BEST seeks property tax hike; eyes R500 crore to feed deficit

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Mumbai | November 19, 2014 3:44 AM

BEST has written to the city municipal authority, asking them to increase the property tax in such a manner that...

Brihanmumbai Electric Supply & Transport Undertaking (BEST) has written to the city municipal authority, asking them to increase the property tax in such a manner that it adds R500 crore to its coffers to bridge the deficit faced by the cash-starved utility.

“We have no choice. Our deficit is already running in excess of R200 crore per year since 2004-05. Since 2010, it has increased to R400 to R500 crore. The Mumbai municipality needs to take up the loss,” a BEST official said.

BEST has two divisions — electricity and bus transport.  The latter is incurring losses. The state-owned entity depends on the electricity business to offset the losses to an extent. BEST’s power business posted a profit of R177.36 crore in FY14 while its bus division reported a loss of R767.74 crore.

“Our power division controls the loss to some extent but that is not a long-term solution,” the official added.

BEST is going to need alternative methods of fund raising due to recent SC decision on power distribution in Mumbai which threatens to erode its sole profitable business.

The state electricity regulator, Maharashtra Electricity Regulatory Commission, issued a distribution licence to Tata Power on August 14 which expanded the private utility’s network into what was previously BEST’s exclusive domain. Now, the two utilities will share the 10.5 lakh customers between Colaba-Cuffe Parade and Sion-Mahim areas.

Tata Power, which has a higher proportion of high-tension consumers, provides the cheapest tariffs in the city. BEST’s average tariff is R10.93 per unit, which is almost 70% higher than Tata Power’s average tariff rate of R7.10 per unit.

According to sources, owners of some commercial properties which consume nearly 45 MW, have already applied to switch to Tata Power supply. The BEST official, however, denied this, saying till date the utility has not received intimation from any entity wishing to switch service providers.

In addition to cross-subsidy, which is levied by every utility in Mumbai, BEST also levies TDLR or transport division loss recovery charge on its electricity consumers, which shoots up tariffs.

For example, consumer petitioners had written to the MERC, saying air-conditioned bus division loss is R400 crore, which is approximately 83% of the total increase in BEST’s transport expenses. “This clearly indicates that electricity consumers of the island city of Mumbai are subsidising AC bus customers,” they wrote.

“The burden on the consumers on account of transport division loss is to the extent of R1,944 crore, which is approximately 50% of the aggregate revenue requirement (ARR) for FY 2013,” Ashok Pendse, a consumer representative wrote.

“Bus operations are the responsibility of the municipality. We don’t mind the removal of TDLR but municipal authorities need to give us the money to manage it. That is the arrangement in every city in India. Take the closest ones, whether Thane municipality or Pimpri-Chinchwad, they are also running in losses. But they are operating on municipal funds,” a high-ranking BEST official said.

Property tax in Mumbai is based on the capital value of a property as enumerated in the ready reckoner issued by the state government. The capital value is usually 20% to 50% less than the market value of the holding. Depending on the type of property, the tax ranges from 1% to 5% of the capital value of the property.

However, according to a recent amendment in the Mumbai Municipal Corporation Act, 1888, the property tax rate can be increased retrospectively every five years beginning from April 1, 2010 — which implies the city is due for a rate hike on April 1, 2015 — which meshes conveniently with BEST’s proposal for the rate hike.

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