Huge power tariff hike likely next fiscal

1. Govt has either to hike subsidy outlay or levy burden on people
2. Dual challenge of power shortage and yawning revenue gap
3. Discoms likely to submit proposals for 2015-16 to SERC soon
4. TRS to face major political challenge as people may blow a fuse

Challenges galore

• Mere allocation of Rs.3,000 cr for subsidies this fiscal
• A staggering shortfall of same amount
• Discoms face revenue gap of over Rs.10,000 cr
• Expensive power purchases squeezing resources
• Fate of PPAs uncertain as AP, TS govts differ
• GENCO projects require Rs.2,000 cr next year
• Increasing revenue gap may bind govt hands

Hyderabad: Telangana State is heading for a dual crisis in power sector in 2015-16. While there would not be any major respite in the acute power crisis facing the State, the increasing revenue gap and absence of commensurate allocations for power subsidies may lead to steep revision in power tariff.

Sources in the energy department of the State government reveal that the revenue gap for the power distribution companies in 2015-16 is likely to be anywhere above Rs 10,000 crore. This includes the shortfall this year, which would be carried forward to the next year. At least an additional Rs 2,000 crore is required for the investment in the GENCO projects.

The State government in the recently introduced budget allocated only Rs 3,000 crore towards power subsidies for the financial year 2014-15, reporting a shortfall of over Rs 3,000 crore. Assuming that the government would increase the power subsidies by a sizable margin next year, which is unlikely, tariff hike seems imminent. In case the power subsidies remain at the present level, much higher tariff hike may be imposed. The problem of widening revenue gap would be compounded by the need to buy power at an expensive rate due to severe scarcity. The State government has been purchasing power at a higher price for the last three months. Such purchases have to be continued during the next Rabi and after.

Additional power purchase cost, arrears of expensive power purchases, interest commitments on the bonds issued by the government earlier, etc., are also contributing to the widening revenue gap in this sector.

The power sector can face many uncertainties like fall in revenue collections, sudden rise in the demand for power, necessitating additional power purchases often at expensive rates, etc. These uncertainties may further add to the revenue gap.

The distribution companies are likely to submit their proposals on aggregate revenue requirements for the year 2015-16 to the State Electricity Regulatory Commission (SERC) by the end of this month. The government has to substantially increase the allocations for power subsidies in order to avoid a sharp rise in the power tariff, said Raghu Kancharla, a noted expert in the power sector.

Thus, the government is left with limited options. It has to either make greater allocations for power subsidies or levy the burden on the consumer. It has to prepare for a serious political challenge due to power shortage on one hand and widening revenue gap on the other.

Add to these, the two Telugu States are strongly differing on the applicability of power purchase agreements (PPAs). The electricity regulators will find it difficult to fix the tariff when there is a lack of clarity on the fate of PPAs.