State Electricity Regulatory Commissions (SERCs) in 16 out of 29 states have issued tariff orders so far for FY2017, which implies a modest progress in terms of issuance of tariff orders for the year. However, ICRA notes that distribution utilities in large states such as Rajasthan, Tamil Nadu and West Bengal are yet to file tariff petitions for FY2017, let alone secure issuance of tariff orders. It is also noteworthy that of these states, Rajasthan and Tamil Nadu have substantial revenue gap and accumulated debt levels.
“However, we believe that this delay in tariff filings and issuance process may not be due to lack of willingness on part of the key stakeholders to address issues arising out of tariff-related issues. The delay can be attributed to the proposed implementation of the UDAY, which resulted in some uncertainty about quantifying the impact of the scheme on the cost structures of discoms and hence on tariff requirements. In addition, the recently held assembly elections could also have led to delays in the tariff determination process for FY2017 in the states of Assam, Kerala, Tamil Nadu and West Bengal” says Mr. Sabyasachi Majumdar, Senior Vice President, ICRA Ratings.
The extent of average tariff hike, based on the tariff orders issued in 16 states, is at a moderate 5%, as against the proposed tariff revision of 5-33% in petitions filed by utilities in most of the states. This can be attributed to factors such as allowed fixed costs being lower than projected level, power purchases allowed in line with approved AT&C loss reduction trajectory and allowed true-up expenses for the past period being lower against the projected level in some cases. Further, the limited tariff hike is accompanied by higher subsidy dependence as seen for utilities in states such as Bihar and Karnataka.
“The overall subsidy dependence for FY2017 for the state owned distribution utilities at all India level is estimated at Rs. 757 billion, an increase of 7% against the previous fiscal and the same is estimated to account for about 19% of the revenue requirement approved for the utilities for FY2017. The increase in subsidy can be mainly attributed to the increase in subsidy for the discoms in Bihar, Karnataka and Maharashtra”, Mr. Majumdar, further added.
ICRA further notes that subsidy dependence in other states such as Andhra Pradesh, Gujarat, Haryana, Madhya Pradesh, Punjab, Rajasthan, Tamil Nadu, Telangana and Uttar Pradesh continues to remain significant owing to the highly subsidised / free power supply scheme to agriculture consumers and to some sections of domestic consumers in these states. In ICRA’s view, timeliness and adequacy of subsidy support to utilities from their respective State Governments remains extremely crucial, given the delays observed in quite a few states in the past.
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