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The 1,90,000 crore debt restructuring plan to save the state electricity companies approved by the cabinet last month will have a minimal impact on the finances of the states, research agency India ratings has said.
“The agency is of the view that the financial restructuring plan is well thought out and takes into account the fiscal consolidation path suggested by the Thirteenth Finance Commission (TFC),” a statement from India ratings said.
As part of a scheme for the financial turnaround of Discoms approved by the Cabinet Committee on Economic Affairs (CCEA), state governments are to take over 50 percent of Discoms' short-term liabilities up to March 31, 2012.
This shall be first converted into bonds to be issued by Discoms to participating lenders, duly backed by State Governments' guarantee.
The balance 50 percent short term loans are to be restructured by rescheduling loans and providing moratorium on principal and at the best possible terms of interest.
“The impact of financial restructuring on state governments’ finances in FY13 (year end March) would be in the form of an increase in debt once they start taking over discoms’ 50 per cent short-term liabilities (STLs),” India ratings said, adding that actual impact of financial restructuring will vary depending upon states’ deficit, debt and economic profile.
“The major impact of debt restructuring on deficit would be felt only from FY14 when states would start making interest payment on the bonds issued by them in FY13,” it added.
“States are in a position to absorb the shocks of discoms debt restructuring; however, the growth cycle can derail the process. Discoms debt restructuring would have some adverse impact on two states — Haryana and Rajasthan,” said Devendra Kumar Pant, director and head public finance, India Ratings.
India Ratings expects interest burden on states’ finances to vary from 0.01% of GSDP for Madhya Pradesh to 0.13 per cent for Rajasthan.
Under the financial restructuring, seven states would issue special securities amounting to Rs 59,813 crore. The seven participating states are: Andhra Pradesh, Haryana, Madhya Pradesh, Punjab, Rajasthan, Tamil Nadu and Uttar Pradesh.
The heavily debt-laden State Electricity Boards (SEBs) had piled up losses of around Rs.190,000 crore at the end of fiscal 2010-2011.
Among others, Tamil Nadu had losses of Rs.40,183 crore as of March 31, 2011, followed by Rajasthan (Rs.37,200 crore), Uttar Pradesh (Rs.35,211 crore), Madhya Pradesh (Rs.11,491 crore), Punjab (Rs.11.363 crore) and Haryana (Rs.6,505 crore).