In a move that has sparked controversy, power distribution companies (discoms) in Madhya Pradesh are pushing for a significant increase in electricity tariffs for consumers. This comes despite a recent central government policy change that has lowered the cost of thermal power generation by approximately 25 paise per unit.
The Paradox of Lower Costs and Higher Tariffs
The discoms have filed a petition before the Madhya Pradesh Electricity Regulatory Commission (MPERC), projecting a massive revenue deficit of Rs 6,044 crore for the upcoming financial year. To bridge this gap, they are seeking approval for a steep hike in electricity rates. However, this request appears contradictory to recent developments in fuel costs.
In September of last year, the Union government took a step aimed at easing the burden on electricity consumers. It withdrew the compensation cess of Rs 400 per tonne on coal, even though the Goods and Services Tax (GST) on coal was simultaneously increased from 5% to 18%. This decision led to a substantial reduction in the landed cost of coal for power generation utilities across the country, including those in Madhya Pradesh.
How the Coal Cost Math Works Now
Retired additional chief engineer of MP Genco, Rajendra Agarwal, provided a detailed breakdown of the cost savings. He explained that earlier, a tonne of G-13 grade coal, priced at Rs 817, attracted 5% GST and the Rs 400 cess, resulting in an effective cost of Rs 1,278.85 per tonne.
"Under the new structure, there is no cess and GST is 18%, bringing the cost down to Rs 987.66 per tonne—a reduction of Rs 291.19 per tonne," Agarwal stated. Given that about 750 grams of coal is needed to produce one unit of electricity, this translates into a direct saving of around 25 paise per unit for thermal power generation.
Significant Savings Not Factored In
Experts point out that this substantial benefit has not been accounted for in the discoms' tariff hike petition. Agarwal highlighted that the discoms, in their filing, projected an energy requirement of 1,01,098 million units for 2026–27, with 62,943 million units coming from thermal power. After accounting for transmission losses, the actual thermal power procurement could be around 75,000 million units.
"At a saving of 25 paise per unit, discoms stand to save nearly Rs 1,875 crore annually due to the withdrawal of the compensation cess. This benefit should be passed on to consumers," Agarwal argued. He alleged that the discoms calculated their energy costs using coal bills from the period when the cess was still applicable, thereby inflating their cost projections.
This situation has created a double whammy. "On one hand, the state loses revenue from the withdrawn cess, and on the other, consumers are asked to pay more," Agarwal lamented. Consumer advocacy groups have strongly echoed this sentiment, arguing that any such savings must be reflected in lower tariffs. They emphasize that households in Madhya Pradesh already pay more for electricity compared to consumers in several neighbouring states.
The final decision now rests with the MP Electricity Regulatory Commission (MPERC), which is currently examining objections filed by various stakeholders. The commission's ruling will determine whether Madhya Pradesh's electricity consumers will bear the brunt of a tariff hike or receive the benefit of lower fuel costs as intended by the central government's policy.
