One of the biggest challenges for the newly-appointed Delhi Chief Minister Arvind Kejriwal is reducing electricity tariffs by 50 per cent which can be done only if it doles out subsidies, say experts.

Aam Aadmi Party led by Kejriwal, in its manifesto, had promised to slash power tariff in the city-state by 50 per cent.

“It is unlikely that the utilities can bring down the electricity tariffs by 50 per cent without government providing them with cash subsidy,” Debashish Mishra, Senior Director, Deloitte India said.

However, he added that there may be scope for further loss reduction in distribution, demand side management measures and cost optimisation in O&M (Operation & Maintenance).

“In the short run, it will be a viable idea to identify a category of customers where such subsidies can be targeted and their tariffs reduced to the extent promised by AAP (Aam Aadmi Party),” said Sambitosh Mohapatra, Executive Director, PwC.

He said that broadly the tariff is determined by four factors - existing operational efficiencies, capital and cost structures, power purchase agreements, and regulatory (assured and authorised) assets in the sector.

“In the longer run i.e. over next 5 years, if annual tariff increases is contained at the existing levels by managing the four outlined factors, then effective reduction can be stated to be around 50 per cent,” Mohapatra added.

Electricity tariffs were revised in the Capital in July this year. Delhiites pay a minimum of Rs 3.90 per unit tariff.

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