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Can’t erase state power firms’ losses at one go

Can’t erase state power firms’ losses at one go
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First Published: Mon, Jan 03 2011. 11 36 PM IST
Updated: Mon, Jan 03 2011. 11 36 PM IST
Kolkata: The accumulated losses of state-owned electricity distributors in India are too huge to be wiped off “at one go”, power minister Sushil Kumar Shinde said on Monday.
“Whatever measures we take (to address the problem), we have to take in phases,” he said in an interview.
Accumulated losses of state-owned distribution companies are approaching Rs2.5 trillion, according to Malay De, principal secretary at West Bengal’s power department and member of a committee set up by the Planning Commission under former Comptroller and Auditor General V.K. Shunglu to examine the financial woes of state-owned power utilities.
De’s figure “doesn’t surprise me”, said Montek Singh Ahluwalia, deputy chairman of India’s apex planning agency. “Considering that they have never profited, their accumulated losses from so many years would be huge.”
De said the combined cash loss of state-owned distribution companies was expanding by nearly Rs1 trillion a year, of which Rs40,000 crore was due to transmission and distribution (T&D) losses, and the rest because of tariff being lower than the cost of generation.
T&D losses arise from theft, faulty metering and poor technology in transmitting power. The national average for T&D losses is around 25% of distributed power, against an official target of 15%.
State-owned distributors are tiding over cash shortfalls by borrowing. The distribution company of Rajasthan, for instance, had short-term borrowings of around Rs.14,500 crore, and Uttar Pradesh, of around Rs35,000 crore, at the end of March, De said.
They are able to carry on with such huge losses “only because banks continue to fund them”, Ahluwalia said.
“The situation is alarming. The government would eventually have to bail out the distribution companies,” said Jayant Deo, managing director and chief executive officer of Indian Energy Exchange Ltd (IEX), which runs an electricity trading platform.
Besides huge T&D losses, most state governments do not raise power tariffs because it is politically sensitive, according to De. “A lot of states do not file tariff petitions at all,” he said.
Tamil Nadu is a classic example. Electricity charges remained unchanged in seven years, and on revised tariff introduced last year, the Tamil Nadu Electricity Board projected in its tariff petition a loss of Rs9,417 crore in fiscal 2011, after accounting for a subsidy payment of Rs1,868 crore.
“But many states do not eventually pay the subsidy, and as a result, the cash loss of the distribution company increases beyond projection,” De said.
The Tamil Nadu utility said last year its revised tariff would be effective for two more years. In its tariff petition filed with the Tamil Nadu Electricity Regulatory Commission, it projected a loss of Rs8,608 crore and Rs9,618 crore in fiscal 2012 and 2013, respectively.
State governments do not seem to be doing enough to turn around the distribution companies, according to Ahluwalia. “The Planning Commission is seriously concerned about the financial health of the distribution companies,” he said.
India has an installed generation capacity of 167 gigawatts (GW), and during the 12th Plan, “there are already proposals that would increase generation capacity by 66GW”, according to Shinde.
Although a target of adding 78,577MW in the 11th Plan (2007-12) was revised to 62,374MW, total capacity added till date is 29,000MW, Mint reported on 1 December.
But the financial woes of the distribution companies could impede investment in power generation, according to IEX’s Deo. “It wouldn’t only affect the generation companies, even banks and financial institutions that have invested in them would be affected,” he added.
Many state-owned distribution companies are suspending power supply for hours, even in the winter when demand is low, because they are unable to pay for power, according to De. This had forced many generation companies to scale back production, he said.
Figures available with the Central Electricity Authority show an average power deficit of 6.4% across the country in November. The national average of peak hour shortage during the month was 8.7%. Peak hour refers to the time band when power demand is at the highest during a day. The deficit was highest in the western region, where peak hour shortage was at 15.6%.
A possible remedy to the escalating financial problem of the government-owned distribution companies is privatization, the head of a consulting firm said, requesting anonymity. “Unless the distribution companies are freed from the clutches of the political parties, they wouldn’t charge the right tariff,” he said.
Currently, the state-controlled electricity boards are being “unbundled” into separate generation, transmission and distribution companies.
“But even after unbundling if these functions continue to be controlled by the state governments, there might not be much improvement,” said Pramod Deo, chairman of the Central Electricity Regulatory Commission.
manish.b@livemint.com
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First Published: Mon, Jan 03 2011. 11 36 PM IST