Powering power

Powering power

Term-lending institutions, led by IDBI, have stipulated that SEBs must cover their escrow commitments; the cover should be 1.25 times the projected monthly billing. This will ensure payments to independent power producers from whom the SEBs will purchase power for distribution and sale to the final consumer. In turn, the term lenders will be assured that their loans to IPPs will be serviced. The merit of this arrangement is that the SEBs will not overcommit escrow payments. Power-short states are in a hurry to add generation capacity (via IPPs); they tend to overcommit escrows, an arrangement under which payments due to power suppliers are set apart from out of SEB revenues. But legally, SEBs have other prior charges: payment of wages, for example. Since the finances of most SEBs are in a parlous state, lenders to independent power producers must ensure that the escrows work without a hitch. So far so good. The question is how many states will be in a position to provide the cover to invite IPPs to addsignificant generation capacity. Only about four SEBs, including Maharashtra and Tamil Nadu, earn the minimum three per cent rate of return. Others are by and large short of this norm. Andhra Pradesh is trying to overcome the problem by setting up separate generating and transmission companies. Like it, some states are setting up independent regulatory commissions to put in place a tariff structure to ensure that no consuming sector pays less than 50 per cent of the average cost of supply of electricity.

Tariff rationalisation is at the heart of the problem of affording new power capacity. But there can be no rationalisation without tears. The projected gross power subsidy for 1999-2000 is Rs 31,599 crore (up from Rs 27,804 crore last year), the bulk of it to agriculture. Net of subventions received from the state governments, the subsidy works out at Rs 26,982 crore (Rs 22,733 crore in 1998-99). Surplus from electricity sales (outside agriculture, domestic and inter-state) reduces the uncovered subsidy toRs 13,000 crore plus; this brings down the rate of return to a negative 18.5 per cent this year. To get a return of three per cent, Rs 15,668 crore will have to be mobilised through tariff rationalisation and improved collection of dues. Only if this is done will escrow covers of the kind wanted by the term lenders attract sufficient investment in new power generation.

Of the required additional revenue mobilisation in support of a three-per cent rate of return, the proposed minimum tariff of 50 paise per unit from agriculture will raise close to Rs 2,700 crore. This means the burden of power tariff hike will have to fall on the domestic consumer, if mega investment in new power is to be attracted. The prospect of this happening in the prevailing scenario of frequent general elections is remote. Industry will have to contend with power shortage at high cost for years to come.

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