Free power distribution: AAP's power-packed poll sop replicates Delhi model

The Aam Aadmi Party (AAP) has promised to offer free electricity of up to 300 consumption units in Punjab and Uttarakhand that go to legislative Assembly elections in 2022.

The promises by AAP, trying to expand its powers beyond Delhi, are similar to those it had assured Delhiites. In the national Capital, there is 100 per cent subsidy on electricity in the 0-200-unit domestic consumption slab. In 2019-20, close to 50 per cent of Delhi’s population availed of the electricity subsidy.

While announcing the poll sop of free electricity in Uttarakhand, Delhi Chief Minister Arvind Kejriwal said, “Fulfilling the promise of free electricity will cost around Rs 1,200 crore. This can be easily done from the Rs 50,000-crore state Budget.”

Sambitosh Mohapatra, leader–ESG, energy utilities & resources, PwC India, said, “Over the past two decades, state Budgets have burgeoned in size. The political benefits of providing subsidies to agriculture and domestic customers got established, and many states started offering subsidy.” 

While the focus of the earlier power reforms in states was to make electricity commercially viable, given the stress it was having on state resources, it did not last, added Mohapatra.

Recently, Uttarakhand increased power rates by an average 2.29 per cent across the board for 2021-22 (FY22), against the request by Uttarakhand Power Corporation to hike it by 16.2 per cent, owing to revenue shortfall. Recoiling these rates to zero or even half could prove a fiscal challenge for the party, if it comes to power.

In Delhi, during the last five years of AAP’s first term, there has been no electricity tariff revision. However, a rebate on electricity bill was offered every year till 2019.

In a submission for tariff revision for FY22, the three private distribution companies (discoms) — Reliance Infra’s BRPL and BYPL and Tata Power Delhi Distribution (TP-DDL) — have cumulatively claimed an aggregate revenue requirement of Rs 23,538 crore. Executives said this translates into a “significant tariff hike, given the cost of procuring power in Delhi is the costliest in the country”. 

The cumulative regulatory assets for the three discoms stood at Rs 54,092 crore. Regulatory assets are discom expenses, which are recoverable in future power tariff hikes, but state electricity regulatory commissions do not take them into consideration while calculating current electricity tariffs.

BRPL and BYPL in their submissions to Delhi Electricity Regulatory Commission have urged that the electricity subsidy amount be passed on the basis of direct benefit transfer.

In Punjab, the path to free power will not be an easy one for AAP, with the state having one of the highest electricity rates in the country ranging between Rs 5.5 and Rs 7 in the domestic and industrial segment. With an eye on the elections, the Punjab government has announced Rs 0.5-1 per unit rebate on domestic power rates and a marginal rise in industrial rates.

This is at a time when the Punjab state government has a gross electricity subsidy claim of Rs 14,992 crore, of which it paid Rs 9,394 crore subsidy in 2019-20. The balance amount, along with interest, is overdue. There are nine consumer slabs receiving subsidised electricity in Punjab.

Mohapatra said, “Electricity subsidy exists in some form or the other in every state — direct or cross — across customer categories. Subsidy policy needs to be carefully articulated. It should be provided after a know-your-customer process to the customer, not to a meter.”

He said with states having to invest in improving health care, the flexibility available in state Budgets to offer power subsidies will be strained.