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MSEB: In dire straits - Views on News from Equitymaster
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  • Jan 12, 2001

    MSEB: In dire straits

    It is said that desperate situations need desperate solutions. The saying seems apt for the beleaguered Maharashtra State Electricity Board (MSEB). The board has decided to hike tariffs by 30% for power loom units and farmers. These sections have traditionally paid subsidised tariffs.

    The move comes at a time when the MSEB is facing a financial crunch. A large part of its financial woes are a result of decisions taken by the state government. It is a known fact that MSEB has to pay Enron promoted Dabhol Power Company over Rs 2 bn in dues. The state electricity board has voiced its concerns about the high cost it has to pay for the power produced by Enron. The state governmentís guarantee to off take 90% of what Enron produces, has run the electricity board dry. As a result, now the state government is dragging its feet on Phase-II of the Dabhol Power Project.

    It is estimated that MSEBís annual outgo post Dabhol-II would be a significant Rs 71 bn. Added to this, the electricity board will have to pay Rs 17 bn to Reliance Patalganga for purchase of 3,418 million units at Rs 4.89 per Kwh in 2004. Thatís not all. MSEB will also pay Rs 31 bn for purchase of 7,572 million units at Rs 4.12 per Kwh once the Bhadravati project goes on stream in 2006. Bottomline, by 2006, the financially strapped MSEB will have to shell out Rs 119 bn annually.

    But this is only a part of its problems. It is estimated that MSEB has to collect a whopping Rs 50 bn from defaulters. The agriculture and the power loom sectors owe a significant 12 bn to the MSEB. Ispat Industries owes it Rs 5 bn. It has to also collect Rs 3 bn from BSES and Tata Power as a result of the standby charges dispute.

    Though MSEB has hiked tariffs in a bid to tide over the financial crunch, how far it will be able to translate that into real earnings is a question mark (given its defaulter collection record). According to a leading financial daily, another interesting fact is that out of Maharashtraís 13 million consumers, around 11.5 million receive power at subsidised rates. To change the attitude of these sections of society who have for years paid for power at subsidised rates will be one of its hardest tests.

    But if the MSEB has to get itself out of the financial mess it is in, measures like these are required. Letís hope that the political parties donít seize this opportunity and raise voices against the hike to gain political mileage.



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