SEBs to curtail short-term power purchase upto 10%

Under debt restructuring plan, costly power buy to be reduced yearly taking 2011-12 as reference year

The State Electricity Boards (SEBs) debt restructuring plan, approved by the cabinet, has fixed a targeted framework for reduction of short-term power purchases.

According to the plan, which has been made part of the whole exercise at the insistence of finance ministry, SEBs taking part in the restructuring will have to cut down their short-term power purchases by 5-10% every year, taking 2011-12 as the reference year.

A senior finance ministry official told Business Standard that short-term power purchase was being seen as one of the major reasons behind the deterioration of financial health of the SEBs. Hence, the power ministry agreed for the introduction of a framework for capping it.

The mandatory requirement of a planned reduction in the short-term power purchases will force the SEBs to do long-term planning, which will help them improve their financial health, pointed out a power ministry official.

“All the SEBs should do long-term power procurement planning as it is considerably cheaper as compared to the short-term power purchases,” he added.

The official added that short-term power bought by the SEBs during the three years (2007-2009) added substantial burden on the SEBs, leading to the current situation.

The power ministry, he stressed, had already taken steps to deal with the problem by issuing instructions last year, authorising the concerned state power regulators to put a cap on short-term power purchases by the SEB.

The ministry has also issued short-term procurement guidelines recently.

Besides the target for short-term power purchase, the state governments opting for the SEB restructuring plan will also have clear the pending bills of SEBs and subsidy dues first.

The cabinet committee on economic affairs (CCEA) cleared the financial restructuring plan on September 25 in an attempt to restore power purchasing capacity of the debt ridden state distribution companies (DISCOMS) and also to enable banks to recover their loans.

The scheme will remain open upto December 31 this year unless extended by the central government.

The accumulated losses of the state power distribution companies (DISCOMS) are estimated to be about Rs 1.9 lakh crore as on March 31, 2011.

Under the financial restructuring plan, 50% of the outstanding short term liabilities upto March 31, 2012 will be taken over by the state governments, which will be first converted into bonds to be issued by DISCOMS to participating lenders -- duly backed by state government guarantee.

The takeover of liability by the state government from DISCOMS in the next 2-5 years by way of special securities and repayment and interest payment will be done by state governments.

The balance 50% short term loan would be restructured by rescheduling loans and providing moratorium on principal by the banks.

The restructuring and rescheduling of loan has to be accompanied by concrete and measurable action by the DISCOMS and the states to improve the operational performance of the distribution utilities.