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Home News Power Sector News Power Tariff Policies

Power Tariff Policies

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Power Tariff policies effect common manThe tariff policy now finalised and declared by the Government of India (GOI) is in pace with the New Electricity Policy and tailor made to suit unbundling and privatisation of Electricity Boards and public sector power utilities. Nobody can expect otherwise from this  UPA government.
The policy clearly speaks of a power tariff, which can attract private capital to power industry like any other industry. This simply means 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 private sector business. This concept pursued by GOI is totally ignoring the fact that electricity is a basic need and basic infrastucture facility. Higher return leads to higher tariff or higher rate of exploitation.

The tariff policy now finalised and declared by the Government of India (GOI) is in pace with the New Electricity Policy and tailor made to suit unbundling and privatisation of Electricity Boards and public sector power utilities. Nobody can expect otherwise from this  UPA government.
The policy clearly speaks of a power tariff, which can attract private capital to power industry like any other industry. This simply means 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 private sector business. This concept pursued by GOI is totally ignoring the fact that electricity is a basic need and basic infrastucture facility. Higher return leads to higher tariff or higher rate of exploitation.
State Electricity Regulatory Commissions (SERCs) are permitted to allow higher return in distribution, taking the view that higher risk is involved in power distribution activity. (Expecting that distribution, including the existing lucrative areas will be privatised shortly). When State Electricity Boards (SEBs) were peforming 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. 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 bear frequent tariff arrear shocks!
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.
The situation itself promotes captive generation, which is an inbuilt costlier option to those who can afford it. Concessions are being poured to these sections 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, loses economically sound consumers, which badly affect the revenues of state-owned utilities and its capability to provide subsidised 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.
The policy demotes the maintenance of regulatory assets and stipulates hard condititionalities 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 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 on 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 to promote the so-called competition and market driven pricing of power. 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 meagre amount often tending to almost zero. 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.
Positive Signs
Protracted campaigns and agitations unleashed by EEFI and other progressive forces succeeded in bringing few positive steps in the tariff policy. Those are:
The debt equity ratio is regulated in such a way that the equity in excess of the norms (70:30) should be treated as loans, advanced at the weighted average rate of interest and for a weighted average tenur of the long-term debt component of the project, after ascertaining the reasonableness of the interest rates. This will help to reduce the cost of investment and reduction in tariff.
Advance against depreciation permitted earlier to enable pay back of amortisation results in a front loaded tariff; meanwhile the investor is freed from the risk of paying back the debt and interest with in a short tenure. But the tariff policy denies the need for any advance against depreciation.
Foreign exchange rate variation was a major factor loading the fixed charges. Earlier guidelines to formuate tariff permitted this factor as a pass thro’ item to tariff. The tariff policy clearly speakes that foreign exchange rate variation risk shall not be a pass through. This will be a relief to the consumers in terms of tariff.
It has become mandatory that all future requirements of power for medium or long-term period should be procured competitively thro’ bidding process, by distribution licensees except  in case of expansion of existing projects or where there is a state controlled company as an identified developer. This proviso may help to put an end to MOU route purchase of power from IPPs, the built in kickbacks and consequential tariff hike.
 

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