The Hindu Business Line : TN `lags in commercial viability' in power sector

TAMIL Nadu, which has been ranked fifth in a performance rating of the power sector in all the States, fares poorly when it comes to progress in attaining commercial viability of the sector.

The rating exercise carried out by ICRA and Crisil for the Union Power Ministry considered six parameters — State Government related parameters, SERC (State electricity regulatory commission) related parameters, business risk analysis consisting of generation and transmission and distribution, financial risk analysis, others and progress in attaining commercial viability — and gave each of them a maximum score possible, all adding up to 100.

Tamil Nadu, which scored 50.94, has done reasonably well in all parameters except the one related to "progress in attaining commercial viability," an analysis of the performance rating exercise shows.

Against a possible maximum score of 16 under this head, it has been assigned 4.20. Overall, Andhra Pradesh stands first with a score of 57.03, followed by Gujarat with 53.61, Delhi 51.91 and Karnataka 51.46.

Andhra Pradesh has been assigned a score of 3.20 for commercial viability, Gujarat 4.20, Karnataka 4.60 and Delhi no score at all.

According to the performance rating, Tamil Nadu scored 6.21 out of a maximum of 17 on State Government related parameters, 8.75 out of 15 on SERC related issues, 16.90 out of 27 for business risk analysis (4 out of 6 for generation and 12.90 out of 21 for transmission and distribution), 11.63 out of 20 for financial risk analysis and 3.25 out of 5 under the head "others."

The performance rating of the electricity boards and utilities in the States has become an annual exercise carried out on behalf of the Union Power Ministry. The initial report, which was finalised based on the information available till August 2002, was released in January 2003. The first review based on data available till mid August 2003 was released in January 2004. The present report is a second review exercise based on data available till end December 2004.

This time, the rating agencies have made a few changes in the parameters used for the rating exercise when compared to the first review exercise. The changes include an evaluation of the efforts made by the States in implementing the Electricity Act 2003 towards attaining commercial viability and a more stringent scoring framework for assessing the coverage of costs from own revenues.

The rating exercise identifies Tamil Nadu's strengths as significant capacity addition, completion of inter-face metering, low distribution transformer failure rate, timely debt servicing of loans and sound operating performance of thermal plants.

Its weaknesses are: free power to agriculture consumers expected to impact commercial viability; significant accumulated financial losses; limited financial support from the State Government; regulatory process needs to be strengthened in terms of timely filing for meeting revenue gap (either through subsidy or tariff hike); regulation should adopt multi-year framework for tariff setting; energy audit needs to be adopted on a continuous basis; aggregate technical and commercial losses at 23.6 per cent on the higher side; and pension liabilities not quantified and are being met as part of revenue expense.

The study says that the Tamil Nadu Electricity Board has been incurring losses and has accumulated losses of Rs 2,642 crore as at March 31, 2004. The losses incurred by TNEB would have to be reduced significantly for it to turnaround. It has been in a revenue deficit in 2003-04, which has further added to the losses accumulated in the past. It should finalise its revenue application to the electricity regulatory commission much ahead of the financial year.

"In fact, it is imperative for the financial year 2005-06 as this would help in determining the subsidy payable by the Tamil Nadu Government for 2005-06," the study says and adds that the delay in filing the tariff petition is likely to delay the regulatory process for determining the revenues and expenses for 2005-06 and the means for meeting the gap. (The TNEB has so far not filed the tariff petition for the year and is unlikely to do so.)

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