Few of the troubled states have hiked power tariffs
Given how just 16 of India’s 29 state electricity regulators have issued tariff orders this year despite the sector’s huge losses—tentatively estimated by the Planning Commission at R71,271 crore in FY14, though the number is likely to go up—it is not surprising that electricity discoms have scaled back their power purchases. Apart from the poor availability of fuel, this has been one of the major reasons for the drop in load factors at thermal plants to 65.6% in FY14 from nearly 70% in FY13. Indeed, while the biggest loss-making states have not issued tariff orders in FY15 despite having signed on to the central government’s financial restructuring plan (FRP) which had annual tariff balancing as a pre-requisite, as power minister Piyush Goyal points out, the delay in implementing the FRP meant that the losses of state electricity boards (SEBs) that needed to be restructured also soared. The average electricity hikes, as ratings agency ICRA points out, were the highest in FY13, when the SEBs were the most stressed, and ranged from 2% to 37% with an average of 14%—much of this was due to the fact that states like Tamil Nadu, Rajasthan and Uttar Pradesh had not hiked tariffs for several years before that. With the big hike out of the way, FY14 hikes ranged between 5% and 14% with an average of 7%. Among the states that have not hiked tariffs in FY15 are Rajasthan, Tamil Nadu and Uttar Pradesh, states that have run up the biggest losses and, more important, have signed on for the FRP. While part of the delay could have been attributed to the general elections, in seven states the regulators have not approved any revision in tariffs while in eight others the revision has been a modest 5-10%. In cases where there has been no revision, the regulators seem to have assumed a revenue surplus by projecting lower loss levels and power purchase costs—in the past, such unrealistic assumptions have generally meant large truing up costs in subsequent years.
Though the gap between power costs and tariffs has reduced from R1.44 per unit in FY10 to R1.13 in FY14—sector specialists say the number will be higher eventually—the jump in generating capacity has meant the problem has got a lot more serious. That is why the outstanding loans of the sector are around R2 lakh crore. Till some time back, FRP was touted as the solution, with the states raising electricity tariffs regularly, the banks accepting state-government bonds and restructuring loans to give the SEBs time. But, as was pointed out then, and looks apparent now, the appetite for tariff reform seems low—in even a small state like Delhi, regulatory assets of over R15,000 crore have been created over just a few years. In which case, another solution needs to be looked for. The Gujarat-type separate agricultural feeder is one such, but it will cost money, the states need to come forward and, most important, in even that model, the electricity has to be paid for, with a moderate agricultural subsidy. That reality is something the states have still not accepted.