States get more time to join UDAY

According to the UDAY MoU, debt takeover by states during the first year of UDAY would not be counted in their fiscal limit

State governments are now allowed to subscribe to the Centre’s debt restructuring scheme for power distribution companies this financial year, too.

The Cabinet on Wednesday approved the extension of the Ujwal Discoms Assurance Yojana (UDAY), which earlier had a deadline of March 2016 — a scheme that envisages a slew measures to improve operational efficiency.

States that had signed up for the scheme were supposed to take over 50 per cent of the debt of the respective discom or distribution company by 2015-16 and the balance in 2016-17.

Those joining now can issue bonds against 50 per cent debt this year and carry forward 25 per cent debt to 2017-18.

Certain states that could not join UDAY because of elections or could not issue bonds due to market conditions had requested for an extension of the scheme. With the timeline extended, the states would take over 75 per cent of the discoms’ debts as on September 30, 2015, by March 31, 2017, by issuing bonds, said the government. According to the UDAY memorandum of understanding (MoU), the debt takeover by states during the first year of UDAY implementation would not be counted in their fiscal limit, thereby keeping the states within the FRBM Act  (Fiscal Responsibility and Budget Management Act)  limits. “The Cabinet accorded its approval for an extension of timeline for taking over 50 per cent of the outstanding debt of discoms, as existing on 30.09.2015, by states and borrowings by Jammu & Kashmir under UDAY. The time limits have now been extended by one year from the earlier stipulated date of 31st March, 2016,” said a statement by the government after the Cabinet decision.

UDAY is a restructuring plan of the NDA government to bail out financially and operationally beleaguered state-owned discoms. One of the first steps involves takeover of 75 per cent of the discom’s cumulative debt, 50 per cent by March 2016 and the balance by March next year.

States would issue development loans for this at prevailing market rates. The balance 25 per cent would be issued as sovereign backed bonds by discoms.

State-owned discoms cumulatively have to pay Rs 4 lakh crore. Nineteen states had given their consent to join the scheme. Rajasthan, Uttar Pradesh, Chhattisgarh, Jharkhand, Punjab, Bihar, Haryana, Gujarat, Uttarakhand and Jammu & Kashmir have already signed MoUs with the Centre. Bonds worth Rs 99,541 crore were floated by the participating states in 2015-16 to clear 50 per cent of the outstanding debt of the states and outstanding dues in Jharkhand and Jammu & Kashmir.