20 percent cross-subsidy cap: Industrial power cost to reduce by 14-20 percent

The power ministry’s plan to cap cross-subsidy — additional tariffs paid by industrial and commercial consumers to subsidise households and farmers — at 20%, effective January 2019, could reduce the cost of electricity for businesses by up to 14-20%. At a time when raw material costs are high and pricing power is subdued, this could help companies increase earnings. Among the states, Tamil Nadu keeps the cross-subsidy at the highest level of 60%, while in Uttar Pradesh it is around 40%, one of the lowest.

However, the move will dampen the receipts of cash-strapped electricity distribution companies, which, helped by the revival scheme UDAY, are struggling to cut losses.

Besides, the ministry’s decision to compute tariffs assuming aggregate technical and commercial (AT&C) losses of 15% — the actuals are higher; the reported national average is around 23% although there are wide variations across discoms — is also threatening to diminish discoms’ revenue realisation by a substantial Rs 32,000 crore annually (assuming, based on industry inputs, the monetary value of every 1 percentage point change in AT&C losses to be around Rs 4,000 crore). To put this in perspective, the aggregate book losses of state-run discoms in the country were `50,907 crore in FY16. States with higher AT&C losses (for example, Jharkhand at 39.3% and Bihar at 38.4%) would face more problems.

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