have issued tariff order except for Uttar Pradesh, West Bengal and Maharashtra,” said Antique Stock Broking Ltd in a 25 September report. “We expect tariff hike for Uttar Pradesh to be in place in Q2/Q3FY13.”
Credit Suisse India Research said in a 25 September report that “SEBs (state electricity boards) should take adequate tariff hikes to eliminate the gap between average realization and power purchase cost (gap stood at Rs.1.45/kWh as of FY10) within the next three years”.
The cumulative losses of the distribution utilities increased from Rs.1.22 trillion in 2009-10 to Rs.1.9 trillion as of March 2011.
Electricity distribution companies owned by the state governments are finding it difficult to raise working capital and owe Rs.2.46 trillion to banks and financial institutions, power minister M. Veerappa Moily said on Tuesday.
Emkay Global Financial Services Ltd said in a 25 September report that “tariff petitions might be filed by SEBs but we do not expect significant tariff hikes. This is because tariffs are already very high when compared globally and elections over the next two years can pose political hindrance.”
According to the contours of the bailout package proposed by the power ministry and approved by the cabinet committee on economic affairs on Monday, states will take over half the outstanding loans of SEBs and convert them into bonds that will be issued to the lenders and backed by state government guarantees. The lenders are to restructure the remaining 50% and provide a three-year moratorium on principal repayments.
These states will be part of tripartite agreements signed to implement the debt recast. SEBs will also promise to revise tariffs regularly in correlation with costs, besides working to reduce theft, transmission and billing losses from the present levels of 27%. Such an exercise will also help infuse capital into a sector that desperately needs funds and boost the net worth of SEBs.
However, concerns remain about the efficacy of the scheme, given the requirement by the states to acquire the discoms’ debt, which may breach their Fiscal Responsibility and Budget Management limits.
“While we reckon that SEB debt restructuring is positive for the sector in the long term for sustained sector investments, we highlight that it does not improve earnings/ valuation for gencos (generation companies) under our coverage materially as this scheme just improves their working capital cycle,” Credit Suisse said in its report.
The restructured power distributors’ bonds won’t have statutory liquidity ratio (SLR) status, power secretary P. Uma Shankar said on Tuesday.
India has 73 distribution utilities, which include private companies. Of the 40 state utilities that have been unbundled from their SEBs, only 11 are profitable, with the rest making losses after calculating the subsidy provided by the government, according to a Power Finance Corp. Ltd report for 2008-09. Also, only 18 of these utilities have a positive net worth; the remaining 22 have negative net worth, the report said.