Sinking Fund To Recover Dues From Sebs, Ntpc

The Union government will set up a sinking fund _ to be kept out of the budget _ to recover outstandings to the tune of Rs 10,000 crore from state electricity boards (SEBs) due to public sector units like the National Thermal Power Corporation (NTPC).

The modalities of setting up the sinking fund _ akin to a redemption reserve _ will be finalised at a meeting next fortnight between representatives of the finance ministry and the Reserve Bank of India.

The creation of the fund, expenditure secretary C Ramachandran explained, would not entail any liability on the government. Said he: "We will provide a guarantee that states will meet their outstanding commitment due to the PSUs.

"This sovereign guarantee will help the PSU securitise the outstandings with banks and financial investors. The outstandings will be paid up by the states into the sinking fund or deducted from the states' share on central revenue."

The total outstanding amount will not get reflected in the budget, he added but admitting that the government would need to provide for the guaranteed amount in its books. Under the proposal, the Union government will set up sinking fund into which outstandings from the states would get deposited.

Investors in the securitised SEB outstandings will be allowed recourse to the sinking fund, which will grow over the years, only at when the bond or other securitised debt matures. "They (investors) will be able to redeem the securitised outstanding only at the end of the instrument tenure," explained a government source.

On a question as to whether PSUs like NTPC would have the `absorptive capacity' to utilise the funds released through securitisation of the SEB outstandings, Ramachandran said the feedback from the power PSU was that it could invest the funds in new projects.

He discounted the negative effect of the PSU having to pay for the interest on the securitisation transcation. "Look at it this way: on the one hand the company is not receiving any of the outstandings. By securitising the outstandings, it gets the present value of the funds upfront."