Tuesday’s increase in Delhi’s retail power rates would allow BSES, the Reliance Infrastructure-owned electricity distributor here, to garner an additional Rs 2,500 crore as turnover this financial year (2012-13).
Also, the company said, Delhi residents can expect no load-shedding for the rest of this summer, as the raise would save BSES from an acute financial mess.
R-Infra meets about 70 per cent of the capital’s power requirement through two of its subsidiaries, BSES Rajdhani Power Ltd (BYPL) supplying the city’s south and west, and BSES Yamuna Power Ltd (BYPL) for the east and central parts. Tata-owned Tata Power Delhi Distribution Ltd (TPDDL), supplying the north, accounts for the remaining 30 per cent. The three companies together supplied 26,000 million units (MUs) of power in 2011-12.
“The 24 per cent increase in tariff (rates) by the regulator has come as a breather for us. This will help the two BSES companies register a turnover of Rs 11,000 crore this year, which would have been Rs 8,500 crore based on the old tariff,” R-Infra’s chief executive officer, Lalit Jalan, told Business Standard. “The hike would ensure 24-hour supply for Delhi consumers.”
The increase would help BSES correct a monthly revenue loss of Rs 400 crore, owing to the existing mismatch between a high power purchase cost (PPC), accounting for 80 per cent of its input cost, and the low retail rate. The PPC has risen 280 per cent from Rs 1.4 per unit in 2002-03, when Delhi’s power distribution was privatised, to Rs 5.3 per unit in 2011-12, Jalan said. However, the government had allowed a mere 36 per cent increase in the politically sensitive rates, to Rs 5.3 per unit, over these 10 years.
The current rise is a result of last year’s Appellate Tribunal direction to state power regulators to ensure cost-reflective rates. Power prices were earlier raised in August last year, by 22 per cent.
Defence of rise
The root cause of the bad finances of distribution companies was a six-year period of no rate increase being allowed, between 2005 and 2010. The city government had rescued the distribution companies by infusing Rs 500 crore of equity last December. However, the stagnant retail rates of the earlier period had led to build-up of Rs 9,000 crore of liabilities, including the current debt liability of around Rs 6,400 crore, Jalan said. “The huge build-up of debt by BSES has led to a fast-depleting asset cover, a critical criteria bankers seek for extending funds,” he added.
The revenue gap resulting from a high PPC and stagnant rates had come even as BSES says it managed to pull down the capital’s Aggregate Technical and Commercial (AT&C) losses — a measure of inefficiencies in billing, revenue collection and theft of power -- from over 40 per cent in 2002 to less than five per cent in 2011-12.
Interestingly, the three Delhi distribution companies together declared a profit of Rs 612 crore in 2011-12 — TPDDL’s Rs 470 crore, BRPL’s Rs 121 crore and BYPL’s Rs 21 crore. TPDDL could not be reached for comments. BSES says the profits shown are notional, being arrived at through Regulatory Assets (RAs) that represent cost incurred which is proposed to be recovered through future rate revisions. This deferment leads to accumulation of such assets every year, it said. Without these RAs, the two BSES companies would have together registered a loss of Rs 4,000 crore in 2011-12, a dampener for seeking loans. With the latest Delhi Electricity Regulatory Commission’s rate order recognising the RAs, it is looking at innovative ways of seeking finances and improving cash flows, sources said.
Experts say the rate increases are a step in the right direction and would help improve the finances of companies.“If the government had raised prices by seven-eight per cent every year, which is expected in a fossil fuel-based basket like that of India, the latest increase would not have been as high as 24 per cent,” said a senior analyst from an accounting and consultancy firm. He added while BSES had consistently reduced AT&C losses, the upward pressure on rates would continue.