Gujarat units move out for cheaper electricity
With the Gujarat government disallowing the import of cheaper power since April last year, several manufacturing units are contemplating shifting out of the state with a view to reducing their power bills. Before April 2014, tariffs in the state were ruling at around Rs 5 per unit but the power supplied by the state discoms costs around R8 per unit at present.
The state government had disallowed open access on the grounds any import of power would strain the transmission grid.
Gujarat’s case is reflective of a larger country-wide malaise. Moves by large sections of industrial consumers to source power using the open access window and, thereby, reducing the electricity costs substantially have been thwarted by many sate-run distribution companies and load despatch centres (SLDs). Had the discoms and SLDs acted in the spirit of the Electricity Act 2003 that allowed industrial consumers wanting load above 1 MW to choose their suppliers, this key input for production could have become cheaper by up to Rs 2.5/unit and made these units more competitive in the local and export markets.
As for Gujarat, most of the manufacturing companies, faced with rising power bills, are located in the southern and central parts of the state. In addition to Gujarat, Uttar Pradesh too doesn’t allow open access because the state government believes importing power would strain the grid.
While states such as Madhya Pradesh and Rajasthan allow consumers to import power, they have hiked the cross subsidy surcharge which effectively makes buying imported unviable; the cost, after pencilling in the surcharge, works out to almost the same as that charged by the state discoms. Punjab too is raising the cross-subsidy surcharge in phases.
A spokesperson for Raymond Limited, which has a unit in Vapi in south Gujarat, told FE the company had been procuring power at around Rs 5 per unit through open access before April 2014. “However, the cost of power has gone up to Rs 8.10 per unit since the open access licenses were cancelled in April last year,” the spokesperson said. He pointed out the Gujarat Electricity Board”s cost of power itself had seen a massive jump of 50% since 2006. “This spike in the power tariff has resulted in higher manufacturing costs,” he said.
Rakesh Choudhary, executive director of South Gujarat Textile Exporters” Association told FE power tariffs in the state had nearly doubled. “For nearly 16 months now we have been paying close to two times the rate we were paying earlier and we are becoming uncompetitive,” Choudhary said. South Gujarat is an industrial belt with several manufacturing units engaged in the production of textiles and textile related products. While it is difficult to relocate running factories to a different geographical location, Choudhary said given that power costs in the neighbouring regions of Daman and Diu and Silvassa were lower by at least Rs 3/unit, many units were seriously contemplating a move if the situation didn”t change in the next few months.
The southern region of the state alone has nearly 120 units that drew power through the open access route before the licences were cancelled in April last year. An estimated 1,500 MW of power was imported by consumers located in mainly the southern and central parts of the state.
The Gujarat government”s sudden decision to withdraw permission for importing power was challenged by a handful of manufacturers in the Gujarat Electricity Regulatory Commission (GERC) last year. In January this year, the commission, in a scathing indictment of government”s move, held that the decision was “illegal, arbitrary and in contravention of provisions of the Act and regulations framed under it.” Despite the order, the state government is yet to allow open access to consumers.
Gujarat currently has power generation capacity of 23,627 MW of which 19,212 MW comes from conventional sources, while 4,416 MW comes from non-conventional sources. The peak demand for the state, however, is nearly 4,000 MW less than its capacity. “Gujarat has access power but many manufacturing unit avail of cheaper power from outside the state which is leading to the state-owned plants running at a low plant load factor and increasing the cost of supply. That is the reason behind the state forcing consumers to not avail of power through open access,” Krishna Bajaj, chief general manager of Gujarat-based consumer education research society, told FE.
In Delhi, for instance, open access was allowed in October, 2014 after a stiff battle fought before the regulatory commission.
“The biggest hurdle for open access consumers in Delhi has been the private discoms who have not allowed import of power from the market as they fear losing their high revenue base consumers. Both the discoms and SLDC have not been complying with the DERC regulation which is hurting the large public interest of consumers of Delhi,” Gaurav Nand, who runs Indian Energy Regulatory Services and represents open access consumers in regulatory commissions, told FE.