States need to accept revival plan for discoms: Ind-Ra

There is a need to take up the scheme to revive debt-ridden discoms by state governments which in turn would result in an annual interest saving to the tune of Rs 25,000 crore, Ind-Ra said today.
In a bid to rescue almost-bankrupt state utilities, the Cabinet had earlier approved a scheme to recast their Rs 4.3 lakh crore of debt, besides steps to cut power theft and align consumer tariff with cost of generating electricity.
"The state governments of stressed electricity distribution companies (discoms) need to come forward to accept the revival plan under Ujwal Discom Assurance Yojana (UDAY)," India Ratings and Research (Ind-Ra) said in a statement.

"Ind-Ra estimates the annual interest saving of Rs 25,000 crore by discoms, assuming 50 per cent of the Rs 4.3 lakh crore debt is restructured under this scheme," it said.
Additionally, discontinuing funding of the discoms' operating losses by the banking system will help avoid the debt trap, it had said.
The Union Cabinet, headed by Prime Minister Narendra Modi, had last week approved a scheme to ease the financial crunch of power discoms which has impaired their ability to buy electricity.

Power Minister Piyush Goyal had earlier said state governments, which own the discoms, can take over 75 per cent of their debt as of September 30 and pay back lenders by selling bonds.

For the remaining 25 per cent, discoms will issue bonds.
The central government will ease rules to allow the states participating in the scheme to borrow more and help ease the additional burden.
Ujwal Discom Assurance Yojna, or UDAY, provides "a permanent resolution of past as well as potential future issues of the sector" and empowers the utilities to break-even in next 2-3 years, he had said.
According to Ind-Ra, the participation in the UDAY scheme is optional and state governments have not yet indicated their stance since it would lead to the states assuming significant liabilities.
"This scheme offers the discoms a chance to break out of the decade-old vicious cycle of operational losses being funded by bank debt by transferring debt to state governments, reducing aggregate technical and commercial (AT&C) losses and lowering of the gap between average cost of supply and average revenue per unit," Ind-Ra said.

"Thus, the focus of the mission is on improving internal efficiencies of the discoms instead of passing on the inefficiencies to consumers by tariff hikes," Ind-Ra added.
Goyal had yesterday said the implementation of the revival package of the state-run discoms will result in total savings of nearly USD 30 billion by 2018-19.