Keeping FRPs on track

Apr 01 2014, 21:19 IST
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SummaryThe new govt at the Centre has to ensure that states maintain the momentum of revision in power tariffs

For the new government assuming charge next month, one of the critical jobs would be to regain and maintain the momentum of power sector reforms, especially the SEB debt recast plan.

The good work done in the past one year or so deviated from its designated direction after Delhi’s 49-day Aam Aadmi Party government slashed power tariffs. This was followed by cuts in Haryana and Maharashtra, clearly signalling the possibility of the momentum of electricity rate hikes across the country in the last two years getting jolted.

Though Delhi is readying itself for tariff hike, the scenario in the other states is making those associated with the SEB debt recast plan jittery about its success. Considering the current plan has been put in place after extended deliberation with the states, its derailment would mean a major setback in improving the financial health of state power distribution companies.

Tariff hikes are an integral part of the financial restructuring plans (FRPs) for dismantling the R2 lakh crore debt of the state electricity boards (SEBs).

Given the gap between power costs and tariffs—a little over R1.1 per unit in FY12—resulted in losses of around R93,000 crore for all utilities in the financial year, not hiking tariff today can only mean a higher tariff hike later. But in the election season, ignoring this hard truth seems to be the more popular option.

A Morgan Stanley study of the top-10 loss-making SEBs, pre and post-FRP, shows how the states are losing track. Rajasthan, having the biggest losses, hiked power tariff by 19% in FY13 but in FY14, the raise was limited to 14%. Similarly, Tamil Nadu, ranked second in terms of losses, hiked tariff by 30% in FY13 but it is yet to increase it this year. Uttar Pradesh raised power tariffs by 18% and 40% respectively in FY13 and FY14 but is now considering a cut. Andhra Pradesh, in the process of signing FRP, is in a better situation with hikes in FY13 and FY14 being 12% and 22%, respectively. But Haryana, with its FRP in place, has already rolled back the FY14 hikes. Non-FRP Punjab is also considering a cut after it increased rates by 12% and 10%, respectively, in FY13 and FY14. Another non-FRP state, Madhya Pradesh, too is holding on to the existing rates which were raised 8% in FY13 and 2% in FY14. Jharkhand, yet to sign the FRP, didn’t raise power tariff in FY14

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