States are readying plans for reviving their power distribution utilities after the central government put the ball in their court. Officials said Rajasthan, whose power distribution utility had the highest debt exposure among all states, would be the first to sign up for the Centre's scheme.
The Union Cabinet on Thursday cleared the Ujjwal Discom Assurance Yojana to revive power distribution and provide relief to lenders. Distribution utilities owe a cumulative Rs 4.3 lakh crore to financial institutions.
The plan, designed by the Centre and open to all states, will be implemented through memoranda of understanding with state governments and distribution utilities.
Officials in the Uttar Pradesh government said it was ready to take over its distribution utilities' debt. "Instead of 75 per cent, the state government is ready to take over the entire debt of the distribution utilities. But we will request the Centre that interest and principal payment be kept out of the fiscal deficit calculations," Rahul Bhatnagar, principal secretary, department of finance, Uttar Pradesh, told Business Standard.
States have been asked to take over 75 per cent of the debt of their distribution utilities over the next two years. State can issue bonds against this debt. For the next two financial years, the central government will not include the debt taken over by the states in the calculation of their fiscal deficit.
ICRA in a report on Friday said the debt takeover was likely to translate into a Rs 46,000 crore savings in interest costs. This would translate into Rs 0.50 a unit (kilowatt per hour) lower cost of electricity supply nationwide by March 2018, it added.
"The model draft is prepared. As and when states come forth, the proposals will be customised to the financial condition of their distribution sector. This is a revival plan and not a financial package, so it will be different for every state. The debt amount, losses, and even the reform outlay will be distinct," said P K Pujari, secretary, Union power ministry.
Rajasthan has already initiated reforms through tariff hikes, technical improvements and creating a separate company for power distribution. State government officials said as the debt takeover would breach the fiscal deficit limit, the Centre should consider interest subvention or repay some part of the bond dividend.
Officials in Uttar Pradesh said an external monitoring agency would monitor the milestones set out in the memorandum of understanding. "This will help us take corrective measures and restructure power distribution according to the plan," said an official.
The scheme requires power distribution utilities to reduce their aggregate technical & commercial losses to 15 per cent by 2018-19. Other measures include improving last-mile distribution, comprehensive metering, a separate feed for agriculture and procuring power from cheaper sources. The difference between average revenue realisation and the average cost of procurement will have to be brought down to zero by 2018-19. The state electricity regulatory commissions will also conduct quarterly tariff revisions.