In Delhi's case, this alone hikes power costs by Rs 1
The liquidity that will result from the financial restructuring programme of state electricity boards (SEBs) will undoubtedly help the beleaguered sector, but its success will lie in how fast, and how regularly, tariffs are hiked to take care of not just the backlog of debt but also the dramatic hike in power purchase costs. As FE reported yesterday, one of the fastest-growing portions of SEB debt has been what is called regulatory assets, or that portion of tariff hikes that regulators choose not to pass on to customers. In the case of Delhi where the regulatory asset is, according to the Delhi Electricity Regulatory Commission, in the region of R19,500 crore, around two thirds got added on in just FY12 and FY13. With power purchase costs rising dramatically with more electricity being bought from freshly-commissioned plants, such regulatory assets are likely to rise at a faster pace unless there is an equally sharp hike in tariffs on a regular basis. Last Friday’s Cabinet decision to allow plants using imported coal to pass on extra costs to consumers will, if not implemented by state regulators, add to regulatory assets in a big way. While this is around R70,000 crore for 10 states, it is important to understand what this does to tariff levels.
A look at Delhi’s electricity numbers makes this clear. Between all the distribution companies, Delhi will buy around 2,500 crore units of power and, given losses of around 15%, will bill for around 2,125 crore units of electricity in FY14. Take Delhi’s regulatory assets of around R19,500 crore and apply a 12% interest to it—this is what the distribution companies are to be paid each year—and you come to a figure of R2,350 crore. Which means that, even without accounting for the cost of buying more expensive power each year, Delhi’s customers need to shell out around R1.1 more for each unit of power each year for just the interest cost of accumulated debt. This is the cost of delaying tariff hikes each year.