Low voltage for Arvind Kejriwal's power vow

A 50% cut in retail rates at one go a tall order, say experts, as the cost of buying electricity is tangibly real and high.

While Arvind Kejriwal of the Aam Aadmi Party is set to take over as chief minister of Delhi, experts and industry alike say the poll promise of a 50 per cent cut in electricity prices seems far away.

Two listed private distribution utilities, Tata Power and Reliance Infrastructure, supply power in the capital city. R-Infra has  management control of BSES Rajdhani Power and BSES Yamuna Power.

These distribution entities say it is tough to decrease retail power rates. “The cost of power in Delhi has increased by 300 per cent since 2002, while the retail rate has increased by (only) 65-70 per cent. This has created a huge financial burden for all the private discoms in the city,” said a distributor who refused to be named.

The city’s power regulator had said earlier that the private discoms were facing as much as a Rs 19,500-crore revenue gap due to the difference between the price of the power they procure from generating companies and their retail rates. None of the companies responded officially to e-mail queries on the possibility of rate cuts.

Stock market analysts are wary of the consequences of the AAP taking charge. For, it had made corruption charges against Reliance Infrastructure-owned entities for allegedly artificially inflating the expenses. The stock of Tata Power fell by 1.7 per cent to Rs  89 in Monday’s trade; those of, while that of R-Infrastructure gained by 0.7 per cent to Rs 429.

Apart from other impacts, experts feel power rates could be reduced over time by reducing power procurement costs. The AAP has not specified any timeline on the rate reduction. However, a 50 per cent cut at a single go seems difficult.

Delhi’s discoms are short on internal generation. They procure power from West Bengal, Madhya Pradesh, Jharkhand, Uttar Pradesh, Himachal Pradesh, Rajasthan and Jammu & Kashmir.

“Power tariffs (rates) have two components — power purchase costs and operational efficiency, and returns to the investor. It is possible to reduce power purchase costs as equity returns are fixed and operation and maintenance costs can be reduced by bringing in efficiency and value,” said Umesh Agarwal, associate director at PricewaterhouseCoopers.

In Mumbai, the power purchase costs of R-Infra were reduced over time. “Reliance was buying expensive power from the market but now these (rates) have stabilised and not increased since,” said Agarwal.

Analysts suggest another way to reduce rates is if the government  takes a liberal view of own returns from the part-ownership it has of the private utilities. “The earnings of these utilities would anyway go to government coffers, so they could pass these on to the people,” said a power sector expert.

with thanks : Business Standard : LINK