Waiving the Fuel Surcharge for Agriculture Sector

Jaipur, October 16, 2007

Rajasthan is one of the pioneer states initiating power restructuring process at the states level. The Rajasthan Power Reforms Act 1999 provided for vertical and horizontal unbundling of Rajasthan State Electricity Board (RSEB).

The main objective of restructuring was to create a competitive market for electricity that may benefit the consumers by improved quality of service at affordable rates. Rajasthan Electricity Regulatory Commission (RERC) was established as a sole authority to regulate the power sector including tariff payable at consumer’ ends. The independent regulation was considered helpful in creating competition and attracting the required investment in the sector.

As a result of certain initiatives on behalf of state government, regulator, utilities and civil society organisations (CSOs), there have been substantial improvements in the performance of power utilities in Rajasthan. ‘The Feeder Renovation Programme’ is one of the initiatives identified as best at the national as well as international levels. However, the state will have to address certain challenges. Rajasthan is one of the states having lowest per capita consumption of power.

As proposed in the eleventh plan documents, the private sector may play crucial role in bridging the investment gap in infrastructure including power sector. Therefore, the govt should provide a better signal to the potential investors to encourage the private investment. Electricity Act 2003 also recognises this fact.

In the press reports, it is stated that the State Government has prevented the tariff hike of 10 Paise per unit for agriculture sector. The 10 Paise increase in tariff for each consumer categories was approved by Commission under fuel surcharge adjustment. As per section 62 (4) of Electricity Act 2003, the companies are entitled to claim additional revenue according to formula specified by the regulatory commission, RERC. Further, Section 61 requires commission to approve the tariff eliminating the corss-subsidy in tariff structure. All consumers are required to pay on the basis of cost of supplying power.

Since electricity sector is the backbone of economy including agriculture sector. The state govt my provide subsidy for allocative efficiency purpose. However, Section 65 requires the state government to compensate the distribution companies on account of power subsidy. In the news item, the compensation to be given to distribution companies was not reported. It is suggested that the govt should pay the compensatory amount equal to relief given to farm sector in a transparent and manner. It will help the companies in improving their financial health.