India to brace for electricity price hike and more subsidy to Discoms

Two little coincidences from the sector:

1. Power tariffs are expected to rise across the country to reflect the increase in fuel cost due to higher railway freight, doubling of clean energy cess and rise in customs duty on coal

2. The subsidy burden for distribution utilities of 16 states is estimated at Rs 72,000 crore, 17% higher than the previous financial year, due to higher costs and cheaper tariff for the farm sector.

With the increase in railway freight in the recent budget, the coal transportation prices [approximate impact of 2-3 paise per kWh for places near coal centres and upto 8-10 paise per kWh for places far from coal centres] are also expected to increase. What has not helped is the doubling of clean energy cess and the rise in customs which are expected to add another 2-3 paise per kWh to the electricity prices.

At the same time, the subsidy to discoms to stay floating has also increased. Where prices should have been increased due to a unsustainable economic environment created by the government; tariff increases for 2014-15 have been very modest across the country. One of the reasons being the elections. Maybe the discoms will be more free to take steps next year.

Before the budget, the discoms were already in a financial mess due to lower selling price and higher purchasing costs. The recent increase in freight, customs duty and cess have further added to the challenges. No wonder the subsidy has seen an increase.

So the common man will need to brace themselves for price hike in electricity prices; for the discoms to survive. If the prices are not increased, the government will need to support the discoms through subsidy which again will come from taxes from the common man. So it is a two edged sword for us.

Every challenge brings an opportunity and this price hike will certainly give a boost to energy efficient appliances, solar and also I hope there will be a change in behavior pattern where people will be more aware of the importance of saving electricity as much as possible.

Maybe it is time the government does the same [increase prices] for water in India because it is time that the common Indian man understands the importance of power and water and shows respect to two things without which a society cannot live.

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