Events & Issues

New Delhi, 27 January 2014

Reducing Tariff

USING ENERGY TO WIN ‘POWER’?

By Nikhil Gajendragadkar

Maharashtra Government’s latest decision to reduce power tariff is widely seen as a move to win votes in rural parts of the State and to nullify AAP’s influence. But how long can the Government bear the burden is the key question. Besides, how many other States will follow suit is worth a look-out.

As election season is hotting up, political parties and State governments are expectedly doling out goodies to their people. The Government of Maharashtra has put forth one such ‘bright’ example. It has slashed power tariff by 20 per cent. The reduction in rates is across all consumer groups. Yet all are not happy. You do not need a Nobel laureate to foretell that the decision will affect the State's already poor financial health.

Maharashtra's decision is described as the 'AAP' effect, as in seen in some other State’s as well. There is some truth in it. After assuming power in Delhi, AAP declared free water to all -albeit in limited quantity-, and reduced electricity rates by half. Immediately clamor for rate cut started in Maharashtra. Two MPs from Mumbai, Priya Dutt and Sanjay Nirupam, took to the streets to press their demand. If the Delhi Government can do it, then why can’t the Maharashtra Government replicate it, was their question. This agitation created an embarrassing situation for the Congress-NCP Government, as both MPs belong to Congress party. Nirupam was earlier with the Shiv Sena.

Chief Minister Prithviraj Chavan constituted a committee headed by Minister for Industries, Narayan Rane. The committee recommended reduction of tariff by 15 to 20 percent. The Government accepted and implemented the recommendation. As of now, the decision is restricted to all parts of the State excluding Mumbai - or rather parts of Mumbai-where power is supplied by private companies.

Interestingly, Chavan has denied that the move is a ‘copy’ of AAP. According to him, the Government had constituted the committee last November after complaints were pouring in from various user groups against the tariff. In September last, the State Electricity Company increased various surcharges amounting to 20 per cent increase in rates. So, in effect, the Government has cancelled or withdrawn that increase. That means there is no real reduction in power tariff or electricity rates. This so-called reduction is applicable to those who consume less power, i.e. up to 300 units per month for domestic use.

Even then, this decision will put additional burden of roughly Rs.7, 200 Crores per annum, according to the Government's statement. The shortfall has to be compensated by way of providing subsidy. The cost is Rs. 706 Crores per month.   The Government will bear Rs. 606 crores and two companies, Maharashtra State Electricity Transmission Company (MahaTransCo) and Maharashtra State Power Generation Company (MahaGenCo) will bear Rs. 100 crores. If one calculates these figures, the annual cost comes to around 8400 crores. Then, the big question is, whether this 'cut' is for a limited period? That is up to elections in May?

Another interesting point is, the Government has not involved third and important company, Maharashtra State Electricity Distribution Company (MSEDCL). The two companies have shown accumulated profit of Rs. 2200 in the financial year 2012.  MSEDCL's accumulated losses are Rs.4649 crores in the period. Now, without doubt, this ‘please all' decision will drag these two companies in the red.

How the Government will be able to provide for subsidy is obviously the big question. Undoubtedly, State of Maharashtra's finance is in a mess, and that can be an understatement.  Whatever the reasons, either because of draught or slowdown in economy, revenues are drying up. Every year the Government presents surplus budget, but by the end of the financial year it turns into a deficit one. This year (13-14) surplus shown is mere Rs.27 Crores. On the other hand debt is piling up. As per an estimate the year will close with more than Rs. 2, 70,000 crore of debts.  Major portion of the State's earning is spent on debt servicing and 'non-Plan' expenditure .In simple terms it means that Maharashtra is spending more to run its administrative machinery. Very little money is left for developmental work.      

Maharashtra’s electricity woes do not end there. ’MahaGenCo’s dwindling productivity is a cause of concern. In 2011-12 it was 54 per cent, last year it came down to roughly 52 per cent. Lesser productivity means more cost of production, which in turn is recovered from end users.  Private companies are more efficient as they register 85 to 90 percent productivity. For example, Reliance’s power plant at Dahanu has established capacity of 500 MW, but they produce 510 to 515 MW through the year. Adani, Mundhra, Indiabulls, and other private companies are buying electricity at Rs.2.50 to Rs. 3.25 per unit. On the contrary the State government is paying MahaGenCo Rs. 6.50 per unit.

Using coal of lesser quality –or outright bad quality- also adds to the cost of production. According to the CAG report, during 2005-2010 use of inferior and wet coal has drained the State exchequer to the tune of Rs.5500 Crores. This is a huge loss. Due to inefficiency, production cost of two plants (Paras, Parali) went up. So, the total loss is estimated at Rs. 6,852 Crores.

During 2010-13 irregularities in purchase and use of coal for power generation became even more serious. Coal must not have ash content more than 30 per cent, is a rule or standard criterion. But the State’s power generation units were using coal which has more than 50 percent ash content. So they were burning tax payer’s money. Apart from corruption and irregularities, power theft adds to the miseries of the people. Stealing electricity from poles is rampant in rural and urban areas as well, not just in the State, but across the country.

The supply cannot match demand, hence large part of the State – particularly rural area-experiences power cut for twelve hours during summer. Though this is described as sheer ‘load shedding’ by the Government, power cut is a regular feature for the people. Even today the State is facing shortage of power. If a consumer is not getting basic power supply what then is the use of any ‘relief ‘to him?

This forces one to conclude that this is mere election gimmick. The State can provide electricity at affordable rate to common people, if –that is a big if- it weeds out corruption and malpractices from the power sector. Can the Government do this? Does it have the political will? Are people being overcharged, etc? In fact, Maharashtra will provide answers relevant to the entire country. However, these will be known only after the elections--both Assembly and Lok Sabha. --- INFA

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