The new policy, formulated by the state planning board, has been worked out in a manner such that the SEB would not only recover its costs but would also generate enough resources to repay its loans and contribute 20% of the cost of future projects.
The initial increase in average tariff is expected to be between 25 to 30 per cent. This will taper off and equal the tariff calculated on the basis of the Electricity Supply Act (which presently works to about Rs 1.25 per unit) in a time period of five years.
The tariff policy forms part of the reforms package to be adopted by the state whereby the state government would not dismantle the SEB but would only under in power tariffreforms.
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Currently, no state government has a cleare-cut policy for power tariffs at the distribution end and levy tariffs on an ad-hoc basis. Once this tariff policy is adopted. Kerala will become the first state with a firm policy for charging consumers as well as maintaining viability of the SEB.
One of the recommendations in the policy is deviation from the existing Electricity Supply Act which requires the tariff to be set in a manner so that the board recovers a minimum of 3% on its the next assets.
As part of the tariff policy, the SEB will have to convert part of its loans into equity - as part of its capital restructuring before it charges a return of 16%.
The rationale given for this move is based on tariffs to private power producers and a 16% return on equity. Besides, the process of capitalisation would reduce interest burden on the state electricity baord - which is a major cost component eating into their profitability.
As per the tariff policy, the 20 per cent revenue generated towards expansion programmes of the SEB would not be included in the calculation of the board's profitability.