Government effort for steep hike in power tariffs to revive ailing distribution firms is likely to face challenges as up to 37 per cent increase has already been effected in recent times, says an expert.
Burdened with losses of about Rs 2.46 lakh crore, power distribution companies (discoms) are already under pressure from regulatory authorities as well as lenders to increase tariffs.
"Considering that hefty tariff hikes have already been announced by many discoms in recent times, it would be pretty difficult and challenging for government to have another round of hikes," global consultancy Ernst & Young's Partner (Infrastructure Practice) Kuljit Singh said.
The accumulated losses of the state discoms are estimated to be about Rs 1.9 lakh crore as on March 31, 2011 and Rs 2.46 lakh crore as on March 31, 2012. Singh said, however, that electricity tariffs have been already increased by 10-30 per cent in the last 15 months.
At least 18 states have announced significant tariff increases during the period, with Tamil Nadu proposing as much as 37 per cent hike. Singh said, ideally, agriculture tariffs should be hiked, as industrial and commercial rates are already high.
On October 5, the Power Ministry had notified a financial restructuring scheme for state-owned discoms that includes conversion of 50 per cent of their short-term debt into bonds backed by respective states.
"The restructuring/re-scheduling of loan is to be accompanied by concrete and measurable action by the discoms/states to improve the operational performance of the distribution utilities," the ministry had said. Besides, the government is working on a State Electricity Distribution Responsibility bill, which would have stringent norms to ensure good performance of discoms.
These efforts come at a time when the deteriorating financials of discoms have raised concerns for the overall financial sector.
Meanwhile, the restructuring scheme would be supported through a transitional finance mechanism by the Centre. A key requirement to be eligible for the programme is that discoms have to "ensure regular rationalisation of tariff to cover cost of service".
Under the restructuring initiative, 50 per cent of the outstanding short term liabilities of discoms up to March 31, 2012 would be taken over by the respective state governments.
Meanwhile, financial services firm Karvy has said in a recent research note: "We expect APTEL's (Appellate Tribunal for Electricity) initiatives to hike tariffs, rigid lending and favourable political will would augur well for timely tariff revisions."