Power tariff for farmers doubled; sector’s outlook still remains wobbly

Power tariffs for agricultural consumers have more than doubled in the past five years even in pollbound states as regulators and utilities have taken steps to control mounting distribution losses, but the sector’s outlook remains wobbly as states are still promising subsidies and unaccounted supplies continue.

The most striking rise in tariffs was in Punjab, which supplied free electricity to farmers until 2009-10. The state has more than trebled the tariff in 2011-12, while poll bound Uttar Pradesh raised rates by about 10% during the year. While South Indian states like Tamil Nadu and Andhra Pradesh continue to be a challenge, farmers in India have witnessed around 97% more outgo for electricity in the last 5 years, according to official estimates.

“Over the last three years, the maximum increase has been in agriculture and irrigation tariff followed by domestic tariff, railway traction and then commercial and industrial tariff,” notes a planning commission report on the working of state power utilities and electricity departments.

Farm sector’s share in revenue generated by power sales is expected to go up to 9% in 2011-12, up from 6% in 2007-08. The increase in the revenue share is the highest among all subsidised categories. Moreover, while agricultural use of power continues to be the highest contributor (85%) to net subsidy, the estimated rate of increase of farm power subsidy at around 2% is lower than the 4% increase expected due to domestic usage.

Earlier Planning Commission deputy-chairman Montek Singh Ahluwalia had severely criticised states such as Punjab and Tamil Nadu for giving free or de-meterised supply to farmers. Demeterised and uncontrolled use of power had not only led to unsustainable losses to SEBs but had also severely depleted groundwater levels.

The commission had aggressively pushed for levying appropriate tariff for electricity in the farm sector since 2008. It had to allow some relaxation in 2009-10 as it was a drought year, but efforts were intensified again in 2010. The commission, however, is taking the relative improvement in the situation with a lot of caution. “There has been a lot of movement in states and revision in tariffs have become a more regular affair with the establishment of state regulatory authorities,” said Pronab Sen, principal adviser in the planning commission.

“But the heart of the problem still remains. States continue to promise more subsidies that they can sustain through their budgets and losses of SEBs are still huge,” added Sen. Bringing down the losses of state electricity utilities, which currently stands at around Rs 80,000 crore, is one of the major objectives of the 12th five year plan due to start in April this year. SEB officials say that despite the increase in tariffs they still face losses because they are not adequately compensated for subsidised supply.

“The cost of supplying power has increased at a much higher rate. The gap is still huge and we do not get the full support of the government. In most of the districts the tariff is just a notional rate,” said an SEB official of a northern state.

The average annual increase in the cost of supply has been 7.4% in the last 5 years and even though average annual increase in tariff has averaged 17% in the last 3 years, the gap between the cost and revenue stood at 145 paise per kWh (Kilowatt). The commission expects the gap to come down to 107 paise per kWh in the current fiscal. Sector experts said much more needs to be done to make returns in the power distribution sector sustainable.
Source: ET


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