Government lights up power sector

power sector

With the outstanding loans of state electricity boards (SEBs) touching a whopping Rs 5 lakh crore and at least three of them making losses of over Rs 10,000 crore a year each, the Centre has laid out a road map for their revival. Unlike the previous two attempts in the last 13 years to salvage SEBs, the latest one doesn’t include a largesse by the Centre but proposes to shift the cost of non-compliance to the state governments.

As per the plan cleared by the Cabinet on Thursday, states will have to take over 75% of the SEBs’ loans as of September 30, 2015, by FY17-end, and 50% by the end of March 2016 itself. The cost of this takeover won’t be reckoned for the states’ Fiscal Responsibility and Budget Management (FRBM) limits for the current fiscal and the next; in fact, most rating agencies have already factored in these liabilities under the principle of prior period provisioning. The states will have the facility of a concessional interest rate of about 9% in servicing the loans, compared with the present 13-14% interest rate on SEBs’ outstanding debt. The states will issue bonds at 0.5% above the G-Secs.

On their part, having improved their balance sheets, SEBs will sell the rest of their debt as bonds backed by state guarantee. Once 50% of their outstanding loans are taken off, the states’ interest burden will straight away be halved.


Uttar Pradesh SEB, one of the heavily indebted ones, for instance, paid a staggering Rs 5,000 crore as interest in FY15, half of the losses it made in the year.

Announcing the Ujwal Discom Assurance Yojana (UDAY), power minister Piyush Goyal said most SEBs in the country would stop making losses by FY18, while some of the most stressed ones (like Rajasthan, Tamil Nadu and UP) would take another year or so to turn around. UP Power Corporation’s CFO SK Agarwal, however, said the state, which was already making serious efforts to cut aggregate technical and commercial (AT&C) losses, would be able to bridge the gap between cost of power and tariffs in two years. But Analysts pointed out that even after this gap is bridged, some part of the losses could remain due to power theft and pilferage.

The SEBs will have to take steps to reduce their AT&C losses from the current national average of 22% to 15% helped by the Centre’s Integrated Power Development Scheme and the Deen Dayal Upadhyay Gram Jyoti Yojana, under which some Rs 1.6 lakh crore would be allocated over the next two to three years to strengthen transmission lines and distribution networks, separate feeders, improve metering and IT-enable the entire system. To ensure that the states don’t again digress from the reform road map, the losses, if any, of the SEBs will have to be taken over by the states progressively from FY17 without any relief on the FRBM front; 5% of the preceding year’s losses in FY17, 10% in FY18, 25% in FY19 and 50% in FY20.

The SEBs would also be helped by steps to cut the fuel costs by policies like coal swapping, that is, diversion of coal from older plants to newer, more-efficient units. Central power utilities like NTPC and DVC will be allowed to rationalise their coal linkages to bring down cost of power for the SEBs.

A structured mechanism for quarterly tariff revisions to ensure that unbridgeable revenue gaps don’t occur in the first place is also part of the plan. States which fail to meet operational milestones would be liable to forfeit their claims on IPDS and DDUGJY.

[“source -financialexpress”]