Centre To Float Tax-Free Bonds Worth Rs 10,000 Crore

The central government is likely to float tax-free bonds worth Rs 10,000 crore soon, as part of its efforts to securitise arrears of central power utilities from the state electricity boards (SEBs).

"We have finalised a proposal for creating a special purpose vehicle (SPV) for securitisation of dues. Through this we may issue bonds between Rs 8,000 crore to Rs 10,000 crore," said minister of state for power, Jayawantiben Mehta. Stating that the ministry had taken the consent from bout 14-15 defaulting states, Mehta said "The ministry will take the proposal to the union cabinet for clearance in the next few days.

The proposal for SPV was finalised after detailed discussions with the states, in the wake of union cabinet's earlier decision for securitisation of Rs 8,000 crore dues of central power and coal utilities. The cabinet had consented for securitisation of about Rs 8,000 crore through bonds including Rs 6,000 crore for power PSUs, guaranteed by states on behalf of SEBs.

Mehta said during the discussions with states, many had said that it would not be possible for them to float separate bonds. The talks would be completed at the central level with power ministry as nodal point with states paying back the money including through deduction from central assistance to them. The ministry had met with the concerned PSUs on August 29 in this connection, sources said, adding that SPV proposal was discussed there.

Mehta clarified that SPV proposal, related to only power PSUs, would be able to bring down dues from the high level of Rs 22,000 crore to Rs 12,000 crore.

Coal ministry is also expected to follow suit to work out a mechanism for partly clearing the SEB dues to central coal utilities, which are estimated around Rs 8,000 crore. Both National Thermal Power Corporation and National Hydro Electric Power Corporation would be the major beneficiaries of the SPV proposal, as they were saddled with most of the dues from SEBs.

About the mode of floatation of bonds, she said the details would be worked out after the consent of the cabinet for SPV, while adding that bonds would possibly be tax free to ensure better response from the market. However, it was not clear as to whether SPV would take a normal course of public floatation or mop up the funds through private placement route.

The ministry has also not yet chosen the financial consultant and the nodal agency for floatation of the bonds, but the exercise would be completed at the earliest to provide quick relief to power PSUs, so that they did not face fund constraints in their investment and expansion plans.

Asked about the remaining dues, she said "We are making a right beginning with the support of the states. After seeing results of this attempt, we will concentrate on the balance."