 "Power tariffs not to buckle down in election year")
Even as electricity tariffs emerged as a poll issue in the current general elections, it is unlikely that the consumers could escape without tariff hikes. Some distribution companies have even proposed hefty tariff hike proposals for the current year.
The discoms of Andhra Pradesh, Gujarat, Odisha and Uttarakhand proposed tariff hikes between 15-26%. However, Haryana, Punjab, J&K and Madhya Pradesh have not proposed tariff revision for 2014-15.
Rating agency ICRA however believes that the timely filing of tariff petitions by discoms to their respective regulators, is a positive signal for the power sector.
A few months back, Aam Aadmi Party or AAP moved to reduce power tariffs in Delhi immediately after the party took over the mantle. The move was expected to signal more such moves across other states governments as well as Mahashtra had proposed a 20% reduction in power tariffs too.
This will result in increase in dependence of discoms on state governments, as they expect more subsidy if fewer tariff hikes take place. Subsidy dependence could vary between 13-26% of the average rate of return (ARR) projected by the utilities.
"In our view, overall subsidy dependence for the utilities for 2014-15 is likely to be higher than estimate of about Rs 60,000 crore for 2013-14, given that tariff hikes could remain limited in the election year," said ICRA.
The reason for tariff hikes is the revenue gap that many of these utilities face is significant in few states. "The common factors observed include mainly increase in cost of power procurement and other operation and maintenance expenses as proposed for 2014-15 and impact of additional cost estimate arising from final true-up of cost incurred in the previous periods (FY 11-13) based on the availability of audited accounts," ICRA, in its report. The gap is proposed to be met both through a mix of tariff revision as well carrying it on to future years in the form of a regulatory asset.
"Discoms in other states which are dependent on procurement from thermal generation units, the power purchase cost is projected to increase relatively at a much higher rate, owing to increase in the fuel costs arising out of higher dependence on costlier imported fuel as well as rise in domestic coal cost," said rating agency ICRA.
The impacted list does include the discoms of Orissa, Uttarakhand and Jammu & Kashmir which source power from hydel sources. ICRA says that these discoms might have a minimal annual increase in cost of generation, availability of hydel power will remain exposed to volatility in hydro generation associated with the monsoon trends.