Tamil Nadu has allocated Rs 19,872.77 crore for subsidies for free agricultural power supply, domestic supply and for the losses incurred by the state’s power generation and distribution company TANGEDCO, announced Tamil Nadu Finance Minister Palanivel Thiagarajan during his first Budget speech. PTR has repeatedly stressed the losses incurred by state PSUs, particularly TANGEDCO. In the state’s white paper released earlier this week, PTR had stated that TANGEDCO’s outstanding debt was Rs 1,34,119.94 crore.
In the Budget, he said that 17,980 MW of power generation capacity will be added through the state’s own generating stations in the next decade. Adding that the statement terming Tamil Nadu a power surplus state is false, the minister said that almost 2,500 MW of power had to be bought on the power exchanges to meet peak needs. “Thus the statement that Tamil Nadu turned into a power surplus state over the last few years is inaccurate,” he said during the Budget speech.
In addition to the Budget allocation, the Budget speech stated that under the ADB-assisted Chennai Kanyakumari Industrial Corridor (CKIC) Power Sector Investment Project, “a strategic study of TANGEDCO and TANTRANSCO‟s governance and financial restructuring will be undertaken. The government will act speedily on the findings of the study to revamp the electricity utilities and to save them from collapse.” This follows up from PTR’s statement in the white paper, where he said that the financial situation of state PSUs is deteriorating where they cannot borrow without a government guarantee.
The white paper added that TANGEDCO’s losses are caused by high costs and low recoveries. “There has been a sustained increase in costs over the last 10 years including employee costs, pension costs and interest costs. In addition to the above costs, increase in primary input cost of coal and increase in cost through external power purchase agreements also contribute to the increase in overall cost,” the paper read.
It added that power subsidy was the highest among other subsidies at 1.1% of the GSDP, and that it is “very alarming” because the state government is also losing money on the power sector.
The white paper added that tariffs hadn’t been revised in seven years.
For the agriculture sector, PTR said that against the average cost of supply of Rs 9.06 per unit, the recovery from 18% of the electricity supplied to the agriculture sector is nil, and the subsidy payout is Rs 3.32 per unit. “Hence, TANGEDCO does not get fully subsidised for the full cost of supply to agriculture which is Rs 8225 crore and the cross subsidisation is beyond the permissible 20%,” he said.
For domestic consumers, the white paper stated that those who consume more electricity are receiving greater subsidies.
It said that there has been a steady decline in TANGEDCO’s share in supply to industries and that high tariffs has also made Tamil Nadu uncompetitive as an industrial destination vis-à-vis other states.
Stating in the white paper that a complete restructuring cannot be postponed, the white paper read, “Even as TANGEDCO was unable to recover its operational costs, it kept huge bills pending with mounting interest costs. There was also excessive capital expenditure with high-cost borrowing. This resulted in a vicious cycle of huge pendency of bills, increased interest payments and poor recovery from the capital assets created. As the focus was on short term survival and cash management, huge liabilities have been created for the long term.”