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Saubhagya Scheme: Tariff restructuring key to lighting homes round the clock

The International Energy Agency says electricity tariffs for industrial segments in India are among the highest in the world, which, in turn, impacts competitiveness.

Written by Vivek Sharma | Updated: November 15, 2017 1:50:32 am
saubhagya scheme, saubhagya yojana, saubhagya loan scheme, deendayal urja bhawan, Narendra Modi, pradhan mantri sahaj bijli har ghar yojana, indian express Prime Minister Narendra Modi launched Pradhan Mantri Sahaj Bijli Har Ghar Yojana ‘Saubhagya’ (Source: Twitter/BJP)

Why can’t we ensure 24×7 electricity to our households? Poor cost recovery has been the primary reason.

Plugging in the last of the unconnected lot — mostly rural folk — is expensive because the tariffs they are charged are well below the cost of procurement. The distribution companies’ (discoms) revenue gaps are cross-subsidised by industrial and commercial consumers, or by states that directly bear the subsidy.

The recent launch of the Saubhagya scheme, which aims to light up 4 crore homes in deep hinterland, is giving discoms the jitters.

That is because cross-subsidisation of Saubhagya will be tough, given tariffs for industrial and commercial consumers are already prohibitive — in many cases, 50-100 per cent above the 120 per cent ceiling set by the National Tariff Policy.

Currently, the cost of supply is way higher for low-tension, or agricultural and domestic consumers, compared with high-tension, or industrial and commercial consumers, for two reasons: More money needed for last-mile connectivity, and more losses (transmission, distribution and commercial) incurred.

The disparity between voltage-wise cost of supply and average billing rate remains so wide that industrial consumers end up paying 200-300 per cent more that what is the cost of supply in Rajasthan, Uttar Pradesh and Haryana. There is little room to squeeze more out of them.

The International Energy Agency says electricity tariffs for industrial segments in India are among the highest in the world, which, in turn, impacts competitiveness.

Now, considering average monthly household consumption of 100 kWh and a revenue shortfall of say Rs 5 per unit, supplying electricity to the 4 crore households targeted under the Saubhagya scheme would mean a revenue shortfall of Rs 24,000 crore annually. States would have to simply cough this up.

Discoms also face delays in realisation of revenues. About 4 per cent of the total subsidy booked by the distribution utilities in FY16 has not been released by states. That translates into a revenue loss of Rs 2,397 crore. Additionally, such delays aggravate the working capital woes of discoms.

Moreover, even those that can pay higher tariffs are also given subsidy, which is deleterious to discoms.

The answer to the revenue woes of discoms is in plain sight, actually: go for direct benefit transfer (DBT) just the way it was done for LPG. Such a DBT could be linked to metering, where only metered customers become eligible to receive subsidy. This solves two persistent problems – of irregularities and ensuring 100 per cent metering – in one go.

Just 20 paise saved on every rupee disbursed as subsidy would lead to Rs 12,000-crore savings, considering the present outlay of about Rs 60,000 crore annually.

Another option that needs exploring is a universal service fund similar to that in telecom. As of now, discoms receive funds via cross subsidies and government outlay to support rural electrification programmes. These funds can be pooled together at the state level to create a universal service fund. States can further allot some money from their budgets. Such an outlay would be dynamic and correspond to the subsidy requirements of discoms. The subsidies would then be disbursed directly to eligible consumers instead of through discoms, which will allow discoms to treat every consumer as equal.

If there are clearly defined subsidy criteria and processes, projects involving rural cooperatives and public-private partnership options such as private franchisees will also become viable.

Gram panchayats or public institutions can be roped in to provide the connections, and in metering and bill collection activities. The franchisee model for rural distribution management can also be implemented at the circle level. These would not only help achieve last-mile connectivity, but also strengthen the delivery and monitoring mechanisms.

Lastly, the massive back-up capacities that consumers have invested in — 90 GW at last count — shows them willing to pay for better quality of supply and service.

Let us not, therefore, hold back tariff increases where – and when – required.

The writer is senior director, CRISIL Infrastructure Advisory

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