By Amit Bhandari:
One of the first steps of the Aam Aadmi Party (AAP) government in Delhi has been to slash electricity tariffs for domestic users who consume less than 400 units a month.
Some characterise the move as a handout.
However, an IndiaSpend analysis of the data suggests that a cut in electricity prices is warranted for almost all the urban consumers, especially those in metropolitan cities, such as Delhi, Mumbai, and Bangalore. The urban consumer pays a far higher price for electricity than its cost. Electricity pricing seems designed to transfer money from cities to villages, and from paying consumers to free-loaders.
Reliance Energy is one of the utilities selling electricity to consumers. The minimum tariff that a Reliance Energy user pays is Rs. 5.13/unit, which goes up to Rs. 11.27/unit, if your consumption is high. Commercial and industrial users pay rates ranging from Rs. 10.72/unit to Rs. 15.3/unit (Refer To Table 1)
Electricity prices are higher in urban areas across the country, and especially so for the industrial and commercial users. The prices, that consumers in Mumbai are paying, appear to have no relationship with the cost of the raw material – in this case, electricity. We looked at the cost of the electricity supplied by the different sources and utilities.
The cost of the electricity sold by the three top public sector utilities in India – NTPC, NHPC and NPCIL – ranges from Rs. 2.71/unit to Rs. 3.38/unit. These three companies, owned by the central government, are the leading producers of thermal, hydro, and nuclear power in India. Along with other sister companies, they generate almost 40% of India’s electricity.
There are some other utilities, owned by the state governments and private sector, which have a higher cost of generation, but not much higher (Refer Table 2).
Electricity from coal, lignite, nuclear, or hydro — which accounts for the bulk of electricity generated in India — costs Rs. 0.86-5.29/unit. So, how does this electricity, then sell for rates as high as Rs. 10 or more in urban areas?
Agreed that the price of electricity isn’t just the cost of generating it. There are transmission and distribution costs too. However, these costs are incurred when the transmission and distribution networks are being put up. There is no cost in transmitting the electricity through wires except for operations and maintenance.
Meanwhile, even though urban, commercial, and industrial users are being charged well above the cost for electricity, most of the state electricity boards are deep in the red.
So, what’s going on?
There are two big reasons – technical and commercial (T&C) – loss of power in transit and free/subsidised power to farmers. In 2012-13, about a fourth of all the electricity in India was lost in transit. These losses are not as high elsewhere in the world: the reason for high T&C loss in India is that a lot of power is stolen. If a fourth of electricity is stolen, then the legitimate consumers pay 33% extra to compensate for the loss.
The other big reason is free or highly subsidised power to farmers. In some states like Karnataka and Tamil Nadu, electricity for agriculture is free. In many other states, including Bihar, Jharkhand, and Uttar Pradesh the tariff for agriculture is less than Rs. 2/unit.
Subsidised power to the farmers and power theft explain why, despite commercial rates for power, most of the Indian state utilities are still in the red. During the financial year 2012-13, the utilities in India lost Rs. 68,085 crore. This loss is a direct transfer of money from the bill paying citizens to rural India and power-stealers.
However, these factors still don’t explain the exceptionally high price of electricity in Mumbai — especially since there are no agricultural users to subsidise in the city and the power theft there is about the lowest in the country.
This article was originally published by IndiaSpend.