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Twenty-three states and five Union territories increased electricity tariffs in the last fiscal year. Photo: Ramesh Pathania/Mint (Ramesh Pathania/Mint)
Twenty-three states and five Union territories increased electricity tariffs in the last fiscal year. Photo: Ramesh Pathania/Mint
(Ramesh Pathania/Mint)

Rise in power tariffs shifts debate to quality

Tariffs reach at least `4 per unit in many states, finds analysis, amid efforts to bail out state discoms

New Delhi: Indian domestic consumers in 16 states are paying at least 4 per unit for power and in some cases even more, according to an analysis, thus giving the lie to the long-held axiom that raising tariffs is nearly impossible in India given the political compulsions. The finding also shows conclusively that the debate should now move on to ensuring quality of power supply to consumers, said officials and experts.

According to the analysis conducted by Deloitte Touche Tohmatsu India Pvt. Ltd for Mint, the tariff comparison was made for domestic households consuming 300 units (kilowatt hours, or kWh) on an average every month on a minimum load of 4 kilowatts.

Besides this, 23 states and five Union territories increased electricity tariffs in the last fiscal year, ranging from a 2% increase in Karnataka to a 73% jump in Tripura. West Bengal has the highest domestic tariff in the country at 6.02 per unit and, along with Himachal Pradesh, Daman and Diu, and Dadra and Nagar Haveli, reduced tariffs in the last fiscal.

Experts say the tariff revisions are a positive for the sector, coming in the backdrop of efforts to bail out beleaguered state electricity distribution companies (discoms) through a restructuring of their short-term loans, one of the most important policy initiatives of the government. Discoms owe 2 trillion to banks and financial institutions.

“It was a seminal year for the domestic tariff increase in the country. This is very encouraging. Along with agricultural tariff, the domestic tariff was subsidized and it was politically tough to implement any tariff increase," said Debasish Mishra, senior director at Deloitte Touche Tohmatsu India, an audit and consultancy firm.

“Realization has set in that with power purchase costs increasing, there is no way that they can be met without increasing the tariff. The entire utility cost structure is going through a paradigm shift. With states not increasing tariffs for many years, (this) has resulted in huge tariff increases last year," he added.

Many distribution utilities are saddled with losses arising from theft, besides transmission and billing inefficiencies. Some regularly bought expensive power to tide over short-term deficits and didn’t revise rates in years. Interestingly, according to a study conducted by energy consulting company Mercados EMI Asia for the 13th Finance Commission, the projected losses in 2014-15 were expected to be 1.16 trillion.

P. Uma Shankar, India’s power secretary, said, “People have realized the importance of discoms being financially viable. We have turned the corner. The debate has now turned towards the quality of service."

The energy secretary of a northern state said on condition of anonymity: “What would a consumer prefer? Having no electricity or paying a little more for it? The debate has definitely shifted from availability of power to quality of it."

With attempts being made to bridge the gap between the cost of electricity procurement and tariff realization, the Union government announced a bailout plan in September 2012 for discoms, which included regular tariff revisions as part of the conditionalities to be met.

The cumulative losses of the distribution utilities increased from 1.22 trillion in 2009-10 to 1.9 trillion as of March 2011. The tariff revisions until were inadequate as the average increase fell behind power purchase costs. The poor financial health is also on account of non-payment of subsidy reimbursements by state governments.

Experts said domestic tariff increases have been accepted because the mechanism for rationalization has been perceived as democratic and transparent.

A senior government official, requesting anonymity, said, “The earlier protests were organized by rival political factions, while now there are public hearings at which residents and industries affected can speak for themselves."

Rao V.B.J. Chelikani, the Hyderabad-based president of the United Federation of Resident Welfare Associations, said, “We are aware that tariffs have to be increased because power production costs are rising and it is a scarce commodity, but it should not be done in one shot. Efficiency in delivery also needs to be looked at. Mismanagement is the name I would give to the handling of the power situation in our country."

To be sure, not everyone is convinced that raising tariffs is the solution given that losses on account of theft, transmission and billing inefficiencies are pegged at around 27%.

“By increasing tariff indiscriminately, we are passing on the inefficiencies of the power sector to hapless consumers," said another government official requesting anonymity.

Also, many experts said much more needs to be done to make the process of tariff revision fair and participatory.

“Improvement in quality of power supply and paying capacity in urban areas along with the perception that payers get a fair hearing has to be contrasted with the still very poor and variable supply of power in rural areas. Moreover, regulatory commissions are based in state capitals, leaving out many voices of protest," said Ashwini Chitnis of Pune-based Prayas Energy Group, which analyses policy in the Indian power sector.

“Much of the increases have been happening also because the consumer does not really realize power charges are going up—the fuel adjustment charge is a big component of electricity charges, but in states like Maharashtra, discoms are allowed to pass it on directly on a quarterly basis without approaching the electricity regulatory commission as long as the increase is capped at a certain level," Chitnis added.

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