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

Andhra Pradesh
2.1 INTRODUCTION
CHAPTER 2
RESTRUCTURING EXERCISE
APSEB was one of the well-managed SEBs in the country. It was consistently
earning three per cent rate of return (ROR) on net fixed assets till the late
1980s. The financial strain started in the 1989-90, when it achieved only 0.81
per cent ROR. The deterioration in the financial position continued and by the
end of 1997-98, the outstanding dues of APSEB were the order of Rs 2,600
crore. The worsening financial situation of APSEB was caused by:
• Increase in the capital costs due to increase in the costs of capital
equipment;
• Increase in the running costs due to increase in the costs of fuels (coal, oil,
etc.) and transportation charges;
• Increased burden of debt servicing;
• Lack of political support to allow tariff adjustments to meet the growing
cost of supply;
• Introduction of slab rate tariff to agricultural consumers in 1982-83;
• Increase in consumption by the agricultural consumers due to the addition
of adding new services (of the order of one lakh or even more every year);
• No flow of cash subsidy from the State Government; and
• Rising T&D losses due to inadequate investments in the T&D network
expansion and illegal tapping of electricity by the users.
Due to the prevailing financial crisis, APSEB was not in a position to raise
funds for its capital investments. Even the Power Finance Corporation (PFC)
and the Rural Electric Corporation (REC) had stopped further lending on
account of mounting overdue payments. The Independent Power Producers
(IPPs) were facing problems in getting financial closures for their projects
because of the weak financial health of APSEB, which was conceived as the
sole buyer of the power produced by them. The FIs, both national and
international, started insisting on reform and restructuring of APSEB as a
precondition for lending support for the capital requirements of the power
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