People's Democracy

(Weekly Organ of the Communist Party of India (Marxist)


No. 04

January 27, 2013





Power Tariff Proposals:

Unprecedented and Unwarranted


                                                M Venugopala Rao


THE proposals of the four power distribution companies (Discoms), with the consent of the state government, to Andhra Pradesh Electricity Regulatory Commission (APERC), seeking its consent to hike power tariffs to the tune of Rs 12,723 crore for the year 2013-14 are unprecedented in the history of the state, and unwarranted too. The average proposed hike to different categories of consumers is 42 per cent or Rs 1.47 per unit. The state has been reeling under abnormal power shortage and power cuts to a maximum of 89 mu per day already recorded, on the one hand, and the power consumers are being saddled with a spree of tariff hikes and fuel surcharge adjustment (FSA) burdens, on the other, with disastrous consequences on different sectors.


The present proposals of tariff hikes are a continuation of the additional burdens of tariff hikes of Rs 6310 crore for the last three financial years and FSA burdens of Rs 10,895 crore for the last four years and one quarter imposed on about 2.2 crore non-agricultural consumers of power in the state. For the year 2013-14, against the proposed hike of Rs 12,720.72 crore, the implied subsidy of the government is Rs 5884.37 crore.  Against a revenue gap of Rs 9800.67 crore determined by the APERC for the year 2012-13, the government agreed to provide a subsidy of Rs 5531.67 crore, which is 56.45 per cent. Now, against the projected revenue gap of Rs 18,607 crore, the government subsidy is Rs 5884.37 crore, which is only 31.62 per cent.  In other words, the government wants to drastically reduce its subsidy as a percentage of the projected revenue gap of the Discoms and impose higher burdens on consumers in the form of tariff hikes. This crisis is the outcome of neo-liberal policies of deliberately neglecting the public sector units and pampering the private sector by the central and state governments.


In this background, ten Left parties, including the CPI(M) and the CPI, are conducting a series of agitations, demanding withdrawal of the proposed tariff hikes and FSA burdens. On January 22, they held spirited picketing in front of all district collectorate offices in the state. CPI(M) Polit Bureau member B V Raghavulu, CPI state secretary K Narayana and other leaders participated in the picketing in front of Hyderabad collectorate office. They warned the Kirankumar Reddy government of getting washed away in people’s fury if it does not immediately rescind from such tariff hike. Later the leaders of ten parties met in the state committee office of CPI(M), M B Bhavan, and resolved to intensify the agitation after January 30.




The deliberate failure of the government of India in ensuring supply of domestic coal and natural gas to the power projects in the state as per allocations made by it is leading to under-utilisation of existing installed capacity. As a result, the Discoms are forced to purchase power in the open market from merchant power plants and power traders at higher prices and get power generated with costly imported coal and Regasified Liquefied Natural Gas (RLNG) to reduce power shortage.  Instead of increasing production of natural gas in the D6 field of KG basin to 80 million metric standard cubic meters per day (mmscmd), Reliance Industries Limited is reducing it considerably. Due to the failure of RIL and the GoI to ensure production and supply of natural gas as per allocations made, the Plant Load Factor (PLF) of the old private power projects is projected to be 58 per cent and of the four new private power projects of GVK extension, Gautami, Vemagiri and Konaseema to be 2 per cent during the next financial year. To reduce the projected shortage of 22,287 mu against the estimated demand of 106,061 mu during 2013-14, the Discoms have proposed to utilise the stranded installed capacity of these projects to get 6008 mu generated by using RLNG. The tariff to be paid for this quantum of power is estimated to be Rs 10 per unit. The Discoms also have proposed to purchase 13,753 mu on short-term and medium-term basis from private projects and power traders at an average cost of Rs 5.11 per unit.


As a result of the failure of GoI in ensuring timely supply of at least allocated domestic coal, the thermal projects of AP Genco and central generating stations are already forced to buy costly imported coal. There are serious allegations that manipulations and corruption are taking place in purchasing imported coal by confining competitive bidding to a few marketing companies of the central government. TDP president N Chandrababu Naidu has publicly alleged that the chief minister, N Kirankumar Reddy, has got kickbacks of around Rs 400 crore in purchasing imported coal required by AP Genco. Instead of re-examining the issue and ensuring international competitive bidding to enable foreign producers of coal to participate in the process to ensure real competitive bidding and economic price for imported coal, the Discoms have proposed to add 10 per cent escalation over actual variable costs of first half year of 2012-13 of AP Genco and central generating stations for the next financial year. Nor is there any effort on the part of the GoI to get production and supply of domestic coal increased to meet demand of the thermal projects.


Due to the failure of Reliance in supplying natural gas as per allocations made, the shortage of gas-based power is estimated to be 11,300 mu based on 80 per cent PLF of the installed capacity of the existing projects with whom the Discoms had power purchase agreements. The average cost of gas-based power, even at the unjustifiable high cost of natural gas of the US $4.20 per mmbtu is about Rs 3 per unit.  For purchasing RLNG-based power of 6008 mu, the Discoms have to shell out an additional sum of Rs 4205 crore, with a difference of Rs 7 per unit. Similarly, for purchasing another 5292 mu in the open market, the Discoms have to pay on an average Rs 5.11 per unit, which works out to an additional burden of Rs.1116.61 crore, with a difference of Rs 2.11 per unit. In other words, the failure of GoI and RIL in supplying natural gas to the power projects imposes an additional burden of Rs 5321 crore. Due to high cost of imported coal and increase in costs of domestic coal, the variable cost of thermal projects of AP Genco is projected to increase from Rs 1.93 per unit in 2011-12 to Rs 2.60 in 2013-14. For the projected supply of thermal power of 42,341.95 mu during 2013-14, the additional burden works out to Rs 2836 crore, with the variable cost increasing by 67 paise per unit. Similarly, the variable cost of thermal projects of NTPC is also increasing substantially.


The Tuglaquian approach of the central government in fixing price of natural gas being produced in KG basin in US dollars, not in Indian rupees, is increasing the price in rupee terms, as and when the exchange value of rupee gets depreciated vis a vis the US dollar. Depreciation of exchange value of rupee is having similar adverse impact on the cost of imported coal as well. The additional impact of this depreciation on the prices of both natural gas and imported coal during 2013-14 is estimated to be 50 paise per unit of power.


During the last one decade, generation of hydel power in the state ranged from the lowest of 2959 mu to the highest of 9566 mu per annum. Against the projected 6407 mu, the revised availability of hydel power during the current financial year is 3500 mu only, while the projected availability for 2013-14 is 3754 mu.  This drastic reduction in availability of hydel power, as a result of inadequate rainfall and resultant shortage of water in the reservoirs in the state, the average fixed cost per unit of hydel power is increasing.  As a result, the tariff to be paid to AP Genco for hydel power is increasing from Rs 1.79 per unit in 2011-12 to Rs 3.34 in 2012-13 and to Rs 3.46 per unit in 2013-14.




Having created acute shortage for power through their neo-liberal policy approaches, the central and state governments have created a situation in which the consumers have to either live with severe power cuts and resultant consequences or bear hefty additional burdens by purchasing power from private merchant plants and power generated by using costly imported coal and RLNG.  By proposing to purchase power from wind units with a capacity of 730 MW at an average tariff of Rs 4.55 per unit (for new units it is Rs 4.70 per unit) and from solar units with a capacity of 609 MW at an average tariff of Rs 5.50 per unit, the Discoms are adding to the power purchase cost. The projected PLF of wind units is 22 per cent and of solar units 20 per cent.  What this means is that such high cost power with very low PLF is neither an alternative nor a solution to the present power crisis.


Another irrational and unfair proposal of the Discoms is to re-introduce non-telescopic system of tariff for the slabs of domestic category. For example, for a monthly consumption of 100 units, as per the tariff of Rs 2.60 per unit, the consumer has to pay Rs 260. If the consumer consumes even one unit more i.e. 101 units per month, his bill would shoot up to Rs 570.65 at the proposed non-telescopic tariff of Rs 5.65 per unit for 101-200 units slab. That means he has to shell out an additional sum of Rs 310.65 for consuming just one more unit!  Under telescopic system, the consumer has to pay Rs 260 per the first 100 units and Rs 5.65 per unit for the consumption above 100 units and upto 200 units.  Nearly a decade back, we had explained this irrationality of non-telescopic system and requested the Commission to introduce telescopic system and the Commission, then headed by chairman G P Rao, positively responded and introduced telescopic system.


Shortage for domestic coal, natural gas and water in reservoirs is temporary in nature. Once these issues are solved, generation and supply of power would improve and cost of power purchase would ease substantially, thereby avoiding need for most of the proposed additional burdens of tariff hikes. Moreover, projections of availability of power and additional purchases in the open market, as proposed by the Discoms, have an element of speculation. Instead of seeking to recover additional cost under FSA as a one-time affair as and when it actually materialises, the Discoms have proposed tariff hikes which are permanent in nature.  In other words, the proposals of the Discoms are in the nature of frontloading the tariff to cover even requirements of likely increase in costs of fuels and other costs in future which may lead to increase in power purchase cost and need for hiking tariffs. It is a questionable approach.


Strengthening public sector utilities like AP Genco and NTPC to take up and implement proposed and new projects in time by providing necessary budgetary allocation for meeting equity, allocating and ensuring timely supply of adequate quantum of fuels required by them, taking concerted measures in a planned manner to ensure growth in production of fuels like domestic coal and natural gas, fixing prices of fuels in a rational manner based on prudent capital and operating costs and reasonable profit, clearing dues of more than Rs10,000 crore to the Discoms by the state government for additional power purchased at its behest over the last four years, improving efficiency of government’s power utilities, effective measures for further reducing transmission and distribution losses, curbing theft and pilferage, collecting dues from consumers, implementing energy conservation measures in a phased manner based on cost-benefit analysis, correcting manipulative terms and conditions in the power purchase agreements with private power projects by amending the same, paying special attention to research and development to tap sources of renewable energy in an economical way gradually and fixing their tariffs in a prudent way are some of the main measures required to ensure adequate supply of power at affordable tariffs to meet growing demand of consumers.