Power,water promises not easy to keep

There are four main reasons why the party’s promise of a 50 per cent cut in consumer tariff appears implausible without higher subsidy support. Simply because these companies buy power and despite Kejriwal’s assertion of padded costs,there is little space to make any cuts. For fiscal 2013-14,the three private distribution companies have projected an accumulated revenue gap of Rs 3,497 crore,which the regulator,after some pruning,will have to necessarily pass on to the consumer by way of tariff. Then,there is the overhang of regulatory assets — or cost recovery permitted by the regulator in future — on the books of the discoms,which,by itself,warrants an 8 per cent annual rise in levelised tariff. Plus,over 70 per cent of the average costs structure of a discom is accounted for by the electricity purchase costs,something that is beyond the control of the utility considering that nearly 90 per cent of the electricity bought by Delhi’s utilities is thermal power that uses feedstock – coal and gas – that have been seeing a sustained increase in prices. Lastly,Delhi’s current levels of tariff compare favourably with the tariff in the rest of the country,with the rates for the first 200 units broadly in line with the tariff in Mumbai (Reliance Energy and BEST areas) and lower than in adjoining townships such as Ghaziabad or Noida (Uttar Pradesh),Gurgaon (Haryana),as well as other big metros such as Bangalore and Hyderabad.

Former finance and power secretary in the Delhi government,Shakti Sinha said with the overhang of regulatory assets on the books of the discoms (pegged at about Rs 18,000 crore),the state electricity regulator will find it difficult to even keep the tariff at the present level.

WATER

The AAP has also promised free water for families that use up to 700 litres of water per day. This at a time when India’s cities,especially Delhi,are faced with a serious water availaiblity crisis and sharply receding groundwater table. The McKinsey Global Institute,in a study released earlier this year,had named Delhi among three other India’s most populous cities that could experience the biggest increase in demand for water among the world’s largest cities from 2010 to 2025. Most economists cite the promise on water as the most impractical,along with the AAP’s announcement on power. “I don’t think they have the calculated the five-year costs involved in lowering power tariff or supplying free water. But the implicit assumption of the model is that there are certain inefficiency costs that account in the total cost of these amenities. So the sooner they can identify and weed out the inefficiencies,the less fiscal stress it would have,” D K Srivastava,chief policy adviser,Ernst & Young,said.

The UN standards for water supply says it should not cost more than 3 per cent of per capita income. Delhi’s rates amount to less than 2 per cent of the monthly minimum wage rates. The standard says a city should supply at least 100 litres of water per capita. Delhi provides about 150 to 200 litres.