Telangana’s decision to supply 24-hour free power to farmers is expected to put additional pressure on the state’s two electricity distribution companies (discoms), which had a combined outstanding debt of Rs 13,944 crore at the end of FY16. Agricultural consumer segment contributed only 3% of the Rs 18,672 crore revenue earned in FY16, which translates into around Rs 560 crore. Apart from the loss of this monetary amount, the decision is expected to engender other impediments for the discoms as well. The move is expected to raise tariffs for industrial and commercial consumers through ‘cross-subsidisation’—a mechanism where the price of electricity for the aforementioned segments are kept higher in order to compensate for lower agricultural power tariffs. The practice has repeatedly been flagged as a bane for the industry by power minister RK Singh who plans to cap cross-subsidy rates at 20%. The high levels of cross-subsidisation already existing in Telangana can be reflected by the fact that only 3% of the total revenue were collected from the agricultural segment who consumed 29% of the overall electricity sold by the state, whereas industrial consumers used 28% of the electricity, and contributed 46% to the revenue in FY16. Commercial tariffs in the state are as high as Rs 10/unit.
According to Telangana’s latest electricity tariff order, the discoms would recover the approved revenue from the agricultural sector if they charge farmers at Rs 5.22/unit. The state’s power utilities had reported losses of Rs 2,917 crore in FY16. The ‘free-power’ decision also increases the corpus of subsidy that is to be received by the discoms from the state government. Irregular disbursement of subsidies by state governments to their discoms, which leads to working capital issues, has already been identified as one of the reasons behind the financial woes of the state-owned companies.
In FY16, Telangana had released only 93% of the Rs 4,257 crore subsidies booked by its two distribution utilities. The state has committed Rs 3,235.66 crore as agricultural power tariff subsidy for FY18. Additionally, the move is also not in line with the central government’s policy of using the direct benefit transfer (DBT) to dole out subsidies to the needy section of the society. “Adoption of DBT will meet the twin goals of curbing wasteful consumption and also deliver subsidy to the meritorious efficiently,” the draft National Energy Policy released by the NITI Aayog had said. “Political pressures to provide electricity either free or highly subsidised prices to certain segments of the society have meant that revenues of discoms often fall well short of payments due to generation companies,” the government think tank had added.
The central government’s plan to curb electricity pilferage include schemes like separation of agricultural feeders and supplying electricity to these lines only when pumps are needed to be used for irrigating the fields. This way, subsidised agricultural electricity connections cannot be misused for other purposes. That’s why ‘feeder segregation’ was made one of the operational targets of the UDAY scheme to turnaround financially distressed discoms. However, this decision of Telangana—one of the UDAY participating states— seems to be working in the opposite direction. Though there are some states, along with Telangana, which supplies free power to the agriculture, no other state gives out free power for 24-hours. The state spent Rs 12,610 crore to strengthen the distribution and supply systems for the purpose.