1. Editorial: Readying to trip

Editorial: Readying to trip

If power sector continues to bleed, who will invest?

By: | Published: March 17, 2015 12:30 AM

The government’s continued focus on getting new capacity on the ground—the Budget talks of 5 new ultra mega power projects coming up—as well as on augmenting coal capacity is welcome, but it needs to pay closer attention to the rapidly deteriorating finances of the state electricity boards. After all, if utilities continue to lose around one rupee per unit of power supplied, it is difficult to see why more investors—or banks—would continue to throw good money after bad. A large part of the problem was to be addressed by the Financial Restructuring Package (FRP) that the UPA had designed to lower the existing debt of state electricity boards in return for a promise of greater discipline. Under the FRPs, state utilities were to regularly submit plans for a change in electricity tariffs depending upon their costs, and state-level regulators were to ensure the sector moved towards financial solvency over a period of time. Sadly, nothing of the sort has happened. After an average hike of 14% in FY13, the year in which the states with bankrupt SEBs were looking to sign on to the FRP, the hikes in FY14 were a mere 7% and an even lower 6% in the case of 22 states who hiked tariffs in FY15. And, according to a recent analysis by ICRA Research Services, the situation is even worse in FY16 where, till date, just 15 of 29 states have seen utilities filing for a hike in tariffs.

While the tariff hike is 15-26% in states like Bihar and Madhya Pradesh, some perspective needs to be added—Bihar never hiked tariffs in FY15 and even after the 21% hike proposed in FY16, the tariff is R4.85 per unit as compared to the cost of R6.07. In the case of others like Andhra Pradesh and Telangana, the hike is much lower at 3-8%. Andhra Pradesh has proposed a mere 5.7% hike while, against its cost of supply of R 5.95 per unit, the tariff is a much lower R4.67 per unit—while the revenue gap is expected to be R2,241 crore, this is because of a subsidy of R6,456 crore. While both Bihar and Andhra Pradesh are relatively poor states, a rich state like Punjab has not proposed any tariff hike though the tariff of R5.62 in FY15 is much below the cost of R6.37 per unit—the state utilities have an uncovered gap of R11,318 crore. States like Tamil Nadu and Rajasthan that have huge regulatory assets—R28,200 crore and R35,300 crore, respectively—have not even felt the need to put in a petition to revise tariffs for FY16. At some point, the power ministry will have to apply its mind on how to deal with such a situation since, it is clear from the ICRA report, the worst-off states are not very focussed on setting things right.

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