Rajasthan model for power discoms' debt recast

Hard bargain includes regular rate rises, bank escrow a/cs, cash flow for repayment, transmission loss targets & govt guarantees

Banks are to use the hard bargain they drove to recast debt worth Rs 35,000 crore of Rajasthan state power distribution companies (discoms) as a framework to negotiate terms with financially weak discoms in other states.

Banks have the finance ministry’s blessings to deal with other cases on the basis of the Rajasthan model, said a Central Bank of India official.

Short-term loans due for payment after October 2011 have been restructured for the Rajasthan distribution companies, in the fourth quarter of 2011-12.

The moratorium for principal payment is till October 2013. These loans are to be repaid in three years. Companies will continue to pay monthly interest instalments.

DEBT DEAL
Key features of the debt restructuring pact 

* Banks to ensure value of loans protected

* Discoms agree to 100-150 basis point hike in interest rate

* Get two-year holiday to pay principal, three more years to pay loans

* Periodic review of tariff by discoms under regulation

* No more bank finance to fund discoms’ losses

* State government to make prompt payment for subsidy and pay for outstanding losses

The rise in interest rate under revised terms for loans is not uniform across lenders.

The extent of increase is 100-150 basis points.

Prior to restructuring, the rate was between 11 and 12.5 per cent. After recast, it was 12-13.5 per cent.

The rates were raised to protect the net present value of loans. Banks do not lose out on account of the recast, a bank official said.

A senior official with the Rajasthan state power department said this will ease the pressure on balance sheets.

They will not be required to take loans for repayment.

With improvement in working practices, sale of surplus power and debt recast, the entities expect to break even in three years.

At present, escrow accounts for the Rajasthan discoms are with State Bank of Bikaner and Jaipur – it has an extensive branch network, being a local bank. Now, three lead banks — Central Bank, Bank of Baroda and Punjab National — are working out an escrow account mechanism. This will ensure that cash flows get used for repayments.

The Rajasthan government’s guarantees are in place for revised loans.

As a step to reduce the burden and improve finances, power rates were raised by 25 per cent in 2011 and the discoms have filed a proposal to raise these further, by about 21 per cent, this year.

The power rate subsidies will be paid on an actual basis.

Power distribution losses are to be brought down to 15 per cent in two to three years from 19 per cent now.

They were around 41 per cent five years before.

A CRISIL Infrastructure Advisory study shows aggregate accumulated losses of Indian utilities were estimated at Rs 2,00,000 crore as at the end of March 2012.

About three-fourths of these losses were incurred over the past five years and these were funded mainly by borrowings from banks and financial institutions.