New Power Tariff Rates In Favour of SEBs, Banks And NBFCs

DSIJ Intelligence / 02 Apr 2012

On March 30, 2012, the Tamil Nadu Electricity Commission (TNEC) revised the power tariff rate as it proposed a 37 per cent hike in the power rate, resulting on an average additional revenue of around Rs 9,742 crore for the state.
On March 30, 2012, the Tamil Nadu Electricity Commission (TNEC) revised the power tariff rate as it proposed a 37 per cent hike in the power rate, resulting on an average additional revenue of around Rs 9,742 crore for the state. To some extent this move will yield benefit to the state-run electricity board which has been posting losses in their financial statements. It is almost after nine years that a revision of the rate has been announced in Tamil Nadu.

Tamil Nadu has therefore now joined the chain of the other state electricity boards which in the past have hiked the power tariff rate. According to market reports, in September 2011, the Rajasthan Electricity Commission increased the tariff by more than 25 per cent and in that same month the Maharashtra Electricity Board also hiked the rates by 40 per cent. Many of the other states like Andhra Pradesh, Bihar, etc have hiked power tariff rates in the recent past. This move will help the state electricity boards to improve their financial statements as the rate hikes will bring in additional amount of revenue. 

As per media reports, even after the rate hike Tamil Nadu will continue to be the second-lowest player, when it comes to charging the average rate per unit to the consumers. The following table shows the average rate per unit of the various states:

States

Average Rate Per Unit (Rs)

Gujarat

3.3

Tamil Nadu

3.42

Karnataka

3.5

Andhra Pradesh

4.55

Maharashtra

5.57

With a majority of the state electricity boards, the benefit is accrued not only in their own favour but also for those companies which have funded these boards. The two major NBFCs, namely Rural Electrification Corporation (REC) and Power Finance Corporation (PFC), which are into lending to the infrastructure sector, particularly power generation and transmission companies, tend to benefit from this rate hike too. This is on the back of hopes that the state will make repayments in a timely manner. Both the companies closed higher for today’s trading session with REC up by 5.21 per cent to Rs 216.25 and PFC up by 5.24 per cent to Rs 193.65.

REC has, on an average, exposure of around Rs 8,000 crore with the the Tamil Nadu Electricity Board. Apart from these two NBFCs, there are banks which have exposure to these state-run electricity boards. Also, no further moves have being taken on the recommendation of the Shunglu Committee as suggested in December 2011. The committee recommended creating special purpose vehicles (SPVs) which will be held by the RBI to take loans from banks that have exposure to state electricity boards (SEBs). 

Any good move in this direction would be further beneficial to the banks and other companies having exposure to these boards. Meanwhile, though the rate hike is obviously beneficial to the companies, it is not so for the consumers who are already bearing the brunt of inflation. As such, inflationary concerns will continue to persist in the economy.

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