Power tariff in Delhi may rise further

Power tariff in Delhi may rise further to allow power companies to pay off increased costs, Lalit Jalan, chief executive of Reliance Infrastructure Ltd, said in an interview. Edited excerpts:

Can you throw some light on your recent 1,500km power transmission project?

This is the first project which was bid on competitive bidding for the private sector. It’s 100% owned by the private sector. The project was awarded and we got all the clearances to be ready for construction by end of 2009. This is a 1,500km double circuit 400KV line predominantly in Maharashtra and Gujarat, comprising nine separate lines and this can help bring 4,000 megawatts (MW) of power from East and North-East to the power hungry states in the western region. Starting construction in 2009, we have been able to complete five of the nine segments in significantly less than 24 months and by the end of this financial year the entire project will be operational.

Can you take us through the recent Delhi tariff order, which gives the sector some leeway?

If you see the tariff that a consumer pays, the total revenue that the utility collects from a consumer, 80% of that goes towards paying for the power that the distribution utility procures from its various generators. In Delhi, we buy about 70% of power from NTPC and 20% of my power comes from state generating stations of Delhi. From 2005 to 2011, there has been no tariff increase in Delhi whatsoever. During this same period, the power costs have gone up by more than 100% and this increase in cost is owing to two major factors. One is the very high cost of coal, the high cost of gas liquids that these utilities use, and the much higher fixed costs that the new stations bring with itself.

So, this mismatch between the costs that are realized and the cost, which I have to pay to the generating stations, the tariff which is set by the regulator, I have no leeway on that. (It) created a huge cash flow mismatch for all the Delhi utilities, leading to major financial problems.

The current regulator has realized the issues and we are seeing the first 22% tariff increase, which has become effective from 1 September. He has also introduced the fuel adjustment charge, which is a standard practice across India and this was a practice which existed prior to privatization, which means that if the coal cost goes up and the generator passes on that increase of coal to the distribution utility, distribution utility can cover it during the same year leaving no backlog costs. These backlog costs eventually are paid by the consumers at bank rates of interests and I don’t think it is in the interest of consumers to accumulate these costs.

Along with this 22% increase we are getting closer to the cost reflective tariff, there would be more tariff increase required in times to come and the recovery of the old dues, so as not to give a tariff shock to consumers. (It) could take five to seven years for this entire past recovery, which the regulator has recognized. He has recognized almost Rs.9,000 crore as unrecovered costs for the three utilities and that will take maybe five to seven years.