States notifying the State Electricity Regulation Commission (SERC) will be eligible for central loans at cheaper rates, while the mandatory 3 per cent rate of return norm for electricity boards will be waived, union power minister Rangarajan Kumaramangalam said on Sunday.

He said the bill had been misunderstood and misinterpreted and that he would strive to allay states' apprehensions on the matter. Power Finance Corporation will reduce its lending rate by 1 per cent to the SERC-notified states, while Rural Electrification Corporation will cut its lending rate to 9 per cent from 14 per cent, the minister said.

He said no state government could escape setting up its regulatory commissions and streamline its power-subsidy programme by properly budgetting for the outgo. The new concessions will cost the centre Rs2,000 crore in the next 10 years, he said. Kumaramangalam said he is `open' to amending the ordinance where there is a need. But there has been no such move as the BJP's coaltion partners have failed to come up with any suggestion.

Explaining the rationale behind bringing in the law first as an ordinance, the minister said it was done to speed up the setting up of tariff commissions. The relevant bill will be brought before parliament at the first opportunity.

If the present law is not put in force, the country will move to a position where it will lose Rs 25,000 crore a year and "there will be no future for the power sector," he said. With the continuance of unregulated free power supply, the country will incur an extra loss of Rs 50 lakh for every mega watt (mw) of new generation capacity. This translates into Rs 15,000 crore of annual loss for the 30,000 mw of capacity to be put up during the Ninth Plan. This is in addition to the Rs 10,000 crore loss already incurred on this account.

Kumaramangalam,however, underscored the need for subsidising power supply to farmers. The failure of various governments to put up sound irrigation systems forced the ryots to go in for pumpsets. Where agricultural products were price-administered, the input cost had to be managed too.

However, state governments ought not to pass on the burden to their power boards and find resources to fund this subsidy, he said.

INSIGHT

Revive electricity in boards

The sops in terms of cheaper mode of financing as well as waiving the mandatory 3 per cent rate of return is a move towards further pampering these boards. The problem of the state electricity boards is in terms of collection of electricity bills, an area which the centre has failed to address.

The cheaper funds and waiving of the mandatory return will only make the boards more complacent. It will not be in interest of the economy, and industrial sector in particular, to keep on subsidising the agriculture sector. A more prudent approach is to revive theelectricity boards.