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Is Delhi's power too costly?

Source : BUSINESS_STANDARD
Last Updated: Sat, Nov 30, 2013 00:04 hrs
Delhi polls: Kejriwal replies to EC notice

The Aam Aadmi Party has promised a 50 per cent cut in Delhi's electricity tariff. The Bharatiya Janata Party has promised a 30 per cent reduction. But the electricity distribution companies in the capital say they are losing money. If we are to figure out whom to believe, some simple numbers are unavoidable.

Back in 2002-03, when electricity distribution in the city was privatised, the cost of power that the distribution companies, or discoms, bought from suppliers was Rs 1.42 (all numbers have been taken from one of the discoms). Add overheads of Rs 2.33 per unit (including losses from massive power theft), and the total cost per unit was Rs 3.75 - against which the average tariff given to the discom was Rs 3.96 per unit. Result: a surplus of 21 paise per unit. Eight years later, the bulk purchase cost had virtually trebled to Rs 4.20, while overheads per unit had dropped by over 40 per cent to Rs 1.34 (showing a dramatic improvement in efficiency). The total cost to the discom was therefore Rs 5.54 per unit, while the average tariff was now Rs 4.56. The result was a shortfall of 98 paise per unit.



Since then, the average tariff has gone up by about 50 per cent. There is also a surcharge. The revenue per unit may now be close to Rs 7. Unless the cost of power purchased has crossed Rs 5.50 (compared to Rs 4.20 three years ago), the discoms should be doing fine. These numbers do not suggest scope for a 50 per cent reduction in tariff, which would take it to a level lower than in 2002-03.

Arvind Kejriwal of the Aam Aadmi Party explains his election promise by alleging that the discoms have inflated power purchase costs by buying through intermediate companies, and understated billing for many customers, as also indulged in excessive metering. He says there should be an audit to verify the facts. This should be done since his suspicions are shared by many, but it is doubtful if the findings would support the 50 per cent promise.

One could do a reality check by looking at the discoms' books for profit/loss levels, but this is not an option since the charge is that the books are cooked. One can, however, compare the total tariff increase of about 75 per cent over 10 years with inflation trends. General consumer prices have gone up by about 125 per cent in the last decade, while the wholesale price index for fuel and power has gone up by about 120 per cent. The retail price increase for domestic electricity in the last three years is about a third (compared to a half in Delhi, but after a longish period of flat tariffs). The key question is why the purchase cost of electricity has risen astronomically, from Rs 1.42 to Rs 4.20 and more. Though the Reliance discom says power is bought only from public sector suppliers, the cost increase is out of line with other inflation trends, including in the electricity sector.

What about electricity tariffs elsewhere? The Central Electricity Authority's numbers for June 2012 (the latest available) show that Delhi's average tariff at a minimum consumption slab of 100 units/month was among the higher ones - beaten only by a few states that probably charge more in cities to neutralise subsidies on agricultural power. At the highest consumption slab, Delhi's tariff was somewhere in the middle - higher than urban domestic power in Goa, Surat, Ahmedabad, Mumbai (Tata Power), etc, and about the same as in Bangalore and Gurgaon. So there could be scope for a modest tariff cut. A bigger cut can be asked for only if it is proved that the power purchase bills are inflated (as Mr Kejriwal charges).

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