SEBs stare at Rs 14,000 cr loss as polls hold up tariff hike

Tags: News
The state electricity boards (SEBs) are set to lose around Rs 14,000 crore, as they could not implement the annual tariff hike for 2014-15 by March 31 because of the election code of conduct.

The delay in tariff hike will lead to tight cash-flow situations, forcing the state power boards to borrow beyond their capacities.

"Between 2012 and 2014, there has been a sharp increase in the cost of generation and distribution. The delay in tariff hike will affect cost recovery and the utilities will be deprived of cash, forcing them to borrow beyond their capacity to meet customer requirements," a senior Deloitte official said.

"The consumer base will be affected if we continue to depend on subsidy, as the mix will tilt in favour of subsidised customers who would then default on payments when the tariff goes up," he said.

Kameshwar Rao, executive director at PWC, said the overall cost of delay in tariff revision is likely to be between Rs 10,000 crore and Rs 14,000 crore if input costs continue to grow at the normal inflationary level. Besides, the tab will be higher if the delay gets extended even after elections.

“The power utilities can mitigate at least a part of this cost by recovering the changes in fuel cost through the fuel supply agreement formula as notified by the relevant commission. The regulators, inturn, should provide for the carrying cost of delayed filing due to the code of conduct in the annual revenue requirement (ARR) to compensate for such losses.”

“This approach will help communicate that the financial viability of the power sector and its ability to attract investment is not affected by political processes. This will allay fears overseas investors have of the cost and risks of doing business in India,” Rao said.

A senior official at Rural Electrification Corporation (REC) said, “There are a few states which have filed the tariff petition with the regulator. For them as and when tariffs are revised, the revision will be on a retrospective basis.”

The states that have filed the petitions include Chhattisgarh,Uttaranchal and Karnataka, while Maharashtra and Andhra Pradesh have sought extensions.

The cost of the utilities for 2011-12 was Rs 3.55 lakh crore as per the last reported figure, which at 15 per cent average rate of growth is expected to rise to Rs 4 lakh crore for 2012-13 and Rs 4.7 lakh crore for 2013-14. It is estimated to hit Rs 5,40,000 crore in 2014-15.

The recovery is only around 75-76 per cent, while another 10 per cent comes as government subsidies.

“If the recovery is delayed and the cash situation gets tight, it will affect borrowing plans of SEBs and even the so-called good boards such as Maharashtra and Gujarat will come under the financial restructuring plan provided by banks and the ministry of power. We have sought a 10 per cent tariff increase for 2014-15,” said SK Agarwal, director finance at Uttar Pradesh Power Corporation.

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