World Energy Outlook 2007

In 2005, revenues from electricity sales were about 85% of costs. This share has
ranged between 76% and 86% since 1990. The gap appears to have closed
somewhat in recent years. About 40% of revenues comes from subsidies,
largely required to support electricity sales to farmers. Total subsidies reached
$9 billion in 2005.
The SEBs' rate of return on capital has been negative, ranging from –28% to
– 44% since 1990 (Figure 17.16). 19 Their required rate of return is theoretically
3%. In the OECD, the rate of return on investment by power companies
typically ranges between 5% and 12%, the higher end applying in competitive
markets and the lower end to public entities. Some merchant projects in OECD
countries have had returns of the order of 15% to 17%. The insolvency of the
Indian SEBs is a problem not only for public-sector investment. Its underlying
causes are also an impediment to private investment, which relies on cash flows
from properly enforced payment of charges.
30%
Figure 17.16: Comparison of Returns on Investment, India and OECD
20%
10%
0%
–10%
Merchant plant
3%
Public utility
SEBs in past 15 years SEBs theoretical target OECD range
–20%
–30%
–40%
–50%
Sources: Ministry of Finance (2007); Government of India (2002); IEA analysis.
There are wide variations in economic and operational performance across
states. The Ministry of Power has introduced a system of rating the state power
sector in order to monitor and, hopefully, improve performance. Each of the
28 states is given marks out of 100, based on a number of parameters. The
main parameters measure progress in relation to state government performance
in implementing reforms and in rural electrification, the regulatory process
19. A handful of SEBs such as those in Orissa, Goa and Chhattisgarh have managed positive results
in recent years.
524 World Energy Outlook 2007 - INDIA’S ENERGY PROSPECTS