A boon for farmers, Telangana's 24/7 free power scheme may hit discoms hard

Launched from Jan 1, the 24/7 free power supply replaces the existing nine hours per day free power scheme

From being a chronically power deficit region to becoming the first state in the country where farmers are given 24/7 free electricity supply to run their 2.3 million agriculture pump sets, Telangana has made dramatic strides on the power front in just three and a half years. 

Launched from Monday, the 24/7 free power supply replaces the existing nine hours per day free power scheme — a poll promise that helped the Congress party to come to power in the 2004 elections in undivided Andhra Pradesh.

After fulfilling the Rs 170-billion farm loan waiver promise he made during the 2014 elections, Chief Minister K Chandrasekhra Rao announced in mid-2017 that free power would be made available 24 hours a day to farmers starting January 1, 2018.

His announcement was followed by the launch of a pilot project on July 17 across three districts of Medak, Karimnagar, and Nalgonda, which accounted for 43 percent of the total pump sets in Telangana.

The government said it has invested Rs 126 billion in the distribution network to handle the 24-hour supply while the Telangana power utilities maintained that they were fully geared up to meet 11,000 Mw of peak demand, to be fuelled by the new scheme at the height of Rabi season in March 2018.

Chief Minister Rao recently stated that his government was going to raise the subsidy support to around Rs 55 billion from the present Rs 47 billion to back the revamped farm power scheme.

While the chief minister's words come as an initial indication as to how much extra financial load his government was prepared to add to the state exchequer on account of power subsidy in 2018-19, the revamped scheme might cost more than what the government is willing to pay for, say sector experts.

Discoms supplied 14,373 million units (mu) to the agriculture sector in 2016-17 and projected a supply of 15,683.11 mu in 2017-18 (based on supply data of the first half of the year) and 16,853.21 mu in 2018-19, which is going to be the full year of 24/7 free power supply.

If the actual supply numbers of 2016-17 are compared with that of the projected supply in 2018-19, which is going to be the full year of 24/7 free power supply, there will be an estimated additional sale of 2,480 mu to agriculture. This additional power supply will be worth Rs 12.4 billion if the per unit supply cost is taken as Rs 5, on account of the revamped scheme during the first year of implementation.

"The actual supply figures would be much higher at the end of the year when compared to the projections made at the beginning of the year (for the agriculture sector). Going by this trend, the additional hit could be as big as Rs 20 billion. Lower projections would at best help the government to keep the subsidy commitment under check," a senior Transco official told Business Standard. 

In the latest ARR filings, discoms have projected a sale of 15,683 mu for agriculture for the current year in contrast to the sale of 12,906 mu that they had proposed at the beginning of the year. Telangana power regulator (TSERC), on the other hand, approved the supply of only 11,765 mu for agriculture for this period.

If this additional demand was purely coming from the part-implementation of the 24/7 power scheme covering three districts, then the total additional requirement of power to implement the scheme across the state would be much more than what was projected for 2018-19, according to observers.

As the subsidy component is fixed on the basis of initial estimates, the additional supply costs are to be absorbed by the discoms as they are not allowed to increase the tariff ahead of elections.

Leaving aside the financial costs of the scheme, the 24/7 free power supply comes as a significant measure to push the power demand in the state. The demand growth has been in the seven-eight percent range despite the increased supply to the agriculture sector in the past couple of years while the installed power capacity in Telangana has more than doubled to 14,845 Mw as compared to 6,574 Mw (including hydel) at the time of Andhra Pradesh's bifurcation.

The current installed capacity is more than sufficient to handle the anticipated peak demand of 11,000 Mw arising from the 24/7 free power supply to the farming sector next summer.