Chief Minister Parkash Singh Badal, R, with Deputy Chief Minister Sukhbir Singh Badal.DP
The Planning Commission had appointed in July 2010 a high level panel to look into the financial problems of the electricity boards.
dr surinder

kumar
The tariff hike was imposed to pay for the old outstanding borrowings.
Reality behind tariff hike
Punjab State Electricity Regulatory Commission (PSERC) hiked the electricity tariff in Punjab by 12.08 per cent on July 16, which has been made effective retrospectively from April 1, 2012. In this backdrop, there is a need to bring in public domain some of the important underlying facts in relation to the rate hike.

It is a myth that Punjab State Power Corporation Limited (PSPCL), that is the erstwhile Punjab State Electricity Board (PSEB), is incurring financial losses in its power supply business. At the existing levels of subsidy provided by the state government free of cost supply to agriculture, the PSPCL earned a surplus of Rs 752.38 crore for the financial year of 2011-12 business. If the tariff had not been increased, the distribution companies or discoms would still have earned a surplus of Rs 36.83 crore in the financial year of 2012-13. All categories of consumers, except agriculture and below poverty line (BPL) or Schedule Caste (SC) domestic, were paying full cost of their supply. Then, the people have a right to know the reason behind a 12.08 per cent hike in the existing tariff rates for all the categories of consumers?

The regulatory commission has estimated that during the fiscal of 2011-12, the net revenue requirement was Rs 14,642.12 crore whereas revenue from the existing tariff was Rs 15,394.50 crore, generating a surplus of Rs 752.38 crore from the current business year. The consolidated revenue gap for the past years up to the financial year 2011-12 was Rs 2,116.69 crore. Its carrying cost accrued interest cost for the year was Rs 291.85 crore. Thus, the total revenue backlog by the end of the financial year of 2011-12 would have been Rs 2,408.54 crore. It may be noted that this accumulated revenue deficit was mostly due to inefficient and poor performance of the PSEB or the wrong policies of the government. After paying Rs 752.38 crore from the surplus generated during the year 2011-12, the discom was left with a balance financial burden of Rs 1,656.16 crore. This deficit, plus the carrying cost of Rs 279.99 crore, which totals Rs 1,936.15 crore, has been used by the regulatory commission as a basis for hike in the tariff rates.

Thus, the tariff hike has been to pay for the old outstanding borrowings and not to meet the financial requirements of the current business. It is not justified to raise the electricity prices just to pay for the old

borrowings which were expected to be recovered from the efficiency gains. A close reading of the order of the PSERC brings out the constraints and helplessness of the regulatory commission in making precise calculations for passing an effective tariff order.

The commission did not have precise estimates of assets of the corporations or the estimates of transmission and distribution (T&D) losses due to large-scale unmetered supply. The whole exercise was based on intelligent guesses and the discom was repeatedly defaulting in complying with the directions of the commission. The implementation of the tariff order retrospectively is not a healthy commercial practice and is imposed on helpless consumers and is enforceable due to monopoly position. It is curious to note that the discom has stated that T&D losses for the financial year of 2012-13 will be 17 per cent. However, the regulator has allowed T&D losses of 18 per cent which means Rs 150 crore added to the cost of supply to the genuine consumers. Even the employee costs need to be calculated with more justification and care. Thus, the hike of 12.08 per cent in the tariff may not be really justifiable. The pertinent question is whether and how far it is justified on the part of regulators to further burden the genuine consumers and make them pay for the inefficiencies of the state owned electricity supply companies or the state government policies ? The so-called power sector reforms were undertaken and the state electricity boards were re-structured under the Electricity Act, 2003 to ensure autonomy of generation, transmission and distribution companies and to be managed or allow them to function professionally with a commercial outlook. The state government was not expected to interfere in day-to-day functioning and it was expected to limit itself to broad policy directions only. The state regulatory commissions have been established with vast statutory powers to ensure independent and efficient functioning in the generation, transmission and distribution companies. In practice, the state-owned corporations have been created to just meet the legal and technical requirements of the Electricity Act, 2003, and continue to be managed through serving state bureaucrats who neither have the required technical and management skills nor independence from the political bosses. There was no security of tenure or operational independence. The regulatory commissions have also got by-and-large completely regulated and rendered dwarf. It has been observed that only those retired bureaucrats are appointed as regulators who are ever-ready to oblige their political masters and leave no stone unturned in protecting their serving bureaucrat brethren who were managing the state-owned electricity companies. Planning Commission had appointed in July 2010 a high level panel under the chairmanship of VK Shanglu, former Comptroller and Auditor General, to look in to the financial problems of the state electricity boards and to identify corrective steps. It has made profound recommendations in relation to re-organisation of the distribution companies and regulatory commissions to ensure their effectiveness and transparent functioning.

The recommendations need to be adopted urgently, otherwise the power sector reforms are bound to fail with consequent disastrous consequences. The world experience in managing the power sector suggests that privatisation of such an integrated and synchronised system has lot many problems. Effective regulation is the only answer. It is always difficult for one arm of the government to regulate the other arm unless civil society institutions are created, nurtured and called up to act as watch dogs. This has to be placed on the national agenda.