Implementation of tariff hikes will remain limited: ICRA

With the general elections round the corner, implementation of power tariff hikes by distribution utilities in FY15 could remain limited across the states, ratings agency Icra said today.
According to ICRA, during the election year, states are likely to emulate the tariff subsidy in Delhi, Haryana and Maharashtra.
"Overall subsidy dependence for the utilities for FY15 is likely to be higher than ICRA's estimate of about Rs 60,000 crore for FY14, given that tariff hikes could remain limited in the election year across the states. We feel the recent announcements for tariff subsidy by Delhi, Haryana and Maharashtra, could be emulated by other states," it said.

The subsidy dependence projected by the utilities for FY15 continues to remain significant across majority of the states, varying from 13 per cent to 26 per cent of the annual revenue requirement projected by utilities.
While discoms in states such as Andhra Pradesh, Gujarat, Odisha and Uttarakhand have proposed fairly stiff tariff revisions in the range of 15-26 per cent, Haryana, Punjab, J&K and MP have not proposed any tariff revision for FY15.
According to Icra, the revenue gap projected for FY15 has been quite significant for the utilities in a few states considering the increase in cost of power procurement and other O&M expenses, etc.

"This revenue gap is proposed to be met both through a mix of tariff revision and provision of regulatory asset for tariff recovery through future periods," it said.

In case of distribution loss levels, actual losses for utilities across majority of the states have remained higher than the loss trajectory approved by the state electricity regulators (SERCs) and such higher losses have been disallowed by SERCs, while approving the truing up of costs.
"Under these circumstances, ability of utilities to speedily reduce their losses so as to approach the approved loss trajectory will remain critical," it said.
The agency report also noted that the cost reflective nature of tariff determination as well as time-bound recovery of the regulatory assets by SERCs, especially for the utilities which have now projected a significant revenue gap either with limited or without any proposal for a tariff revision for FY15, remain to be seen.

Further, any non-adherence of the conditions, especially related to subsidy payout by states as well as timelines in filing of tariff petitions and tariff determination by SERCs as agreed in the terms of financial restructuring package will remain a serious concern for the sector.