Power Procurement: Railways Liable To Pay Cross Subsidy Charges, Says Appellate Tribunal

In what could impact the energy bill of the Indian Railways, the Appellate Tribunal of Electricity (APTEL) has ruled that the national transporter is liable to pay cross subsidy charges for the power it procures to operate trains.

The tribunal, in a 387-page judgement, said that as the Railways consumes all the electricity that it procures, it is not a licensee and hence is liable to pay additional surcharges and cross subsidy surcharges like any other open access electricity consumer.

The Railways claimed the status of a deemed distribution licensee as that would result in not having to incur with additional/cross subsidy surcharge.

The effect of the verdict will be substantial for the railway finances, as it is the country’s largest consumer of electricity, with a significant amount used in both train operations and for non-traction purposes.

The Railways spent Rs 20,000 crore on electricity consumption expenses in FY24 and is expected to spend approximately Rs 22,000-23,000 crore in FY25. Of these, roughly 60 per cent outgo is on train operations and the rest on non-traction.

The Railways procures electricity directly from power distribution companies (discoms) of various states. Discoms from eight states including Maharashtra, Punjab and Madhya Pradesh had challenged Railways‘ claim of being a deemed distribution licensee.

Deemed distribution licensee is an electricity consumer that is not obligated to acquire a licence for inter-state transmission of electricity. With the deemed licensee tag, the Railways was exempted from paying these charges despite its procurement not being restricted to a single discom, said various state electricity departments in their appeal.

They also said the Railways cannot be a deemed licensee as it consumes all electricity and doesn't sell. The discoms said the Railways is an open access consumer and should pay the charges levied on it.

The development will lead to additional costs for Railways in procuring electricity to run operations. It was not immediately clear how much additional cost will be incurred in meeting the additional/cross subsidy surcharges.

According to an estimate, the order is slated to impact the Railways’ electricity expense by close to 10 per cent which means an annual electricity expenditure hike of close to Rs 2,500 crore, which may reflect in increased charges directly or indirectly through increased budgetary allocations.

The Railways is currently considering appealing against the decision in the Supreme Court.