Electricity: The new domestic electricity tariff for the three-year cycle period starting 2016-17 will take effect from January 1 with the progressive annual revision and regressive subsidy allocation.
However, the tariff for the low voltage (LV) block I (0-100units), for both rural and urban consumers has been maintained at the existing rate. This means that rural households consuming less than 100 units of electricity will still enjoy free electricity and urban users consuming the same amount of power will still be charged the current rate of Nu 1.28 a unit for the next three years.
A hundred units of electricity is more than enough to power a rice cooker, water boiler, mobile phone and a few light bulbs for a month.
Should the households, either rural or urban, consume more than 100 units, the LV Block II (101-300 units) tariff would be added onto every additional unit consumed beyond 100 units. The existing rate for a unit in LV Block II is Nu 2.45/unit. This will be increased by three percent annually for the next three years.
For the LV block III (300 units and above) and LV bulk consumers like schools, institutions and hotels, there is also an annual increase of three percent, compared to the existing rate of Nu 3.23, and Nu 3.68 a unit respectively. This means that consumers in these categories will experience an upward revision in tariff by around 10 chettrums annually.
The director general of the hydropower and power systems department, Sonam P Wangdi said consumers getting free electricity constitute only 3.2 percent of the domestic energy market. He said that Block I urban users, which constitutes 2.5 percent of the market, are mostly the urban poor and so maintaining the tariff at the existing rate is on grounds of affordability.
Medium voltage (MV) consumers will experience a 6.5 percent increase in tariff annually. However, unlike the high voltage (HV) consumers, MV users enjoy a government subsidy derived from the royalty energy.
About 71 percent of the domestic energy demand is from HV users. So the government, Sonam P Wangdi said, took note of the average cost of supply and that the three percent annual increase is found reflective of actual cost of supply.
However, the demand charge or the cost which industries have to bear for booking power in advance will experience a spike of Nu 82 per KVA (kilo volt ampere) a month for the HV consumers and an annual increase of Nu 25 for MV consumers.
An official from the department explained that the energy charge is the cost of supplying the power to HV industries. The demand charge, however is to discourage the industries from hoarding power, which is achieved by reserving more power than required, and it consists of the cost of fixed assets that BPC has invested in bringing power to their locations.
“The tariff has now become predictable for the industries as there will not be sudden spikes,” said Sonam P Wangdi, adding there would be price stability hereon because of the recently approved domestic electricity tariff policy.
An official from the department also said that the policy contains enough mechanisms to reduce the impact of upcoming generation costs from the mega projects like Punatshangchhu and Mangdechhu.
“A majority of the cost increase comes from the increase in generation cost,” he said, attributing it to refurbishment of the Chhukha hydropower plant, which is now running for more than 30 years. “More financing is required to increase the economic life span of the project,” he added.
An official from the Bhutan Electricity Authority (BEA) also said that the new tariff determination model and policy had helped in refraining the utility companies from passing its irrational cost onto the consumers.
For instance, all the operation and maintenance costs that the Druk Green Power Corporation (DGPC) may incur are verified as to whether it directly pertains to electricity generation. Additional costs to the company, for example corporate social responsibility, which does not relate to power generation has been removed from the calculation.
The director general also said that DGPC has deduced about Nu 9 billion for its future investments and BEA has deducted almost 62 percent of this amount, while determining the tariff.
There is also a penalty on the utility companies if they do not achieve efficiency gain of two percent a year.
“In principle, the current tariff determination model encapsulates both cost plus model and revenue cap model,” said the official from the hydropower and power systems department. This means a lot of balancing works are taken into account in order to be fair to both the utility companies like DGPC and BPC and the consumers.
The official said that in the long run, the policy will allow the power tariff to come down. The progressive revision today, he said is occurring because BPC has invested significantly in rural electrification and even sought loans for that matter. With the completion of this task, he said BPC will start loan servicing and accounting the depreciation factor, tariff would fall.
As per the sustainable hydropower development policy, the government is allotted with 15 percent of electricity generated as royalty energy and 12 percent in case of Dagachhu. This comes to around 1,148 million units (MU) of electricity as compared to 1,049MU in the last tariff cycle.
If monetised, the royalty energy amounts to Nu 1.772B. But the government uses this amount to subsidise LV and MV consumers.
For instance, free rural electricity is actually not free in reality since it costs BPC Nu 5.81 a unit, on an average, to supply power to LV consumers.
However, the government pays BPC from the royalty energy to nullify the power tariff in the rural pockets. The government spends Nu 406M annually to provide free electricity.
Likewise, urban consumers will also have to pay Nu 5.81 per unit of electricity had it not been for the subsidy.
For MV consumers, the unsubsidised cost comes to Nu 5.38 a unit.
Officials from the department said that the underlying objective of subsidising the tariff is to enhance the quality of lives and make electricity an affordable commodity.
The main reason for increasing the subsidy amount was due to the relative increase in the actual cost of supply as determined by the BEA.