GoM accepts periodic tariff revision suggestion

A group of ministers (GoM), set up by the government to suggest ways to augment domestic fuel availability for power projects and improve the financial conditions of the distribution utilities, has accepted the power ministry’s suggestions to allow utilities to undertake tariff revision periodically, rather than as a one-off exercise.

Power distribution companies (discoms) in the country are estimated to have incurred a whopping loss of Rs 70,000 crore in 2010-11.

Rising gap between tariff and cost of producing electricity as well as aggregate technical and commercial losses are the main factors for the losses, a report by ICF International with assistance from Federation of Indian Chambers of Commerce and Industry (Ficci) and the power ministry said.

The report said, “Consumer tariffs need to be revised annually by all the states. Increase in fuel cost should be transferred to the consumers regularly (preferably every quarter) across all states.”

The report said the tariff structure needed to be rationalised to phase out cross subsidies. Speaking at India Electricity 2011 here on Wednesday, power secretary P Uma Shankar said the GoM, headed by finance minister Pranab Mukherjee, had also recommended fast-track clearances for allocation of coal blocks to the private sector and simultaneous forest and environment clearances to expedite the availability of coal to the power sector.

Over 80,000 Mw of capacity was under construction for being available in the 12th Plan (2012-17).

On the distribution front, the government is looking at a common rating system for discoms, which would help lenders extend loans only to entities that meet certain criteria. “Utilities need to be made accountable for their financial performance through a comprehensive rating system which may be linked to their ability to raise concessional debt,” the Ficci-ICF report said.

Apart from poor health of discoms, the study pointed out domestic fuel shortage and issues related to competitive power procurement process are posing challenges for the power sector. It also said issues relating to allocation of coal blocks, changes in coal linkages and adjustment to international fuel prices increase had been areas of major concern and developers had failed to adhere to the contract terms of power purchase agreements.

As an international practice, generators have very little ability to take the fuel price risk. “There is an urgent need to evaluate the power purchase agreements in this respect especially given the current fuel supply situation,” said the report.

R S Sharma, managing director, Jindal Power Ltd, said special focus was required for the development of 58 captive coal blocks allocated to the power sector to start production during 2014 to 2015. He said production from captive coal blocks should be incentivised by allowing surplus coal in the open market to the consumers to mitigate the coal shortage. A programme needs to drawn for decommissioning of the units having thermal cycle efficiency of less than 32 per cent except for captive use for optimal use of the coal.

In his remarks, Ficci president Harsh Mariwala pointed out that of immediate concern was the availability of adequate fuel. In spite of the vast coal reserves in India, domestic coal availability remains uncertain. This coupled with volatile international prices of coal is set to derail capacity addition plans of projects developers. Up to 25000 Mw of thermal power capacity is presently stranded. This implies a locking up of Rs 100,000 crore in stalled power projects.