Power tariffs to move in line with rising input cost: PowerMin

Indicating that power tariffs could go up further, Power Ministry has said the price of electricity has to match the rising cost of inputs.

Updated: Jan 13, 2013, 13:03 PM IST

New Delhi: Indicating that power tariffs could go up further, Power Ministry has said the price of electricity has to match the rising cost of inputs.

"If the prices of inputs are increasing, then (price) of output has to match that," Power Secretary P Uma Shankar said.

His comments come at a time when the price of coal and gas -- key inputs for power generation -- are on the rise.

Lower realisation of tariffs compared to higher power generation costs and huge Aggregate Technical & Commercial (AT&C) losses are major factors contributing to the dire financial health of state-owned power distribution companies.

However, the Power Ministry is of the opinion that hikes in power tariffs could be "moderated" if the efficiency of distribution companies -- many of which are loss-making -- are improved.

"If efficiency (of discoms) is increased, then hikes in electricity tariffs can be moderated," Shankar said.

The government is working on an ambitious financial restructuring package for discoms whose losses were estimated to be worth Rs 2.46 lakh crore at end of March 2012.

Faced with the acute crisis, at least about 20 state discoms in recent times have announced power tariff hikes of up to 37 percent.

"When discoms file for revisions, it may come to hike in electricity tariffs or it may not result in increases," Shankar said.

According to him, discoms have to submit petitions for annual revenue requirements and tariff rationalisation to meet the targeted revenue to state electricity regulatory commissions. The petitions have to be filed every year before the start of the new year.

After getting the green signal from the chief minister, states send the annual petitions to their respective State Electricity Regulatory Commissions (SERCs).
These petitions contain details of procurement and supply of power and the related costs along with tariff proposals.

Last year, several states hiked power tariffs including Tamil Nadu, which raised the electricity tariffs by 37 percent after nine years, Maharashtra by 10 percent, Rajasthan 18 percent and Delhi 26 percent.

The accumulated losses of the state discoms are estimated to be about Rs 1.9 lakh crore as on March 31, 2011 and Rs 2.46 lakh crore as on March 31, 2012.

Pitching for periodic tariff revisions, the Reserve Bank of India (RBI) has said rising losses of discoms have raised "serious concerns" for banks and financial institutions.
In October last year, the Power Ministry had come up with the financial restructuring plan for discoms.

Under the scheme for state-owned discoms, the state government is to take over 50 percent of the outstanding short term liabilities up to March 31, 2012.

As per the rejig plan, central government would provide 25 percent capital reimbursement of principal repayment by the respective state government on liability taken over by it.

"Strict enforceability of conditions associated with the restructuring package has to be ensured so that ... Financial stability in the economy is not threatened by the restructured loans turning into non-performing assets," the Reserve Bank of India (RBI) has recently said.

In its annual report 'State Finances: A Study of Budgets of 2012-13', RBI said financial losses of state power discoms continue to act as a "drag on finances of states".

According to RBI, non-revision of tariffs, subsidy arrears, high cost of buying short-term power and high distribution losses are among key reasons for financial ill health of discoms.

"As the discoms have largely availed of short-term borrowings from banks and financial institutions to cover cash losses, it has raised serious concern not only for the discoms but also for the banks/financial institutions that have lent to them," the apex bank had said.