VIDARBHA’S POWER WOES: VIII Cross-subsidy increasing to unsustainable levels in State

 

 

“The consumers in these (MIDC) areas have a higher average billing rate and contribute major portion of MSEDCL revenue. They are cross subsidising consumers for lower income groups and Agricultural sector in the State. The interruption in power supply even if for a few minutes in duration, results in heavy loss of revenue to MSEDCL and also causes severe production loss to industrial MIDC consumers. There are many industries like Paper & Pulp, Cement, Pharmaceuticals, Cold Storage, Electroplating Industries, Starch Manufacturing, Petrochemicals, etc which require continuous power supply.” This is not a statement made by some activist or an independent expert. This is, in fact, a statement of reality as per the 18th Annual Report (2022-23) by State-run power distribution utility -- Maharashtra State Electricity Distribution Company Limited (MSEDCL). While highlighting the need for uninterrupted supply of electricity to industrial units in MIDC areas, MSEDCL has stated clearly that the industrial consumers in MIDC areas are ‘cross-subsidising’ the consumers for lower income groups and agricultural sector in Maharashtra.

 

 

 

As has been highlighted in earlier reports by ‘The Hitavada’ during the ongoing series, grant of subsidy to agricultural consumers has been a major factor sapping the prospects of lower power tariff in the State. The Government grants direct subsidy to agricultural power supply, and there is an element of cross-subsidy on agricultural power supply. Though the latest data in this regard could not be found, the data for the period from 2015-16 to 2021-22 does not paint a good picture. As per this data in the ‘Study to suggest changes in electricity tariff structure applicable to agricultural pumps’ ordered by Maharashtra Electricity Regulatory Commission (MERC), the direct subsidy burden increased from Rs 4,708 crore in 2015-16 to Rs 5,420 crore in 2021-22. Similarly, cross-subsidy adjustment in the State rose from Rs 6,612 crore in 2015-16 to Rs 9,257 crore in 2021-22. Thus, at least two financial years back, the cross-subsidy adjustment in Maharashtra was less than a whopping Rs 10,000 crore! Interestingly, the National Electricity Policy had already spelled the problem with subsidy and had suggested a solution too. The policy stated, “Over the last few decades, cross-subsidies have increased to unsustainable levels. Cross-subsidies hide inefficiencies and losses in operations. There is urgent need to correct this imbalance without giving tariff shock to consumers.

 

The existing cross-subsidies for other categories of consumers would need to be reduced progressively and gradually.” To lay double emphasis on the point made in the National Electricity Policy, one must take note of the following sentences: “Cross-subsidies hide inefficiencies and losses in operations. There is urgent need to correct this imbalance without giving tariff shock to consumers.” But, it appears that all this wisdom has been sacrificed at the altar of the political populism by successive Governments in Maharashtra. In the Explanatory Memorandum for Draft MERC (Multi Year Tariff) Regulations, 2024, dating back to March 2024, MERC spelt the manner of grant of subsidy by State Government. In accordance with the provisions of the Electricity Act, 2003, as also the Electricity (Second Amendment) Rules, 2023, MERC proposed amendments to the existing subsidy mechanism regulations ‘to address the issue of data transparency for availing the subsidies’.

 

MERC proposed that if the State Government required the grant of any subsidy to any consumer of class of consumers in the tariff determined by the Commission, the State shall ‘pay in advance’ the amount to compensate the distribution licensee/person affected by the grant of subsidy with prior intimation to MERC. As per the proposal, State shall provide the amount of subsidy agreed to, in the form of grant. As per MERC, “The subsidy shall be passed on to eligible consumers through credit in their electricity bills only in proportion to the extent to which the total requirement of the distribution licensee is paid by the State Government.” The distribution licensee was asked to ‘clearly indicate’ in consumers’ bills the tariff determined by MERC, the amount of State Government subsidy and the rate and period thereof, and the net amount payable. Besides, the Commission asked the distribution licensee to host the report on subsidy status on its website. Sadly, cross-subsidies continue and as per the National Electricity Policy, they are probably still hiding ‘inefficiencies and losses in operations’.

 

The ‘urgent need’ to correct this imbalance ‘without giving tariff shock to consumers’ does not appear to have translated into action so far. Because, the consumers are still receiving tariff shock, upsetting their budget. While the issue of higher power tariff has assumed a grave proportion for residential, industrial, and commercial consumers in Maharashtra, one policy solution may be found in nation-wide power sector reforms. But, the Electricity (Amendment) Bill of 2022 is yet to be passed. (To be continued)