|Wednesday, 10 August 2011 00:00|
Several years ago, Reliance Industries Ltd began shutting down its petrol pumps as it found itself losing money hand over fist because of the government’s huge subsidy policy. The beginnings of something similar appear to be taking place in the power sector, with Tata Power writing to the power minister saying spiralling coal costs are making its 4,000 MW Mundra Ultra Mega Power Project (UMPP) unviable. Reliance Power is reported to be facing the same issue at its Krishnapatnam UMPP. The Adani Group chief has expressed similar concerns, saying that spiralling coal prices are something the regulators need to keep in mind.
If the problem was restricted to a few firms reacting to Indonesia’s recent decision to link coal prices to an international benchmark, that would be one thing. Over the last year or so, several smaller players have also been trying to get out of agreements signed, citing similar reasons of non-viability. The most evocative example of the impact of state electricity regulators not hiking tariffs is that of the the distribution companies in Delhi. In a bid to keep tariffs under control, the regulator has declared legitimate claims of these companies to be ‘regulatory assets’—over time, these regulatory assets total to around R8,300 crore as compared to the annual revenues of these firms of R8,000 crore. So, if their tariffs are to be raised to clear past dues, they’ll have to be more than doubled. Things have got so bad that, a few months ago, the power secretary approached the Appellate Tribunal for Electricity to get details of when various state electricity regulators had last raised tariffs on their own.
Thanks to the state electricity regulators not raising tariffs, losses in the sector have ballooned from R26,400 crore in 2008-09 to R40,000 crore in 2009-10 and to a projected R70,000 crore in 2010-11—the Thirteenth Finance Commission’s exercise projected a loss of R1,16,089 crore in 2014-15. Apart from the losses due to the gap between costs and tariffs rising, bankrupt state governments are delaying paying even routine subsidies—according to the Power Finance Corporation, while state governments had to give R29,665 crore by way of electricity subsidies in 2008-09, they paid only R18,388 crore. It would be a pity if, after beginning to take off, the power sector also goes the way of the petrol distribution sector.