Tariff subsidy in Delhi and the domino effect
AS per a report published in The Daily Star on January 21, the state government of Maharashtra in India has decided to cut electricity tariffs by 15-20%. The decision was taken by the Congress Party-ruled Maharastra state government following the decision earlier made by the Aam Aadmi Party (AAP) led government in Delhi state. AAP, soon after taking oath at the end of last month, announced that the new government would implement its election pledges to subsidise power tariffs (50% subsidy for the consumers using up to 400 units of electricity a month on the existing rates charged by the Delhi Electricity Regulatory Commission) for lower user customers with effect from January 1. AAP has also decided to supply limited volume of water free of tariff for the citizens in Delhi.
The politically sensitive but very popular decision of AAP government in Delhi encouraged lawmakers in different states in India to demand similar tariff cuts for utility services. As declared, the AAP government in Delhi would make 20,000 liters of water free of cost to every Delhi household that is connected with pipe water supply systems having water meters. The household that exceeds the consumption limit of 20,000 liters by even one liter will have to pay for the total volume of water used. AAP actually offered mass subsidy for water and electricity targeting mainly the poor and lower middle class consumers. As per the existing tariff structures in Delhi, utility companies charge all consumers the same low tariff rate for the first 10,000 liters (Rs. 2 per 1,000 liters for the first 10,000 liters, Rs. 3 for 10,000-20,000 liters, and Rs. 15 for 20,000-30,000 liters). Everyone paid higher rates for additional water consumption.
The published information suggests that subsidies for fuel and electricity have been in existence in India, including in Delhi. Before the AAP government took charge in Delhi every household was required to pay Rs. 3.90 for the first 200 units of electricity consumption, Rs. 5.80 for consumption of 201-400 units and Rs.7 for more than 800 unit consumption.
Now, users consuming up to 200 units will pay Rs. 1.95 against the existing rate of Rs.3.90. Similarly, consumers will have to pay at a rate of Rs.2.90 per unit against the existing Rs.5.80 for the 201-400 unit slab. The Delhi state chief minister, after announcing the subsidy, clarified that the state government cannot fix the tariff, but it can give subsidy, which they have decided to extend.
The Indian central government minister of state for power, Jyotiraditya Scindhia, asserted that it was the prerogative of state government to decide which category of consumers deserve to get power subsidies, they also need to ensure that the impact on distribution companies remains 'revenue neutral.'
Opponents of AAP have been trying to brand the power and water tariff cuts as 'populist' measures. They say that only 68% of households have piped water supply, therefore offering payment waiver for 20,000 liters will not really make a lot of difference for the people without pipe water supply networks.
The critics also are doubtful whether the schemes announced by AAP can be implemented. Indian daily The Hindu published an article on January 21 stating that “the Delhi government has a deficit of Rs.17,250 million. After announcing a 50% reduction in power tariff, the chief minister announced it was only under consideration. He had asked people not to pay power bills. Many did not, and faced power theft cases. If Mr. Kejriwal withdraws the cases that would be a bad precedent; no court will permit that. If he does not, his followers will feel victimised.” Critics also fear that people will be tempted to tinker with their power and water meters to make them run slowly so that they remain within the subsidy thresholds.
The Indian Express published a report on January 17 stating that the Power Ministry of India was set to approach the central government cabinet of ministers with a proposal to make some amendments to the Electricity Act 2003 and the National Tariff Policy. The proposal is aimed to reform the existing policy so that the Electricity Regulatory Commission would be empowered to determine tariffs beyond the 2012-17 five year plan period, enabling the cost plus tariff structure. The amendment is also aimed to segregate the functions of the power distribution sector.
The reform, if allowed, will authorise one company to own the entire wire network but the electricity supply at the retail level would be carried out by different organisations. The existing provisions allow a company to act as supplier of power as well as to manage the entire wire infrastructure that transmits electricity to different categories of customers. Clearly, the central government is putting emphasis on the logical pricing of power so that this sector of the industry grows viably.
The writer is a mining engineer.
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