States cut power rates, move irks planning commission

Power tariff cuts by some state governments has irked the Plan panel, which fears these populist measures could derail states' development budgets and hurt financial health of state electricity boards. The prime minister-headed commission is worried the trend may catch on with elections looming large and is expected to take up the issue with states. Delhi, Maharashtra and Haryana have announced tariff cuts in the last two months, and the latter after restructuring of the state electricity board.

"We want to understand how states would fund this subsidy. Since this would come from states' own resources, it could impact the fund raising plans for planned activities," a senior government official told ET on condition of anonymity. In the case of Haryana, if some part of this subsidy is coming from the distribution company, then it will adversely affect its restructuring. "We will seek clarity from Haryana at the empowered committee meeting this week itself and the issue will be taken up with Delhi and Maharashtra separately," the official said, adding that this could set a bad precedent for other states who may like to replicate this to gain political mileage.

Delhi took the lead on December 31 by cutting tariffs by 50 per cent for households consuming up to 400 units of power per month followed by Haryana that withdrew a tariff increase of up to 13 per cent levied last year on households consuming 500 units a month, on January 16. Maharashtra slashed tariffs by 15-20 per cent in all parts of the state except Mumbai on January 20. "Lowering of tariffs can help customers in the short-term but this is not going to be financially viable for states, as the subsidy outgo for this would impact the states' annual budget," former power secretary P Uma Shankar, who was part of the government's restructuring exercise, said.

Banks had started restructuring the debt of discoms in 2012 under a government-sponsored Rs 2-trillion bailout package. As part of the restructuring, discoms had agreed to increase their tariffs regularly in line with their costs and reduce high transmission and distribution losses while the banks would provide them with working capital loan."The recent reduction in power tariffs by some states would to some extent retard the pace of reforms in the power sector. While reducing electricity tariffs is legitimate for the needy, to extend subsidies in the manner announced is a retrograde step and is likely to have adverse implications for the power sector," Anil Sardana, chairman of CII National Committee on Power, added.

Most state electricity boards are under financial stress due to huge transmission and distribution losses and increasing cost of generation. Private discoms in Delhi have already warned of power cuts while the Delhi Electricity Regulatory Commission has approved 6-8 per cent rise in surcharge to compensate for higher costs, setting the stage for a confrontation with the state government. Kejriwal government had promised lower electricity bills and has even commissioned an audit of distribution companies. 

Source ET