FE Editorial : Electrifying situation

Written by The Financial Express | Updated: Jan 8 2013, 06:44am hrs
States prefer power blackouts to tariff hikes

Even when the government announced its proposal to restructure R1.2 lakh crore of short-term power sector loans last September, it was obvious that expecting a dramatic change in the way the sector operated was going to be more than a bit of a stretch. After all, commercial losses of power utilities had more than quadrupled over the last five years to an estimated R80,000 crore in FY12 despite at least three reform packages in this period. A committee headed by Montek Singh Ahluwalia gave sweeping concessions to state utilities in 2001, the government has had an Accelerated Power Development and Reform Programme (APDRP) and even a Restructured APDRP, and a few billion dollars were also lent out by the World Bank to individual states against a promise for future reforms. Despite this, the average tariff-to-cost ratio for power, which was 82.2% in 1992-93 before falling to 67.8% in 1999-2000, rose to 82.2% in 2006-07 but started falling after that, to around 78% today. So even while the government said it was serious about linking the short-term loan restructuring to reformstargets were set for reducing the annual gap in tariffs and costsits worth keeping in mind that while the outlays for the APDRP were over R50,000 crore, the actual amount sanctioned has been under R15,000 crore, suggesting states werent interested in even moderate reforms.

This time around has been no different and, with states not too keen to accept formal tariff hike commitments, the government has been forced to extend the date for states signing on to the new package by another 3 months. Of the 8 states who evinced an interest in the proposal, only Rajasthan has submitted a proposal so far. How states are managing to stay afloat despite the crippling losses is another story. As FE reported Monday, states have dramatically increased the amount of load shedding theyre doing. In the case of Haryana, for instance, the peak power shortage has more than doubled in the last year, from 3.6% in April to November 2011 to 9.5% in 2012, in the case of Uttar Pradesh this has gone up from 10.5% to 13.6%, from 6.4% to 12.3% in the case of Tamil Nadu and from 9.8% to 18.4% in the case of Karnataka. Even this, however, may not be sustainable since, in the case of Uttar Pradesh for instance, power rates are trending up, and in a big way. The UP Power Corporation called for bids to supply 6,000 MW of power and the average bids got at R5-6 per unit were 50% higher than the open market prices over the past yearobviously power suppliers are taking no chances with environmental delays as well as poor coal supplies. Which means UP will have to either hike tariffs dramatically or raise the power outages equally dramatically. Given that UP accounts for a fourth of SEB losses in the country transmission and commercial losses in the state actually rose in FY11its clear the new package will go nowhere until the state signs on. Whether it can be forced to deliver during whats clearly the run up to the elections is another matter.