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  1. Dynamic pricing to drive SEBs’ recovery

Dynamic pricing to drive SEBs’ recovery

The revamped financial restructuring plan in the works for debt-laden power distribution companies could include a structured mechanism for frequent tariff revisions to ensure...

By: | New Delhi | Updated: October 20, 2015 1:25 AM
The proposed package could reduce SEBs’ interest cost by 3-5% and would require them to cut down the aggregate technical and commercial losses to 15% in the next two years.

The proposed package could reduce SEBs’ interest cost by 3-5% and would require them to cut down the aggregate technical and commercial losses to 15% in the next two years.

The revamped financial restructuring plan in the works for debt-laden power distribution companies could include a structured mechanism for frequent tariff revisions to ensure that unbridgeable revenue gaps don’t occur in the first place, highly placed sources told FE. While the earlier two financial schemes for discoms — the one launched in 2002 and FRP 2012 — had tied the succour to conditions like annual tariff revisions and reduction of power theft and leakage, though these have never been meticulously followed by the discoms.

The sources said monthly or even fortnightly tariff adjustments aimed at bridging revenue gaps expediently, instead of annual revisions envisaged in the Electricity Act, 2003, could be part of the revamped FRP.

“In the discussion with the UP government (the state electricity board is has outstanding debt of over Rs 55,000 crore), for instance, we have floated the idea of dynamic tariff revisions as now happens with the pricing of petroleum products. With smart meters we could work on a system of revising tariff incrementally, say, every month,” an official said. He added that the state could also look at two different slabs for tariff, one during base-load time of the day and a higher slab for consumption during peak hours.

The official admitted that solutions like dynamic tariff changes would require IT infrastructure that the state currently lacks. Additionally, equipping all consumers with smart meters in a short period would be a massive task.

“The states will not be left to adhere to certain milestones on paper but would be assisted by the central government in preparing a road map. The Centre will also monitor the progress on a real-time basis,” he said.

The power ministry, sources said, has assigned one official to each state with an overburdened SEB to discuss with the respective state government the contours of the new plan and the commitments it would entail. As FE had reported earlier, in order to enable state governments to take over the SEB loans, the Centre is considering allowing them to breach the FRBM norms for a year or two.

The proposed package could reduce SEBs’ interest cost by 3-5% and would require them to cut down the aggregate technical and commercial losses to 15% in the next two years. The plan envisages that these two measures will help discoms enter into fresh power purchase contracts and trigger a revival for stranded generation assets and also breath new life into banks.

“The political dispensations in some of the worse-off states need to follow the examples of their neighbours which are doing relatively well as far as the power sector is concerned. The bureaucracy in Gujarat could exchange notes with Rajasthan and Jharkhand with Chhattisgarh to convince the elected members of the government about the steps needed to put discoms back on track,” the official quoted above said.

The UP government is also considering the proposal to swap coal linkage between inefficient plants and newer plants. The state government would be ready with the first draft of the action plant by early next week. It is expected that a final plan would be ready by the end of the next week after discussions with the central government representative.

High frequency:

*  State electricity boards could commit to revise tariffs on a monthly/ fortnightly basis under new scheme
* SEBs could bring in different tariff slabs for base and peak power consumption
* Centre to monitor  states’ compliance on a real-time basis with the intent to avoid creation of revenue gaps by SEBs

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