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Wednesday, 23 November 2011 00:49
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New circuit breakers

Tamil Nadu wants a 38% tariff hike, others also hike

 

Tamil Nadu is perhaps the best example of the extreme populism, limited repair and near-complete hopelessness that dogs the country’s power sector. Between 2003 and 2009, there were no tariff hikes at all in the state, though there was a 9% hike in 2009-10, as a result of which the state’s accumulated losses were R40,700 crore in March 2011, or around a fifth of the power sector losses in the whole country. New chief minister J Jayalalithaa has now proposed a 38% hike in tariff levels—the petition has been filed with the state electricity regulator—but according to broking firm CLSA’s estimates, there will still be a revenue gap of R3,500 crore in 2012-13. And that’s assuming there are no hikes in costs of raw materials like coal—and we’re still not talking about making any dent in accumulated losses. Uttar Pradesh has loss levels that are pretty close to Tamil Nadu’s, but since the state is going in for elections, there is little hope of any reasonable hike there. So, overall losses will continue to be a big problem for the power sector, and a big headache for banks that have no option but to restructure the loans.

There are, though, two rays of hope. For one, over the past 18 months, 22 states have hiked tariffs—though this is nowhere near what is required, it does hold out the hope that the haemorrhaging may be checked. Rajasthan’s 23% power hike was a great move, for instance, but since there were no hikes for six years before this, the arrears are a whopping R21,350 crore. While a government package—all eyes are on the Shunglu report that is already overdue—will take care of some of the arrears, the issue is whether the states will continue to hike rates in future. This is where the Appellate Tribunal for Electricity’s ruling is important—last week, it ruled that state electricity regulators have the right to raise rates even if the state-owned electricity utilities don’t make a pitch for higher rates. That’s a big step though, since the regulators are hired by the same state governments, it’s not certain if they will hike tariffs—in Delhi, the privately-owned power firms made regular representations for hikes, which were turned down for years by the regulator. Perhaps the banks the electricity utilities are approaching for restructuring of loans will make this conditional on regular power hikes? It’s the only hope.

 

 

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