the Story of Power



  • Predominantly private sector owned (60%) at the time of independence
  • Today, 79% of the installed capacity is in the public sector
    • –32% central sector
    • –47% state sector
  • Private sector is limited to 12%
Performance of the State Electricity Boards (SEBS)
  • SEBs were expected to give a return of 3% on their net assets
  • SEBs would be professionally run by competent personnel
  • SEBs would not be interfered with
  • Poor returns were attributed to costs incurred for electrification of rural areas – report in 1964
Politics & Power
  • Green revolution had a direct bearing on the financial performance of the SEBs
  • It demanded high doses of inputs of fertilizers and water which meant more demand for electricity
  • Green revolution significantly increased the profits early on
  • This translated into vote banks
  • This was the trigger for the correlation between power sector and politics
–Free or subsidized electricity were announced
–This impacted the financial position of the SEBs
–Subsidies announced by the State Govts were not necessarily paid
–Farmers were offered electricity at flat rates based on pump capacity rather than by the usage
–Flat rates indirectly led to de-meterization
–Also led to negative spill over effect on the overall management practices of the SEBs
–The SEBs started to attribute all losses to agriculture as it could not be measured
–While there were well-off-farmers who misused the subsidies, farmers in general were willing to pay the tariff in return for good quality power
–It’s estimated that about 30 to 40% of consumption shown against the agricultural sector is an overestimate
–This masked other kinds of losses in the industry which happened  because of the nexus between ground staff of SEBs and errant customers
SEBs Losses
  • High degree of commercial losses i.e. theft
  • Direct tapping from distribution lines, tampering with the meter
  • Increased subsidies
  • States never paid adding on to the increasing debts
  • No investment to improve the infrastructure, especially distribution
    • –Outdated and Out of synch with the growing demand
  • All this meant SEBs had reached the absolute dead-ends by the 1980s
Power Sector Reforms
1991 1998 2003
1 Encourage the entry of privately owned generators Set up of Central Electricity Regulatory Commission Unbundling of SEBs – separate into entities of generation, transmission & distribution
2 Transmission sector was opened for private investments Empower states to setup their own state commissions
3 Private investors were offered a guaranteed 16% return in equity with a full five year tax holiday Regulatory commissions was to ensure that tariffs were determined according to economic principles and entire process be from political interference
4 The required debt-equity ratio was kept at 4:1 Govt to be a facilitator and catalyst to lay down principles of policy
5 By 1995 there were about 189 offers to increase capacity by over 75 GW involving a total of $100 billion
Rural electrification
–As per 2001 census 5.93 lakh villages exists and out of which 83.7% of them have been electrified
–Totally electrified states
  • Andhra Pradesh
  • Goa
  • Delhi
  • Haryana
  • Kerala
  • Punjab
  • Tamil Nadu


Cost of power supply

  • O&M expenditure
  • Establishment & Administrative cost
  • Interest Payment liability
  • Depreciation
  • Fuel cost
  • Expenditure on power purchase
  • Increase in total cost of supply
–Rise in interest payments
–Administration expenses
–Power purchase

Cost of power (in paisa/kwh)


Number of consumers:


Commercial Profit Loss









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