Horizons- May 2013

Posted on June 7, 2013 by


WAY FORWARD FOR CONSUMER TARIFFS

Structural reforms in the power sector will take time to be initiated and completed in earnest. In the short to medium term, supply-demand mismatch and limited ability of the financial system to support subsidies are expected to push consumer tariffs upward. Consumers can mitigate these rises by taking pro-active measures.

Supply

Growth in supply by Coal India has been muted due to multiple factors. Production of gas in the KG–D6 basin has also dropped by more than 60% from two years ago. Coal prices are being raised gradually while price of gas is expected to be raised from $4.2 to $6.7 per mmbtu. Key issues faced are Quality of fuel supplied, Evacuation of extracted fuel, Weather (availability of water) and Allocation of limited fuel amongst sectors competing for the same. 

Demand

Energy demand of top five states in IndiaOverall energy demand has been increasing at the rate of just under 7% per annum in the last seven years. Amongst the major consumers, demand of Tamil Nadu, Andhra Pradesh, Karnataka and Rajasthan has grown at a rate of close to 8.5%. Traditionally large demand base of Maharashtra and Uttar Pradesh has grown at a rate of close to 6.5%.

Power has significant growth multiplier effects. Better availability not only boosts immediate economic performance but also investment prospects and business optimism. Recent growth has taken place despite difficult economic conditions – demand can be expected to grow faster in better conditions.

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