Industrial power tariffs may see huge cut

State's draft industrial policy envisages phasing out all other sops to industrial sector

The Andhra Pradesh government's new industrial policy is expected to drastically reduce power charges. Importantly, the draft industrial policy envisages the phasing out of all tax incentives and subsidies being given to the industrial sector at present.

"We expect to reduce the existing industrial power tariff to Rs 2.50 per unit from the existing levels," a senior government official told Business Standard. The move, if materialises, will mean a cut of between Re 1 and Rs 1.50 paise in per unit cost.

The move to reduce industrial power tariffs would mean that the Rajasekhara Reddy government expects to provide power to industries at tariff levels, which are close to domestic tariffs. This apart, it is expected to create a favourable investment condition and give the state a competitive edge over other states in the country.

The recommendations on the power front are a big challenge for a state, which has already been burdened with the cost of a free power scheme for the farm sector, which costs the exchequer Rs 1,400 crore annually.

The decision, according to government sources, should not be viewed as just another dole but is actually a well thought-out strategy to channelise government resources in a much more efficient and target oriented manner.

"The government will be phasing out all kinds of subsidies currently offered to industries, which would be replaced by the cheaper power," the official said.

The new industrial policy, which is currently under discussion, signals a drastic shift in the government's thinking and indicates the state's willingness to accept that high industrial power tariffs, much higher compared to many states, is a critical roadblock to industrial development.

In fact, last November the new government proposed a reduction of over 25 paise on existing tariff of the HT-1 consumers who are now paying Rs 3.50 paise per unit from the next financial year. Though the previous government led by Chandrababu Naidu, had realised the problem it could not go beyond reducing industrial power tariff rates by more than 10 paise each year.

Officials in the industries department are now of the firm opinion that industries across the board need cheaper power.

"As the power consumption is directly linked to the productivity and production, the incentive that has been routed in the form of cheaper power will serve the purpose better than other ways of industrial subsidies which are in existence," an official pointed out.

Proposing heavy capacity addition in the state power generation sector is one of the strategies of the government towards ensuring cheaper power to the industrial sector with the exchequer bearing the minimum possible burden.

The state government is also thinking of utilising the gas finds in KG Basin for cheaper power generation both in the public and private sector. The government has already indicated to the Reliance Industries that if it were to set up gas-based power plants in the state it would have to provide power at not more than Rs 2 per unit.

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Powering change

• Govt may reduce existing industrial power tariff to Rs 2.50 per unit, which is close to domestic tariffs
• Cheaper power would mean the phasing out of all kinds of subsidies currently offered to industries
• Move likely to give the state a competitive edge in wooing industries