Tariff hikes key to discoms’ health

Tariff hikes may not be the only way to revive state electricity distribution utilities (discoms), according to Power, Coal and New & Renewable Energy Minister Piyush Goyal. But, the often talked about ‘Gujarat model’ suggests that tariff hikes go a long way in ensuring sustainable financial health of such utilities.

Gujarat’s four discoms have been consistently getting the highest ratings from the Power Finance Corporation over the last few years. It is perhaps no coincidence that the Gujarat Electricity Regulatory Commission has allowed these discoms to raise tariffs in line with the increasing cost of supply.

This is the key difference between successful discoms and those that are struggling with a mountain of debt.

A close look at the various tariff orders reveals that since the last financial restructuring package (FRP) in 2012, tariff increase has been minimal in the eight States with highest discom debt – Uttar Pradesh, Bihar, Jharkhand, Andhra Pradesh, Telangana, Rajasthan, Tamil Nadu and Haryana.

In Bihar, discoms have seen average tariffs move up by only 4 paise over the last three years while their average cost of supply per unit has gone up by 69 paise. During 2015-16, Bihar’s discoms earned only ₹4.59 a unit on an average, while their average cost of supply is ₹6.19 a unit.

In some States, tariffs have fallen even as the cost of supply has increased. For example, Tamil Nadu’s average tariffs are ₹ 4.89 a unit, down by about 10 paise a unit from the FRP of 2012. This is while the average cost of supply has gone up to ₹5.24 a unit from ₹4.99 a unit.

Discoms in all the eight States are losing money on each unit of electricity supplied which piles on the accumulated losses. While the State governments do provide some subsidy, it is not enough to cover the cost of supply.

The tariff movement at these eight States which make up for about ₹2.5 lakh crore of discom debt, about half of the national total, is in stark contrast to the best performing discoms.

In Gujarat, average tariff per unit in 2012-13 were ₹3.98 a unit while average cost of supply was ₹4.09 a unit. In three years, this has been turned around and average tariffs are now ₹5.37 a unit while average cost of supply is ₹5.11 a unit.

This provides the discoms with headroom to invest in technology upgradation and increase efficiency. Recently, Goyal said that the upcoming discom revival package that is being worked out is more than just debt restructuring and tariff hikes. He ruled out a financial bailout but emphasised on efficiency and technology upgradation.

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