Lights out

The Indian Express : Thu Jun 21 2012, 03:50 hrs

Hard decisions on power tariffs, not sledgehammer rules to conserve electricity, are needed The aborted attempt by the Uttar Pradesh government to switch off electricity to heavy consumers like malls after 7 pm is a reminder of the gathering crisis in the power sector, but more than that, of the fact that states are still in the dark. In 10 years, from 2000 to 2010, the UP state regulator has revised electricity tariffs only once. As a result, by the end of fiscal year 2010, the aggregate losses of all state utilities, including UP, have risen to Rs 1,23,000 crore. The borrowing of the distribution companies from the banking sector to finance this loss has approximately doubled, according to Crisil figures, to Rs 2,67,000 crore. The scale of crisis is enough to pull the balance sheets of several banks into trouble. As banks have baulked at providing fresh loans, the companies have reached the end of their capacity to buy additional electricity to feed their grid. So even though year 2011-12 has ended with a capacity addition of 20,000 MW, the power cannot be sold to bankrupt discoms. Instead of taking steps to correct this mismatch by fixing the tariff regime, UP seemed to be planning to handle the power shortage by reaching out for sledgehammer rules to conserve power. As the core of the problem remains unaddressed, there is a corresponding impact on the consumers. Studies show that as industrial consumers get used to low tariffs they skimp on improvement in the quality of their electrical machinery and end up losing on electrical efficiency. The correct remedy for power shortage is to ensure that the so-called independent regulators actually act independently and raise tariffs in keeping with the rise in costs a saving grace here is the Central Electricity Regulatory Commission's directive mandating that each state regulator examine costs and give a power tariff ruling each year. The states also have to take over a significant portion of the loans run up by the discoms as tariff hikes are not allowed to service past dues as per current regulations. But for the future, the takeover has to be accompanied by the imposition of a strict financial discipline on state utilities to ensure that tariffs are mandatorily raised when costs rise this, in fact, is one of the recommendations of the B.K. Chaturvedi panel that is working on a plan to reduce the debt of state electricity boards. Only these steps will create the space for financing additional capital investment by the utilities, allow them to replace outdated transmission lines and stop states from issuing orders that are difficult to implement even as they skirt the fundamental problem.