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CHAPTER IV
PROGRESS IN TECHNICAL AND FINANCIAL
PERFORMANCE
In Chapter III, an overview of the profile of power sector and major
steps in the process of restructuring in Punjab was presented. The Punjab
State Electricity Regulatory Commission (PSERC) was constituted as an
independent regulatory body to regulate the generation, transmission and
distribution businesses in the power sector in 1999. Overall objective of
reforms was to improve the technical and financial performance of power
sector in the state. In this Chapter, an attempt is made to examine the
technical and financial performance of the power sector comparing the level
of economic efficiency in the pre-reforms and post reforms period. A
comparison of the technical and financial performance in the pre reforms
period and post reforms periods has been undertaken.
The chapter is divided into two sections. Section IV.1 examines the
operational performance of power sector in Punjab especially focusing on
technical performance improvement in the post reforms period. Section IV.2
presents an overview of the financial performance made in the post reform
period. The issues related to tariff structure and pricing policy have also
been examined.
96
IV.1: Technical Performance of Punjab Power Sector
In this section, the technical performance is measured on the basis of some
performance parameters. Key parameters such as Plant Load Factor (PLF),
Transmission and Distribution Losses (T&D losses), collection efficiency,
etc. have been taken into account for measuring the operational performance
of the generation and distribution functions of power.
Plant Load Factor
Plant Load Factor (PLF) is an important indicator used to measure
operational performance of thermal power plants. PLF represents the rate of
capacity utilisation achieved by the power plant. Technically, it is defined as
the ratio of the actual energy generated in a year to the energy that could be
generated if the plant was operated at its full rated capacity. Mathematically,
it can be written as:
Actual Energy Generated (Kwh)
Plant Load Factor = -------------------------------------------×100
Rated Capacity in KW×8760 (No of hours in a year)
For a thermal power plant, if the plant load factor less than 60%, the
performance is considered to be unsatisfactory. A PLF below 60%
technically means that the plant’s capacity could not be utilised for more
than one third of the total time due to some technical problem in the plant or
97
because of fuel shortage. Plant Load Factor for the state of Punjab and
national average is presented in Table 4.1.
Table 4.1: Plant Load Factor of Punjab and National Average
(in percentage)
Year PLF of Punjab PLF of all India
1980-81 38 42
1985-86 59 52
1988-89 56 55
1992.93 50 57
1993-94 64 61
1994-95 57 60
1995-96 55 63
1996-97 66 64
1997-98 69 65
1998-99 69 64
1999-00 75 67
2000-01 78 69
2001-02 79 70
2002-03 74 72
2003-04 77 73
2004-05 77 75
2005-06 80 77
2006-07 83 74
2007-08 88 76
2008-09 85 77
2009-10 88 77
Source: Planning Commission, (Data Tables), website
Power Finance Corporation Reports (Various Years)
The Table 4.1 shows that in early 1980s, the performance of thermal
power plants of Punjab was not satisfactory. For example in 1980-81, the
average PLF of Punjab stations was just 38%. Thereafter, some
improvement was reported in the PLF. The PLF increased to 59% in 1985-
98
86. However, it was reported less than the national average for the FY 1992-
93. Because of two reasons, the efficiency of thermal power stations was
very low. One, there was a lack of adequate coal supply, the plant capacity
could not be fully utilised. Secondly, poor maintenance of the power plants
was another important reason for the low PLF. However, from 1995-96 the
thermal plants of the state have reported significant improvements in the
capacity utilization. From 1997-98 onwards, the operational efficiency of
thermal power plants was improved significantly. Adequate attention was
provided to undertake the repair and maintenance of the power plants.
Consequently, the PLF of PSEB remained much above than all India
average during most of the post reforms period. This may be considered as a
remarkable improvement in the technical performance of PSEB.
The data on PLF needs to be analysed examining the plant wise
details. There were high variations in the performance levels achieved by
various power plants in the state. More details on PLF are given in the Table
4.2. It may be noted that some of the thermal power stations in the state have
shown significant improvements in the operational performance. For
example, the PLF reported by GHTP Lehra Mohabat improved from 59% in
1998-99 to 96% in 2009-10. On the other hand, the performance of GNDTP
Bhatinda power station was not very much satisfactory in comparison to
99
other plants. Further, there were high fluctuations in the PLF reported by the
plants during different years. For example the PLF was reported to be 72%
in 2001-02. It declined to 52% in the FY 2004-05. Then, from 2004-05
onwards, the PLF has increased continuously. So, there is scope for further
improvement in the overall Plant Load Factor if proper renovation and
maintenance work is undertaken in the operation of power plants.
Table 4.2: Plan Load Factor of Power Plants in the State
(in percentage)
Years GNDTP,
Bhatinda
GGSSTP,
Ropar
GHTP, Lehra
Mohabat
Overall
1997-98 65.11 70.34 -- 69.10
1998-99 66.70 70.01 59.20 69.40
1999-00 68.79 74.11 81.35 74.70
2000-01 72.49 76.44 87.71 77.90
2001-02 71.70 80.20 83.55 79.20
2004-05 51.69 82.28 89.94 77.5
2005-06 57.84 84.52 85.51 79.9
2006-07 56.8 88.52 93.58 83.1
2007-08 77.83 88.54 95.1 87.65
2008-09 73.83 87.07 94.89 85.48
2009-10 70.66 91.11 96.44 88.43
Source: Basic Statistics issued by PSERC
Auxiliary Consumption
Auxiliary consumption is considered as an indicator measuring the
technical efficiency of thermal power plants. It represents the amount of
electricity consumed by the plant itself in the process of electricity
generation. During the stage of production some electricity is used to meet
100
the cooling, lighting and logistic needs of the plant. It can be calculated
using the following formula:
Auxiliary Consumption = Total Energy Generation- Energy Received at
the Bus Bar
Auxiliary consumption efficiency is defined as the ratio of the auxiliary
consumption to the total energy generated by the power station. The
auxiliary consumption of power stations in Punjab and all India average is
given in the Table 4.3.
Table 4.3: Auxiliary Consumption of Punjab All India Average
(in percentage)
Year Auxiliary consumption
Punjab
Auxiliary consumption
All India
1994-95 4.49 7.44
1995-96 4.46 7.11
1996-97 4.36 6.59
1997-98 5.01 7.15
1998-99 4.69 7.04
1999-00 5.54 7.20
2000-01 5.47 7.19
2001-02 5.20 7.06
2004-05 5.84 8.57
2005-06 5.96 8.46
2006-07 6.10 8.30
2008-09 6.18 8.36
2009-10 6.36 8.36
Source; Planning Commission report for the year 2002
PFC report and CEA report (2008, 2009)
It is shown in the Table 4.3 that auxiliary consumption in Punjab was
much lower than all India average. However, it shows an increasing trend of
101
the auxiliary consumption of the power stations in the state. The auxiliary
consumption has increased from 4.49% in 1994-95 to 6.18% in 2008-09.
The main reason for increasing auxiliary consumption is the older life of the
power plants. Over the time, the plants are becoming older, requiring high
auxiliary consumption of power. It can be reduced by taking various
measures such as proper repair and maintenance of the plants. So, there is a
need to undertake proper and timely maintenance of power plants so that the
auxiliary consumption is reduced.
Transmission and distribution losses in the state
The high transmission and distribution losses were identified as one of
the main reasons responsible for poor performance of the State Electricity
Boards (SEBs) in India. Energy losses basically consist of technical losses
and non-technical losses. Some technical losses occur due to inherent
characteristics of the generation, transmission and distribution systems. In
the process of transmission, transformation and distribution activities, some
amount of energy is consumed by the conductors used as part of network
system. Many times, energy is wastefully consumed due to defectiveness of
equipments such as loose conducting and wiring. Energy is also consumed
in the process of transformation from one voltage level to another, which is
also a part of technical losses.
102
Non-technical losses are also termed as commercial losses. The
commercial losses are resulted from unaccounted and unpaid use of energy.
This may be the result of inaccurate metering and poor billing methods.
Another major component of commercial losses is the pilferage of power
that is made by unauthorised users.
In past, various SEBs including PSEB computed T &D losses by
computing as the difference between power available for sale and the energy
attributed to consumers on arbitrary basis. Since most of the power supply to
agriculture sector was unmetered, so the estimates of energy consumption
were not very much reliable. Therefore, PSERC had directed to PSEB to
evolve a scientific methodology to make accurate estimation of the
consumption as well as energy losses. The estimates of T&D losses are
given in the Table 4.4.
103
Table 4.4 Transmission and Distribution Losses in Punjab
Year T&D losses (Million Units) T&D losses (in percentage)
1991-92 3595 22
1992.93 3507 20
1993-94 3754 20
1994-95 3421 17
1995-96 3706 18
1996-97 4187 19
1997-98 4363 19
1998-99 4582 18
1999-00 4909 18
2000-01 7319 27
2002-03 7002 24
2003-04 7952 26
2004-05 7678 25
2005-06 9232 28
2006-07 9569 27
2007-08 8834 23
2008-09 7416 20
2009-10 8142 25
Planning Commission Report, Oct. 2002
PSEB: Electricity Statistics of various years.
PSERC: Tariff Orders (various year)
It may be noted from the Table that T&D losses were quite high in the
state. It lies in the range of 17% to 28% for the period of 1991-92 to 2009-10
where as the maximum acceptable limit is about 15% as per norms and
standards laid down at the national as well as international levels. In India,
some distribution companies in various states such as Andhra Pradesh,
Karnataka, Gujarat, etc. have controlled the T&D losses to the limit of 15%.
104
As stated earlier on major problem regarding T&D losses is the
accurate estimation of the energy consumed by the agriculture sector. Most
of the power supply to farm sector was un-metered and farmers were billed
on the basis of flat rate tariff structure. Therefore, it was not possible to
make a reliable estimate of the consumption made by the agricultural sector.
At the same time, PSEB had a tendency to overestimate the agricultural
consumption so that it can conceal the high transmission and distribution
losses. When the Punjab State Electricity Regulatory Commission (PSERC)
came into existence, it questioned the estimates made by erstwhile PSEB
about the agricultural consumption and energy losses. It also used an
alternative approach for the purpose of making accurate estimation of the
energy consumption and energy losses. It directed the PSEB to separate the
agriculture feeder from the rural feeders. Then, on the basis of feeder
metering, the consumption of agriculture sector was estimated. Ultimately, it
was confirmed that PSEB was overstating the consumption of agriculture
sector because of the following two reasons:
1. By overestimating the electricity consumption in agriculture sector,
the PSEB was able to understate the actual energy losses. Major part
of the unaccountable consumption was booked to the agricultural
sector.
105
2. It helped PSEB in justifying its claim for higher subsidy from the state
government. In Punjab, farm sector is being provided power supply
free of cost. The estimated subsidy for the ensuing year is based on
the estimated power consumption to be made by the farm sector.
However, PSERC started reducing the proposal estimates of agricultural
consumption. It was observed that the actual energy losses were much
higher than the claim made by PSEB. It started lifting up the energy losses to
make a reliable estimate of the energy losses. That is why in the post 1999-
2000 period, the energy losses were higher than the levels which were earlier
reported by the Board. The commission directed the utility that the power
supply to all consumers including agriculture sector should be fully metered.
So, the distribution company should ensure complete 100% metering at
consumer ends.
It is concluded that the high level of transmission and distribution losses
is one of the major problems in the development of power sector in the state.
Another important matter is the under recovery of sale revenue form
electricity consumers. In the pre-reforms period, under-recovery of dues was
also reported as one of the major factor responsible for poor financial
performance in the power sector. In the next sub-section, an analysis of
collection efficiency has been undertaken.
106
Recovery of Electricity Dues
Smooth recovery of dues from consumers is essential for the sound
financial health position of a distribution company. A utility is not expected
to be financially secure unless the electricity dues were being fully recovered
from consumers. In the pre-reforms period, under recovery of consumer
dues was identified as one of the major factors responsible for the poor
financial health of the Punjab State Electricity Board. This was also
highlighted in the report of Expert Group on Power1.
Table 4.5: Collection Efficiency of Distribution Company in Punjab
(in percentage)
Financial Year Revenue Collection efficiency
2004-05 99.61
2005-06 98.01
2006-07 97.66
2007-08 100.44
2008-09 93.63
2009-10 99.03
Source: PFC Report for various years
It is presented in the Table 4.5 that the collection efficiency of
distribution company has reported to be satisfactory. The collection
efficiency was reported approximately 100% for the period from FY 2004-
05 to 2009-10 except FY 2008-09. It is an instrument of improving financial
performance of the distribution company. It may also be noted that 100%
recovery ratio for a specific financial year does not mean that nothing was
1 Report of the Expert Group on Power under the chairmanship of Gajendra Haldea (March 2003) Pg. 18
107
due towards consumers for that year. Whenever, some incentives were given
to consumers to pay their pendent dues, they were responsive towards such
time of schemes. Consequently, a jump was reported in the collection
efficiency. Therefore, the revenue collected in the current years also includes
the money collected on account of dues pending towards consumers.
However, if the collection efficiency is 100% or around it for a longer period
on continuous basis, it implies that the distribution company was able to
recover the dues adequately.
Aggregate Commercial and Technical Losses (AT&C Losses)
The estimated T&D losses were only an intelligent guess and not
based on the accurate data. More than 70% of the total electricity supply to
agriculture sector was un-metered. Hence, estimates of T&D losses were
not very reliable to assess the actual technical and financial performance of
the power utilities. So, a new concept namely Aggregate Technical and
Commercial losses (AT&C) losses was used across various states in the post
reforms period. These are calculated combining the technical & non-
technical losses and non-recovery of dues. AT&C method is understood as
superior over the T&D losses. By using this method, it is convenient to make
a comparison of various states about their overall financial position. The
performance of power utilities about AT&C is presented in the Figure 4.1. It
108
reveals that the AT&C losses were lesser in Punjab than the national
average.
24
34.33
25.84
34.54
24.88
32.07
24.3429.24
18
23.85
17
23.17
2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Figure 4.1: AT&C losses in Punjab and All India Average
(%age)
Punjab
All India
Source: Power Finance Corporation Report (2011)
It is shown in the Figure 4.1 that in the recent years, there are some
improvements in the reduction of AT&C losses. The most contributing
factor towards loss reduction is the improvement in the recovery of dues
from consumers. As stated earlier the recovery of dues has increased
substantially. Consequently, the AT&C losses have been showing
decreasing trends. However, the technical and non-technical losses are still
very high. So the distribution company should focus more in order to reduce
these technical and non-technical losses. It can be done though renovation
and modernisation of transmission and distribution system. Ministry of
Power (MoP) has been providing financial support under its programme
namely Accelerated Power Development and Reforms Programme
(APDRP). Therefore, such initiative may be utilised so that the loss level is
109
further reduced in the state. In order to reduce the commercial losses,
adequate focus is required to ensure accurate metering and billing process.
IV.2 Financial Performance of the PSEB
Overall profitability of a utility depends upon its technical and
financial performance. Only a utility having sound financial health position
can attract adequate investment for the development of the sector. A utility is
said to be financially viable if it is able to fully recover its operating
expenses and to earn a reasonable rate of return on its net capital base. After
independence, in the power sector more focus was to boost up the generation
capacity to meet the increasing demand for power. Therefore, initially
respective state governments made huge investment to expand the
transmission and distribution network. As stated in Chapter 3, about 30% or
more of total plan expenditure was spent on the development of power
sector. However, because of emergence of other priorities, it was not
feasible for the state government to spare the larger budgets for the
electricity sector. It was realised that SEBs should be made commercially
viable and self sustainable entities. In this regard, an amendment to the
electricity (supply) act, 1948 was made requiring respective SEB to earn a
rate of return not less than 3% on its net capital base after meeting all its
operating expenses.
110
But the financial performance of the most of the SEBs including
PSEB did not remain very attractive over the period of time. Because of
their inability to generate revenue surplus, the commercial losses increased
rapidly. Under the pressure of sstate government, the tariff for some
category of consumers such as agriculture and domestic sector was kept very
low in comparison to the cost of supplying power. In this section, the
financial performance of the PSEB is highlighted. A comparison of the cost
of supply and average revenue realised from various consumers has been
undertaken. It also examines the adequacy of average electricity tariff to
recover the cost of supply from various categories of consumers. Finally, the
role of state government is also examined in paying the promised subsidy on
account of subsidised power supply to farm sector.
Average Revenue realized in relation to cost of supply
Average cost of supply or average operating expenditure comprises all
essential expenses required to keep the electricity supply system in the
working condition. Fuel cost, power purchase cost, operation and
maintenance cost, interest, depreciation are the main elements of operating
expenditure in the power sector. There has been a continuous increase in the
average cost of electricity. This was because of rapid increase in various
types of expenses such as fuel cost, power purchase cost, employee cots, etc.
111
Average revenue may be define as the per unit revenue realised from
the sale of power to all consumer categories. Cost recovery is the ratio of
average revenue realization to the average operating expenditure incurred by
the Company. It may be noted this ratio was less than one for the PSEB. It
shows that there was a gap revenue gap. The average cost of supply was
higher than the average revenue realised. A comparison of average cost of
supply and average revenue realised is presented in Table 4.6.
Table 4.6: Revenue Gap and Cost Recovery Ratio from Sale of Energy
Year
Average
cost
Average Revenue
(with subsidy)
Revenue
Gap
Cost Recovery
Ratio
1990-91 107 55 52 51
1994-95 155 108 47 70
1997-98 243 146 97 60
1999-00 245 161 84 66
2003-04 294 255 39 87
2004-05 357 203 154 57
2005-06 247 205 42 83
2006-07 285 201 84 71
2007-08 305 201 104 66
2008-09 313 232 81 74
2009-10 332 223 109 67
Source: Planning Commission, Oct. 2002
PSEB, Electricity Statistics (various financial years)
PSERC, Tariff Order (various financial years)
112
It may be noted from the Table 4.6 that average cost of supply has
been increasing at a rapid growth rate. It increased from 107 paise per unit in
1990-91 to 245 paise per unit in 1999-00 and 332 paise per unit in 2009-10.
At the same time period, the average tariff increased from 55 paise per unit
in 1990-91 to 161 paise per unit in 1999-00 and 223 paise per unit in 2009-
10. However, the gap between average tariff and average cost has been
showing an increasing trend. The reported gap was highest in 2004-05. It
indicates that losses were increasing on the sale of every unit of electricity.
Under these conditions, it becomes very crucial to examine how far the
PSEB could recover its average cost of supplying electricity. Average cost
of supply and average revenue realised are plotted in the Figure 4.2. Cost of
recovery from tariff increased from 51% in 1990-91 to 70% in 1994-95 but
again declined in 2004-05. We can state that average tariff (including the
subsidy received from the state government) did not increase at the same
rate at which average cost was increasing. The increasing gap has adversely
affected the financial viability of the power sector utilities in Punjab.
113
Figure 4.2: Average Revenue and Average Cost
0
100
200
300
400
1990-91 1994-95 1999-00 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
AC
AR
We can examine from the Figure 4.2 that the gap was highest in the
FY 2004-05. This highest gap was reported due to the rapid increase in
average cost of supplying power to consumers. The reported revenue gap
was lowest for the FY 2005-06. In subsequent years, one an average the
revenue gap has increased. Hence, we can say that the position of the utility
in revenue realization was very poor in the state. It shows that PSEB was
unable to recover its cost through tariff. It resulted in poor financial
performance of the PSEB. Over the years; the accumulated losses have
increased manifolds. Hence the Distribution Company (PPDCL) should
undertake some effective remedial measures to increase the average revenue
realisation from consumers. It should also take steps to cut down the
avoidable & wasteful expenses.
Further, the cost recovery of the system is not homogeneous across
various consumer categories. The average tariff applicable to various
consumer categories differs widely. The tariff payable by domestic and
114
agricultural consumer was very low. These consumer categories are charged
below than average cost incurred for supplying electricity to them. A details
of average revenue realised from various consumers is given in the Table
4.7.
Table 4.7: Consumer Category wise Average Revenue Cost of Supply
(Paise Per unit)
Year Average Revenue Realised
Average
cost*
Domestic Agriculture Commercial Industrial
1991-92 87 10 161 104 94
1994-95 121 35 210 167 155
1997-98 149 00 294 252 243
1999-00 195 00 367 289 245
2003-04 266 57 451 371 294
2004-05 259 61 424 339 357
2005-06 283 28 451 373 247
2006-07 274 03 447 373 285
2007-08 253 02 431 368 305
2008-09 268 00 459 397 313
2009-10 293 00 493 431 332 Source Planning Commission Report on working of State Electricity Boards and
Electricity Departments (various years)
Report of the Power Finance Corporation (various years)
* Average cost refers to the average system cost which is assumed to be the same for all
consumer categories.
In 1991-92, the agriculture and domestic were charged only 10 paise
and 87 paise per unit respectively. While the average cost of supply was 94
paise per unit for these categories. On the other hand some consumer
categories such as commercial, industrial, etc. were paying comparatively
115
higher tariff. The tariff for commercial users was 161 paise per unit in 1991-
92. It shows there was high cross subsidisation in the power sector.
Industrial and Commercial consumers were required to generate surplus
revenue to cross-subsidise the agriculture sector.
It reveals that average revenue realised from commercial sector is
highest among all the categories of consumers for the FY 2009-10. Further,
the average revenue realised from this category is greater than average cost
of supply during the whole time period under consideration. At the same
time, industrial consumers have also been paying higher tariff than the
average cost of supply for the same time period. The average revenue
received from the domestic and agriculture consumers is lower than the
average cost of supply of the system. Hence, we can say that cost recovery
form commercial and industrial sector is above 100%. It may be noted that
cost recovery is different from the collection efficiency. Collection
efficiency only means the efficiency ensured in collecting the dues while the
cost recovery ratio represents the ratio average revenue realised from the
consumer category to the cost of supply applicable to that category.
However, in case of domestic and agriculture consumer categories, the cost
recovery ratios are less than 100%. The cost recovery ratios for various
consumer categories are presented in the Table 4.8.
116
Table 4.8: Consumer Category Wise Cost Recovery Ratio
Year Domestic Agriculture Commercial Industrial
1991-92 93% 11% 171% 111%
1994-95 78% 23% 135% 108%
1997-98 61% 0% 121% 104%
1999-00 80% 0% 150% 118%
2003-04 90% 19% 153% 126%
2004-05 73% 17% 119% 95%
2005-06 115% 11% 183% 151%
2006-07 96% 1% 157% 131%
2007-08 83% 1% 141% 121%
2008-09 86% 0% 147% 127%
2009-10 88% 0% 148% 130%
Source: Planning Commission Report (2002)
Tariff Orders of PSERC (From FY 2001-02 to FY 2011-12)
It may be observed from the Table 4.8 that cost recovery ratio for the
commercial consumer category was the highest across the years. The
recovery ratio of the industrial sector was lower than the commercial sector.
It may be noted that actual average cost of electricity supply to the industrial
sector is less than that of other consumer categories. Most of the industries
117
receive the energy at a higher voltage level which is also called high tension
(HT) voltage. Technically, the cost of supply at HT voltage is less than the
cost of receiving supply at a Low Tension (LT) line. So, effectively the
industrial as well as commercial consumer categories were generating
surplus revenue to cross-subsidise the agricultural and domestic consumer
categories. The cost recovery ratio was less than 100% for domestic
categories for this period except the FY 2005-06
It implies that the average cost was not being fully recovered from the
domestic consumer category. There were high fluctuations in the cost
recovery ratios for domestic sector during across various financial years.
The average recovery for agriculture sector has been at the lowest
level among various consumer categories. About one third of the total
electricity sold is consumed by the agriculture sector. The farmers have been
receiving power free of cost.
Issues in Subsidy and Cross Subsidy
As was stated in pervious section, the cost recovery from agriculture
sector was nil. This sector was getting a large amount of electricity subsidy
and has been enjoying free power supply since 1997-98. Thought the free
power was discontinued for some period (from FY 2003-04 to FY 2005-06),
however, it was restored w. e. f. April 1st 2006 (tariff Order 2006-07 issued
118
by PSERC, Table 5.7 of the Order). Free supply was highly criticised on
different platforms. During the Chief Ministers’s conference held in 1996, it
was concluded that no state would charge price less than Rs 0.50 per unit
from any category of the consumers. The main objective was to discourage
the high subsidisation existing in the sector. The state government has been
providing subsidy to compensate the losses incurred by utility. The details
on subsidy received from the state government are given in the Figure 4.3.
499 720
1313 14691737
28482602
3144
0
1000
2000
3000
4000
1990-91 1994-95 1998-99 2003-04 2006-07 2007-08 2008-09 2009-10
Figure 4.3: Subsidy Received from the Government (Rs Crore)
The Figure 4.3 highlights that the actual amount of agriculture subsidy
increased from Rs.499 crore in 1990-91 to Rs. 1313 crore in 1998-99 and
reached to Rs. 1773 crore in 2006-07. In 2006, the Government of Punjab
reintroduced free power supply to agriculture. Therefore, the amount
payable on account of subsidy to agriculture sector increased rapidly after
the FY 2006-07. The subsidy amount jumped to Rs. 3144 crore in 2009-10.
However, the subsidy paid by the state government was not adequate to
119
compensate the full cost of supply on account of free power supply to
agriculture sector.
Apart from the agriculture sector, the power supply to domestic
consumers was also being subsidised. Under some schemes such as Rajive
Gandhi Grameen Vidyutikaran Yojana (RRGVY) the small and Below
Poverty Line (BPL) households were being subsidised. Therefore, the state
government is required to compensate the Company on this account.
Subsidy made available to small and BPL consumer category is presented in
the Figure 4.4.
Figure 4.4: Subsidy Available for Domestic Consumers
45.3476.98
310
190.6
145.52
314.18
243
0
50
100
150
200
250
300
350
1990-91 1994-95 1997-98 1999-00 2003-04 2006-07 2008-09
It shows that amount of subsidy for domestic consumers increased
from Rs. 45.34 crore in 1990-91 to Rs. 310.75 crore in 1997-98. After that, it
120
reduced in 1999-00 and 2003-04. It again increased for the financial year
2006-07. So, it shows that the subsidy was made available on arbitrary basis.
The subsidy needs to be rationalised so that all consumers pay according to
cost of supply. Only genuine consumers should be provided subsidy.
Otherwise, the wastage of scare economic resource would be continuing at
the public cost.
Cross Subsidisation
PSEB like other SEBs, pursed the policy of cross subsidization to
generate the surplus revenue to compensate the losses on account of
subsidized electricity supply provided to agriculture and domestic
consumers. The average recovery of the cost was more than 100% for
commercial and industrial consumer categories. The amount of cross
subsidy generated by industrial and commercial users is presented in the
Figure 4.5.
121
Figure 4.5: Cross Subsidy Generated by Commercial and Industrial Sectors
-71.1
219.44
953.09
522.73
354.4
-200
0
200
400
600
800
1000
1200
1990-91 1997-98 2003-04 2006-07 2008-09
It is presented in the Figure 4.5 that in 1990-91 surplus generated by
commercial and industrial users was negative. In 1997-98 and 2003-04
surplus generated by commercial and industrial users is showing an
increasing trend. It was highest in 2003-04 but it declined in 2006-07 and
2008-09.
It showed that the level of net subsidy in Punjab has been very high.
The magnitude of subsidy has been increased after the reform process. It was
mainly because of two reasons. One, the total subsidy to domestic sector and
agriculture sector increased significantly during the post reforms period.
Two, after the enactment of the Electricity Act 2003, the scope for heavy
cross subsidisation has reduced. As per provisions of the Electricity Tariff
Policy, the regulatory commissions are required to eliminate the cross-
subsidisation from the sector. Consequently, the subsidy bill of the state
government has been increasing rapidly. The subsidy received as a
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percentage of total revenue received from sale of power has increased
rapidly.
Table 4.9 Share of Subsidy in Sale Revenue (Rs Crore)
Year
Subsidy received Percentage of sale revenue
2004-05 2285 15.78
2005-06 1436 22.24
2006-07 1424 20.94
2007-08 2848 37.15
2008-09 2602 29.84
2009-10 3144 37.71
Source: Report of the Power Finance Corporation on Performance of State
Power Utilities (2004-05 to 2009-10)
It is shown in the Table 4.9 there was an increasing trend of subsidy
received from the state government. The percentage share of subsidy in the
total sale of power has increased from 15% in 2004-05 to 38% in 2009-10.
So, it shows that the dependency on the subvention received from the state
government has increased substantially. It concludes that ability of the
distribution company to generate adequate revenue has declined. The high
dependency on the public exchequer for the purpose of meeting current
expenditure is not a good indicator of sound financial health of the
distribution company.
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Commercial losses without and with subsidy
Commercial losses may be defined as the gap between total revenue
received from sale of energy and total expenditure incurred by a utility in a
financial year. Total revenue includes the subvention given by the state
government in lieu of free power supply made available to agriculture
sector. Total expenditure includes operating expenses, payments towards
depreciation and interest payable to the state governments as well as
financial institutions. Table 4.10 presents the detail of commercial losses
without and with subsidy.
Table 4.10: Commercial Losses with and without subsidy
Year Losses without subsidy Losses with subsidy
1990-91 580 580
1995-96 644 644
1997-98 943 943
2002-03 2351 1636
2003-04 2478 1571
2004-05 2359 1403
2005-06 2224 1109
2008-09 3242 640
2009-10 2183 1585
Source: Planning Commission and PFC Reports for the respective years
Table 4.10 presents that commercial losses with subsidy have been
increased. However, commercial losses with subsidy are reported highest in
2002-03. For the FY 2009-10 the commercial losses with subsidy were
reported to be Rs. 1585 Crore in compassion to Rs. 2183 Cores as the losses
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without (excluding) subsidy paid by the government. It shows that net cash
transfers were inadequate to compensate the Distribution Company. So,
there is an urgent need to provide adequate attention to reduce the losses
increased by the utility.
We may conclude that the operational performance of the power
generation as well as distribution company of Punjab has improved
significantly. There was adequate progress in improving the Plant Load
Factor and reducing the energy losses. At the same time, recovery of dues
has also increased significantly and reported satisfactory in the recent years.
However, the financial performance of the power sector of Punjab was still
unsatisfactory. The utility was reporting huge commercial losses. The main
reason for poor financial performance is the lower tariff for domestic users
and free power supply for the farm sector. Moreover, the state government
was not paying adequate subsidy to compensate the utility on account of free
power supply to the agriculture sector. Hence, there is an urgent need to
rationalise the electricity tariff to improve the financial performance of the
power utility. The State Government should pay the promised subsidy by
making actual transfers of cash to the Company within the stipulated time
limits.