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  1. Despite UDAY, discoms lax on tariff hikes

Despite UDAY, discoms lax on tariff hikes

State-owned power distribution companies (discoms) are reneging on the promise made under the UDAY scheme to revise tariffs promptly to plug revenue deficits

By: | New Delhi | Published: September 14, 2016 6:29 AM
State-owned power distribution companies (discoms) are reneging on the promise made under the UDAY scheme to revise tariffs promptly to plug revenue deficits (Reuters) State-owned power distribution companies (discoms) are reneging on the promise made under the UDAY scheme to revise tariffs promptly to plug revenue deficits (Reuters)

State-owned power distribution companies (discoms) are reneging on the promise made under the UDAY scheme to revise tariffs promptly to plug revenue deficits. Eleven out of 29 states are yet to issue tariff orders for the current financial year. In fact, four states including Tamil Nadu and West Bengal haven’t even bothered to file requests for tariff revisions with their respective regulators. Among the state regulators that haven’t issued tariff orders for the current financial year are those overseeing the heavily indebted discoms of Haryana, Rajasthan and Jammu & Kashmir (see graphic).

While the pressure from political establishments is patently tying the hands of the discoms and in some cases, even the regulators, analysts said the trend could potentially stymie the UDAY scheme and the efforts to resuscitate the loss-making discoms.

Since the tariff orders cannot be implemented with retrospective effect, any resultant increase in the discoms’ revenue gaps due to these lapses/delays would have to be addressed by means other than tariffs. The UDAY scheme was launched in November 2015.

According to guidelines for tariff revision, the discoms are required to file details of revenue requirements and cost of supply for the ensuing financial year to their respective regulatory authorities (SERCs) by December in any year. The regulators will then issue tariff orders by the end of the financial year so that the new rates can be implemented from the start of the next fiscal.

Although SERCs are empowered by the electricity tribunal’s 2011 judgement to take suo motu decision on tariff revisions if discoms fail to file petition on time, such instances are few and far between. Only Kerala’s SERC took the initiative on the discom’s behalf this year. During last year, Tamil Nadu had exercised this power.

graph

The moderate increases in tariffs pose a problems for discoms as its estimated that at the all-India level, these companies generate under-recoveries of nearly 80 paise/unit. An annual rating of discoms brought out by the Union power ministry estimated that only 85% of the cost is recovered by discoms.

Despite the overwhelming effect of inadequate tariff on discoms’ health, the power ministry has chosen to not lay much emphasis on this aspect, arguing that raising tariff to cover costs could penalise the consumers for discoms’ inefficiency.

Under-recovery in electricity sale has been a primary reason for discoms incurring losses. While pilferage and technical losses arising out of obsolete infrastructure also contribute to under-recovery, in case of most discoms, tariffs have historically not reflected the associated costs.

This led to an combined annual loss of over Rs 60,000 crore for FY15 for all discoms. Their combined debt stood at a whopping Rs 5 lakh crore at the beginning of the current fiscal.

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