Centre ask states to raise power rates

New Delhi: The Centre today asked states to raise electricity charges to improve the financial health of power distribution companies, which are facing difficulty in raising fund from banks on account of poor balance sheet.

"The operational efficiency of the distribution utilities has to be improved. The states will have to review and revise the tariffs regularly to ensure the financial health of these utilities," Finance Minister Pranab Mukherjee said at the National Development Council (NDC) meeting.

Planning Commission Deputy Chairman Montek Singh Ahluwalia too has warned that source of funding to the sector will soon dry up. Commercial banks have to watch their balance sheets and cannot provide loans indefinitely, Ahluwalia said, adding, some distribution firms have not raised tariffs for 10 years and their total losses are estimated to be Rs 70,000 crore.

On the recent problems in power generation, Mukherjee said the sector is facing shortage of coal and natural gas. "Issues like land acquisition, deteriorating health of the state electricity boards and environmental clearances have also been adversely affecting this sector," he said. The efficiency of distribution companies remain "woefully low", and the aggregate technical and commercial (AT&C) losses average over 40 per cent, Mukherjee noted.

He further said that large number of power projects requiring funding of Rs 5,000 crore or more are held up due to delay in clearances, both at Centre and state levels. "While I am working with my colleagues at the Centre, I strongly urge chief ministers to set up a mechanism for according early clearance to such projects," he said.  Planning Commission Deputy Chairman warned that unless corrective actions are taken, the power sector will experience shrinkage of credit and loss of investor confidence and will not be able to pay money to generators.

"We have to move urgently to implement a package of distribution reforms combined with tariff increases, which will make the distribution companies viable for all additional sales," Ahluwalia said, adding the "…the situation is deeply distressing."

The NDC meeting, besides Prime Minister and central ministers, was also attended by State chief ministers. Power sector, which is crucial for achieving over 9 per cent economic growth targets, is aiming at a capacity addition of nearly 1,00,000 MW in the 12th Plan.