Urja Gyan

Maharashtra Cuts Power Tariffs by 20%

Mumbai excluded as distribution is handled by pvt firms & any rate cut would need regulator’s nod.

OUR POLITICAL BUREAU MUMBAI 

    The Maharashtra government on Monday announced a 20% cut in power tariffs for all industrial, agricultural, commercial and domestic consumers in the state except Mumbai, a move prompted by Delhi chief minister Arvind Kejriwal’s decision to reduce tariff by up to 50% in the capital.
Consumers in Mumbai city and its suburbs will have to wait for a few more days for a similar relief, said people familiar with the situation. The decision on Mumbai will be implemented once the regulator, the Maharashtra Electricity Regulatory Commission, clears the proposal for tariff cut. “Since Mumbai’s power supply is handled by private companies such as Tata Power and Reliance Infrastructure, the tariff change in city has to be approved by regulatory commission, but we are confident that we will be able to give some relief to consumers in Mumbai as well,” said state industries minister Narayan Rane. Maharashtra’s decision to cut power tariffs, along the lines of Delhi, will burden the state’s exchequer by around . 7,000 crore a year.
“It is expected that the state distribution company Mahavitaran will have to be compensated for a shortfall of about . 706 crore per month. Mahavitaran will be provided a subsidy of . 606 crore by the state government, while . 100-crore burden will be shared by the state generation company (Mahagenco) and the state energy transmission company (Mahatransco). Effectively, the hike in tariff implemented in September 2013 has been withdrawn,” said an official statement issued by the government. The state government had set up a group of ministers under the chairmanship of Rane to find out how to provide relief to energy users, especially industrial consumers. The group recommended 15-20% cut in tariffs across the board. 
The power distribution company Mahavitaran will be provided a subsidy by the government to compensate for the revenue shortfall. Earlier, Congress MPs Sanjay Nirupam and Priya Dutt had led a protest against private utilities for charging higher tariffs. However, the NCP, part of the Congress-led government in the state, opposed the idea of lowering tariffs in Mumbai, since it would amount to giving subsidy to private utilities.
ET had reported on January 6 that the state would announce a cut in power tariff after the Cabinet’s nod. AAM AADMI SOP COULD TRIP POWER REFORMS Discoms Suffer A Maha Shock Industry says Maharashtra tariff cut may encourage other states to follow suit, put more pressure on discoms 
    Maharashtra took a leaf from the Aam Aadmi Party’s book and cut power tariffs by 20%, becoming the third state to do so in the run-up to general elections and sending jitters among distribution companies as power rates were slowly moving towards market levels after a long and loss-making lag. Experts said that this could short-circuit significant progress in power sector reforms and encourage state governments to cut supplies for longer hours to save costs because the total burden of electricity subsidy has already ballooned to a total of about . 1,12,000 crore before the populist trend started. While Delhi may have the resources to support the subsidy, they worry that other states do not have the financial wherewithal to take on the additional burden. Weak finances of state utilities is one of the major bottlenecks that has choked the vital link between power stations and customers. “The rate-cut is being done due to competitive populism. It is a regressive step as it pulls the sector back which was trying to break the vicious cycle of non-payment by states to discoms which resulted in power generators not getting their dues,” said Ashok Khurana, director general of Association of Power Producers. “After all these years the power tariff was finally moving closer to the market-determined rate, reducing the subsidy burden and easing the financial condition of discoms and even the states. But now we are back to where we were,” Khurana said. The cut in electricity tariff comes at a time when loss-making power distribution companies (discoms) across the country are in the process of restructuring to deal with mounting losses and a huge pile of debt. Low power tariffs, transmission losses, combined with high subsidies damaged the financials of power discoms. In March 2012, the combined losses of discoms stood at . 2,40,000 crore.
In fact, it’s only in the last two years that most states have buried their political compulsions and accepted the inevitability of a regular increase in electricity tariff. All states have increased their tariff in the past year, with the quantum being as high as 25-40% in some states where price has remained unchanged in the past.
So, the promise for cheaper power is being questioned by sector players and experts alike.
“There is a need for subsidising power for low-end consumers. A power tariff cut for them will go a long way to help them. But the state should be able to support the fiscal burden arising from it. It’s a decision to be taken by each state depending on their financial strength,” said Vinayak Chatterjee, chairman and co-founder of infrastructure consultancy firm Feedback Infrastructure. 
Pramod Deo, former chairman of Central Electricity Regulatory Commission, points out that lowering power tariff by providing subsidy may do more bad than good for the consumer in the long-run.
“If states subsidise power, there is pressure on them to keep the costs under check. We have seen in the past that state governments have directed discoms to go for load-shedding instead of buying more power which in turn would increase the subsidy burden.”
Deo also points out that this may impact private sector companies’ plans to set up new projects. “If we go back to the days when discoms were not getting their dues from the state and generators were not getting paid, then there would be no incentive for the private sector to set up projects.”
Soon after swearing in as chief minister of Delhi, Arvind Kejriwal announced a 50% cut in electricity tariff which he claimed would be . 61 crore in subsidies for the period between January and March.
Haryana government made a pre-poll announcement of rolling back electricity tariff that would cost the state . 6,500 crore per year. On Monday, the Maharashtra government slashed tariff for the state, excluding Mumbai, by 20% for all industrial, agricultural and commercial consumers that would lead to a shortfall of about . 706 crore every month, which will include . 606 crore of subsidy from the government and . 100 crore from the state generation company and transmission company.