Why blame the discoms

Written by Lalit Jalan | Updated: May 24 2013, 07:19am hrs
Power purchase costs of Delhi power utilities rose 300% in the last decade but the tariff revision was limited to 65%

Electricity tariff revision in Delhi is round the corner. Politicised as it is, this subject has always evoked strong public emotions.

A typical Delhi resident has experienced between 100% and 200% increase in prices of various goods and services in the course of the last decade. Yet he has accepted it without raising much hue and cry. However, when it comes to electricity tariff revision, vote bank politics by political parties and activists always come into play.

As an outcome thereof, tariff increase in Delhi, as in other parts of the country, has not at all kept pace with sharply rising costs. Stagnant tariff over a period of time has led to huge build up of unrecovered costs (regulatory assets), to the tune of almost R20,000 crore, impacting sustainability of operations for all three private utilities in the countrys capital.

The entire reform process is at risk for want of cost-reflective tariff. It is in this context that it is important for all the stakeholders to understand why a hike in tariff is necessary.

Electricity tariff as seen by consumer comprises of three componentsgeneration, transmission and distribution. Generation and transmission together constitute power purchase cost and account for approximately 80% of the total cost of Delhi distribution companies. The power purchase cost (PPC) has seen a staggering 300% increase (R1.4 to R5.7/unit) during the last decade.

As 100% power is procured from the central and state government generating units, with tariff determined by respective electricity regulatory commissions (CERC/DERC), it is needless to say that distribution companies have absolutely no control on this most critical component. The increase in PPC has been mainly on three counts. First, higher coal imports at over four times the cost, necessitated by constraints in domestic coal production. Second, pressure on cost in recent years has also come from greater component of newer plants with higher fixed cost. Third, a sharp rise in both production and transportation cost of domestic coal has played its role.

One of the most critical challenges faced by the power sector in India today is exceptionally high commercial losses. The focus on containing theft in Delhi has led to unprecedented reduction in commercial loss (theft of electricity) from 45% at the time of privatisation to 5% now. This loss reduction is the single most important factor responsible for easing the significant upward pressure on tariff levels in recent years, due to sharply rising PPC.

As a consequence of rising PPC, electricity tariff too should have gone up by 300% but due to the record loss reduction and improvements in operational efficiencies, mere 90% tariff increase was sufficientthe actual revision has been limited to 65% and that too with majority of it coming in the last two years.

Despite 120% increase in the consumer price index (CPI), operating cost has seen declining trend. Loss reduction and operational efficiency improvements have meant a whopping R37,500 crore cumulative savings till date to Delhi government and R7,500 crore every year, here after.

Rise in prices of essential commodities in Delhi has been even steeper; pulses went up by 206% and sugar went by 140%. Even prices of other utilities like Delhi Metro, water supply and DTC buses have increased anywhere between 150-200%. Not to mention the price of petrol, diesel and LPG increased by around 190%.

Compared to such a steep hike in the prices of other items, the electricity tariff increases have been limited to a mere 65%. In spite of providing reliable and quality power supply, Delhi has cheaper electricity tariff when compared to its neighbours. After accounting for the running cost of a backup generator (R16/unit), households in other towns pay 200% more than Delhi households for comparable quality of supply. Even when compared to other metros, tariff in Delhi is significantly lower.

There is a need to not only mobilise but also sustain national consensus towards cost reflective tariff. It is high time for all of us to understand that we cannot afford the luxury of vote bank politics any more. Last year was a truly landmark year, as almost all states across the country effected revisions in electricity tariff, with hikes ranging up to 37%. This was in sharp contrast to the past when it was not uncommon to find states with no tariff revisions for 5-6 years in a row and some for even a decade. While a good beginning has been made, much more needs to be done.

The author is CEO of Reliance Infrastructure Ltd, which distributes power in Mumbai, Delhi and Orissa. Views are personal