Under the model, if the fuel rate increases after the futures contract, there will be an additional burden on the government discoms.
Rising inflation has broken the back of the general public. From petrol and diesel to food items, everything is becoming expensive. Meanwhile, the public may once again get a major setback because along with the power generating companies in the country, the power distribution companies (discoms) are facing huge losses.
The power sector in the country is in bad shape. India imports coal on a large scale and coal is the main source of energy in the country. In such a situation, it is natural that when the price of fuel in the international market increases, the cost of power generation will also increase. After the incident of Coal Crisis, the Power Ministry has issued instructions regarding the automatic pass-through model.
Under the automatic pass-through model, if the fuel rate increases after the futures contract, there will be an additional burden on the government discoms. The discom will have to pay a higher price to the power plants than the initial contract. While this move will improve the financial condition of the power generating companies, as they will get more money, but with this decision of the government, the financial condition of the power distribution companies ie discoms can also worsen.
The work of a discom is the distribution of electricity and collecting money from the public in return. In such a situation, when the fuel rate increases, the discoms will have to pay a higher rate to the power generating companies to buy power. In such a situation, the discoms may pass the burden to the customers and raise the power tariffs.
While it will be difficult for the companies to hike the prices due to political pressure and public opposition, the discom may hike it under compulsion and its effect will be seen on the pockets of the general public.
After the incident of Coal Crisis, dozens of power plants in the country stopped functioning because they did not have coal to generate electricity. Private companies had to pay coal companies in advance. Due to lack of liquidity, they do not have the option of storage. In such a situation, the government had to take this decision.
Section 62(4) of the Electricity Act states that if there is a change in the rate of fuel, then the power tariff can be updated several times a year. At present also there are some states where this (fuel surcharge adjustment) model works.
It is worth noting that the automatic pass-through model will not be fully automatic. When there is any change in the contract rate, the approval of the State Commission will have to be taken. The Ministry of Power has issued instructions regarding the new model on November 9, while this information on its website has been updated on November 11.
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