NEW DELHI, Aug 10: The annual losses of the state electricity boards (SEBs) are estimated at a whopping Rs 10,500 crore ($2.9 billion) during 1996-97, according to a study conducted by Merill Lynch on domestic power sector.

Under the provisions of the Electricity Supply Act (ESA), SEBs are permitted to earn a minimum of 3 per cent on their net fixed assets after meeting fixed and operating costs, interests and tax liabilities.

However, most SEBs are earning negative returns as a result of which the annual losses have been bouncing up from a figure of Rs 4,100 crores in 1991-92 to Rs 10,500 crores during 1996-97.

The study points fingers at the country's political objectives which, it says, are "enjoying priority over commercial objectives". The Merill Lynch study further reveals that as against a national plant load factor (PLF) average of 63 per cent, SEBs have recorded a PLF of only 58 per cent along with high transmission and distribution losses of almost 20 per cent.

It is stressed that tariff reforms should be initiated to improve the health of SEBs as non-remunerative tariffs combined with heavy subsidisation are the primary cause of the current financial status. "The authorities have been particularly loath to reform the tariff structure which heavily subsidises agricultural and residential consumption.

Agricultural subsidies, in particular, have encouraged the indiscriminate use of inefficient equipment and hence inefficient consumption," the study points out. To meet the conditiond imposed by the WB and other multilateral funding agencies, the government did initiate a series of reforms for restructuring of SEBs, including drafting of the five reform models.

However, it is felt that adopting any one of the suggested models of the government, would require corporatisation or unbundling of SEB's operations with active participation from the private sector.

This would involve privatisation of the system by either sale or long-term lease management contracts. Further, SEB's accumulated losses would have to be written off or converted into government equity, suggests the study.

Although T&D losses in the country have fallen from a peak of 22.9 per cent in 1991, they are still high compared with T&D losses at the world levels.

The T&D losses in the country are 20 per cent of the total power generated as against a world average of 10 per cent - almost double the average world levels. The study attributes this to inadequate emphasis on T&D, high incidence of power thefts and poor quality and irregular maintainance of existing infrastructure.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.