The Electricity Supply Act clearly states that the SEBs should earn a minimum rate of return of three per cent per annum; and in case the SEBs fail to do so, the state government will give that money to the SEBs.

The dues of National Thermal Power Corporation (NTPC) alone at the end of March 1999 stood at Rs 11,000 crore. They could realise only 83 per cent of the current dues last year and the outstandings may go up further by Rs 2,000 crore and more annually.

The NTPC and Powergrid threatened to disconnect the supply to defaulting SEBs, but it proved to be a hollow threat asdisconnection for big states like Uttar Pradesh and the national capital, Delhi, may lead to serious law and order problems and even the state governments may get destabilised. The central generating corporations are today placed in a dilemma, as they cannot even regulate power supply in the fear of their production going down and rendering the machines idle.

Coal India Limited (CIL) will face a similar situation as throughout last year there was a downtrend in coal demand. The power stations are not accepting coal according to linkage and the coal stocks at power stations have declined by about 10 million tonnes. It could produce only 256 million tonnes of coal against the target of 263 million tonnes. The slump in coal demand is likely to continue this year and, therefore, the production target has been pegged at only 259 million tonnes. CIL may therefore be compelled to dispatch coal to power stations even if it does not recover payments in full to avoid labour and storage problems.The Railways mayexperience a similar helpless situation and move coal, which is the main freight earner, to power stations even if the SEBs defied payment.

The SEBs in western and southern regions have a good track record of making payments, however, they may also default payment in future as new and costly power stations, like Dabhol, get commissioned. It may thus lead to a much lower recovery of current dues by NTPC.

The central appropriation against central plan assistance is limited to only 15 per cent and even assuming full devolution of funds to central corporations to the above extent, the shortfall in recovery of current dues will continue and the arrears may go on mounting year after year. The central devolution of funds is not a healthy practice, nor a commercial one, as the plan outlays meant for development works are utilised in meeting revenue deficits and the social sectors, in particular, suffer on this account. There are apprehensions that this practice may not continue for a long time as states may haveserious reservations.

In addition, SEBs are merrily diverting plan outlays to meet revenue expenditure at the cost of new works due to lack of monitoring and control on such an unauthorised diversion and a stage may soon come when all plan activities may come to a standstill with dangerous consequences.

The recent salary explosion as a result of the Fifth Pay Commission recommendation, has a crippling effect on the finances of the boards and in order to meet the additional burden, power tariffs have already been liked leaving no significant scope for further increase in the near future. The power tariff to the industry and commercial sectors at the rate of Rs 4-5 per unit has already become the highest in the world. Moreover, its growth rate is fast declining as most of the industries like aluminum, steel, ferro-alloys, fertilisers, petro-chemicals etc are setting up their own captive power plants which supply power at practically half the grid rate.

The existing industries also are changing over tocaptive generation in order to remain globally competitive. The agricultural sector receives only off-peak power. Moreover, for only two to three hours. A field survey undertaken by the Indian Institute of Management (IIM), Bangalore, has confirmed that the duration of actual average power supply is less than two hours. There is, therefore, no technical justification to raise power tariff to the agricultural sector where the energy is not metered. On the actual consumption basis, the average agricultural tariff works out to 150 paise per unit as two-thirds of the reported agricultural consumption hides the high losses and pilferage. In fact, this is the reason why this sector is subsiding the domestic sector.

There is justification in hiking the power tariff for the domestic sector. However, since the consumers constitute the `vote bank', the political leaders may not agree to effect any major hike of power tariff in the sector. Thus, the overall scenario of achieving any substantial increase in therevenues of the SEBs is bleak. On the other hand, the cost of power from new power stations may sharply increase and the revenue expenditure may rise accordingly. This will further increase the commercial losses of the state electricity boards.

State Electricity Regulatory Commission (SERC) may also not oblige SEBs by allowing hike in power tariffs to cover their high level of inefficiency, corruption and mismanagement. NTPC has accepted power bonds issued by the SEBs against their dues, which may serve merely as a paper guarantee due to dismal finances of the states to redeem such bonds.

Orissa, Andhra Pradesh and Haryana are availing of World Bank loans for restructuring of the SEBs. But there are apprehensions of misuse of such funds in the absence of an effective central control for the proper utilisation of their development works. They may certainly not be able to pay back the loans, which may ultimately rebound on the central government.

The outstanding position is alarming, which may alsocripple the financial working of central undertakings and create huge cash deficits leading to high fiscal deficits in the Union Budget. This issue has become more serious than the adequacy of power and needs utmost attention by the Central Government in order to avert deep financial crisis.

The author is the former chairman of Central Electricity Authority