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In the run-up to assembly elections later this year, Indian states are resorting to massive electricity purchases from the spot market. The last minute power shopping may or may not help the governments woo voters but it would certainly impact the financial health of distribution companies.
India generates 9,11,000 million units (MUs) of power annually. Around 90% of this power is sold through long term Power Purchase Agreements (PPAs). The rest 10% power is sold in the short-term market through four channels – power exchanges, bilateral trade between state utilities, through power traders and Unscheduled Interchange (UI).
Average power prices in the short term market have risen 12.5% from Rs 3.2 per unit in March 2012 to Rs 3.6 per unit in March this year. That, however, has not deterred states from massive purchases.
Rajasthan, where elections are due in October, bought 225 million units (MUs) of electricity from power exchanges in March, the latest month for which data is available. For comparison, the state had bought 179 MUs from exchanges in the same month last year (2012). Rajasthan’s power purchase through the bilateral trade route also jumped from 61 MUs in March last year to 428 MUs in March this year.
The massive and costly power purchase comes as Chief Minister Ashok Gehlot-led Congress government in the state is engaged in beating a strong anti-incumbency sentiment among the voters. This comes at the backdrop of two recent tariff hikes – 22% in 2011 and 18% in 2012 – which have given its discoms legroom for higher power purchases.
Similar costly power purchases made during the assembly elections in 2008 and the general elections that followed in 2009 brought Rajasthan to a state where the accumulated losses of its discoms currently stand at Rs 50,000 crore. Power was bought at over Rs 8 per unit from the exchanges then. This is in stark contrast to the Rs 2.76 per unit average price at exchanges currently.
Chhattisgarh, which is to face elections in December, has also pulled up its power buys from the short term market recently. While the state normally refrains from power exchanges, it bought 23 MUs in March. However, the state witnessed a 42% rise in power purchase through bilateral deals which went up to 183 MUs in March this year as compared to 128 MUs in the same months last year.
The Raman Singh-led Bharatiya Janata Party (BJP) government in the state has a tough task bringing down power deficit that has stuck to a range between 3-4% in the last year. It does not comes as a surprise, therefore, that the state overdrew as much as 95 MUs of power from the grid in March, jeopardizing grid security. This was more than double of its overdrawal in the same month last year.
Jharkhand, which is also going for election in December, seems to have adopted a strategy of completely avoiding exchanges. So, it did not approach any of the two functioning power exchanges in March. However, it doubled its power purchase from other state utilities through bilateral trade from 99 MUs in March 2012 to 195 MUs in March this year.
Madhya Pradesh, too, witnessed an almost doubling of its electricity purchase from the short term market under the bilateral route from 146 MUs in March 2012 to 301 MUs in March this year. Its power buys from the exchanges also went up to 39 MUs in March this year as compared to 21 MUs last year.
The only exception to the trend is Delhi which recorded minimal power purchase in March. Power distribution is privatized in the state. Delhi distribution companies bought a mere 13.5 MUs of power from bilateral the bilateral route and 11.6 MUs from the exchanges. This, according to sources, is attributed to the surplus 1,000 Mw of power which the discoms have tied-up to tide over the summer season.
