CRISIL moots hike in power tariff to relieve discoms

Noting that the state governments’ reluctance to hike power tariffs in the recent years has led to accumulated losses on the face of rising cost of production, Credit Rating Information Services of India Ltd (CRISIL), a market research company, has suggested that an annual power tariff hike of 6.5 per cent is necessary to improve the financial health of power distribution companies (discoms).

“Though as many as 17 states revised their tariffs after a gap of many years, the discoms are still suffering due to the losses accumulated in the past. Had the tariff been hiked yearly they would have fared better,” Crisil Managing Director Roopa Kudva told reporters on Monday.

"Aggregate accumulated losses of Indian utilities (state-owned) are estimated at over Rs 2 trillion at the end of financial year 2012. About three-fourth of these losses were incurred in the last five years,” Crisil Infrastructure Advisory, a part of Crisil, said in a report.

The report said that the 89 discoms in the country owe Rs 2.6 lakh crore to financial institutions.

“Power tariffs in India rose at a rate lesser than five per cent per annum in the last five years from 2010. During the same time, per capita income grew by 13.4 per cent every year while household expenditure increased by 10.6 per cent per annum. This indicates that consumers can bear higher tariffs and policy makers must have hiked it accordingly,” Kudva said.

She argued that had power tariffs been hiked to keep pace with other household expenses, it would have earned an additional Rs 95,000 crore revenue in the five years instead of leading to the aggregate losses of Rs 87,000 crore.

High fuel cost

“Over the last six years, the average generation cost increased from 49 to 77 paise per unit due to higher fuel cost. Indian coal production has remained stagnant in the last four years at 400-440 million tonnes. The power sector’s reliance on expensive imported coal doubled by 2012 which has added to the rise in the cost of power production, the report said.