State Electricity Boards: Weak Financial Health

State Electricity Boards have been the oldest organisations involved in the generation, transmission and distribution of power across the country. Although they have been  in the industry since India’s independence, these organisations continue to  face tumultuous times.

State Electricity Boards (SEBs) recorded a sharp erosion in their net worth over the past several years caused by high operational losses. Some of the reasons for the poor financial health are:

• Inability of the SEBs to increase tariffs because of intervention by the state governments. In some states, power to the farmers is provided free and the amount is partially compensated by higher tariff to commercial and industrial enterprises.
• Rising cost of power. While this factor has been hurting all the power companies, SEBs in particular have to occasionally pay more than market price because of the long payment cycle followed. SEBs have long pending dues because of which of which companies charge a premium factoring in the payment cycle. Also, due to inability to import coal, SEBs need to purchase power on spot rates which are fairly high compared to the cost of generation.
• High aggregate, technical and commercial losses. Power theft & pilferages, low metering efficiency and poor billing & collection processes have led to a continuation of high AT&C losses.

Hence, SEBs face high financial losses. The only saving grace for the industry has been continuation of capital expenditure by these organizations. Financial institutions are willing to lend because of quasi-sovereign guarantee by the state government and a sovereign guarantee from the central government.