Four reasons why Arvind Kejriwal may not be able to meet power promises

Dec 31 2013, 09:52 IST
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Arvind Kejriwal Arvind Kejriwal
SummaryArvind Kejriwal as Delhi chief minister faces mission impossible on power tariff front.

For Arvind Kejriwal's Aam Aadmi Party (AAP) government in Delhi, the only realistic chance of effecting a cut in power tariff is by sharply ramping up the power subsidy that it offers to consumers, which currently stands at about Rs 400 crore. A higher subsidy for the power sector would mean the Delhi government would have to levy higher taxes or borrow more from the markets. This rejig of its finances will draw down allocations made to other sectors from its overall budget of Rs 37,450 crore estimated for this fiscal.

There are four main reasons why the party’s promise of a 50 per cent cut in consumer tariff appears implausible without higher subsidy support. Simply because these companies buy power and despite Arvind Kejriwal’s assertion of padded costs, there is little space to make any cuts.

1) For fiscal 2013-14, the three private distribution companies have projected an accumulated revenue gap of Rs 3,497 crore, which the regulator, after some pruning, will have to necessarily pass on to the consumer by way of tariff;

2) Then, there is the overhang of regulatory assets — or cost recovery permitted by the regulator in future — on the books of the discoms, which, by itself, warrants an 8 per cent annual rise in levelised tariff;

3) Plus, over 70 per cent of the average costs structure of a discom is accounted for by the electricity purchase costs, something that is beyond the control of the utility considering that nearly 90 per cent of the electricity bought by Delhi’s utilities is thermal power that uses feedstock - coal and gas - that have been seeing a sustained increase in prices.

4) Lastly, Delhi’s current levels of tariff compare favourably with the tariff in the rest of the country, with the rates for the first 200 units broadly in line with the tariff in Mumbai (Reliance Energy and BEST areas) and lower than in adjoining townships such as Ghaziabad or Noida (Uttar Pradesh), Gurgaon (Haryana), as well as other big metros such as Bangalore and Hyderabad.

Former finance and power secretary in the Delhi government, Shakti Sinha said with the overhang of regulatory assets on the books of the discoms (pegged at about Rs 18,000 crore), the state electricity regulator will find it difficult to even keep the tariff at the present level.

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