KSEB bats for higher return on equity

THIRUVANANTHAPURAM: KSEB Limited has petitioned the Electricity Regulatory Commission seeking a higher return of equity from the state government to ensure sufficient cash flow to the pension 'Master Trust'. The Commission has allowed a RoE of 14 per cent, but KSEBL wants 15.5 per cent, the minimum rate allowed by the Central Electricity Regulatory Commission. KSEB has raised two major arguments: firstly, pension liabilities have never been included in the employee costs, therefore it is always kept outside the annual revenue requirements of KSEB, and secondly, the liability has swelled by over Rs 3500 crore in a span of nearly years. 

It was in January 2015 that a Master Trust was formed to take over the accumulated unfunded pension liabilities till October 31, 2013. With this, terminal benefits were delinked from KSEB's employee costs. Even earlier, there was no proper funding arrangement for terminal benefits. 

The net present value of the unfunded terminal liability on October 31, 2013, was Rs 12419 crore. In the valuation done on March 31, 2017, the liabilities have gone up by over Rs 3500 crore. This liability has to be shared by the state government and KSEB Limited. KSEB Limited will issue two series of bonds to the 'master trust'. The present rate on equity, KSEBL argues, will not be enough to meet the enhanced liability. (RoE is the amount of net income ploughed back into the KSEB as a percentage of shareholders equity.)

The state government will meet Rs 5861 crore of this liability over a period of 10 years at nine per cent interest. KSEBL's share of the burden will be Rs 8144 Cr, which will be met over a period of 20 years at 10 per cent at an interest of 10 percent. "The practice followed in the past resulted in the non-creation of pension fund and consequent under charging of expenses in respective years," a top KSEBL official said. "Had there been a funding arrangement, expenses- both under employee cost as well as under fixed assets through capitalization of expenses- would have been reflected in accounts, and KSEBL would have received depreciation for these assets," the official added. 

In other words, the value of past assets had been understated and the consumers of KSEB were the ultimate beneficiary of such reduced costs. What's more, the Commission has barred the public utility from raising the tariff to meet pension liabilities. "This makes it all the more important that KSEB's return on equity share is raised," the official said.