Page 1 of 2The tariff policy now finalized and declared is in pace with the New Electricity Policy and tailor made to suit unbundling and privatisation of Electricity Boards and public sector power utilities. No body can expects otherwise from the UPA government. Commends on few important aspects are noted below
The policy clearly speaks of a power tariff, which can attract private capital to power industry like any other industry. The simple meaning of this is that the tariff is to be formulated in such a way that it should guarantee a rate of return which is not inferior to the rate of profit in any other business that the private capital invests. This concept pursued by GOI is totally ignoring the fact that electricity is a basic need and basic infrastructure facility. Higher return leads to higher tariff or higher rate of exploitation.
SERCs are permitted to allow higher ROE in distribution, taking the view that higher risk is involved in power distribution activity. (Expecting that distribution, including the existing lucrative areas will be privatized shortly.)When SEBs were performing this job, Governments and other critics of SEBs were blind to see this fact. This aspect of the policy is only a corollary of the above.
Tariff policy re-enforces, the concept of multiple licensees in transmission and distribution, telling in the same breath that the wire business is internationally recognized as having the characteristics of a natural monopoly. Multiple licensees in the same area will only create inefficiency and increase the tariff.
The policy insists to ensure that the uncontrolled costs like, fuel cost, cash on account of inflation, taxes and cess, variation in power purchase unit cost including on account of hydro thermal mix are recovered speedily. The consumers are to be prepared to bear frequent tariff arrear shocks as a result of this.
The tariff policy promotes captive generation by providing a lot of concessions like restricting the cess, duties,etc. The policy also persuades the states to provide open access in distribution too without waiting up to the demarcated date of 27.1.2009. The aftermath of implementation of neo-liberal policies in power sector world over is that the grid is dismembered; the unbundled grid power becomes unaffordable and non-reliable. This situation itself promotes captive generation, which is an inbuilt costlier option to those who can afford it. Concessions are being poured to these section of consumers thro’ tariff policy. Consumers resort to captive power when the grid power is costlier and not reliable. Consequently the grid power, generally owned by the state, looses economically sound consumers, which badly affect the revenues of state owned utilities and its capability to provide subsidized power.
While insisting to provide open access to intending consumers in transmission and distribution, the policy re-iterated that the responsibility of augmenting the capacity of the transmission system, reduction of line losses and providing alternate supply in case of a failure of generation vest with CTU/STU, owned by the state. The well off sections of the society can enjoy all facilities with the hard earned money of all the sections of the society.
The policy promotes a multi year tariff regime. Before introducing it, the policy advises to fill up the gap between the required tariff (on cost plus basis) and the existing tariff through tariff charges and through alternative means. This will give a tariff shock to consumers, if the state government is not providing subsidies.
The policy demotes the maintenance of regulatory assets and stipulates hard conditionalities to declare Regulatory Asset .So the gap, if any , between the Aggregate revenue requirement(ARR) and Expected revenue from charges (ERC) are to be filled up every year by necessary increase in tariff.
The policy insists to limit the impact of cross subsidy within +/ - 20% and advises to confine to those who are consuming less than 30 units/month. This results in the increase of tariff to rural and domestic consumers, agriculture connections, small scale / rural industries etc and decrease in tariff to well of sections.
The policy advises the state government to increase the duty of electricity to fund subsidies, if the government wants to subsidise some category like poor farmers rather resorting to cross-subsidy.
Trading is separated from transmission and distribution activity with a view to promote the so- called competition and market driven pricing of power. The imperialist driven policy makers expect this scenario shortly and thrust is being given to reach this goal as early as possible. So now the tariff policy permits 100% foreign investment in power trading. But, profits of generating companies and trading companies will increase only in a scarcity driven market, providing little incentive for adding new generating plants.
The formula for calculating surcharge is made in such a way that the public sector utility will get very meager amount often tending to almost zero towards this. The intention of inflicting surcharge is to compensate the cross subsidy element, which is lost while open access is permitted in transmission and distribution lines. This will result in the disablement of public sector utilities in providing cross subsidy to the needy.
The policy empowers the appropriate commissions to initiate tariff determination and regulatory scrutiny on a suo moto basis in case the licensee does not initiate filings in time. So in reality state’s power is now limited to provide explicit subsidies to any group of consumers even though sn.108 is provided in the act, as correctly pointed out in the report of the Expert’s committee.