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India Utilities
Tariff Hikes Announced by
States
Quick Comment: In our note “A Tale of Three SEBs”,
dated 11 March, 2011, we had highlighted that while
SEBs are loss-making entities, the issue is acute in
three states – Rajasthan, Andhra Pradesh and Tamil
Nadu – which accounted for 69% of the incremental
losses in F2009 and 99% of the incremental losses in
F2008 as well. The key reason for these states showing
incremental losses was the fact that tariff hikes had
not kept pace with cost inflation, resulting in a large
revenue gap.
Interestingly, since the time we wrote that note, there
have been media reports (e.g., Economic Times, Times
of India, Business Standard) on about eight states,
stating their intention to adjust tariffs. Rajasthan, Andhra
Pradesh, Haryana, Bihar, Orissa, West Bengal and
Chhattisgarh are seven of the eight states where we
have seen media reports suggesting tariff hikes for
F2012 (see Exhibit 1 for details). While the direction in
tariff for Delhi is not known, the interesting development
is that the Delhi High Court has asked the Delhi State
Government to stop interfering in the topic of tariff
determination, as it is the role of the Delhi Electricity
Regulatory Commission to independently form a view
on tariff determination.
Conclusion: We believe it is important for states to
realize that tariff hikes are important to ensure that cost
inflation is reined in to manageable levels. While we are
not trying to imply that these tariff hikes will help in
loss-making states turn a profit, it is still important to note
that states have shown their intent to raise tariffs. While
Rajasthan, Andhra Pradesh and Tamil Nadu have to do
a lot more to bridge the revenue gap, we believe one
way they can manage this is by reducing the gap
between industrial tariffs in these states (about
Rs3-4/unit in F2009) as against those in other states,
such as Gujarat (Rs5.4/unit in F2009), as industry
constitutes 20-40% of their total sales volumes.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
India Utilities
Tariff Hikes Announced by
States
Quick Comment: In our note “A Tale of Three SEBs”,
dated 11 March, 2011, we had highlighted that while
SEBs are loss-making entities, the issue is acute in
three states – Rajasthan, Andhra Pradesh and Tamil
Nadu – which accounted for 69% of the incremental
losses in F2009 and 99% of the incremental losses in
F2008 as well. The key reason for these states showing
incremental losses was the fact that tariff hikes had
not kept pace with cost inflation, resulting in a large
revenue gap.
Interestingly, since the time we wrote that note, there
have been media reports (e.g., Economic Times, Times
of India, Business Standard) on about eight states,
stating their intention to adjust tariffs. Rajasthan, Andhra
Pradesh, Haryana, Bihar, Orissa, West Bengal and
Chhattisgarh are seven of the eight states where we
have seen media reports suggesting tariff hikes for
F2012 (see Exhibit 1 for details). While the direction in
tariff for Delhi is not known, the interesting development
is that the Delhi High Court has asked the Delhi State
Government to stop interfering in the topic of tariff
determination, as it is the role of the Delhi Electricity
Regulatory Commission to independently form a view
on tariff determination.
Conclusion: We believe it is important for states to
realize that tariff hikes are important to ensure that cost
inflation is reined in to manageable levels. While we are
not trying to imply that these tariff hikes will help in
loss-making states turn a profit, it is still important to note
that states have shown their intent to raise tariffs. While
Rajasthan, Andhra Pradesh and Tamil Nadu have to do
a lot more to bridge the revenue gap, we believe one
way they can manage this is by reducing the gap
between industrial tariffs in these states (about
Rs3-4/unit in F2009) as against those in other states,
such as Gujarat (Rs5.4/unit in F2009), as industry
constitutes 20-40% of their total sales volumes.
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