Uttar Pradesh govt to bail out loss-making utility

The Uttar Pradesh government has provided a bailout package for the loss-making power distribution utility Uttar Pradesh Power Corporation, by agreeing to offer a guarantee for raising Rs 1,400 crore from the Power Finance Corporation, banks and other financial institutions.

The power utility requires money for meeting its working capital requirements, as its annual loss for the financial year 2005-06 is expected to exceed Rs 3,000 crore, the highest since its inception in January 2000.

The PSU power utility intends to raise Rs 400 crore from the Power Finance Corporation, and the remaining Rs 1,000 crore from banks, against the guarantee provided by the state government. The state government has also agreed to offer financial assistance to UPPCL for repaying the interest and principal of the loan, by making a provision of Rs 200 crore in the 2006-07 Budget, to be presented shortly in the assembly.

Interestingly the state government had declined a similar facility to the Uttar Pradesh Thermal Power Generation Corporation. The power generation utility had petitioned the state government in June 2005, asking for a guarantee to raise a loan of Rs 850 crore from PFC for the One Time Settlement (OTS) of outstanding loans of LIC worth Rs 2,203 crore.

The utility had approached the Power Finance Corporation and Housing and Urban Development Corporation for the loan. Both FIs were willing to lend provided the UP government offered the counter guarantee. The issue remains undecided.

"Our actual requirement is at least Rs 2,500 crore, as the company is incurring huge losses. So we had requested the government to either provide special assistance or help us raise money from the market'', said SK Agarwal, director (finance) of UPPCL.

Defending the immediate need for working capital, the UPPCL official said the utility was procuring power from other states and the regional grid at more than Rs 4 per unit, for meeting the demand in NOIDA, Greater NOIDA and Lucknow, where power demand was growing at the rate of 10 per cent per annum against 2-3 per cent in the rest of the state.