Facing the spectre of another costly bailout of power distribution companies, some of which have started defaulting on payments to suppliers, the Centre has decided to take preemptive action.
It has set up a committee under the chairmanship of Planning Commission member (energy) BK Chaturvedi to suggest ways to improve the financial health of state-owned discoms.
The move takes into account the inability of the cash-strapped central government to provide another financial package for these companies, which were rescued from going bust barely a decade ago.
Chaturvedi told FE that the committee will take cognisance of facts compiled by the Shunglu panel which assessed the systemic issues impacting the discoms’ financials while making its recommendations.
?We will see things in totality and suggest ways to strengthen the financial health of these utilities (discoms),? he said. The Shunglu panel is expected to submit its final report by November 15.
Sources said the Reserve Bank of India deputy governor, banking and power secretaries and the State Bank of India chairman will be members of the committee.
Chief secretaries of states like Tamil Nadu and Uttar Pradesh whose discoms are reeling under losses are also among its members. It is expected to submit its report in six months.
The combined losses of state-owned discoms are estimated to have crossed R1 lakh crore.
In 2010-11 alone, these companies reported loss of R42,000 crore.
Tamil Nadu, Uttar Pradesh, Madhya Pradesh and Rajasthan have already approached the Centre to seek bailout packages for their discoms.
The Centre is expected to push states on power reforms in exchange for supporting their embattled discoms. While privatisation is not exactly on the agenda, it will, nevertheless, ask states to involve the private sector in power distribution, either through public-private partnerships (PPP) or a franchisee model to make the discoms financially viable. A model PPP document is being prepared by another panel led by Chaturvedi.?We have already circulated a draft model PPP for consultations,? Chaturvedi said.
While the franchisee model has helped reduce commercial losses of discoms in circles like Bhiwandi in Maharashtra and Agra in Uttar Pradesh, the PPP model in power distribution is yet to be tested in India.
Meanwhile, some creditors have restructured the short-term loans to discoms to ease their repayment burden and prevent loans from becoming non-performing assets.
?We did restructure some state electricity board loans into long-terms loans, which has ensured timely repayments,? said KR Kamath, CMD, Punjab National Bank. He said there is no cause of worry concerning the power sector loans as they are backed by government guarantees.
A senior banker at the Oriental Bank of Commerce said the Centre would nudge states to ensure repayments by discoms to the banks.
?The potential of loans turning bad is serious in Tamil Nadu, followed by states including Uttar Pradesh, Punjab, Rajasthan and Andhra Pradesh. There have already been some defaults in Tamil Nadu,? he said.