While various political parties like the Aam Aadmi Party (AAP) are promising sharp cuts of up to 50% in the power tariffs of certain segments of users, cutting tariffs is not too difficult if various government agencies get together. Close to a fifth of Delhi’s consumer tariffs are actually uncalled for. In terms of absolute numbers, that’s around Rs 3,700 crore.
An important caveat: Most of this is due to the actions of the central and Delhi governments and the regulator, and not so much the electricity distribution companies (discoms).
The maths is reasonably simple. Against an all-India average of Rs 3.85 in FY13, Delhi’s discoms paid Rs 4.84 for the power they purchased, mostly from government-owned generating firms. The AAP’s white paper on the capital’s electricity sector, in fact, cites the Sasan UMPP power tariff of Rs 1.20 per unit against NTPC’s supply costs of Rs 1.75-6.15 per unit and NHPC’s Rs 1.77-12.21 per unit. A difference of just under Rs 1 works out to an extra Rs 2,500 crore that Delhi’s consumers are paying on a regular basis.
One way to fix this is to free up the discoms from these old power purchase agreements and to supply Delhi with a captive coal mine for generating cheaper power.
Apart from the higher costs from coal-based power plants, an added problem is that gas-based power plants in the capital do not work at their rated capacities due to shortage of gas. On average, gas-based power plants work at around 25-30% of their capacity. Yet the discoms need to pay for this, and this sum works out to around Rs 900 crore or so, or 32 paise per unit. This is subsumed in Delhi’s higher average power purchase costs.
An equally large problem occurs due to what are called ‘regulatory assets’, or dues that needed to be paid to discoms but were not. Till FY13, these added up to Rs 13,700 crore. The regulator has allowed an 8% surcharge on the existing tariff to pay for the interest cost each year. This adds up to 48 paise per unit, but this does help repay the dues. A safe assumption is that this number will double if the debt has to be repaid, as it will have to.
A solution would be to start paying part of this back through the Delhi government budget each year, or to use the Centre’s power reforms funds to help clean up the backlog and to ensure that such build-ups are not allowed by the regulator in future.