PowerMin to issue norms for ailing state utilities

The Union Ministry of Power is working on a set of guidelines to help state electricity boards (SEBs) cut their losses, estimated at a cumulative Rs 68,000 crore. The guidelines would be ready in two to three months.

These were to address issues such as improvement in collection and billing efficiencies of distribution companies, Union power secretary P Uma Shankar told Business Standard. Some other measures would be long-term power purchase agreements, where supply and price could be ensured. "Power purchase planning can help keep the costs down for electricity boards," he said.

The Shunglu committee on the issue had noted rising costs of power and lack of a corresponding increase in rates. Staff costs increased after utilities revised salaries in line with the VI Pay Commission recommendations.

In 2010-11, average rates rose 6.5 per cent, while the cost of supply increased by 16.5 per cent in the period. Cash losses of SEBs and distribution companies, at Rs 28,400 crore, have jumped 4.4 times in the past three years.

A report by IndiaInfoline said these losses would wipe out the aggregate net worth of state electricity boards and discoms. "Though formal data is not available, the Shunglu committee formed to examine the financial condition of the discoms estimates 2009-10 losses at Rs 40,000 crore and 2010-11 losses at Rs 68,000 crore. This means the end 2008-09 aggregate net worth of Rs 29,600 crore has been completely wiped out," it says.

NO CENTRAL CASH
Shankar said it was unlikely the government would provide any direct financial assistance to SEBs. In 2001, the central government had restructured the debt of SEBs, after many of them defaulted on their payments to power generators. After that, the government had constituted a committee headed by Montek Singh Ahluwalia, now deputy chairman of the Planning Commission, on what to do. However, the reforms advised have often not been implemented.

"The 2003 Electricity Act had provisions for the reduction of cross-subsidy, cost-reflective tariffs (rates), universal metering and anti-theft provisions. Many of these were not implemented in most states. Distribution reforms were not carried out, leading to the current state of finances," said Debashish Mishra, senior director, Deloitte Touche Tomatsu.

The bad financial condition of utilities could have a cascading effect on power producers as well, especially those which depend on short-term sales. SEBs have been a major buyer of the traded merchant power from the exchanges. Last year, owing to these pressures, they reduced their power purchases from the spot market, causing a huge drop in merchant power prices as well as volumes traded. In late 2010, average merchant power prices dropped to Rs 2.50 per unit, from Rs 7.80 per unit in early 2010.

Shankar said it would be wrong to assume all SEBs were in a bad financial condition. "Some of them are having difficulties. Steps will be taken to improve their finances," he said.

The guidelines to SEBs would also suggest ways and means to decrease transmission and distribution losses (also called AT&C losses). Average AT&C losses across the country are 18 per cent, after adjusting for losses due to lack of infrastructure, says IndiaInfoline.

Experts say there have some examples of reforms which have helped utilities, as in Bhiwandi, Maharashtra. After the transmission line was privatised and taken over by Torrent Power, losses reduced from a whopping 62 per cent to 17 per cent. "This has to be replicated much more across states. But they are unable to do so," regretted a sector expert.