The recently released report of the Power Finance Corporation on the performance of state power utilities shows that, at aggregate all-India level, the gap between the average cost of supply (ACS) and average revenue realised (ARR) has consistently increased from about R0.49 per unit of electricity sold in 2006-07 to about R1.08 in 2011-12, if subsidy is not considered. Even with booked subsidy, the gap between ACS and ARR has consistently increased from R0.25 per unit in 2006-07 to about R0.70 per unit in 2011-12. With ACS and ARR figures for 2011-12 at R4.39 and R3.31 per unit, respectively, it can also be seen that, even after accounting for booked subsidy, the tariffs on an average will have to go up by almost 25% if the ARR is to converge with ACS. In light of this, it is not surprising that state governments are opposed to any increase in tariff due to shortage of coal. We try to examine what will be the burden on the already loss-making state utilities and its impact on consumer tariffs.
The decision to go for competitive bidding did seem vindicated in terms of lower tariffs discovered till problems cropped up. First in the nature of non-availability of coal to the extent required by developers to fulfil their contractual obligations from Coal India Ltd (CIL), and then in the nature of change of law in Indonesia which resulted in steep increase in the price of imported coal available from Indonesia. This has created a situation where financial viability of about 70-75% of the contracted capacity, involving an investment of about R1,700-2,000 billion, is perhaps threatened.
Based on Central Electricity Regulatory Commission’s statutory advice dated May 20, 2013, the ministry of power advised state governments and state regulatory commissions to consider allowing pass-through of higher fuel charges arising out of coal shortages made good by imported coal on a case by case basis. The impact of this suggestion to allow pass-through of higher fuel charges on the distribution companies (discoms) and their consumers, however, will vary depending on the mechanism used for bidding, the source of fuel, and the structure of the bid. In the following paragraphs we analyse the impact with respect to capacity contracted under case 2 bidding mechanism.
As per the competitive bidding guidelines, where the location, fuel or fuel linkage are specified by the procuring discoms, the procurement is to be considered as being done