Hike or perish

At the end of September 1998, all the state electricity boards and other Government agencies owed Rs 16,000 crore to the different PSUs which generate power. The figure had gone up fromRs 12,000 crore in March. While Power Minister P.R. Kumaramangalam is busy trying to convince people about paying for what they consume, tariff rationalisation remains at the core of power sector reforms. Once consumers begin paying for their power and generating companies start getting their dues from state electricity boards, bulk of the power sector8217;s problems will disappear. Issues like counter guarantee, escrow capability and state government support which the private power companies are seeking will disappear once tariffs are set to ensure that costs are covered and some reasonable profits are generated. At once the power sector will become far more lucrative and risk free for private investors.

Currently most SEBs are losing money. On an average, SEBs earn only 80 paise on one unit of power even though the cost is one rupee. This means that on every unit of power the SEBs is losing 20 paise. As a result, the rate of return on investment is negative for them. It was -16.6 per cent in 1997-98 if thesubsidy is not calculated. This figure has grown from -12.7 per cent in 1992-93. The Ministry of Power has done some calculations which show that if the SEBs want to break even, they will have to increase the tariffs by an average of 35 paise per unit. If they want to achieve a 3-per cent rate of return, then the increase should be an average of 40 paise. Three-per cent rate of return has been considered to be reasonable under the Electricity Supply Act of 1948.

If the SEBs actually increase the tariff by 40 paise, they could raise revenue to Rs 12,066 crore. A welcome change from the Rs 10,000-crore loss of SEBs in 1997-98. The SEBs could then work out a delayed payment plan for the central power generating units which could remove the accumulated losses of Rs 16,000 crore in a few years.

If on the other hand, the SEBs raise the agricultural tariffs by 50 paise per unit, then they would be able to raise Rs 2,624 crore extra in 1997-98.

But there is another side to this story. Raising tariff alone willnot solve the problem. First, raising tariffs by 40 to 50 paise per unit is politically not feasible. Also this will spark off protest from consumer groups. The SEBs and central PSUs can help by cause by reducing the transmission and distribution losses which account for close to 20 per cent of the total power generated.

The lop-sided tariff policy has also affected the coal sector. Coal companies are owed a total of Rs 4657 crore by SEBs and power generating companies. The companies which buy coal to generate power can8217;t pay for it even if they want to because they have not been paid for their power.

It has thus created a vicious cycle of no-one-paying-the-other-one in the power generation link. The consumers don8217;t pay electricity boards, which don8217;t pay the generating companies. Further the SEBs and generating companies do not pay for the coal which they use to create power.

The Ministry of Power has taken the big step by setting up the Central Electricity Regulatory Commission which will set tariffsfor central utilities. State governments are being urged to set up their regulatory commissions.

The state governments have agreed to have the State Electricity Regulatory Commission in place by end of March 1999. Haryana has set up the SERC while the one in Orissa was set up in 1996. Of the rest, six states have set up selection committees to choose the persons for heading the Commissions while three have taken decisions in principle to set them up. The other states have introduced power reforms legislation which provides for SERCs.

Interestingly, Delhi has made no move towards setting up the SERC despite being the capital. Jammu and Kashmir or the other hand has drafted its own Electricity Regulatory Commission Bill. This is a welcome move because the state is not covered under the CERC Act of 1998 which provides for SERCs in all states.

Now that they are back home, the chief ministers will do well to keep the future and mind and not just the next elections.