A cash-strapped MSEB still favours a few

Why is MSEB willing to take losses on account of these four companies when it is seeking an increase in tariffs for the rest of us domestic users, corporates and even power looms and small scale units? It is simple. The cheap supply is not an MSEB decision, but is being forced on to it by the Maharashtra government. (At the time of going to press, the MSEB Chairman had not responded to queries faxed and emailed to him). The loophole is apparently a two-year old concession wrangled by a company called Universal Ferro Alloys and around five other units mainly from Andhra Pradesh who are in the ferro manganese export business from the Central Government. At that time, it had been argued that higher power tariffs had made exports by these businesses unviable and that cheaper power would let them retain export competitiveness. During the powerful Congress government, nobody protested about the special concession. In order to prevent the concessions becoming more widespread, it was decided that in future thesewould have to be cleared by the State government. The Maharashtra government has cleared the cheap supply to these four units including Ispat, even though they are not all into ferro manganese exports. They are now pressuring the MSEB to start the supply pending clearance by the MERC.

It surely does not require much imagination to figure out why a bankrupt State government would pressure a hugely loss-making power utility to forego its revenues. MSEB itself has worked out that the revenue loss due to cheaper power supply through direct wheeling from NTPC would be Rs 2.6 crore as compared to its anticipated revenue of Rs 1,045.5 crore. The loss figures may not seem very large, but if the MSEB goes ahead with the controversial power concessions, the move is bound to be challenged by other industrial users, especially the power loom sector. The comparison is interesting. Power loom operators would normally be considered most worthy of concessions/ subsidies. Instead, while four steel/manganese units are being supplied cheap power, the MERC through its recent order has hiked tariffs for power looms to approximately Rs 3.50 per unit (at Rs 770/loom/month as decreed by the MERC, up from the previous tariff of Rs 110/loom/month). A couple of other details are worth a mention. The chap powersupply to the steel/manganese units at Rs 1.80/unit in the night is even lower than MSEB’s average cost of supply, which according to the MERC is Rs 2.76/unit.

Also, the cost of power from various NTPC units also differs; its highest production cost is around Rs 3.67/unit, says power sector experts, while that planned to be supplied to the four units is substantially lower. Interestingly, a report in the Times of India says that the Maharashtra government, fearing protests from farmers and the power loom sector is "directing" the MSEB not to charge higher tariffs for agriculture and powerloom consumption. This means that a bankrupt State government, bereft of revenue generation ideas is only pushing itself and the MSEB towards further financial ruin. First, the government simply caved in to pressure from MSEB trade unions who went on strike to protest against corporatisation. Next, it is forcing MSEB to take a revenue hit on account of four steel/manganese units, exposing it to the possibility of needless litigation by other industrial units. Finally, it is even more likely to antagonise important vote banks like farmers and powerloom operators by charging themhigher tariffs.

At the same time, MSEB’s problems are mounting. It is already reeling under the pressure of having to purchase expensive power from India’s most controversial project the Dabhol Power Corporation (DPC). DPC’s fortuitous technical problems have been a life saver for the MSEB, allowing it to lift less power and escape payment of over Rs 80 crore as capacity charges. Still, the cost of DPC power, according to MERC estimates, was around Rs 5.60/ unit in May this year. Based on the depreciation of the rupee and increased cost of fuel thereafter, energy analysts calculate the cost of power at approximately Rs 6.40/unit, which makes it the most expensive in the country.

There is more bad news. MSEB is also committed to lifting power generated by DPC’s second phase, of which 750 MW of generation is to begin by the end of this year. Though MSEB has filed for a revision of MERC-cleared power tariffs, it is obvious that another increase is on the cards when DPC phase II takes off.

So far, the Maharashtra government has given no clues about how it plans to handle the looming crisis. Other than cosmetic gestures of co-operation with industry associations, there is no attempt to revitalise industry, attract investment and revitalise the economy. In fact, instead of getting on with business, the once rich State seems completely bereft of ideas or policy initiatives and is on the fast track to financial ruin.