BackMahagenco needs to get its act together
Though the powerloom industry receives power at highly subsidized rates compared to other industries, it protested the recent tariff hike
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Last month, the Maharashtra government appointed a committee under state industries minister Narayan Rane to resolve the issue of high power cost to industrial and commercial consumers in Maharashtra, which is becoming a major concern since many industries, especially small and medium enterprises (SMEs), are thinking of shifting to neighbouring states such as Andhra Pradesh, Karnataka and Gujarat.
The committee was appointed after a bandh was observed by the powerloom industry in Ichalkaranji and Bhiwandi. Though the powerloom industry receives power at highly subsidized rates compared to other industries, it protested the recent tariff hike for this sector from ₹ 2.40 per unit to ₹ 4.80 per unit even though the tariff for the powerloom sector is much lower than what industrial consumers pay— ₹ 8.50 per unit on average.
But the agitation by the powerloom sector provided an opportunity to other industries to raise their concern about the high power tariffs in Maharashtra and meet Union agriculture minister and Nationalist Congress Party (NCP) president Sharad Pawar, who is considered to be the most industry-friendly politician from the state.
On his part, Pawar assured he would raise the issue with chief minister Prithviraj Chavan and deputy chief minister Ajit Pawar, who also holds the energy portfolio.
According to data available with the Maharashtra Electricity Regulatory Commission (MERC), the state charges industrial consumers the highest, followed by Delhi, at ₹ 6.64 per unit, Tamil Nadu at ₹ 6.04 per unit, Jharkhand ( ₹ 5.82), Karnataka ( ₹ 5.56), Chhattisgarh ( ₹ 5.46) and Odisha ( ₹ 4.95).
One of the major reasons why tariffs are high in Maharashtra is the huge cross-subsidy burden borne by the industry at almost ₹ 8,000 crore per anum, which helps the state government keep tariffs low for farmers, powerloom users and residential consumers.
Apart from the higher tariffs, the state government also pays a subsidy of around ₹ 3,000 crore a year from its own coffers to the state government-owned power distribution utility, Mahavitaran, to keep tariffs for the agriculture sector at low.
Industry lobby bodies have suggested ways to remedy the situation.
For instance, the Maharashtra Chamber of Commerce, Industries and Agriculture made a presentation to the Rane committee earlier last week and suggested that one way of resolving the issue of subsidy to the agricultural sector is by replacing current agriculture pumps with solar power pumps. Instead of incurring a recurring cost in the form of subsidy to the agricultural sector, which is revenue expenditure, the government can provide capital subsidy to farmers to buy solar power pumps.
The presentation claimed that if 150,000 agricultural pumps were replaced by solar pumps, it could reduce the subsidy bill by ₹ 400 crore. There are about 3.1 million agricultural pumps installed in the state.
However, according to power sector analysts, the real issue behind the higher tariff is not the high cross-subsidy but higher power procurement cost of Mahavitaran compared with other state government-owned power distribution utilities. The average cost of power supply of Mahavitaran is around ₹ 6.20 per unit while it ranges between ₹ 4.30 per unit and ₹ 4.50 per unit for most other state utilities.
Analysts also note that one of the major reasons behind the high cost of power procurement of Mahavitaran is inefficient working of its sister concern, the Maharashtra State Power Generation Co. Ltd, or Mahagenco, from whom Mahavitaran sources nearly 42% of its power.
In May this year, for instance, Mahagenco moved an application with the state power regulator MERC to approve capital expenditure on its 1,000 megawatts (MW) plant at Khaperkheda in Nagpur district. Mahagenco asked the regulator to approve the cost of ₹ 7 crore per MW, when the industry benchmark is around ₹ 5-5.5 crore per MW.
The reason behind such a high capital expenditure is time overruns, which are resulting in cost overruns. Mahagenco has put the blame for the delays on central government-owned engineering company Bharat Heavy Electricals Ltd (Bhel). It, however, fails to explain why the same Bhel, which had also supplied equipment to private sector companies such as Indiabulls Power Ltd, which has two thermal power stations in Maharashtra, managed to commission plants within the scheduled time, avoiding time and cost overruns.
Hence, if the state government is interested in solving the issue of higher tariffs, it should also examine the functioning of Mahagenco and make recommendations for improving its functioning.
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