In this article we will discuss about the Restoration of Financial Health of SEBs.

In the power sector, restoration of financial health of SEBs and improvement in their operational performance continue to remain a critical issue in the power sector. Under Section 59 of the Electricity Supply Act, 1948, SEBs are required to achieve a rate of return (ROR) of not less than 3 per cent of their fixed assets in service, at the beginning of the year, after providing for interest and depreciation charges less consumer’s contribution.

In 1997-98, 13 SEBs out of 16 SEBs (excluding Orissa SEB) had a positive ROR (including subsidy). Further, only 3 SEBs (MSEB, HPSEB and BSEB) had a ROR of more than 3 per cent in 1997-98 (with subsidy). Managerial and financial inefficiencies in State Sector Utilities have adversely affected capacity addition and system improvement.

While the SEBs do not have enough resources to finance future programmes, they are also unable to raise investible funds from alternative sources due to their poor financial and commercial performance. In none of the SEBs does unit revenue realisation from the agricultural sector cover even a reasonable fraction of its unit average cost and this is leading to heavy financial losses.


The hidden subsidy for the agriculture and the domestic sector has increased from Rs 7,248 crore in 1991-92 to Rs 29,807 crore in 1998-99 and is projected to go up further to Rs 37,604 crore in 2000-01. The introduction of the proposed national minimum agricultural tariff of 50 paise/kWh, even if implemented, will leave uncovered a substantial proportion of the subsidy provided to the sector.

In addition, the SEBs have continued to suffer from high transmission and distribution (T&D) losses which stood around 24.4 per cent in 1997-98. Thus in order to restore the financial health of SEBs, immediate steps be taken to attain a minimum 3 per cent ROR, reducing the subsidy burden of SEBs and also to reduce T&D losses effectively to minimum.

It is observed that-financial health of SEBs has been deteriorating over the years. In 1999-2000 only 7 SEBs had a positive Rate of Return (ROR). The number of SEBs with a positive ROR of more than 3 per cent (without subsidy) has also fallen. In 1999-2000, only 2 SEBs (MSEB and TNEB) had a positive ROR of more than 3 per cent (without subsidy).

Thus in order to improve the profitability and financial viability of SEBs we need to tackle the key issues such as curbing of T & D losses, tariff rationalization, reducing gap between cost of supply and revenue/unit of electricity generated. All these steps will help to generate more revenue from electricity sector which will make it possible generate investment.


It is found that SEBs have continued to suffer from high T&D losses which were at 24.8 per cent in 1997-98, gradually increased to 25.6 per cent in 1998-99 (provisional). The T&D losses are mostly arising due to variety of reasons, viz., substantial energy sold at low voltage, sparsely distributed loads over large rural areas, inadequate investment in distribution system, improper billing and high pilferage.

The hidden gross subsidy for agriculture and domestic sectors has increased from Rs 7,449 crore in 1991-92 to Rs 34,428 crore in 2000-01 and is projected to go up further to Rs 38,836 crore in 2002-03.

In order to face this situation, the Government has initiated a new plan scheme namely the Accelerated Power Development Programme (APDP) in 2000-01 to provide financial assistance to the States for undertaking renovation and modernisation programmes of Thermal and Hydropower stations and also for strengthening and improvement of sub-transmission and network.

Under this scheme, a focused investment programme has been initiated in 63 identified distribution circles that would be developed as Centre of Excellence in the first phase of the APDP programme. Accordingly, the Government has provided an amount of Rs 978 crore to SEBs /ED during 2000-01. An amount of Rs 1,500 crore was budgeted for release to States during 2001-02 under APDP.