The power sector regulator in Uttar Pradesh, the Uttar Pradesh Electricity Regulatory Commission, has approved several steps that can not just strengthen the financial position of state utilities but also increase opportunities for companies in the transmission and distribution (T&D) EPC business. EPC is engineering, procurement and construction.

Last week, the regulator allowed an average tariff hike of around 13%. Importantly it nudged consumers who pay a flat charge per month, to move to metering and left industry tariffs unchanged. “Unmetered rural customers currently pay a flat fixed rental charge of Rs180/month. This has been hiked to Rs300/month and they have been asked to put up meters by March 18. If they fail to meter by March 18, the fixed charge will be Rs400/month," Dolat Capital Market Pvt. Ltd said in a note.

Further as Elara Capital (India) Pvt. Ltd points out, the regulator approved capital expenditure of Rs20,000 crore for fiscal years 2018 and 2020 (FY18-20) in the transmission sector, more than double the amount invested in FY15-17. Of this 81% or Rs16,200 crore is for new projects, said Elara Capital.

The approvals come on the back of at least two orders where the regulator refused to approve high-priced power purchase agreements (PPAs). According to Emkay Global Financial Services Ltd, state utility Uttar Pradesh Power Corporation Ltd constituted a task force to assess existing and forthcoming PPAs and cancel unviable ones.

The tariff renegotiations can upset power generators. But the steps and the regulatory approvals show that corrective measures are well under way in India’s second largest power market (in consumption terms as computed by Elara Capital).

Thanks to the improvement in power supplies, Uttar Pradesh is already seeing the fastest growth in electricity consumption (fiscal year till October). If the above-mentioned measures are implemented, then realizations can rise, improving revenue collections.

“This (hike in tariffs and metering of rural consumers) will also help reduce revenue gap and boost capex, particularly on the transmission side," added Dolat Capital.

According to Elara Capital, EPC firms such as KEC International Ltd, and T&D product companies like ABB India Ltd, Siemens Ltd, and CG Power and Industrial Solutions Ltd can benefit from higher capex in power transmission.

The measures will embolden the early bets on the Yogi Adityanath-led government to revive the fractured power sector situation in the state.

But much of the success hereon will be in follow-up actions. It has to be seen how well the rural consumers will take to the steep hike in fixed monthly rates and transition to metering. The second issue is the reduction in aggregate technical and commercial losses (AT&C), progress on which was slow till now (FY17 AT&C losses stood at around 28%). While reduction of these losses is crucial for the long-term revival of the state utility, sustained investments in the transmission segment and policy support will be needed to reduce losses.

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