New Delhi: Days of industrial and commercial consumers subsidising electricity charges for domestic consumers and farmers seem to be getting over, with the Centre putting into motion a plan to completely eliminate cross-subsidy surcharges. The government may instead lower electricity charges for households by transferring subsidy directly to the accounts of beneficiary consumers using the direct benefit transfer (DBT) platform.

Once implemented nationally, the move could reduce the cost of electricity for businesses by up to 25-40 per cent to around Rs 6 a unit, helping them increase their earnings at a time when interest rates are firming up due to inflationary pressure. The proposed changes, however, could severely dent receipts of cash-strapped electricity distribution companies, which, helped by the revival scheme UDAY, are struggling to cut losses.

Sources in the power ministry said the landmark reform initiative would be carried out through amendments in the Electricity Act, 2003 that is likely to be introduced in the winter session of Parliament for legislative approval. All states would then be prodded to include the changes in their respective tariff regulations so that cost reflective tariff is nationally applicable and targeted consumers are subsidised through a transparent mechanism.

The draft amendments to National Tariff Policy 2016 that is under finalisation by the power ministry has already proposed that cross-subsidies are reduced and the tariff for all consumer categories are brought within ±20 per cent of the average cost of supply, effective from April 1, 2019 or earlier. The big move now is to see that cross-subsidy surcharges are further brought down to zero within a specified period of time, maybe within three years.

“We are already late in eliminating cross-subsidy surcharges as earlier move was to do this by 2012. But even if this is implemented over the next few years, it would bring a world of change for the power sector and prevent popular politics from affecting its operations,” said a power sector expert on the condition of anonymity.

The average cost of power supply at the national level was Rs 5.43 a unit in FY16 and experts say it must have gone up marginally now. Assuming it to be Rs 6, the cross-subsidy at 60 per cent would roughly translate into Rs 3.80 a unit and at 20 per cent, Rs 1.20 a unit. No subsidy would mean that everyone pays Rs 6 for electricity and household consumers pay less if state government decides to provide direct subsidy.

State governments subsidise the electricity tariff of all households by keeping tariff for commercial and industrial consumers higher (cross-subsidy surcharge). This has meant that commercial tariffs remain almost at twice the level fixed for households (between Rs 8-12 per unit), affecting business activities and growth. The level of cross subsidy surcharges varies between 40-60 per cent with Tamil Nadu having the highest level nationally.

“The DBT scheme for distributing subsidies for electricity consumers could start as early as beginning of next financial year. Almost all state governments have concurred to targeting subsidy in the power sector making it easier for us to launch a pilot by April,” said a government official privy to the development.

“An expert committee constituted by the power ministry to suggest ways to increase electricity demand and consumption is already finalising a blueprint to subsidise target consumers. Based on its report, pilot projects for DBT in power may be announced for few cities in Madhya Pradesh, UP, Bihar and Gujarat,” said the government official quoted earlier.

The DBT scheme is being successfully run for targeting subsidy in the case of domestic cooking gas (LPG cylinders). This has not only helped the government to reduce subsidy but also expanded the scope of LPG to below poverty line (BPL) families under the Ujjawala scheme.

In 2015, the government had also indicated that targeted subsidy schemes would be introduced for a whole host of sectors to make the various social sector schemes inclusive. As part of this initiative, already pilot is being run for nationwide introduction of DBT in kerosene being sold through PDS system and similar scheme is being tested for disbursing subsidy on fertiliser to the farmers.

The National Tariff Policy also proposes to compute tariffs, assuming aggregate technical and commercial (AT&C) losses of 15 per cent though the actuals are higher with average of around 21 per cent nationally. This would also threaten discoms’ revenue realisation but could help bring down electricity tariff for all consumers.

The regulators compensate the discoms for bulk of their actual AT&C losses. To ward off the threat of disallowance of AT&C losses, discoms will have to make aggressive reduction in these losses with higher efficiencies in billing and collection.