Kerala Power Board Criteria To Be Revised

The Kerala State Electricity Board (KSEB) plans to introduce three new criteria to its tariff structure: contribution towards future projects, repayment of loans and a minimum return rate of 16 per cent on equity.

The Karnataka electricity board, on the basis of recommendations made by the state Planning Board, wants the consumer tariff to recover loans and contribute 20 per cent of the cost towards future projects, apart from covering project costs.

The board expects the average tariff to the retail consumer to rise by 25-30 per cent once the new criteria is implemented.

The electricity board would be required to convert part of its loans into equity to impose a minimum return of 16 per cent. The rationale behind adding the new criteria, sources said, is to adjust with the tariffs on private power producers, which are also based on a 16 per cent return on equity.

 

The board is expected to set aside 20 per cent of the resources earned through the new tariff structure for its expansion programmes but this will not be calculated towards the boards profitability. The Centre had earlier recommended that the state electricity boards tariffs at the retail end should not only recover costs incurred by the board (inclusive of loans), but also earn an additional 20 per cent. This recommendation had been accepted by the World Bank.

The minimum 16 per cent return is based on Section 59 of the Electricity Supply Act, specifying that the boards are required to adjust their tariffs so as to earn a minimum return of 3 per cent of the value on the fixed assets.

The Act specifies that the return is after meeting all expenses properly chargeable to revenues, including operating, maintenance and management expenses, taxes, if any, on income and profits, depreciation and interest payable on all debentures, bonds and loans.

The interest on loans is a major component which eats into the profitability of the boards. Now with a tariff structure designed to earn a specific amount for repayment of loans, the profitability of the board is expected to increase manifold. The increase in the average tariff is limited to 25 to 30 per cent because the interest burden on the board comes down when part of its loans are converted into equity.