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Power consumers can bear higher tariff: Study

Policymakers should realise the importance of economic pricing of electricity and allow power distribution companies to hike tariff to save the sector from an impending financial collapse,Crisil Infrastructure Advisory said on Monday.

Written by Fe Bureau | New Delhi | Published: May 8, 2012 3:41 am

Policymakers should realise the importance of economic pricing of electricity and allow power distribution companies to hike tariff to save the sector from an impending financial collapse,Crisil Infrastructure Advisory said on Monday.

In its report prepared by the agency on the power sector,it has said that Indian consumers can pay more than the electricity they consume and it is necessary that regulators revise tariff at regular intervals depending on the prevailing situation.

Power distribution companies’ combined losses are estimated to have crossed R2 lakh crore in the financial year 2011-12 due to increasing gap between revenue and expenditure of discoms in the absence of timely revision of tariffs.

Electricity tariff increase has lagged behind the rise in per capita income and the growth in household expenditure during the second half of the past decade. For example,power tariffs grew at 5% annually during the period while per capita income and household expenditure increased by 13.4% and 10.6% a year. Crisil MD Roopa Kudva said: “This indicates that Indian consumers can bear higher tariffs,and policyma-kers may have more flexibility to increase tariffs that they are currently exercising.”

To drive home the point that electricity tariffs in the country remain artificially low,Kudva pointed out that energy expenditure accounted for 10% of the average household’s budget in 2004-05. But the figure fell to 8% in 2009-10. This happened for the first time in 20 years.

“Had power tariffs been hiked to keep pace with other household expenses,power utilities would have earned additional revenue of R950 billion in this period. Instead of making aggregate losses of R870 billion,they would have made an aggregate profit of R80 billion,” she added.

To restore the financial viability of the sector,the consultancy firm has suggested implementation of key reform measures like publication of commercial and technical losses separately at the circle level,automatic state government funding of subsidy and regulatory assets and pass-through of increase in fuel costs on an automatic basis and without regulatory approval.

To prod discoms on reform path,the consultancy has suggested,the Reserve Bank should give its nod for shifting discom’s losses to the state government’s balance sheets. Besides,discoms should also be rewarded with lower interest rates and roll-over of their outstanding loans.

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