It cannot be ATC alone, and efficiency gains critical
While power minister Piyush Goyal has made a sharp reduction in Aggregate Technical and Commercial (ATC) losses—to 15% across all states in three years—a vital part of the SEB revamp package he intends to take to Cabinet this week, ATC is a nebulous concept. Since few states have 100% metering, the ATC losses are a derived number, sometime ‘supplies’ to agriculture are moved up or down, in other cases, subsidy payments from government are used to pad the numbers. A good example is Uttar Pradesh where, from 41.95% in FY12 and 42.85% in FY13, the ATC losses fell dramatically to 24.65% in FY14 while there was no distinct reform that would have caused this to happen. All this while, the state’s gap per unit of supply rose from R1.32 in FY12 to Rs 2.16 in FY14 and losses from Rs 12,006 crore to Rs 17,678 crore in FY14. Now, as part of the review done of the Integrated Power Development Scheme (IPDS)—spending Rs 1.6 lakh crore over three years on schemes like IPDS is part of Goyal’s plan to strengthen transmission and distribution lines and separate feeders—it was found UP’s ATC losses in the first quarter of FY16 were 39%; officials have blamed delayed payment in subsidies by the government for this.
Also, while states argue they are regularly raising tariffs, it is a mixed picture. Rajasthan, which had Rs 73,000 crore of outstanding SEB loans in FY14, has not even issued any tariff order for FY16. The state did raise tariffs by 16.9% in FY15 and 11.3% in FY14, but tariff balancing has to be a constant exercise, to account for costs going up each year. While Rajasthan’s tariff gap had fallen to R2.75 per unit in FY14 as compared to R4.04 in FY12, the numbers have probably changed dramatically by now.
Of course, neither ATC reductions in themselves nor tariff hikes alone can resolve the problem. In the case of Rajasthan, based on the outdated FY14 data, there was a R2.75 gap per unit which would require an unacceptable 72% hike in tariffs. Reduction in ATC losses to Goyal’s 15% target, on the other hand, would provide a cushion of just 14%. Savings will also come from the interest rate cut that Goyal’s package builds in—on average, banks lending to SEBs at 12-13% rates will end up subscribing to state government bonds at 8%. In the case of Rajasthan, interest costs are roughly a fifth of costs, so there are savings to be made here, depending on how much of the loans are restructured. And, as our page one story today points out, if coal supplies are shifted to new power plants that have higher thermal efficiency—the older plants can continue to get their capital cost-based user charges—this can cut costs by 20-25 paise, depending on how much capacity can be substituted. In other words, the package has to comprise several components, all of which have to come together at the same time—that’s usually a tough ask.