In January 2014, the Congress led government of Maharashtra (GoM) issued a subsidy of INR 1.60/kWh on industrial electricity tariffs to compensate for a tariff hike approved by the Maharashtra Electricity Regulatory Commission (MERC) (refer here). But as the legislative assembly election in Maharashtra draws closer, the future of this subsidy is doubtful. If the GoM continues this subsidy, it will have to pay close to INR 7 bn (USD 113 bn) every month to be paid to the generation, transmission (MSETCL and MSPGCL; ca. 1bn) and distribution (MSEDCL; ca. 6bn) companies (refer here). In a year this amounts to INR 84 bn (USD 1.4 bn). The subsidy has added significantly to the existing revenue deficit of the state government of INR 54bn (USD 875 bn) for FY 2014-15 (refer here).
- The existing subsidy might not last post elections
- If the subsidy is withdrawn, margins of all electricity intensive industries will be hurt
- An impact of INR 1.60/kWh is expected across all industrial consumers
Generating companies (gencos) like Adani and Indiabulls have been given clearance to hike their power sale PPA’s by INR 0.48 to INR 1.40 per unit on grounds of using imported coal. MSEDCL in turn has not passed on this hike to the consumers nor has it paid the gencos. This resulted in the last week shut down of Adani power plant (Refer here).
Even if the Congress government in Maharashtra wins the upcoming election, it will be extremely difficult to sustain the subsidy. In all likelyhood, the cost of electricity for industrial consumers in Maharashtra will rise by 20%, which might make their production uncompetitive. Most industries are aware of the brewing storm, but choose to ignore it as it has not hurt their books yet. It is high time that they start looking for an alternative to grid power in Maharashtra.
All industrial electricity bills since April 2014 carry a reference to the subsidy. It shows that, sans the subsidy, industrial consumers would end up paying an energy charge of INR 8.60/kWh instead of the current INR 7.01/kWh (see Bill snapshot below).
Industries in Maharashtra have some options to steer away from the grid and tariff uncertainty. But as with all good things, these options come at a cost. One option is to buy power via the open access route from merchant power plants (from e.g. thermal, bio mass, wind and now solar plants). The second option is to invest into a captive or group captive power plant or buy power from such a plant. The third option is to buy electricity from the power exchanges.
This mechanism is not yet fully functional in Maharashtra, but will hopefully be so in the near future. Different industries benefit differently by most of these options. To make the right choice, industries need to understand their consumption pattern and link that to the different power sources and purchase options. Other questions include: how much space is available on-site (e.g. on the rooftop)? How long or short term should a power supply deal be? Is enough capital available for investment into own power generation infrastructure and if it is available, is that part of the core business?
At BRIDGE TO INDIA, we have been working with industries in Maharashtra and elsewhere in India to find the best options for a secure and inexpensive power supply. We provide solutions as a consultant and as a power supplier.
MSEDCL Commercial circular on subsidy:http://www.mahadiscom.in/consumer/Comm_Cir_218-2014.pdf
Genco tariff hike: http://timesofindia.indiatimes.com/city/nagpur/Coal-shortage-causes-tariff-hike-again/articleshow/41380606.cms
Subsidy volume for transco’s: http://www.mercindia.org.in/pdf/Order%2058%2042/Final%20Order%2036%20of%202014.pdf
Maharashtra Budget 2014:http://articles.economictimes.indiatimes.com/2014-02-25/news/47670997_1_revenue-surplus-deficit-budget-plan-size
Ashutosh Singh is a Consultant at BRIDGE TO INDIA