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

Chapter 1: An Overview

1.1 Introduction

The Report comprises of 4 chapters. In the first chapter some of the important parameters, highlighting the crucial issues, are briefly analysed. In this chapter the analysis is done for the country as a whole though, as subsequent chapters bring out, there are large variations in the performance of SEBs and EDs. Chapter 2 focuses on the plan outlays and expenditure in the power sector, distribution of power sector outlay between various activities viz. generation, transmission and distribution (T and D), renovation and modernisation etc. and also gives the power balances as well as the elasticity of electricity generation and consumption with respect to the GDP. In Chapter 3, physical performance of the SEBs and EDs is reviewed. It covers details regarding installed capacity and its mix, size distribution of thermal plants, parameters regarding capacity utilisation viz. Plant load factor (PLF), forced outages, plant availability, auxiliary consumption and - other indicators like power purchased from other agencies, T and D losses, sales to consumers, etc. Chapter 4 gives a comprehensive account of parameters such as cost of supply and its components, average and consumer category-wise tariff realised and other financial indicators such as commercial profits and losses, rate of return on capital employed, cross subsidisation, net internal resources, revenue arrears, outstanding dues etc.

1.2 Plan Outlay and its Composition

With the exception of the Second and the Third Five Year Plans, the share of electricity sector in the total plan outlay has been over 15%. From the Fifth Five Year Plan, till the Seventh Plan this share has been around 19-20%. During the Eighth Plan, however, there has been a decline in the outlay for the electricity sector. It progressively declined from 18.5% in 1992-93 to 13.1% in 1996-98. Within the electricity sector, much higher outlays have been allocated to generation component than T and D system and renovation and modernisation (R and D) programmes. Inadequate investments in the T and D system is one of the major reasons for poor quality of supply of electricity (voltage fluctuations and break-downs). Investment for renovation and modernisation (R and D) of existing generation plants for their optimum utilisation has also not been always adequate which otherwise could have resulted in achieving higher PLF. Figure 1.1 gives the distribution of power sector outlay for major sub- activities viz. generation, transmission, etc. for the Eighth Five Year Plan.

It is observed from Figure 1.1 that the share of generation in the power sector outlay was 62% in the Eighth Plan whereas T and D had only 28% share as against recommended 1:1 ratio in investment on generation and T and D.

1.3 The Elasticity of Consumption of Electricity

The elasticity of electricity consumption with respect to GDP during 1980-81 to 1994-95 works out to 1.58. This implies that an increase in GDP by 1% was accompanied by 1.58% increase in electricity consumption. If one looks at various Five Year Plans, the elasticity has declined from over 3 in the First and the Second Five Year Plans to nearly 1.5 during the Seventh Plan and further to 1.22 (Provisional) in Eighth Plan as can be seen from Table 1.1.

1.4 Installed Capacity

The total installed generation capacity on 31st March, 1997 was 89090 MW. The share of hydel capacity was 24.6% , the balance being thermal and nuclear. During the Eighth Plan (1992-93 to 1996-97), 16422.6 MW have been added to the installed capacity as against the target of 30538 MW i.e. the achievement has been only 53.8% of the target. The achievement in hydel sector has been only 26.1% of the target as compared to 67.2% in thermal sector. Figure 1.2 gives the installed capacity in power sector (thermal and hydel separately) from 1985-86 to 1997-98.

 1.5 Plant Load Factor

There has been a marked improvement in the all-India average PLF in recent years, though considerable inter-State variations persist. The PLF in Eastern and North Eastern regions has been consistently lower compared to Northern, Western and Southern regions. The low PLF in some cases could be attributed to inappropriate quality of coal, age and size of units, equipment deficiency and failure or backing down of the units due to low load. Figure 1.3 gives the trend of PLF (all-India) from 1985-86 to 1997-98. The PLF till about early 1990s remained in the range of 54-57%. It was only from 1993-94, that the PLF started showing a distinct improvement to above 60% performance level. It was 63% in 1995-96, and 64.7% in 1997-98. Table 1.2 gives the PLF in different regions.

1.6 Transmission and Distribution Losses

The T and D losses are quite large in India compared to many other countries. In 1980-81 such losses accounted for nearly 20.6% of the total electricity available. These further increased to 21.8% in 1985-86 and to 23.3% in 1989-90. Since then there was a decline and in 1992-93 it was 21.8%. However, by 1995-96, the losses again rose to 22.3%. It may be noted that the losses reported here are as per the General Review carried out by the CEA and are different from losses reported by the SEBs for the Planning Commission discussions. A significant proportion of these T and D losses is attributed to pilferage. Not withstanding the general improvement in the overall PLF in the country during the Eighth Plan period , the low level of PLF in a number of stations and generally higher T and D losses obviously reflected sub-optimum utilisation of existing assets. An improvement in PLF and reduction in T and D losses would help in reducing the requirement for adding new power generation capacity.

1.7 Energy Sales

The pattern of sales to various sectors has undergone significant changes in the last few years. Figure 1.4 shows the sectoral consumption patterns for the years 1984-85, 1989-90 and 1997-98. The share of domestic and agriculture sectors in the total sales increased from 27.4% in 1984-85 to nearly 48.6% in 1997-98 while that of industry declined from over 50% to about 33.5% over the years. This has adversely affected the profitability of the SEBs because the tariff charged from agriculture and domestic sectors is lower than the cost of supply of electricity. The per capita electricity consumption increased from 178 Kwh in 1985-86 to 338 Kwh in 1995-96 i.e. an increase of about 90% in a decade.

1.8 Energy Shortage

At the beginning of the Eighth Plan, the energy shortage was 7.8% and peak deficit was 18.8%. The energy deficit increased to 11.5 % by the end of the Eighth Plan,. The major reason for increase in the shortage has been failure to achieve the targeted capacity addition. However, the peak deficit was restricted to 18% mainly due to a marked improvement in PLF of thermal plants.

1.9 Average Cost

The average cost had increased from 42 paise per unit in 1980-81 to 109 paise per unit a decade later. In 1998-99, it is estimated to be 243 paise per unit. The cost of power purchased from outside agencies, fuel cost and the interest cost are the major components of this cost. There are wide inter-State variations. The details can be seen in Chapter 4. 

 1.10 Average Tariff

The average tariff has increased from 32 paise in 1980-81 to about 82 paise in 1990-91 and further to 184.5 paise in 1997-98 (RE). The ratio of tariff to cost was 77% in 1980-81. It has shown wide year to year fluctuation being 78% in 1995-96, 82% in 1997-98 and expected to be 81.5% in 1998-99. The burden of tariff is unequal. Whereas the average tariff for agriculture and domestic sectors works out to 28 paise/KWh and 134 paise/KWh respectively for the year 1997-98, the industrial sector on an average paid 285 paise/KWh. This has resulted in disproportionately lower contribution by agriculture and domestic sectors to the revenue of SEBs vis-a-vis the sales by the SEBs to these two sectors. The agriculture sector accounted for only 3-4% of total sales revenue of the SEBs as against around 30% of their total sales. The domestic sector accounted for 11-12% share in sales revenue as against 16-17% sales of the SEBs. This resulted in the escalation in the commercial losses of the SEBs, as the cross subsidies and the subsidies provided by the State Governments are not sufficient to make up for the losses on account of sales to agriculture and domestic sectors besides pushing up cost of industrial production.

1.11 Commercial Losses

The annual commercial losses (without subsidies) of the SEBs in the country have increased from Rs.1565 crore in 1985-86 to Rs.10684 crore in 1997-98. The trends are shown in Figure 1.5.

1.12 Subsidy

The effective subsidy (difference between the cost of supply and the revenue realisation) to agriculture and domestic sectors worked out to Rs.5651 crore in 1990-91. In 1997-98, it increased to Rs.22216 crore. However, cross subsidisation (mainly from commercial and  industrial sectors) also increased from Rs.1296 crore, representing 22.9% of the subsidy to agriculture and domestic sectors in 1990-91 to Rs.11289 crore in 1997-98 representing about 51% of the subsidy provided to these sectors.

1.13 Rate of Return

The trend showing SEB’s rate of return (without subsidy) in the last 5 years is presented below.

It is estimated that for the year 1998-99 in order to break even/ achieve a ROR of 3%, as stipulated in the Indian Electricity Supply Act, (1948), the SEBs would have to raise the average tariff by 53 paise/60 paise respectively.

It is evident from the above that the high levels of commercial losses and the negative rates of return even at PLF of 64% and above are mainly on account of absence of rational tariff structure, whereby large subsidies are provided to certain sectors, without corresponding recovery from other sectors. Reduction in T and D losses, auxiliary losses as well as in secondary oil consumption, provide further avenues for improvement. The unsatisfactory and deteriorating financial health of the State Electricity Boards has acted as a constraint not only for adding new capacity, improving the transmission and distribution system, carrying out renovation and modernisation programmes, but also for carrying out much needed reforms in the electricity utilities.One of the main hurdles to private sector participation gaining momentum is the perceived reservations about the capacity of SEBs to pay for power in view of their generally poor financial performance. The process of the reforms has already been initiated in some States. However, there is a need to increase the pace of reforms. Immediate action also needs to be taken to set up State Electricity Regulatory Commissions in all states to deal with tariff rationalisation.