1. Madras Chamber of Commerce & Industry and India Energy Forum Session on Rationalisation of Electricity Tariffs Anand Madhavan Head – Energy & Urban Infrastructure Chennai 5 Sep 2014

2. © IMaCS 2014 Printed 11-May-15 Page 2 Key challenges to financial sustainability  Persistent gaps between Average Cost of Supply (ACS) and Average Revenue Realisation (ARR).  Wide band of Cross Subsidies beyond limits stipulated in the National Tariff Policy  High HT tariffs are making Industry (particularly SMEs) vulnerable and render them non-competitive; even as there is continued reluctance to fix / rationalise tariffs in other segments

3. © IMaCS 2014 Printed 11-May-15 Page 3 Trend in ACS Vs ARR gap – Tamil Nadu Key related provisions of Financial Restructuring Plan (FRP) Regular redetermination of tariff to cover cost of service OR State Govt to fund the gap Gradual elimination of gap between ACS and ARR Operational turnaround by 2015-16

4. © IMaCS 2014 Printed 11-May-15 Page 4 Category wise ARR Vs ACS – Tamil Nadu

5. © IMaCS 2014 Printed 11-May-15 Page 5 Residential Tariffs..1 All sub-categories are subsidized 1.CC I - Consumers who consume from 51 units to 100 units per month 2.CC II - Consumers who consume from 101 units to 250 units per month 3.CC III - Consumers who consume 251 units and above per month CC ICC IICC III Average Cost of Service approved by TNERC is 658 paise per kWh for FY 2013-14

6. © IMaCS 2014 Printed 11-May-15 Page 6 Residential Tariffs..2 High consumption category ~ Rs. 1000 crore  Estimated under-recovery from domestic consumers vis-à-vis Avg. Cost to Serve ~ Rs. 6,000 Crore  Subsidy provided by GoTN to the domestic category was Rs 1,888 Crore Estimated Consumer sub-segment wise underpayment (Rs Crore)

7. © IMaCS 2014 Printed 11-May-15 Page 7 Tariff v/s ACOS (Rs 5.24/kWh) Several categories have tariffs outside the +/- 20% band, actual Source- TANGEDCO Tariff Order dated 20 June 2013 National Tariff Policy – Tariffs within ± 20% of Average Cost of Supply Category ABR (Rs. /kWh) ABR / ACOS (%) HT Industries7.41141% HT Railway Traction6.51124% HT Government Educational Institution etc. 5.42104% HT Pvt. Educational Institutes etc. 6.84131% HT Commercial & others8.61164% HT Lift Irrigations and Co- ops 3.5067% HT Temporary10.68204% HT Categories7.39141% Category ABR (Rs. /kWh) ABR / ACOS (%) LT –Domestic3.4466% LT –Huts4.4385% LT -Bulk Supply4.0677% LT -Public Lighting and Water works5.50105% LT -Government Educational Institutions6.03115% LT -Pvt. Educational Institutions 7.37141% LT - Places of Public Worship5.93113% LT-Cottage and Tiny Industries4.0277% LT –Powerloom5.33102% LT-Industries6.20118% LT Agriculture and Govt. Seeds farm2.6150% LT – Commercial and other7.53144% LT Temporary Supply11.62222% LT Categories4.2180%

8. © IMaCS 2014 Printed 11-May-15 Page 8 Steep increase in subsidies Rs Cr  Subsidy provided to TANGEDCO was 5.1% of GoTN revenue in FY 2013  Subsidy > 20% of gross fiscal deficit of GoTN in year 2013 and 2014 (estimated)

9. © IMaCS 2014 Printed 11-May-15 Page 9 Tariff order for 2012-13 estimated an expense of Rs 4.99 / kwH while actual expenses approved later is about Rs 5.58 / kWh Category2010-11 2011-122012-13 Sales (MU)537465389658861 Net Aggregate Revenue requirement (Rs. Cr)283643148829346 Revenue from existing tariff (Rs. Cr)183621807621472 Revenue gap at existing tariff (Rs. Cr)10002134117874 Net Gap from tariff including carrying cost (Rs. Cr)542214149- Addnl. revenue for FY 2013 @37% tariff hike (Rs. Cr)--7875 Revenue from proposed tariff for FY 2012-13 (Rs. Cr)--29347 Source: Tariff Order for FY 2012-13 dated 30 March 2012

10. © IMaCS 2014 Printed 11-May-15 Page 10 Tariff order for FY 14 estimated an expense of Rs 5.24 / kwH; Actual expenses to be higher Tariff Order for FY 2013-14 dated 20 June 2013 Category2010-112011-122012-132013-14 Revised Sales (MU)21277539385069557199 Net Aggregate Revenue requirement (Rs. Cr)11898289533047229946 Revenue from existing tariff (Rs. Cr)7848194752356127014 Revenue gap at existing tariff (Rs. Cr)4050947869112932 Cum. Revenue Gap for FY 11-1320439- Addnl. Revenue for FY 2014 @3.5% tariff hike (Rs. Cr)--964 Revenue from proposed tariff for FY 2013-14 (Rs. Cr) 27978 Source: Tariff Order for FY 20123-14 dated 20 June 2013

11. © IMaCS 2014 Printed 11-May-15 Page 11 As a result, TANGEDCO continues to sustain operating losses Annual losses of the utility (Rs Crore)

12. © IMaCS 2014 Printed 11-May-15 Page 12 Bridging gaps in cost recovery central to TN’s Energy security  Align tariffs in line with National Tariff Policy Bridging ACS-ARR gaps; eliminate phase-out ‘non-merit’ subsidies Align cross subsidies to a +/- 20% subsidy band Regular Periodic increases to avoid tariff shocks  Address power procurement and efficiency Appropriate mix of Case I / Case II and own augmentation Utility-level Demand Side Management initiatives  Invest in Smart Grids and fix transmission, distribution bottlenecks Address evacuation bottlenecks Sharper reduction in AT&C losses Segregated feeders for Agriculture

13. © IMaCS 2014 Printed 11-May-15 Page 13 Thank You

14. © IMaCS 2014 Printed 11-May-15 Page 14 Disclaimer All information contained in this document has been obtained by IMaCS from public sources and believed to be accurate and reliable. Although reasonable care has been taken to ensure that the information herein is true, such information is provided ‘as is’ without any warranty of any kind, and IMaCS in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness or completeness of any such information. All information contained herein must be construed solely as statements of opinion, and IMaCS shall not be liable for any losses incurred by users from any use of this document or its contents in any manner. Opinions expressed in this document are not the opinions of our holding company, ICRA Limited (ICRA), and should not be construed as any indication of credit rating or grading of ICRA for any instruments that have been issued or are to be issued by any entity. For any clarifications on this document, please contact: Anand Madhavan Head – Energy and Urban Infrastructure email: anand.m@imacs.in