JAIPUR: In Rajasthan, people pay one of the highest rates for power. The natural disadvantage of being located far away from coal resources resulting in power purchasing cost of Rs 4.81 per unit, highest in the country along with UP, is not the only reason. The interest burden of discoms’ loans is another major reason. In fact, at Rs 1.40 per unit of power, the interest paid by discoms for its loans is the highest in the country.
Recently, the board of state energy department decided to exit from high power purchase agreements to bring down the cost of power. Also a proposal from the Rajasthan Vidyut Utpadan Nigam Ltd for retiring two units of Kota Super Thermal Power Station having 220 megawatt pending with the government.
In the past financial year, discoms used cheaper electricity from power exchanges and brought down the purchasing costs by Rs 20 paisa per unit but the impact of legacy burden and natural disadvantages is too large to pass on the benefits to the consumers. But more such strategies are being discussed to reduce the power tariffs in state which are one of the highest in the country.
TOI analyses the causes as to what led to the spike in power rates in the state and why it is proving difficult for the government to provide relief.
High power purchase cost:
This contributes nearly 80% to the total cost of supply of the discoms. The conventional thermal power plants have been using coal transported from outside the state and the high logistics cost is making power generation expensive. Power purchase cost of Rajasthan at Rs 4.81 kWh, which is about Rs 0.08 kWh higher than national average of Rs 4.73 kWh. For other states’ (excluding UP) power purchase costs are below all India average. In some states, it is half in comparison to Rajasthan.
Bulging interest cost on discoms’ loans:
From unbundling of discoms in 2000 till 2011, there were only two tariff revisions. While costs increased by 71% during this period, revenue increased by 2% only. Discoms had to take short term loans to fund these increase in costs. After 2011, there have been some tariff revisions but by then the interest costs had gone up. Non-timely tariff revisions and no tariff hikes in 2016-17, 2017-18 and 2018-19 forced discoms to fund losses through loans. As a result, the interest cost has gone up and it is highest in the country.
High depreciation cost, more low paying users:
Rajasthan is the largest state in the country with very low population density. So the cost of infrastructure per consumer is the highest in the country. Infrastructure requires both higher capital expenditure and depreciation cost. Also, Rajasthan has amongst the highest share of consumers in the country at low tension level (domestic and agriculture). This results in higher technical and transformer losses.
Other reasons:
Cheap hydro sources constitute less than 10% of the power portfolio in Rajasthan whereas other neighboring states have much higher cheap hydro power share. The state also faces huge variation between peak demand (14,000mw) and average demand (9,500mw) due to which discoms are liable to pay fixed charges even if no power is procured from generation companies. Thirdly, even with availability of low cost renewable energy, discoms will continue to pay fixed charges of long term agreements with conventional generators.
Timely tariff hikes could have avoided more hikes:
From 2007-08 to 2013-14, the cost of supply had nearly doubled, but the rates were nearly half of the cost which resulted in heavy losses to the discoms and loan liabilities. If the discoms were able to revise their tariffs regularly by 3-4% annually in line with inflation, it would have avoided the need for large and sudden tariff hikes and the impact on consumers would have been minimized.
Recently, the board of state energy department decided to exit from high power purchase agreements to bring down the cost of power. Also a proposal from the Rajasthan Vidyut Utpadan Nigam Ltd for retiring two units of Kota Super Thermal Power Station having 220 megawatt pending with the government.
In the past financial year, discoms used cheaper electricity from power exchanges and brought down the purchasing costs by Rs 20 paisa per unit but the impact of legacy burden and natural disadvantages is too large to pass on the benefits to the consumers. But more such strategies are being discussed to reduce the power tariffs in state which are one of the highest in the country.
TOI analyses the causes as to what led to the spike in power rates in the state and why it is proving difficult for the government to provide relief.
High power purchase cost:
This contributes nearly 80% to the total cost of supply of the discoms. The conventional thermal power plants have been using coal transported from outside the state and the high logistics cost is making power generation expensive. Power purchase cost of Rajasthan at Rs 4.81 kWh, which is about Rs 0.08 kWh higher than national average of Rs 4.73 kWh. For other states’ (excluding UP) power purchase costs are below all India average. In some states, it is half in comparison to Rajasthan.
Bulging interest cost on discoms’ loans:
From unbundling of discoms in 2000 till 2011, there were only two tariff revisions. While costs increased by 71% during this period, revenue increased by 2% only. Discoms had to take short term loans to fund these increase in costs. After 2011, there have been some tariff revisions but by then the interest costs had gone up. Non-timely tariff revisions and no tariff hikes in 2016-17, 2017-18 and 2018-19 forced discoms to fund losses through loans. As a result, the interest cost has gone up and it is highest in the country.
High depreciation cost, more low paying users:
Rajasthan is the largest state in the country with very low population density. So the cost of infrastructure per consumer is the highest in the country. Infrastructure requires both higher capital expenditure and depreciation cost. Also, Rajasthan has amongst the highest share of consumers in the country at low tension level (domestic and agriculture). This results in higher technical and transformer losses.
Other reasons:
Cheap hydro sources constitute less than 10% of the power portfolio in Rajasthan whereas other neighboring states have much higher cheap hydro power share. The state also faces huge variation between peak demand (14,000mw) and average demand (9,500mw) due to which discoms are liable to pay fixed charges even if no power is procured from generation companies. Thirdly, even with availability of low cost renewable energy, discoms will continue to pay fixed charges of long term agreements with conventional generators.
Timely tariff hikes could have avoided more hikes:
From 2007-08 to 2013-14, the cost of supply had nearly doubled, but the rates were nearly half of the cost which resulted in heavy losses to the discoms and loan liabilities. If the discoms were able to revise their tariffs regularly by 3-4% annually in line with inflation, it would have avoided the need for large and sudden tariff hikes and the impact on consumers would have been minimized.
