Maharashtra cuts power tariffs by 20%; Discoms jittery

MUMBAI: Maharashtra took a leaf from the Aam Aadmi Party’s book and cut power tariffs by 20%, becoming the third state to do so in the run-up to general elections and sending jitters among distribution companies as power rates were slowly moving towards market levels after a long and loss-making lag.

Experts said that this could shortcircuit significant progress in power sector reforms and encourage state governments to cut supplies for longer hours to save costs because the total burden of electricity subsidy has already ballooned to a total of about Rs 1,12,000 crore before the populist trend started. While Delhi may have the resources to support the subsidy, they worry that other states do not have the financial wherewithal to take on the additional burden. Weak finances of state utilities is one of the major bottlenecks that has choked the vital link between power stations and customers.

“The rate-cut is being done due to competitive populism. It is a regressive step as it pulls the sector back which was trying to break the vicious cycle of non-payment by states to discoms which resulted in power generators not getting their dues,” said Ashok Khurana, director general of Association of Power Producers.
“After all these years the power tariff was finally moving closer to the market-determined rate, reducing the subsidy burden and easing the financial condition of discoms and even the states. But now we are back to where we were,” Khurana said.

The cut in electricity tariff comes at a time when loss-making power distribution companies (discoms) across the country are in the process of restructuring to deal with mounting losses and a huge pile of debt. Low power tariffs, transmission losses, combined with high subsidies damaged the financials of power discoms. In March 2012, the combined losses of discoms stood at Rs 2,40,000 crore.

In fact, it’s only in the last two years that most states have buried their political compulsions and accepted the inevitability of a regular increase in electricity tariff. All states have increased their tariff in the past year, with the quantum being as high as 25-40% in some states where price has remained unchanged in the past. So, the promise for cheaper power is being questioned by sector players and experts alike.

“There is a need for subsidising power for low-end consumers. A power tariff cut for them will go a long way to help them. But the state should be able to support the fiscal burden arising from it. It’s a decision to be taken by each state depending on their financial strength,” said Vinayak Chatterjee, chairman and co-founder of infrastructure consultancy firm Feedback Infrastructure. Pramod Deo, former chairman of Central Electricity Regulatory Commission, points out that lowering power tariff by providing subsidy may do more bad than good for the consumer in the longrun.

“If states subsidise power, there is pressure on them to keep the costs under check. We have seen in the past that state governments have directed discoms to go for load-shedding instead of buying more power which in turn would increase the subsidy burden.”

Deo also points out that this may impact private sector companies’ plans to set up new projects. “If we go back to the days when discoms were not getting their dues from the state and generators were not getting paid, then there would be no incentive for the private sector to set up projects.”

Soon after swearing in as chief minister of Delhi, Arvind Kejriwal announced a 50% cut in electricity tariff which he claimed would be Rs 61 crore in subsidies for the period between January and March.