The Prime Minister?s Office is asking state-run power utilities to follow the West Bengal model in terms of tariff. The said model keeps a margin after realising the real cost of production.

The move may have been prodded by the Planning Commission, which is pushing the Centre to raise the borrowing limits of Tamil Nadu, Rajasthan and Uttar Pradesh, so these states can take further loans to clear the power sector of debt.

In a recent meeting of the Planning Commission and state power sector heads convened by the PMO, it was pointed out that the state-run sector in Tamil Nadu, Rajasthan and Uttar Pradesh have a combined debt of R1.02 lakh crore, which is a fallout of not charging correct tariff.

In West Bengal, although initially the new government did not allow increasing tariff, later on power prices were revised four times in five months to hike the tariff from an average of R4.27 per unit to R5.82 per unit. Besides, the state just recently hiked tariff by 29 paise per unit and all these hikes were made on account of variable cost adjustment. West Bengal State Electricity Distribution Company?s petition to hike tariff by another 9 paisa is due to be implemented.

An official present at the PMO meeting told FE that Tamil Nadu sold power at an average R2 per unit, while Rajasthan and UP sold power at an average R3 per unit. This created a huge gap between the cost of production and the tariff realised. The power sector of these states went in for huge bank loans with the state as guarantor.

While Tamil Nadu has a total debt of R44,000 crore, Rajasthan has a debt of R40,000 crore and Uttar Pradesh R18,000 crore. These states immediately need to start repaying bank loans and the Planning Commission has suggested that the respective state governments provide money to their power sector to clear bank dues, the official said.

Now, the state governments require market borrowing to finance their power sector but the borrowing limit has come as a constraint to fund the power companies. So, the Planning Commission has proposed that borrowing limit of these states be raised, though the Centre has reservations about it since the states are not complying with the FRBM norms.

According to Malay Dey, principal secretary of West Bengal power department, much of a state?s financial health depended on the health of its power sector. Citing West Bengal as an example, he said the state?s total projected tax and non-tax revenue receipt for 2012-2013 has been pegged at R71,000 crore, of which the state power sector alone would contribute R13,000 crore selling 20,000 million units. This makes 18.5% of the state?s total revenue receipt, Dey said, adding that if the power sector was unable to generate steady revenue, the state?s exchequer would come under pressure.

He said West Bengal?s power sector was facing difficulties for the period when it was not allowed to realise the real tariff. But once it got the clearance to charge real tariff, the sector immediately turned around.

There were fears that West Bengal?s power sector would face a whopping loss of R2,400 crore in 2011-2012, but the situation changed with the tariff going up from an average of R4.27 per unit to R5.82 per unit with retrospective effect.

Dey said while West Bengal State Electricity Distribution Company (WBSEDCL) has registered a post-tax profit (unaudited) of R60 crore, the transmission company has registered a PAT of R130 crore. WBPDCL, which is yet to report its profit, is likely to register a PAT of R150 crore.