One of my recent posts did talk about the important role India’s Power Tariff is playing in elections: https://bharatvasandani.wordpress.com/2013/10/16/power-tariff-plays-role-in-power-seat-game/
After winning elections in Delhi, the AAP [political party] cleared a 50% cut in electricity tariffs [a promise made before elections].
The government is also on course to order an audit by the national auditor into the finances of three power distribution companies.
The decision to subsidize power tariff, involves a cash outgo of Rs. 61 crore in the next three months, creating a further burden on the State Government finances.
The challenge here is [and as a country we are still trying to find answers] is whether it will be feasible to cut power tariff without understanding the industry dynamics. Since the discoms will be paid by the State [another challenge being whether the State will make the payments on time and we have a great track record here, pun intended], on paper the discoms will not be in a loss.
The Delhi election has made the power sector an election tool for the parties. And the scary part is if this becomes a popular [unfortunately] tool for other political parties, as well.
Recently, The Maharashtra cabinet approved a 20% cut in power tariffs in the state except Mumbai. This has drawn criticism from all quarters. This move is expected to add a burden of Rs. 7,272 crore a year to Maharashtra’s coffers. Besides this, state-owned power utilities Maharashtra State Power Generation Co Ltd and Maharashtra State Power Transmission Co Ltd. will have to pay Rs.1,200 crore to state-owned power distribution utility Mahavitaran Ltd to make up for the rate cut. Maharashtra already spends around Rs.11,500 a year by way of subsidy to keep tariffs low for agriculture and power loom consumers.
Experts are already stating this to be an imitation of AAP’s move in Delhi for elections. And we fear many others to follow.
“This is a case of bad economics as lower tariffs encourage higher and inefficient consumption, placing more demand on government subsidy than budgeted, and fail to provide right incentive to use energy efficient appliances,” according to Kameswara Rao, executive director and leader of energy, utility and mining practice at consulting firm PwC.
According to CARE Ratings, the subsidy is expected to make the State revenue deficit.
On the other hand in Delhi, industry is already warning people to be prepared for power cuts as electricity distribution companies battle it out with chief minister Arvind Kejriwal [AAP] over tariffs.
One of the most important parameters for investments is a stable environment and ability to forecast. But with such political moves, the Indian power sector cannot expect investors to pump in money at a time when it is really needed.
I am personally not against power tariff reduction but using this as a tool for elections is not an encouraging sign for the sector.
The answer can be Restructuring and Deregulation of the electricity industry, a move with the aim of achieving lower prices to customers through cost savings. The deregulation of electric power systems in many parts of the world has changed the mechanism of electricity pricing. India is in the processing on restructuring in power sector.
Hindustan Times, LiveMint, Economic Times