Concerned over the SEBs'whopping annual losses of Rs 40,000 crore (Rs 400 billion), the Economic Survey on Thursday asked the government to push for reforms and payment of user charges in the power sector stating that such improvement alone could boost economic growth by 1.5 per cent.

"Improvement in the power distribution area alone could account for over 1.5 per cent of GDP of the fiscal correction," the Survey tabled in Parliament said while emphasising the need for increased privatisation in the distribution sector.

Citing the example of privatisation of Delhi and Orissa distribution sector, the Survey hoped these companies would emulate the success of private sector distribution in Mumbai, Kolkata and Ahmedabad, but said, "The success would impinge upon effective enforcement of user charges."

The Survey, however, pointed out that once reforms in transmission and distribution were in place, it would not be difficult to elicit private investments in generation.

"The key bottleneck lies in the enforcement of user charges in distribution," the Survey said, adding if the power sector could work in a reliable manner, it would serve to increase the efficiency of capital utilisation."

The government has drawn up an ambitious programme to address the problems entailing new generation capacity of 1,00,000 MW (which would roughly double the existing generation capacity), and substantial investments in transmission and distribution.    According to the Survey, total fund requirement to achieve this would be Rs 8,00,000 crore (Rs 8,000 billion).

According to the Survey, the basic problem being faced by the power sector was the gap between user charges and the cost of supply. Despite reform efforts, the gap between the cost of supply and average tariff has actually worsened over the recent years, from a level of 23 paise in 1992-93 to about 110 paise (Rs 1.10) in 2001-02.   

"This suggests that as of yet, reforms in the functioning of SEBs have not yet yielded the desired results," the Survey pointed out.

In order to address the issues of outstanding dues of the stae electricity boards, an expert group was constituted under the chairmanship of Montek Singh Ahluwalia, the then member (energy), Planning Commission, to recommend a one-time settlement of dues payable by SEBs to central PSUs and dues from central PSUs to state utilities, the Survey said.

According to the scheme, this would facilitate the settlement of outstanding dues of Rs 41,852 crore (Rs 418.52 billion) of the SEBs payable to central PSUs as on September 30, 2001 after writing off Rs 9,610 crore (Rs 96.1 billion).

The government has also extended the Accelerated Power Development and Reform Programme, which has an outlay of Rs 3,500 crore (Rs 35 billion), and has been designed to assist reforms in the distribution sector.