States Should Hike Power Tariff Every Year: Deloitte

States must undertake power tariff hike every year to tackle the massive debt problems that stare power distribution companies in the face, Deloitte India senior director, Debasish Mishra told NDTV.

“Every state must do a quarterly power and fuel cost adjustment that takes care of 80-85 per cent of your cost increase and regular tariff increase at the end of the year,” he said. (Watch full interview)

Mr Mishra cited the example of Tamil Nadu that did not increase tariff for seven years and then even after they undertook a 37 per cent hike, there was still no cost coverage.

According to Deloitte state electricity boards (SEBs) and independent power producers (IPPs) put together are at risk of defaulting $100 billion. The banking sector’s exposure to the sector is much more; $100 billion – $50 billion from SEBs and $50 billion from IPPs is the amount that is at risk, Mr Mishra added.

Currently there are talks of state governments taking over the debt of power companies and servicing them, Deloitte said.

“The only way you can fix this problem on an urgent basis is take out some of this debt and get it serviced by the state government. That is what is being discussed by individual states with the central government.”

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