1. Industry bears cost of keeping power tariffs low for households; here’s why regulators want to stop that

Industry bears cost of keeping power tariffs low for households; here’s why regulators want to stop that

Several state electricity regulators have sought an overhaul of the current subsidy regime in the power sector where industrial consumers bear the cost of keeping tariffs low for households and the farm sector.

By: | Published: October 3, 2016 6:29 AM
Existing and former state power regulators who FE spoke to also picked holes in the Ujwal Discom Assurance Yojana (UDAY), which is being implemented at the behest of the Centre to improve discoms' financial health. (Reuters)

Existing and former state power regulators who FE spoke to also picked holes in the Ujwal Discom Assurance Yojana (UDAY), which is being implemented at the behest of the Centre to improve discoms’ financial health. (Reuters)

Several state electricity regulators have sought an overhaul of the current subsidy regime in the power sector where industrial consumers bear the cost of keeping tariffs low for households and the farm sector.

Regulators point out that in any market, bulk consumers get higher discounts than others and what’s being followed in the power sector is a distorted system that needs to be corrected. They also want the state governments and discoms to inform them of the subsidy levels they need to maintain for chosen consumers in time for the tariff revisions.

“The government needs to introduce direct benefit transfer for underprivileged consumers rather than cross-subsidising their tariff,” Desh Deepak Verma, chairman of Uttar Pradesh Electricity Regulatory Commission (UPERC), said.

He added that discoms often find it futile to install meters for consumers where the tariff is fixed irrespective of consumptions. This creates an opaque system where point of theft or pilferage and its quantum is never known, he said.

power

Existing and former state power regulators who FE spoke to also picked holes in the Ujwal Discom Assurance Yojana (UDAY), which is being implemented at the behest of the Centre to improve discoms’ financial health. Admitting that the scheme was better than the ones in 2012 and in early 2000s, the regulators reckon that it would end up rescuing banks rather than solve problems faced by discoms.

In November last year, the Union government unveiled the UDAY scheme to revive discoms’ financial health by reducing debt and mandating strict efficiency improvements milestones. Under the scheme, the states are supposed to progressively take over three-quarters of the debt and issue bonds against it. This is intended to bring down the interest cost of the discoms by 3-4 percentage points. So far, 16 states have signed up for the scheme.

“The scheme is aimed mostly at ensuring that banks that have lent to discoms get their money back, but doesn’t address the root cause of discoms’ continued dismal performance,” Verma said.

His sentiments were echoed by West Bengal electricity regulatory commission chairman Rabindra Nath Sen and former chairman of CERC Pramod Deo.

“Although West Bengal is not a signatory to UDAY, the scheme is only marginally better than previous such schemes where discoms were subjected to financial restructuring, but didn’t yield desired results,” Sen said. He added that introducing competition into the working of discoms was the only reform that can ensure operational efficiency. “West Bengal’s distribution companies are in a relatively better shape because of the presence of private operators and competition even among state-owned ones,” Sen said.

UPERC’s Verma also lamented the lack of competition among discoms. He said while complete privatisation wasn’t an ideal solution politically, even franchisee model of power distribution has had limited success because of discoms’ interference out of fear of losing their turf. “Electricity Act, 2003, mandates unbundling of state-owned power companies to bring about accountability to different arms of the sector and also to introduce competition. However, many states have worked to defeat the purpose by creating an umbrella organisation like UP Power Corp, in case of Uttar Pradesh, which takes all the decision of various discoms,” Verma added.

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