[T.S.R:18202] Will Tamil Nadu Power Hikes Stoke Public Dissent?

Will New Delhi Get Unhinged By A Civil Disobedience Movement That The Infamous Gang Of Four Had Never Enivsaged?

Over the next few months, Power Tariffs starting with Tamil Nadu will rise 6 fold, this will extend to metered charges for Drinking Water, Public Transport, Property Taxes getting quadrupled and the scene will be set for a collapse of the Government at the Centre.

 

TANGEDCO seeks 14-550% tariff increases across consumer categories

 

Tamil Nadu Generation and Distribution Corporation (TANGEDCO) has filed a petition with the Tamil Nadu Electricity Regulatory Commission (TNERC) to increase power tariffs by 14-550% across its key consumer categories. If approved, the hike would generate additional revenue (including subsidy) of Rs97.4bn (blended increase of 36.5% vs the existing level) and reduce the company's FY13E revenue deficit to Rs48.1bn vs TANGEDCO's current estimate of Rs145.5bn.

 

The proposed tariff increases across key categories are: 1) High Tension (HT) industries (30.8% of total power consumption) – 25% energy charge (EC) hike which would raise revenue by 18.6%; 2) Domestic (26.4% of total consumption) – 14-173%

EC increase (excluding subsidy) leading blended revenue to rise 42% (including subsidy); 3) Agricultural & Government Seed Farm (16.4% of total consumption) – 550% EC hike (excluding subsidy) leading blended revenue to increase 589% (including subsidy); 4) Commercial (7.5% of total consumption) – 21-63% EC increase leading to blended revenue growth of 26%; and 5) LT industries (7.5% of total) – EC hike by 10-38% leading blended revenue to increase 70%.

 

Of note, sharp fixed charge hikes have been proposed across most consumer categories. We understand that it will take 3-6 months for TNERC to reach a decision on the tariff petition as it must hold public hearing, undertake due diligence, etc.

 

Regulatory asset proposed to be recovered in five years

 

TANGEDCO has requested that TNERC to allow it to recoup unrecovered revenue gap expected during FY11-13 (estimated at Rs310bn excluding Rs97.4bn in recovery post the currently proposed hikes) through future tariff hike in five financial years. This implies that several tariff hikes will be needed to return TANGEDCO to a healthy financial position –unrecovered revenue gap reached Rs103bn in FY10. According to a 31 July 2010 tariff order, TNERC has not approved Tamil Nadu Electricity Board request that a regulatory asset be established to address accumulated losses through 31 March 2009.

 

According to the order, restructuring of TNEB is expected to address the issue. Post this, a transfer scheme initiated by the GoTN cut the accumulated loss to Rs33bn from Rs168bn (see Table 18).

 

Structural improvement of discoms financials to help the entire value chain

 

Over the last 18 months, we have seen 22 states increase power tariffs. This, coupled with the recent Appellate Tribunal For Electricity (APTEL) judgement directing state regulators to initiate suo-moto proceedings against defaulting discoms (distribution companies), will go a long way to improving discoms' currently weak financial positions. The focus will now shift to

fuel issues (coal and gas shortage) and how key participants (companies/ministries/etc) resolve the same.

 

 

 

Safe Harbor Statement:

Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

 

Nothing in this article is, or should be construed as, investment advice.

 

 

 

 

 

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