Power tariffs may rise after hike in freight rates

Electricity tariffs may rise as Railway Minister Suresh Prabhu on Thursday increased freight rates for coal by 6.3 per cent, which would increase transportation cost for power producers.

An official of state-run miner Coal India said that the impact of freight rate hike would be on the landed cost of coal. Another official said that the freight is paid by the consumer so the PSU "would not be impacted by the change."

Leading power producer NTPC said that cost of production would rise by about 4-5 paise due to the freight rate hike. "Around 2 per cent increase in cost of generation... i.e. about 4-5 paise," the PSU said.

The Association of Power Producers (APP) said that the increase in freight rates would have a direct impact on power retail tariff - depending upon the distance from the mine, the power tariff would increase from about 5 paise per unit, which shouldn't be difficult to absorb.

"However, this increase in revenue should result in increased rakes for power sector to ensure full materialisation of committed quantity of coal by CIL (Coal India)," it said.

Debasish Mishra, Senior Director (Consulting) Deloitte Touche Tohmatsu India said, "An increase in rail freight for coal of 6.3 per cent would result in increase in electricity consumer tariff by 3 to 5 paise per unit of power."

He said that on an average variable cost of power would range between Rs 1.20 to Rs 1.50 per unit. Depending on the distance from the mines – the rail transportation cost would vary from 25 per cent to 50 per cent of the total variable cost.

The Railway Budget for 2015-16 proposed raising freight rates for 12 commodities that include a 6.3 per cent increase for coal.

Thermal power plants contribute about 70 per cent of the country's total power generation, which is over 2,58,000 MW at present.

Other commodities for which rail freight rates have been increased are cement (2.7 per cent), iron and steel (0.8 per cent), grains & pulses (10 per cent), urea (10 per cent), groundnut oil (2.1 per cent), LPG and kerosene (0.8 per cent).

However, for limestone, dolomite & manganese and speed diesel oil the rates have been reduced by 0.3 per cent and 1 per cent respectively.