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A lose-lose power situation

mumbai Updated: May 16, 2010 00:46 IST
Shashank Rao
Shashank Rao
Hindustan Times
Highlight Story

You will be spared power cuts, as the government has promised.

The Dispute
Tata Power Company and Reliance Infrastructure have been squabbling over their power agreement ever since the state energy regulator — the Maharashtra Electricity Regulatory Commission — directed the two to enter into a formal agreement in 1999.

The dispute intensified when the TPC decided to begin distributing power in RInfra’s domain — the Mumbai suburbs — in 2008, following clearance from the Supreme Court.

Now, TPC has told RInfra that it needs its power for its own consumers in the suburbs and can therefore supply only 200 MW (down from 360 MW), that too at a rate of Rs 5.90 per unit, up from Rs 3.74.

RInfra has refused to accept these conditions, asking the government to intervene since snapping ties with TPC could mean power cuts in the suburbs and continuing at the rates demanded would mean raised tariffs.

The government stepped in last week, ordering TPC to supply 360 MW till June and 200 MW till April 2011, giving RInfra time to make alternative arrangements.

Currently, TPC supplies over 20 per cent of RInfra’s daily supply of 1,735 MW.

But both government and power company officials agree — off the record — that a tariff hike is inevitable for Reliance Infrastructure’s 30.30 lakh consumers.

This is bad news, since these consumers already pay nearly Rs 2 more per unit than BEST consumers.

But the situation has been heading in this direction ever since Tata Power Company (TPC) announced that it could no longer supply RInfra with 360 MW daily, as promised, saying it needs the power for its own consumers in the same areas.

Instead, it has offered to sell RInfra 200 MW daily, but that too at a higher rate — hiked to Rs 5.90 per unit from the current Rs 3.74.

While final word on the dispute between RInfra and Tata Power Company (TPC) is expected on Monday, the former has already begun making its own arrangements for additional supply.

The company has identified traders who can supply up to 350 MW per day on a short-term basis, starting in 2011. From 2012-14, RInfra has identified four companies from whom they expect 719 MW per day.

And from 2015 onwards, the company plans to tie up with five suppliers for a total of 2,491 MW per day.

“The technical bid is being drafted and RInfra will finalise a contract for 1,200 MW, which it will submit within two weeks,” said officials.

How you will be affected

Already, Reliance Infrastructure’s 30.30 lakh consumers in Mumbai pay Rs 2 to Rs 3 more per unit, compared to BEST consumers in the island city.

TPC also supplies to the suburbs, but to 1.63 lakh consumers, mainly industrial and bulk consumers. Now, with TPC demanding Rs 5.90 per unit — up from Rs 3.74 — consumers could end up with even higher electricity bills.

Meanwhile, if RInfra is forced to turn to the open market for power, the rate goes up to Rs 7 per unit — and raises your power bills further.

In the long term, this is good news for the government, which has been forced to step in and order TPC to continue the promised power supply so as not to leave RInfra customers stranded.

But consumers face a tariff hike either way.

“For the suburban consumer, there is no escape,” said a government official. “RInfra will get new suppliers, but their rates too are likely to be higher than current rates, and the consumers will have to cough up more for uninterrupted power.”

For now, TPC officials confirm that they have received a letter from the state government asking that they continue supplying 360 MW to RInfra daily, till July, when demand traditionally sees a dip as temperatures fall and the monsoon sets in.

Thereafter, the state has said, TPC may reduce supply to 200 MW daily, till March 2011.

“The government will ensure there are no power cuts in Mumbai,” says energy expert Ashok Pendse. “The only thing to be seen now is whether RInfra will accept TPC’s raised rate of Rs 5.90 per unit in the long term.”

Meanwhile, how does the state hope to force TPC to comply?

The plan right now, government officials have said anonymously, is to use an obscure section of the Electricity Act (2003).

Section 11 gives state governments the power to directs distributors to divert power to the main grid, after which the state may supply it to whichever areas it deems needs it the most.

The catch?

The use of this clause is permitted only in case of emergencies like floods or war. And, the government has to compensate the distributor for losses incurred.

“The Supreme Court has not prevented the governments from using Section 11,” said state Energy secretary Subrat Ratho. “But the situation has not yet come to that… yet.”

No power cuts, says Reliance Infrastructure

Reliance Infrastructure will acquire an additional 850 MW of electricity from the open market if necessary, to ensure there is no power shortage in Mumbai, a top company official said on Saturday.

“We will buy this shortfall from the market at regulated rates to keep our consumers from facing power cuts,” said RInfra CEO Lalit Jalan. “If we stop getting the power supply from Tata Power Company, we will acquire [it] from the market.”

The bad news: Power on the open market costs Rs 7 per unit, nearly double the Rs 3.74 that RInfra is currently paying TPC.

“That cost will be passed on to my consumers,” Jalan said. “We do not make money on the power purchase cost. So, consumers will pay [the difference].”