Special sops for discoms in 7 states on the cards

The government will formulate a special package for ailing electricity distribution companies in seven states that account for 70-80 per cent of the country’s energy consumption. These states include Rajasthan, Andhra Pradesh and Tamil Nadu.

A committee has been set up under the secretary, financial services, to devise a plan for this, according to a senior government official.

To bring power discoms out of losses, the government had already planned to allow them to issue bonds backed by state guarantees for about half of their loans, as part of a restructuring package.

These companies have accumulated losses because of high cost of power and non-revision of rates. The power ministry is finalising the package, expected to be put up before the Cabinet in one to two months.

The other half of the loans will be restructured by banks, extending the tenure for repayment and a possible moratorium on interest.

Meanwhile, the new committee will look into the most stressed discoms financially and the restructuring package might be formulated differently for these states.

Earlier, the power ministry had set up a committee under the chairmanship of Planning Commission member B K Chaturvedi. The committee also had an RBI deputy governor and state secretaries of Tamil Nadu, Rajasthan and Uttar Pradesh as members.

Discoms across the country are reeling under huge financial losses and debt, as lack of rate increases has widened the gap between actual cost and recovery cost. Another reason for the bad financial health of discoms is the non-receipt of subsidies from state governments.

A similar situation had happened in 2001-02, when a committee under Montek Singh Ahluwalia had worked out a bail-out package for utilities by issuing long-term bonds to be discharged by state governments.

Some experts believe if the government does not take continued action soon to improve the financial health of discoms, the situation that arose in 2001-02 may repeat itself.