Power tariff revision needs SEB reforms

The government may accede to private power developers' demands for a tariff revision owing to increased cost of coal imports, but of what use is it if the state electricity boards (SEBs) are struggling to stay afloat?

The SEBs are in desperate need of reform and some of them are bleeding profusely.

The SEBs of Rajasthan, Tamil Nadu, Uttar Pradesh, Andhra Pradesh, Haryana, Punjab and Madhya Pradesh together posted losses of Rs 50,700 crore, 82 per cent of the total SEB losses, in 2010, according to an October 2011 report by UBS Investment Research. Some of them may have no way out besides a bailout by the Centre. One of the first things J Jayalalithaa did last year after winning the Assembly polls in Tamil Nadu was to approach the Centre for a Rs 40,000 crore largesse for its SEB which the government could ill-afford. The situation in the state is worsening at an alarming pace and for the last two weeks some of its towns have had power cuts for 10-12 hours every day. The state of affairs in Tamil Nadu is a harbinger of things to come.

The SEB malaise does not concern just the power producers. The immediate casualty is the SEBs' lenders. As per a Crisil study, nearly 12 per cent of the Rs 4.8 lakh loans to the power sector could be at risk, thanks primarily to the SEBs, if the requisite reforms are not brought about.

Power producers have already started acting. The country's biggest power generation company, National Thermal Power Corporation, in December threatened to cut supply of 2,000 Megawatts to Reliance Infrastructure-backed BSES in the capital if it was not paid its dues, which prompted the state government's intervention.

The meeting on Wednesday of private power sector honchos with the Prime Minister's Office is the second in over a month. The first meeting resulted in the PMO directing Coal India on February 15 to sign fuel supply agreements (FSAs) by March 31 for projects that have long-term power purchase agreements with distribution companies and have been commissioned or are to be operational by March 2015. For projects commissioned by December 11, Coal India needs to sign FSAs by March this year. The move is said to come as a breather for nearly 45,000 MW of capacity.

Any government decision on tariff hikes should be accompanied by a plan to restructure SEBs which will in the long run make them commercially viable. There are already reports that the government will in the Union Budget augment the National Electricity Fund to subsidise interest on loans taken by SEBs. For the health of the power sector and to avoid India's ambitious infrastructure ambitions, let us hope the Centre's response does not come any later than the Budget.