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Delhi’s power play

If it wants to reduce electricity bills, Delhi government has no option but to offer a subsidy. But is that warranted?

Written by Uma Shankar |
Updated: March 23, 2015 12:55:05 am
electricity bills, Delhi electricity bill, electricity supply delhi, Delhi electricity supply, Delhi electricity power, delhi free power, free electricity delhi, AAP, Arvind Kejriwal, Delhi government, Delhi power tariffs, Delhi, uma shankar column, indian express column, IE column If it wants to reduce electricity bills, Delhi government has no option but to offer a subsidy. But is that warranted?

Politics in the electricity sector has centred around three issues: access, availability and consumer tariffs. Electoral promises have naturally then been: electricity connections to all, 24/7 electricity supply and, if farmers constitute a predominant part of consumers, free power for agriculture.

Delhi has few issues regarding households without electricity connections. Under normal conditions, round-the-clock supply of electricity is also not a serious concern. Supply to agriculture is insignificant. Households account for more than 50 per cent of Delhi’s electricity consumption. Domestic consumer tariffs are then the only issue left for political play in Delhi.

The issue then comes down to the promise of reducing the cost of electricity for domestic consumers. The fact that electricity in Delhi is being retailed by three private companies lends itself readily to suggestions that domestic consumers are being needlessly overcharged and that electricity bills can be easily brought down by 30 per cent or 50 per cent, depending on which political party is making the promise.

The AAP encashed this issue and came to power in Delhi in 2013 with a promise to reduce consumers’ electricity expenditure by half. The party has stormed back to power this year with an overwhelming majority. Predictably, reducing electricity bills by half is on the agenda.

Although the promise essentially remains the same, the reasons for high electricity bills and the approach to reducing them identified in 2013 are substantially different from 2015. In 2013, the high cost of electricity for the consumer was attributed to inflated bills due to malpractice by distribution companies (discoms). The solution offered was essentially a discom audit, independent checking and verification of bills. In contrast, the reason identified in 2015 is the expensive and unsustainable cost of power procurement (inflated bills due to malpractice by discoms do not get a mention). The approach of the AAP is to: one, wriggle out of such power-procurement agreements and replace them with economical ones; two, make the Rajghat and Bawana power stations more efficient; and three, set up Delhi’s own power station near a pithead.

To put the issue in perspective, the questions to be asked are: first, is Delhi’s procurement cost of electricity too high? Second, can the steps outlined by the AAP in its manifesto bring it down? And finally, is Delhi’s domestic-consumer electricity tariff exorbitant as compared to other metros like Mumbai and Kolkata?

To the first question, the latest report on the performance of state utilities by the Power Finance Corporation indicates that the cost of bulk power in 2012-13 for Delhi discoms ranged between 77 per cent to 82 per cent of the cost of service to consumers. The same ranged between 60 per cent and 64 per cent for discoms whose cost of service is at least as high as Delhi’s. Thus, the AAP is right in concluding that the high cost of bulk power is a basic problem in Delhi.

As for the second question, Delhi gets about 4,000 megawatt (MW), allocated by the Centre (often at the request of the state government), from the generating stations of Central Public Sector Undertakings, and about 1,800 MW from its own generating stations. The allocations made by the Centre can theoretically be changed by it, but that will mean off-loading expensive power on other states and reallocating less expensive power from them to Delhi. Why would any state agree to increase its bulk power cost to help Delhi? Thus, wriggling out of these allocations is well-nigh impossible. In reality, the cost of generation from these plants, mostly based on coal from Coal India Limited, is going to rise further, as CIL’s cost of coal is constantly rising. The 6.3 per cent increase in coal freight and recently announced doubling of the clean energy cess will push it up more.

The only way of better utilising the Rajghat power plant is by shutting it down. But it is a small plant (135 MW) and this will not affect power-generation costs materially. As for Bawana, a gas-based plant, given that the availability and price of gas is uncertain, the potential for reduction in power costs is also uncertain.

The third step of setting up a pithead thermal plant based on a coal block to be allocated to Delhi is feasible. However, the allocation of a block, with a tender process to identify the project developer, the development of the block, setting up of the power plant and commissioning it, will take time. It will be a minimum of seven-eight years before power starts flowing to Delhi. Thus, for at least a few years, the cost of generation for Delhi will not be reduced. Even when the power plant becomes operational, it will merely increase Delhi’s quantum of power tied-up, adding to its woes, unless the state has, in the meantime, been able to get out of some of its high-cost allocations.
An area available for efficiency gains in electricity distribution is reduction in aggregate technical and commercial (AT&C) losses, which are high in India. While the national average AT&C loss in 2012-13 was 25 per cent, it varies widely among discoms, from 10 per cent to 60 per cent. In comparison, Delhi has a healthy 18 per cent, below the national average, and one company’s is as low as 13 per cent. Although there is scope for further improvement, that will require capital infusion and the gains will be marginal.

The only option left to bring down electricity bills is via subsidies, which is what the AAP government has now done (as it did in its first stint), entailing a whopping burden of Rs 1,427 crore at current tariff levels. If DERC were to allow two requests for increase in power-procurement costs already pending, the amount will be even higher. Whether Delhi will be able to sustain such a ballooning subsidy burden is a serious question. There are enough examples of discoms getting into serious financial difficulties because of governments not releasing the promised subsidies.

That brings up the third question: whether Delhi’s consumer tariff is exorbitant. If we compare with Mumbai and Kolkata, for consumption up to 200 units, the Delhi consumer pays (without subsidy) Rs 4 per unit, as against Rs 5.10 in the other two metros. For up to 400 units, the Delhi consumer pays Rs 5.43, compared to Rs 6.05 and Rs 5.62 in Mumbai and Kolkata, respectively. In such a situation, is an unsustainable subsidy-based reduction in electricity tariff warranted? That is the real question to be asked and answered.

The writer is a former Union power secretary

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