Friday, March 27, 2009

Balancing budget by selling power?

I have written at length about the distortions brought about by de-regulation in the electricity sector here and here. Now Businessline has more proof of the same - about how many eastern states have been cashing in on the power shortages elsewhere in the country.

The three main ways of short-term transfer of electricity between regions is through the bilateral route (directly between distribution companies and through power traders), through the two operational Power Exchanges (IEX and PXIL) and through the Unscheduled Interchange (UI) route (the incentive mechanism allowing inter-regional exchanges under the current Availability Based Tariff regime). In April-December, the weighted average sale price for electricity transacted through traders was Rs 7.90 per unit, through Power Exchanges was Rs 6.50 a unit, while that through the UI mechanism was Rs 5 a unit for the integrated NEW (North-East-West) grid.

Businessline reports that between April-January this fiscal, the states of Orissa, West Bengal, and Jharkhand exported close to 11,000 million units (MU) (of the total inter-regional exchanges of 19,181 MUs that took place in the period, they accounted for 10,839 MUs or 57% of the total exports) to other regions, although this has meant load-shedding in their respective States. Even on a conservative estimate, the power exports could have fetched them upwards of Rs 5,500 crore during the 10-month period, taking the average traded price at Rs 5 per unit. These states and others like Himachal Pradesh have been financing the state budgetary expenditures from selling power, even at the cost of imposing load relief on its own residents.

The approaching elections and the huge stakes associated with provision of electricity have only exacerbated these trends. With peak power deficits mounting (due to coming summer and increased agriculture use), State governments, many of whom are ensconced on the free-power bandwagon, are going out of way and at any cost to ensure that the popular goodwill generated by "free power" are not frittered away on election eve. These states are on the market with a mandate to purchase power at any cost, an ideal situation for profiteering for traders, generators and even many of the aforementioned power exporting states. In fact, even as the elections approach, the prices on the firm and day ahead power from traders and day ahead power from exchanges, approaches Rs 12-14 per unit and is set to go even beyond.

Update 1
FE reports that Chhattisgarh, Delhi, Gujarat, West Bengal and Punjab have emerged as the top five states selling electricity with 71.19% of total volume. Rajasthan, Andhra Pradesh, Maharashtra, Karnataka and Tamil Nadu are the top five purchasers, with 73.05% of the total volume. In February, of the total electricity generation, 3935.62 mu (6.89%) was through short-term transactions, 2148.94 mu (3.76%) through bilateral transactions (traders and distribution companies), 1569.11 mu (2.75%) through unscheduled interchange (UI) and 217.57 mu (0.38%) through power exchanges. Of the total short-term transactions of electricity, 54.60% was traded through bilateral transactions, followed by 39.87% through UI and 5.53% through power exchanges.

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