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Power discoms' Rs 1.2-lakh-cr debt rejig plan getting finalised

Revenue stream map for 5 yrs to be cleared by regulator incentives to states for faster implementation

Santosh Tiwari  |  New Delhi 

The debt restructuring plan being prepared by the Union government for power distribution companies (discoms) in seven states will involve a total of Rs 1.2 lakh crore in short-term labilities.

A senior power ministry official told Business Standard the Financial Restructuring Plan (FRP) of each must show how the revenue stream would move over the next three to five years. And, this FRP would have to also get cleared by the respective electricity regulatory authorities. State governments concerned, said the official, would not recover any loan given to the discoms in question till they start showing profits.

The plan is being put in place by the finance ministry, in consultation with the power ministry. The states covered are going to be Uttar Pradesh, Punjab, Rajasthan, Haryana, Andhra Pradesh, Tamil Nadu and Madhya Pradesh.

The Plan
Rs 1,20,000 crore discoms’ short-term debt restructuring in 7 states
Rs 60,000 crore through bonds
Rs 60,000-crore payments to be rescheduled by banks
Mandatory conditions
  • Discoms to get approved financial restructuring plan with revenue streams for next 5 years
  • States not to recover loans from discoms till they start showing profits
Incentive for states
  • Centre to reimburse 25 per cent of principal of bonds to complying states
  • Matching grant to states for reducing T&D losses beyond target

Of the Rs 1,20,000 crore in question, half is proposed to be tackled through bonds. The discoms would first issue bonds backed by a state guarantee. Subsequently, the states will take on the liability of these bonds, on a given schedule, on the basis of the fiscal space permitted by their respective Fiscal Responsibility and Budget Management targets. Interest servicing of the bonds will be done by the states from the outset.

The remaining Rs 60,000 crore of debt liability would be rescheduled by banks and financial institutions. There would be a moratorium of three years for payment of the principal amount but the discoms will have to pay interest.

To ensure the states doing all these are not overly burdened, a transition finance mechanism is proposed. A matching grant would be given to states achieving a reduction in transmission and distribution losses over and above the targeted level in three years. Further, states in which the discom’s FRP gets implemented fully would have a quarter of the bond’s principal amount reimbursed by the central government.

M Govinda Rao, member of the Prime Minister’s Economic Advisory Council, notes that state governments have been in the habit of leaving discoms to fend for themselves. “There are some states which have not given even the subsidies due to the discoms,” he said, and some had not allowed any increase in power rates for several years. Regulators had also ceased to be independent in many states.

“If you don’t address these problem, you can’t improve the situation just by giving a moratorium on the repayment of discoms’ debt. This will only postpone the financial sector’s problems,” he said.

He stressed that along with the moratorium, discoms should be allowed to realistically price their electricity and formulate an action plan for reducing transmission and distribution losses.

The official said the current plan had accommodated these elements as basic ingredients. As many as 19 states and Union Territories had already allowed the raising of rates in the current financial year till now, with Rajasthan and Uttar Pradesh also set to increase charges this month.

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First Published: Wed, July 18 2012. 00:59 IST