The government which has come under severe criticism from the World Bank for its dillydallying over power sector reforms has also decided to provide a pending subsidy of Rs 660.72 crore for 1997-98 and 1998-99 and also give additional funds to maintain a rate of return of 4.5 per cent.

Mantralaya sources told The Financial Express on Thursday that the state Cabinet cleared MSEB's proposal amid strong opposition from finance secretary RB Budhhiraja. Mr Buddhiraja is believed to have submitted that such a decision would not be advisable especially when the government has already set up a high-level committee for the restructuring of the ailing Board.

Sources said that with Thursday's decision, the MSEB would be able to "clean its balance sheet". The government has also agreed not to recover electricity duty worth Rs 547.96 crore from it and instead convert it into a grant. The MSEB has projected a shortfall of a whopping Rs 2,186 crore in the current fiscal.

It has estimated a revenue collection of Rs 9,876.2 crore while it has made a commitment of Rs 9,284.8 crore to be escrowed from its revenues for various power projects.

"However, in view of precarious financial conditions, it will not be possible to fulfil its commitment towards the escrow cover to the National Thermal Power Corporation, Western Coalfields and the Dabhol Power Company in particular," a senior MSEB official said.

MSEB's existing debt-equity ratio is 7:1 and the conversion of government loan into equity would enable it to mop up resources from the market "on the strength of its clean balance-sheet."

The debt-equity ratio in respect of independent power producers has been kept at 70:30 as per the Centre's guidelines. To achieve this ratio, MSEB would need to have a total equity of Rs 3,464 crore and hence an additional equity of Rs 1,986 crore would be needed for this purpose.

MSEB sources said the recent order by the Maharashtra Electricity Regulatory Commission (MERC) to slash the hike in tariff from 18 to six per cent has made the financial situation even worse. They added that the government's decision would be a major relief as its monthly collection is not over Rs 800 crore.

However, the MSEB has expressed `inability' to recover arrears of Rs 3,775 crore in the present circumstances and sought a "free hand" from the state government. Of the Rs 3,775 crore reported till March 31, 1999, agricultural consumers owe Rs 957 crore, commercial consumers Rs 427 crore, high-tension consumers 391 crore and low-tension consumers 243 crore. Ironically, Tata Electric Companies owe Rs 109 crore to it while nearly Rs 444 crore has been blocked in various sick units.

The MSEB has to recover arrears of Rs 433 crore towards power supply for street-lighting and potable water supply from various civic bodies. It has urged the state government to ask the respective departments to issue necessary directives for their speedy recovery.