Govt draws up plan to reduce power tariffs

NEW DELHI: Regulators will soon be asked to determine for passing on to consumers the savings made by generation (genco), transmission (tranco) and distribution (discoms) companies from a new payment security mechanism, a move that is likely to lead to a drop in tariffs or avoid the need for upward revisions.

Power minister R K Singh has approved the measure in line with the discussions at last month’s conference of state power ministers at Narmada in Gujarat . Sources said a formal directive to central and state tariff regulators to draw up an appropriate rebate mechanism is likely to be issued shortly.

“This is one more step by the government for increasing efficiency and reducing cost of power for end consumers,” Singh told TOI . The genesis of the ministry’s move lies in the advance payment mechanism on the principle of pre-paid system Singh introduced from August as part of his structural reforms to raise the distribution segment’s viability.

The advance system ensures timely payment for gencos or transcos, ensuring revenue for meeting operational expense. Before the advance payment system, discoms took their time — often stretching to six months or so — to pays gencos. Mounting pile of gencos’ unpaid bills had caused financial stress to many power projects, pushing some to the brink of bankruptcy.

Under the new system, discoms have to furnish LCs (letters of credit) to ‘load despatch centres’ — akin to railway junctions that control electricity flow from generators to discoms — before they are allowed to draw power from generation companies. The despatch centres limit the flow to the amount in the LCs.