The Punjab government’s decision to provide power to industries at a lower fixed tariff will hurt revenue of the state distribution company at a time when utilities are trying to resolve their debt under the UDAY scheme.
Chief Minister Amarinder Singh yesterday announced an industrial tariff at Rs 5 per unit to boost business activity in the state. The move follows Uttar Pradesh’s decision to provide subsidised power to boost the industry.
The impact of reducing the industrial tariff from an average Rs 6.25 per unit to Rs 5 for consumption of nearly 1,500 crore units has a revenue impact of close to Rs 1,850 crore for the utility, said Sambitosh Mohapatra, partner (power and utilities) at PwC. While a possible decline in revenue can be offset by higher sales and a lower cost of generation, it’s necessary for the government to preserve the health of the utility with explicit budgetary support, he said.
Punjab’s move comes even as discoms are looking to transfer up to 75 percent of their nearly Rs 4 lakh-crore debt as of September 2015 to state governments under the UDAY scheme. For the rest, they will have to issue bonds. Inability to hike tariffs, under-recoveries linked to power theft and sops announced by governments had left the companies saddled with debt.
Ashok Khurana, director general at Association of Power Producers, said the Punjab government’s decision will have no direct impact on power producers’ cost of procurement. They will gain indirectly as lower tariffs will boost demand, he said.
The state will have to compensate discoms by way of subsidy, he said. Power to fix the tariff is vested with the regulator but states can charge less and provide the rest through subsidy, in this case Rs 1.25 per unit, Khurana said. “Legally, the government has to fulfil deficit by way of budgetary subvention.”
Also, solar and wind power tariffs have fallen to record low, putting pressure on pricing. Some states are already looking to renegotiate their power purchase agreements.
Bloomberg Quint
