 "Zero tariff hike shadow on UDAY rise")
The gap between the average cost of supply (ACS) and the average revenue realisation (ARR) of discoms is 27 per cent on average and over 35 per cent in the worst off states like Uttar Pradesh and Rajasthan. This translates into an average tariff hike of close to 20 per cent across the country.
“If you include the regulatory assets these discoms have accumulated over the years, the tariff hike needed should be 100 per cent,” said an analyst. (PRICE OF POWER)
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Uttar Pradesh, Bihar, Rajasthan, Gujarat, Haryana, Punjab, Chhattisgarh, Jharkhand, Jammu and Kashmir, and Madhya Pradesh have signed up for UDAY. Only Bihar, Chhattisgarh, Gujarat and Uttarakhand have issued tariff orders for 2016-17 and only Gujarat has made a tariff change, that too a reduction. Madhya Pradesh officials said the state had revised the tariff according to the market condition. Rajasthan has not filed a tariff petition.
Punjab and Uttar Pradesh are bound for elections next year. Their governments may not be willing to take the political risk of increasing power tariffs. Gujarat reduced the energy charge by 10 paise per unit for domestic consumers. The state’s discoms did not ask for a change, but the Gujarat Electricity Regulatory Commission decided to pass on the benefit of surplus revenue.
Experts said regardless of tariff hikes, no state had indicated how it would pass on the cost of UDAY, which involved additional expenditure on improving power distribution.
Most of these states, particularly Uttar Pradesh and Bihar, have made considerable budget allocations for their power sector. Uttar Pradesh has allocated Rs 39,909 crore as budgetary support to discoms under UDAY. Bihar has indicated Rs 3,834 crore as resource gap assistance to discoms during 2016-17, of which Rs 1,442.73 crore will be adjusted towards higher distribution losses.
“The remaining amount of resource gap of Rs 2,391.27 crore will be adjusted towards subsidy required for rural consumers,” said the Bihar tariff order.
Rajasthan’s case is the most worrying because it has not allocated any budgetary support to discoms and will service debt through bonds. Haryana has estimated its annual capital expenditure going up by 40 per cent to Rs 15,778.96 crore in 2016-17 on account of UDAY.
"It is not like the state regulators cannot allow a tariff hike. It is the lack of political will. Those discoms that do not have any tariff hike will depend on state governments to provide them subsidies to bridge the ACS-ARR gap,” said a Delhi-based power sector expert.
UDAY is the restructuring plan of the National Democratic Alliance government to bail out financially and operationally beleaguered discoms. One of the first steps enlisted in the memorandums of understanding is the takeover of 75 per cent of discoms’ cumulative debt, 50 per cent by March 2016 and the rest by March 2017. State governments will issue loans against this at prevailing market rates. The balance 25 per cent will be issued as bonds by the discoms.
The second part of the scheme envisages a slew of measures to improve operational efficiency. Major targets being reducing transmission losses from current levels to 15 per cent by 2019. Improving collection and billing efficiency, considerably reducing energy theft, and reducing the gap between ACS and ARR are also targets. The scheme underlines the need for regular tariff revisions and keeping power prices affordable. Once signed, the states enjoy rationalised coal supply and central financial assistance.
For states that sign up for UDAY, loss funding is disallowed from any financing institution and/or banks. Any future funding will be dependent on the performance of the discoms, principally bringing down losses and turning around operations.
“The states are thinking issuing bonds has solved the problem. But the operational losses and regulatory assets cannot be sorted with subsidy,” said an expert requesting anonymity.
He said if the states missed their tariff hikes this year, they were likely to get back to the point where the problems erupted. “The average tariff hike expected is 15-25 per cent. We were hopeful that states will hike tariffs by 10 per cent this year and by 5 or 10 per cent next year. General elections loom in 2018-19, which means no power tariff hike. All that states have is this year and the next,” said an analyst closely involved with states signing MoUs under UDAY.
ICRA in its latest report said among the major power consuming states, Tamil Nadu, Rajasthan and Uttar Pradesh were most vulnerable without tariff hikes, followed by Madhya Pradesh and Haryana.
“Gujarat will practically require no tariff hike to remain profitable while Karnataka, Punjab, Telangana, Chhattisgarh and Maharashtra may require modest tariff hikes to break even, although some of the discoms in these states may require significant reductions in transmission losses. However, discoms in Tamil Nadu, Rajasthan and Uttar Pradesh will require significant tariff hikes (in excess of 10 per cent), apart from loss reduction and deleveraging to break even,” said Sabyasachi Majumdar, senior vice-president, ICRA.
Madhya Pradesh and Gujarat have agreed to join UDAY but do not need to issue bonds. The other eight states issued bonds worth Rs 1.11 lakh crore that were subscribed by banks, mutual funds, Life Insurance Corporation and the Employees’ Provident Fund Organisation during 2015-16.
“Since the lending is restricted to meeting the working capital requirements at predetermined levels, lack of adequate tariff hikes has an impact on their ability to ensure cost recovery. Apart from tariff hikes, timely receipts of subsidy from state governments as well as proactive efforts by the discoms to reduce transmission losses remain crucial,” said Majumdar.