UP sugar mills risk Rs 500 cr loss as regulator cuts power tariffs

Business Standard – 10 May 2019: With the Uttar Pradesh energy watchdog proposing to reduce tariffs by 35% of bagasse-based power supplied to the state utility by sugar mills, the beleaguered millers are looking at taking a hit of almost Rs 500 crore annually if the proposal sails through.

Against the prevailing tariffs of Rs 6.19 to Rs 6.75 per unit for the purchase of cogenerated power supplied by mills to UP Power Corporation Limited (UPPCL), the UP Electricity Regulatory Commission (UPERC) has proposed paring the rate by around Rs 2.25 per unit, or by around 35%, for the next five years.

The new tariffs are being determined under the Captive and Non-conventional Energy Generating Plants (CRE) Regulation, applicable on the generation of power based on bagasse, biomass, small hydro, small wind, etc, in the state.

Since, annual billing of power supplied by UP sugar mills to UPPCL is to the tune of Rs 1,500 crore, these entities would book a prospective loss of about Rs 500 crore if the tariff proposal is notified by UPERC.

Yesterday, the energy regulator conducted public hearing on the issue with the different stakeholders viz. representatives of sugar mills, UPPCL, power consumers, etc, putting forth their views. Now, the UPERC is likely to announce its verdict within a week.

According to sources, sugar mills stiffly opposed the proposal of downward revision of power tariffs claiming it would affect their profitability and result in the closure of mills, which would ultimately harm farmers’ interests.

The mills also opposed the UPERC proposal to pare bagasse rate from Rs 2,100-2,200 per tonne to Rs 1,000 per tonne although their prices were steeper in the open market. As such, it would be a loss making proposition for mills to generate power and sell at such a tariff, they underlined seeking revocation of the tariff proposal.

“UPPCL will save Rs 500 crore of public money with the reduction in tariff applicable to sugar mills and would indirectly benefit consumers,” UP Power Consumers Council president Avadhesh Kumar Verma told Business Standard.

“Power at much cheaper rates is available in the open market and as such there is no justification for buying steeper power from mills. Recently, UPPCL has contracted for 1,500 megawatt (mw) wind power at tariffs of less than Rs 3 per unit,” he claimed.

UPPCL purchases power from different sources, including public and private power plants, sugar mills, energy exchange, mutual contract, etc, and its annual billing is to the tune of Rs 50,000 crore.

Currently, UP sugar mills are burdened with cane arrears of more than Rs 10,000 crore for the current crushing season, which is likely to wind up in the coming days. The outstandings have been building up due to market glut, export market squeeze and stable retail sugar prices.