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Central Electricity Regulatory Commission chairman says power tariffs in India to rise 20% each year

According to reports, consumers should prepare for a 15-20% increase in power tariffs every year for the sustenance of state distribution utilities that are struggling to stay afloat due to escalating losses and mounting debt, the Central Electricity Regulatory Commission – the regulator for central government-owned utilities – said.

In an interview to ET, Pramod Deo, chairman of CERC, said the regulator’s biggest concern is that investment in the sector should not stop. “Projects that have started construction should not be stopped. If there are issues, the central government needs to intervene to sort them out.”

Deo said bold steps were needed to help distribution companies, which are crushed under a mountain of debt, low tariffs and reluctance of banks to lend to the unviable sector.

“If a state has not increased tariffs for the last 4-5 years, they cannot double them in one go. With 2014 likely to be the year of national elections, we are looking at a tariff revision of around 25-30% every year in states where the revision has not been done on a regular basis. They will have to maintain that kind of hike every year, only then would they be able to make good the losses and bridge the gap,” he said.

“But not all states would have to increase tariffs at that rate. There are some states which have been increasing on a regular basis. On an average, we are looking at an increase of 15-20% in a year.” India’s state electricity distribution companies (discoms) reported an aggregate loss of around 40,000 crore in the year ended March, which is as high as the government’s annual divestment target. The losses are estimated to soar to over 1.16 lakh crore by 2014.

In the year so far, around 12 states have increased power tariffs in the range of 9-34% to ease the burden of distribution companies. States like Rajasthan, Tamil Nadu, Madhya Pradesh, Uttar Pradesh and Bihar account for 70.6% of the power distribution losses in the country. Though states like Maharashtra have been revising tariffs regularly, other states like Tamil Nadu and Rajasthan have not revised them for seven years and four years, respectively.

Deo said state power regulators need to be independent of political pressure while considering revision of power tariffs. “The power regulators were set up in 1998 so that we have an independent authority to determine tariffs and it is taken out of the political purview.

But unfortunately, many regulators have been placing themselves in the state government’s shoes. That’s not their role.” Low recoveries, particularly from the agricultural sector, have hurt the liquidity of power distribution companies that have been forced to resort to short-term loans and overdrafts to stay afloat. This has led to higher interest burden for the beleaguered discoms.

“If the state wants to give lower tariffs than what has been fixed by the regulator, then the state needs to pay the difference as subsidy. Many times the state government says they will pay, but the money is not released,” Deo said. Deo highlights that tariff hike alone may not be enough to improve the financial health of discoms. “Tariff increase is just one side of the coin, the other side is that they have to reduce AT&C (aggregate technical and commercial) losses. You may keep increasing tariffs, but the losses may not reduce if inefficiency does not come down.”

The regulator ruled out the possibility of financial aid from the government to improve the condition of discoms, but pointed out that utilities in states like Tamil Nadu, Uttar Pradesh and Andhra Pradesh had reached a stage where they may need a bailout by the state government. Also, going ahead, investment by state governments in new projects should be increasingly routed through equity as against debt, so that the debt level remains capped and the equity base of the utilities is enhanced.

Addressing the other issue plaguing the power sector recently, regarding tariff revision sought by power generators for projects that have been awarded on competitive basis, Deo said a regulator would not have any role to play in the negotiations.

“It is a matter between the procurer and generator. It would be a quasi-judicial process. Adjudication is one of the functions we perform. So if two parties come and ask us to adjudicate, we cannot say we will not hear the case,” he said.

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