Power tariff hikes need to be 5-10% for healthy discoms

Faced with strained finances, more than 20 State Electricity Boards (SEBs) have proposed to increase tariffs in the past 18 months.

Spanish brokerage firm Espirito Santo Securities in a research report today said despite tariff increases, SEBs would still continue to make losses though with substantially reduced numbers.

"Our calculations suggest that after the current proposed increases the SEBs will have to regularly hike rates by around 5-10% for the next five years to break even," it noted.

The most loss-making SEBs or power distribution companies (discoms) are in Uttar Pradesh, Tamil Nadu, Rajasthan, and Punjab, among others.

According to the report, there have been some reversals of tariff increases by some of the state governments, "which again creates doubt about whether state governments are willing to make these institutions viable".

Precarious financial health of discoms has raised fears of default in the financial system and the government is working on rejigging their debt liabilities, worth about Rs 2 lakh crore.

The meeting of state Power Ministers, convened by the Planning Commission tomorrow, is expected to discuss the issues  elated to discoms.

Apart from lower tariff realisation, high transmission and distribution losses have also been blamed for the poor financial conditions of discoms.

The net loss, after subsidies, of 15 discoms - which account for over 90% of country's power consumption - stood at Rs 27,000 crore for year ended March 31, 2010, as per Shunglu panel report released late last year.