'Cabinet to take up power discom debt restructure in 3 weeks'

CAG report on irregularities in coal block allocations not to impact 12th Plan capacity addition target

After a slew of announcements to pep investment sentiment, the Union government is expected to come out with a debt-restructuring package for loss-making state power distribution companies by early next month. The power ministry has proposed about half of discoms’ debt be converted into bonds issued by state governments, while the rest will be restructured.

Discoms will get a three-year moratorium, during which they will not have to repay the principal amount on the loans taken.

The package is part of the power ministry’s proposal to restructure debt of about Rs 2 lakh crore of distribution utilities. Power Minister Veerappa Moily, however, on Tuesday clarified it would not be a bailout package but a move to make operations of distribution utilities sustainable and put them on sound track.

Further, discoms will have the flexibility to repay the entire debt within a longer period of seven years. In return, states will have to commit to undertake key power sector reforms, including change in management control of loss-making distribution circles. The package would also put in place a transitional finance scheme to incentivise states to increase rates. Uttar Pradesh, Rajasthan, Tamil Nadu and Madhya Pradesh have approached the Centre for bailout packages for their discoms for the second time in less than a decade.

Moily, who reviewed Maharashtra’s power sector at a meeting with state Chief Minister Prithviraj Chavan, told reporters the proposed restructuring would be based on 10 parameters, including performance, regular revision of rates and reduction of distribution losses.

“The power ministry has moved its note and the cabinet is likely to take it up in three weeks. Nearly 25 state utilities have revised their tariffs (rates), including Maharashtra. Besides, distribution utilities are also stepping up efforts to improve performance and collection efficiency. Maharashtra is one of the states which needs to be mentioned here, as its distribution utility has brought down distribution losses to 16.03 per cent from 29.6 per cent, while collection has soared to 97.2 per cent,” the minister noted.

Moily emphasised the need for distribution utilities to start functioning in a more viable manner.

As for the current controversy on coal block allocations, the minister said there would be no adverse impact on the proposed capacity addition of 84,000 Mw being proposed during the 12th five-year Plan. “Implementation of 80,000 Mw of power projects are under various stages, of which substantial addition will be done through coal-based projects for which allocation is not a problem,” the minister informed. He said cancellation of any coal block allocations would not have any impact on the proposed capacity addition.

However, Moily said, coal block allocation could be cancelled in the wake of non-compliance with competitive rate bidding processes.

On the general reluctance to provide open access to one-Mw and above consumers, Moily said states fear their cross-subsidy structure would collapse if these gates were opened.

“The issue has been discussed at length with states and power regulators also have been asked to look into the issue,” the minister said.