A tariff hike of 45-60% is needed for the survival of power distribution companies in the country, stated a recent study conducted by the Citigroup Global Markets. The hike, if approved by the regulators, would put enormous burden on consumers.
Increase in supply cost because of fuel price hike, interest burden and expensive outsourcing are some of the factors leading to the hike, stated the study. The recent average countrywide tariff hike was 12%. While states such as Haryana (3%) and Maharashtra (5%) had low average, Rajasthan (24%), Karnataka (22%), Delhi (21%), Orissa (20%) and Bihar (19%) were on the higher side.
With the government subsidies reducing by 38% in the last three years, the financial condition of power utilities in the state is deteriorating. Their cumulative losses without the government subsidies are expected to reach Rs7,50,000 crore this year, said the report.
Stating that only steep hikes could help companies break even, the study recommended the implementation of the measures suggested by the Shunglu Committee, appointed for looking into state electricity boards’ financial status. A strong political leadership that will pass on the costs to domestic and agriculture consumers — who are being cross-subsidised by industrial and commercial consumers — is the need of the hour, said the report.
A case in point could be utilities in Mumbai that spend close to 80% of their budget on buying power. This cost is, thus, passed on to the consumers making power tariff in city’s suburbs highest in the country.
“The decision [on tariff] will be politically sensitive and will test the will of the state government,” added the report.
Anil Sardana, managing director, Tata Power, said: “The revocation of customs duty on imported coal, natural gas and liquid natural gas in this year’s union budget and the incentives for mining sector will marginally improve supply of coal. It is still a far cry from achieving adequate fuel security.”
Ramesh Chandak, president, Indian Electrical and Electronics Manufacturers’ Association, said: “The union budget did not approve of any of the major demands of the power industry including the service tax exemption for all power projects and duty-free import of a raw material for making transformers.”