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Charts and Tables/Planning Commission

Annual Report on the Working of
State Electricity Boards and Electricity Department, April 1999
Power and Energy Division, Planning Commission

Chapter 4: Financial Performance

As indicated in the previous chapter while the physical performance of the SEBs and EDs has shown improvement, there has been no commensurate improvement in the financial performance. In fact, it has deteriorated in many respects. In this chapter, various financial indicators of the SEBs are discussed. These indicators are the unit cost of supply of power and its various components, average tariff and revenue realisation of SEBs (including consumer category-wise tariff), unit cost- revenue comparison, commercial profits and losses, subsidies and cross subsidisation, net internal resources, additional resource mobilisation (ARM), rate of return, revenue arrears and outstanding dues of the SEBs.

4.2 Unit Cost of Power Supply

The unit cost of supply of electricity for all the SEBs was 22.5 paise per kwh in 1974-75. It increased to 41.9 paise/kwh in 1980-81 and further to 108.6 paise/kwh in 1990-91. In the 1990s, the unit cost of supply of electricity increased more steeply, i.e. from 116.8 paise/kwh in 1991-92, 225.2 paise/kwh in 1997-98. It is expected to increase to 242.9 Paise/kwh in 1998-99. Annexure 4.1 presents the trends for the different SEBs. Meghalaya and Himachal Pradesh have lower cost of supply per Kwh than other States as these States are totally dependent on hydro-electricity.

4.3 Components of Cost

The major components of cost of supply of electricity are (i) the revenue expenditure which includes expenditure on fuel, power purchase, O and M, Establishment and Administration and other miscellaneous expenditure, and (ii) the fixed costs, mainly comprising depreciation and interest payable to institutional creditors and the concerned State Governments. Table 4.1 presents the share of each of these components in the unit cost of supply for all the SEBs from 1992-93 to 1998-99. Annexures 4.2 to 4.8 gives the details regarding components of cost of supply for each of the SEB.

4.4 Expenditure on Fuel

The proportion of expenditure on fuel in the total cost of supply of electricity has been about 25% since 1992-93. Fuel cost constitutes an important element in the cost structure of SEBs, particularly those that rely substantially on thermal generation. Fuel cost is dependent, apart from other things, on the specific consumption of coal and oil and the transportation costs for these fuels. Annexures 4.9 to 4.12 give the trends regarding fuel consumption and fuel costs for the different States. Table 4.2 gives the summarised results.

The specific coal consumption in the thermal plants of the SEBs has been around 0.74 to 0.78 since 1992-93. There are, however, large inter-State variations. The specific secondary oil consumption in the coal based thermal units incresaed sharply from 7.8 ml/kwh in 1992-93 to10.8 ml/kwh in 1995-96. It is expected to be 9.0 in 1998-99. The situation is much better compared to what it was in late 1970s and early 1980s when the secondary oil consumption was over 12 ml/Kwh. The average specific oil consumption in Bihar, Hayrana and Assam is higher than that of all-utilities average. On the other hand, Andhra Pradesh, Karnataka Power Corporation, Tamil Nadu, Maharashtra, Rajasthan and Punjab have lower consumption. Madhya Pradesh has achieved a significant reduction in its secondary oil consumption in the last 5 years. The cost of coal per unit of generation of power has increased from 53.4 paise/kwh in 1992-93 to 89.4 paise/kwh in 1997-98. It is likely to increase further to 94 paise/kwh in 1998-99. The States located farther away from coal-fields have to bear a higher cost of coal/Kwh of generation viz. Gujarat, Haryana, Punjab, Rajasthan and Tamil Nadu. The main reason lies in higher transport cost for carrying coal to these States. The cost of secondary oil increased from 3.7 paise/kwh in 1992-93 to 7.3 paise/kwh in 1997-98.  

4.5 Expenditure on Power Purchase

In the recent years, payments towards purchase of power constitute the largest component in total cost of supply of electricity. The cost of power purchase as a proportion of the average unit cost increased from 27.9% in 1992-93 to nearly 34.5% in 1997-98. The average rate of payment for purchase of power from various sources steadily increased from 76 paise/kwh in 1992-93 to 123.4 paise/kwh in 1996-97. It was expected to increase to 138.7 paise/Kwh in 1997-98. The projected average rate of power purchase is estimated to be 149.7 paise/kwh in 1998-99. The inter-State variations can be seen from Annexure 4.14.

4.6 Expenditure on O and M Works

The share of O and M in the average unit cost of supply of electricity in case of 19 utilities has shown a downward trend from 4.7% in 1992-93 to 4.5% in 1997-98 (RE). The States of Kerala, Himachal Pradesh, Maharashtra and Meghalaya have a fairly high share of O and M in the total cost. On the other hand, the share of O and M expenses in total cost is low in Tamil Nadu, Punjab, Gujarat, Assam and Jammu and Kashmir.

4.7 Expenditure on Establishment and Administration

Establishment and Administration charges comprise mainly the wages and salaries of staff. Its share in unit cost of supply of electricity has declined from 15.2% in 1992-93 to 12.8% in 1996-97. It is expected to be 12.3% in 1997-98. The number of employees in the State utilities and EDs has been about 9.8 lakh in the last few years. However, the number of employees per million units of electricity sold declined in practically all the SEBs and EDs. The average of all SEBs and EDs declined from 4.6 in 1992-93 to 3.6 in 1996-97. The number of consumers increased to 88.7 million in 1996-97 (assuming the same staff strength for DVB in 1996-97 as in 1995-96), as against 73 million in 1992-93. The number of employees per thousand consumers also declined to 11.2 in 1996-97 as against 13.3 in 1992-93. Andhra Pradesh, Gujarat, Karnataka, Kerala and Tamil Nadu have lower number of employees per thousand consumers.

4.8 Nature of Fixed Costs

The share of fixed costs, viz., depreciation and interest payments in average cost declined from 25% in 1992-93 to 21.7% in 1997-98. The share of depreciation in the cost of supply which was 9.2% in 1994-95 declined to 8.3% in 1997-98. The interest cost, i.e. interest payable to the financial institutions and the State Governments has also come down to about 14% in the last couple of years from a level of 17.5% in 1992-93. There are, however, considerable inter-State variations.

4.9 Average Tariff and Revenue Realisation

Annexures 4.23 gives the average tariff from 1974-75 to 1998-99. Consumer category-wise tariff is presented in Annexures 4.24 to 4.30 for the years 1992-93 to 1998-99 (AP). The overall average tariff for sale of electricity by the SEBs was 18.8 paise/kwh in 1974-75, 32.4 paise/kwh in 1980-81. It increased to 105.4 paise/kwh in 1992-93 and to 184.5 in paise/kwh in 1997-98 (RE). It is likely to be 198 paise in 1998-99. There are large inter-State variations as is evident from Annexure 4.23.

4.10 Consumer Category-wise Average Tariff

Table 4.3 gives the consumer category-wise average tariff for electricity sale from 1992-93 to 1998-99.

It is clear from the above that

  1. Average unit revenue realised from agricultural sector and domestic lighting is significantly lower compared to the overall average unit revenue realised.
  2. Electricity for commercial users, industry and railway traction is charged at significantly higher rates than the average tariff.
  3. The unit average revenue realisation for all the consumer categories (including the tariff charged from agricultural consumers) has increased, though at varying rates. The increase has been small for agricultural sector and fairly substantial for commercial and industrial consumers. It has already been indicated in the previous chapter that on account of the low tariff prevailing in the agricultural and domestic sectors, sales revenue realised from these two sectors has been very low. While the sales to these two sectors accounted for nearly one-half of the total sales, the revenue realised from them has been only about one-sixth of the total revenue of the SEBs in the recent years.

4.11 Financial Performance of SEBs

Annexures 4.33 to 4.48 provide details of cost-revenue comparison and other financial performance indicators, namely commercial profit and losses, cross subsidisation, additional revenue mobilisation , net internal resources and the rate of return on capital of the SEBs.

4.12 Unit cost-revenue comparison

The recovery of cost through revenue is crucial for the health of any organisation. The percentage of sales revenue realised to cost incurred has declined in the last few years to as low as 76%. The trend is likely to be reversed in 1997-98 when over 80% of the total cost is likely to be realised through the sales revenue.

Table 4.4

There are wide inter-State variations in the ratio of average revenue realised to the average cost of supply as can be seen from Annexure 4.33. It was particularly low for Jammu and Kashmir, Meghalaya and Punjab, and below average in a number of other States in 1998-99. Figure 4.1 depicts the average cost and average revenue realised per/kwh since 1980-81. 

4.13 Commercial Profit/Loss

The commercial losses (without subsidy) of the SEBs increased from Rs.4560 crore in 1992-93 to Rs.10684 crore in 1997-98. These are projected to increase to Rs.12323 crore in 1998-99. The details of the individual SEBs can bee seen in Annexure 4.35. The level of commercial loss of the SEBs depends on the extent to which effective subsidies provided to agriculture and domestic sectors are not nutralised through cross subsidisation and State Governments subsidy payments to SEBs. This is analysed in the following paragraphs.

4.14 Effective Subsidy and Cross Subsidisation

Annexures 4.36 to 4.39 give subsidy for agricultural and domestic sectors, subsidy that will remain after the introduction of the proposed minimum agricultural tariff of 50 paise/kwh, subsidy/subvention provided by the State Government. Table 4.5 summarises these findings.

"Effective subsidy" (defined as average unit cost of supply minus average unit revenue realisation times the total sales for agricultural and domestic sectors) increased from Rs.9370 crore in 1992-93 to Rs.22216 crore in 1997-98 (RE). It is expected to increase to Rs.26278 crore in 1998-99. Introduction of the national minimum agricultural tariff of 50 paise/kwh would still leave a substantial gap uncovered. For example, in 1997-98 this gap was of the order of nearly Rs.19962 crore. While some State Governments partly compensate the SEBs for the subsidised sales of electricity to agricultural and domestic sectors others do not provide any compensation at all. In 1997-98, the State Governments had proposed to give subvention to their SEBs, totaling a sum of Rs.3706 crore, which works out to 16.7% of the effective subsidy that the SEBs had to bear at the estimated tariffs for these two sectors. Some of the State Governments also write off the interest payable to them in lieu of subsidised sales to agricultural and domestic sectors.

A part of the subsidy provided to the agricultural and domestic consumers is recovered by the SEBs through cross subsidisation of tariff on the users of other sectors (mainly industrial and commercial) as indicated in Table 4.6. The cross subsidy from commercial and industrial sector (as a percentage of effective subsidy to domestic and agricultural consumers) was 41.7% in 1992-93 declined to 37.6% by 1995-96 and increased to about 51% in 1997-98. It is expected to be 41.5 in 1998-99. It is worth-noting that the cross subsidy from other sectors was only 22.9% in 1990-91. There is, however, a limit to such cross subsidisation as greater burden on industry and commercial sectors can affect the competitiveness of these sectors and also encourage them to set up their own captive generation.

4.15 Rate of Return

In terms of Section 59 of the Electricity (Supply) Act, 1948, the SEBs are required to earn a minimum rate of return (ROR) of 3% on their net fixed assets in service after providing for depreciation and interest charge. The State Governments could prescribe a higher return if considered necessary. However, most of the SEBs are yet to comply with this statutory stipulation. Revenue realisation from the sale of electricity in some cases does not even cover their revenue expenditure requirements. Annexures 4.45 to 4.47 give respectively the ROR with subsidy, without subsidy and with 50 paise/kwh for agricultural sales. The position is summarised in Table 4.7.

There has been, in general, a deterioration in the ROR of the SEBs from (-)12.7% in 1992-93 to (-)18.7% in 1997-98. Though subvention from the State Governments has improved the ROR, it still remains negative. If the proposed national minimum agricultural tariff of 50 paise/kwh has been implemented by all SEBs, the ROR would still have been (-)11.6% in 1997-98. If the SEBs are required to financially break-even, they would have to mobilise substantial revenue. Table 4.8 brings out the additional revenue of SEBs in case they achieve break-even ROR, 3% ROR or adopt the all-India minimum agricultural tariff of 50 paise/kwh for the agricultural sector.

If all the utilities are able to adopt a tariff of 50 paise/kwh for agricultural sales, they would be able to mobilise additional revenues to the tune of Rs.2389 crore in 1998-99. Their resources could improve to over Rs.12000 crore, at 0% ROR and over Rs.14000 crore, at 3% ROR. The additional revenues would provide them with much needed funds for capacity expansion and improving the performance of the existing assets. These would also reduce the burden of State Governments providing the SEBs with subvention. It is evident from Annexures 4.51 and 4.52 that on an average at the all-India level, the SEBs would have to raise the tariff by about 53 paise/kwh for achieving 0% ROR, and by about 60 paise/kwh for achieving 3% ROR in 1998-99 over and above the average tariff proposed for 1998-99. The increase required (for achieving 0% ROR) is as high as 248 paise for Meghalaya, 232 paise/kwh for Jammu and Kashmir, 154 paise/kwh for Assam, 110 paise for Delhi, 101 paise for Haryana, 94 paise/kwh for Punjab, 74 paise/kwh for U.P etc.

4.16 Net Internal Resources

The net internal resource (IR) refers to the surplus left with the SEBs after meeting the revenue expenditure and loan repayment obligations. It includes depreciation and the subvention provided by the State Government. If the SEBs function on commercial lines, as is statutorily required, the IR would have been positive in the normal course. However, in practice IR have been negative in all the years except in 1995-96. The net IR was (-)161.5 crore in 1992-93 and (-) 3729 crore in 1997-98. The position varies from one SEB to another.

4.17 Other Information

Annexures 4.51 to 4.56 present the picture regarding unrecovered revenue arrears outstanding in the case of the SEBs, the dues payable by the SEBs to the Central sector undertakings, the revenue accruals from State electricity duty and the financial working results of the EDs.

4.18 Revenue Arrears and Outstanding Dues

The uncovered revenue arrears of the various State utilities outstanding against various consumers was of the order of Rs.6720 crore in 1992-93, Rs.8490 crore in 1993-94, Rs.9014 crore in 1994-95, Rs.13501 crore in 1995-96 and Rs. 11535 crore in 1996-97. These arrears work out to about 26-36% of the annual sales turnover. In other words, this is equivalent to locking up of nearly 4 months’ revenue with the consumers at any point of time. Also there are wide inter-State variations. States like Bihar and Jammu and Kashmir have outstanding dues of more than 150% and 227% of their annual sales turnover (more than 18 months revenue) for 1997-98 whereas it is 2.1% in Tamil Nadu. The outstanding dues (with surcharge) to be paid by the SEBs to the major Central Sector undertakings like NTPC, NHPC, DVC, NEEPCO, PFC, PGCIL, etc. as on Sept. 30, 1998 are reported to be over Rs.16800 crore. The dues are particularly large in the case of certain SEBs e.g. Uttar Pradesh (over Rs.3480 crore), Bihar (over Rs.3009 crore), West Bengal (over Rs. 1600 crore). The receivables of certain Central Sector undertakings are quite substantial. These are NTPC - Rs.8847 crore, NHPC - nearly Rs.2357 crore, REC - nearly Rs.2727 crore.

4.19 State Electricity Duty

The State Electricity Duty (SED) constitutes an important source of revenue in some States. The SED is collected by the SEBs and is generally passed on to the respective State Exchequers. The SED collections increased from Rs.1131 crore in 1992-93 to about Rs.2365 crore in 1997-98. Gujarat accounts for 37% of the total SED collection in 1997-98. The average incidence of electricity duty on the sale of electricity has been about 8 paise per kwh in 1997-98 or about 4-5% of the estimated overall tariff for electricity sales.

4.20 Financial Working of EDs

The financial statements of EDs are not strictly comparable to those of the SEBs, particularly as the depreciation and interest payments of the EDs are not shown separately. In view of this, their financial working has not been analysed in the same detail as that of SEBs. Only the gross operating surpluses or deficits of the EDs are reported. The gross operating surplus is defined as the revenue receipts minus the operating expenses. The gross deficit of these EDs was of the order of Rs.37 crore in 1992-93. It increased to Rs. 129.9 crore in 1997-98. It is likely to decline to Rs. 100 crore in 1998-99. The decline in deficit in 1997-98 is mainly on account of increasing operating surplus that is being realised by Goa and Pondicherry EDs.

It is thus observed that from the analysis above that the financial position of the SEBs has deteriorated over the years. In order to enable the SEBs to meet the power demand efficiently, they need to become autonomous, professional and commercially viable entities. The process of bringing about reforms in the functioning has already been initiated in a number of States. However, the pace of these reforms should increase. Also, the progress of setting up of tariff regulatory Commissions in all the states needs to be speeded up.