Two state discoms issue Rs 16,000-cr bonds under restructuring package

3 more to follow; two ineligible states also plead for inclusion in the scheme

Within a year of the Centre’s ambitious Financial Restructuring Package (FRP) for bleeding state utilities, the power distribution companies (discoms) of two states have issued Rs 16,000 crore worth of bonds under the scheme. Despite being technically ineligible, two other states are pleading for their inclusion in FRP.

The Rs 1.9-lakh-crore debt recast package, launched on 24 September, 2012, aims at bailing out financially-ill discoms and ushering in long-pending reforms in the power sector. Under the scheme, discoms are to issue bonds that are backed by a state government guarantee for half of the short-term liabilities. The other half of the discoms’ liabilities are to be restructured by providing a three-year moratorium on principal amount and best-possible terms for repayment.

“Two states have already issued bonds,” a senior executive from one of the three Rajasthan discoms told Business Standard. “These include Rajasthan and Tamil Nadu. Three more states, Uttar Pradesh, Haryana and Himachal Pradesh, are ready to issue bonds soon.”

He also confirmed his company has issued bonds of Rs 10,000 crore in the first phase last week. “We have to issue bonds for a total of over Rs 18,000 crore,” he said.

Seven major defaulting states have a total outstanding liability of Rs 1.2 lakh crore, accounting for a bulk of the total. About half of this or Rs 59,813 crore was to be taken over by state governments through bonds. This includes Tamil Nadu’s Rs 9,573 crore, Rajasthan’s Rs 18,000 crore, Uttar Pradesh’s Rs 12,967 crore, Haryana’s Rs 7,859 crore, Punjab’s Rs 5,823 crore, Andhra Pradesh’s Rs 3,151 crore and Madhya Pradesh’s Rs 585 crore.

Of these, Tamil Nadu has already issued bonds of Rs 6,144 crore and Rajasthan has now issued bonds of Rs 10,000 crore. Uttar Pradesh and Haryana are likely to issue bonds soon. While Andhra Pradesh is preparing to fall in line, Punjab and Madhya Pradesh have opted out of the scheme. Punjab had reservations on the privatisation conditions attached with FRP, while Madhya Pradesh declined to accept the scheme arguing its losses were insignificant.

Although technically ineligible, two states — Kerala and Delhi — also have requested the power ministry for their inclusion. While the FRP insists on unbundling as a pre-condition for assistance under the scheme, Kerala is yet to completely segregate generation, transmission and distribution functions. However, the state insists it has incorporated Kerala State Electricity Board and the assets and liabilities of the utility, currently with the state government, will soon be re-vested in the company.

“In the restructured format, generation, transmission and distribution functions shall be dealt under three different strategic business units,” Kerala power minister Aryadan Mohammed told Jyotiraditya Scindia, minister of state for power (independent charge) on Tuesday. “We humbly request that favourable decision may be taken to sanction our proposal for assistance under the FRP.”

He added that even now, annual revenue accounts are being submitted to the regulator from the three profit centres.

Delhi, too, is ineligible to adopt FRP, owing to the privatised nature of its power distribution business. However, Delhi power minister Haroon Yusuf told Scindia on Tuesday the national capital needs inclusion in FRP more than any other state. “We have regulatory assets of Rs 12,000 crore with discoms, creating a cascading effect on payment of dues to generation and transmission companies. This could soon put the entire power sector in Delhi in jeopardy,” said Yusuf.

With cash flow from banks to this sector drying up, the state is not left with funds to upgrade network, he added.

 

The scheme has already started bringing reforms on the ground. Consider the case of Rajasthan – the state with accumulated losses of Rs 50,000 crore, highest among all the states. In order to avail FRP benefits, the state has finalized audited accounts for discoms for both 2011-12 and 2012-13 financial years; tariff petition for 2013-14 has been filed; discoms have implemented the new tariff order of June this year; line losses have been minimized to a record low of 19% last fiscal; the gap between Annual Cost of Supply (ACS) and Annual revenue Requirement (ARR) will be eliminated by 15 September; and the state is on track to reduce short-term power purchase by 5-10%. In addition, all the consumers in the state, barring 1.5 lakh agricultural consumers, are metered.