Gujarat Electricity Board in the black in FY06

AHMEDABAD: In an amazing turnaround story, the Gujarat Electricity Board (GEB) will return to the black in ‘05-06 with a cash profit of Rs 200 crore, lifting itself out of the muddle of a Rs 2,542 crore loss barely five years ago in ‘00-01.

“Almost everyone had given up. But we (the state government) decided to carry out a major restructuring that included unheard of strategies — unbundling the board, renogotiating power purchase agreements, reducing interest rates on loans and even experimenting with the quality of fuel. We did everything. Now the results are there to see,” Saurabh Patel, minister of state for energy and petrochemicals, told ET.

What’s more important is that this feat was achieved without raising power tariffs and in spite of a significant increase in the cost of railway freight, coal and gas prices. GEB followed a simple principle: Increase revenues and reduce expenditure.

But first, GEB decided to renegotiated the power purchase agreements (PPAs) with independent power producers (IPPs). In ‘03-04, it began renegotiations with the four IPPs — Essar Power, Gujarat Paguthane, GIPCL and GSEG, the latter two being state-owned companies. The result was a Rs 495 crore saving in payments to IPPs in ‘04-05.

After further negotiations it managed to get a further reduction of Rs 64 crore in the first half of ‘05-06, leading to a total annual saving of Rs 559 crore on this front.

“As GEB’s dues to the IPPs had piled up to a staggering Rs 1,200-1,300 crore in ‘03-04, we asked them to work out a compromise solution otherwise they would have to close operations as GEB would become sick. Today, after effecting the renegotiation of PPAs all of GEB’s dues have been paid-up and there are no outstandings,” said Mr Patel.

Along with renegotiation of PPAs, GEB worked with lenders to get a reduction on interest costs. Loans worth Rs 4,130 crore were restructured and the interest rate was brought down from 9.51% in ‘03-04 to 8.6% in December ‘05, leading to an annual saving of Rs 270 crore on interest payments.

Transmission and distribution (T&D) losses, a very sensitive political matter, was addressed sternly with a focus on clamping down on large-scale thefts from the power grid. The T&D losses have been brought down from 36% in FY03 to about 26% now. “We have not entertained any calls from even party members and given GEB a free hand to unearth and disconnect all unofficial connections in the state,” said the minister.

GEB focused on reducing input costs by achieved a saving of Rs 136 crore by using washed coal and another Rs 20 crore by importing coal from Indonesia. While the hikes in railway freight, coal and gas prices have increased its costs by Rs 500 crore per annum, it has effected a Rs 207 crore through savings in fuel cost.

GEB earned incentives worth Rs 312 crore from central PSUs like NTPC for timely payment of power purchase bills. GEB’s revenues grew by Rs 786 crore in FY04, another Rs 1,029 crore the year after and a further Rs 1,300 crore increase in ‘05-06.

As per a Central Electricity Authority (CEA) report, the per capita consumption of power in Gujarat at 1,321 units in ‘04-05, which is double that of the national average of 606 units. It increased revenues by getting more villages electrified and raising supplies to industrial units.

GEB was amongst the first state owned power companies to unbundle the board into seven separate entities by segregating generation, transmission and distribution. “We were able to complete this process without facing any strike from workers unlike some of the other states,” claimed Mr Patel.