Report of Indian Institute of Public Administration ... - Ministry of Power

Synopsis of State Reports (Vol.-IV)
Study on `Impact of Restructuring of SEBs’
11.4 Another reason for the poor finances of the Board is the huge power purchase
cost it has to pay to the IPPs. Most of the IPPs use petroleum-based fuel with a
pass-through clause. With high petroleum prices, the cost of such power is
naturally prohibitive. Under the Power Purchase Agreement (PPA), the Board
has to purchase the power or pay ‘take-or-pay’ charges. The possibility of such a
sharp hike in fuel prices was not visualised at the time these projects were
negotiated.
11.5 The main drag on the finances of the Board, however, is the free power provided
to the agricultural sector, closely followed by the domestic sector with a slab
system. Although the State Government has to compensate the Board for these
losses, it is unable to do so, and the Board, as an instrument of the State, is
helpless in demanding it from the State Government. The following table gives
the tariff structure of the Board that penalises the industrial and commercial
consumers and favours the agricultural and domestic consumers:
Table: Revenue foregone by TNEB due to Free and Subsidised Power
(Rs crore)
Particulars 2000-01 2001-02 2002-03 2003-04 2004-05
Domestic 757.00 1,136.00 1,251.00 1,181.00 1170.00
Agriculture 2,408.61 2,876.38 2,864.77 2,975.60 3,062.76
The obvious question is whether the Government had been adequately
compensating the Board for these losses. The position is given in the following
table:
Table: Compensation given by the State Government
(Rs crore)
00-01 2001-02 2002-03 2003-04 2004-05
Domestic
Agricultural 250 250.00 322.50 196.00
Subsidy (others) 1,962.14* 250.00 16.00**
Compensation as %
Of revenue foregone
7.9 55.1 7.8 6.0 5.0
* Securitisation of outstanding dues owing to CPSUs ** Subsidy for huts
The amount provided by the State Government is nowhere near the actual
losses suffered by the Board; and the Board has been meeting these losses
through borrowings, which had gone up from Rs 5,524 crore in 2000-01 to Rs
9,091 crore in 2004-05. Needless to say, the Board is now burdened with the
additional interest cost, and this situation cannot be sustained for a long period.
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