Punjab, Madhya Pradesh opt out of discom debt recast

Punjab and Madhya Pradesh have declined to be a part of the Central government's ambitious debt recast plan for power distribution utilities.

The development is not a cause of worry as the two states do not have a major share in the overall accumulated losses of distribution companies (discoms), and three more states have agreed to join the initiative.

"The Madhya Pradesh government has said it does not require the financial restructuring package (FRP) as their losses are not huge," power secretary P Uma Shankar told Business Standard. "Punjab was asking for higher and upfront reimbursement of incentives, but the Cabinet-approved FRP scheme cannot be modified."

Shankar said Bihar, Jharkhand and Kerala had agreed to sign the debt restructuring plan.

Under the FRP for state-owned discoms, states are to take over 50 per cent of the outstanding short-term liabilities as on March 31, 2012. The Centre would provide as incentive 25 per cent capital reimbursement of principal repayment by a state on the liability taken over by it. Punjab had been asking for an increase in this incentive.

Once accepted by states, the Rs 1.9-lakh-crore recast package was expected to bail out financially-ill discoms and usher in long-pending reforms in the power sector. So far, eight states, including Tamil Nadu, Andhra Pradesh, Uttar Pradesh, Haryana and Rajasthan, have communicated their agreement on the terms and conditions of the FRP. These states account for a bulk of the accumulated losses.

They are ready to accept the terms and conditions of the plan, including a reduction of aggregate technical and commercial losses and timely tariff revisions.

States had overall losses of Rs 2.4 lakh crore accumulated over the past decade. The losses are the result of a gap between average revenue realisation and cost of supply. With input cost rising due to fuel charges and revenue coming under constraints due to stagnant tariffs, the gap rose from 76 paise in 1998-99 to 145 paise a unit in 2009-10. The combined debt of all discoms reached Rs 1.9 lakh crore in March 2012 as more and more distributors opted for loans to meet operational costs.