It?s a throwback to history for the power distribution sector where reforms are a non-starter. The Cabinet will take up a R1.9-lakh-crore debt recast plan for the ailing state-owned discoms on Tuesday in what could be the second such bailout for these entities in just over a decade.
Unable to revise tariffs in line with the cost of power, the state-owned firms have eroded their net worth.
?It (the debt recast plan) will help improve financial and operational performance of discoms by binding them to specific targets,? Union power secretary P Uma Shankar told FE, confirming that the plan will be reviewed by the Cabinet next week. States must commit to allow timely pass-through of fuel cost to help their discom match revenue and expenditure to be eligible for the package.
Sources said the new debt recast plan ?five times that of the one in 2001 ?will cover discoms? outstanding short-term loans as on March 31. Half of the discoms? outstanding short-term liabilities as on that date will be taken over by state governments. These will be converted into bonds to be issued by discoms to lenders, under state government guarantee, the sources said.
The state government will take over the liability during the next two to five years by issuing special securities to the lenders in a phased manner. This will be in keeping with the fiscal space available till the entire loan (50% of the short-term liabilities) is taken over.
The balance 50% of the short-term liabilities will be rescheduled by lenders and serviced by the discoms with a moratorium of three years on principal. Repayment of principal and interest will have to be fully secured by state government guarantee.
There is a rider: The loan obligation of any lender should not be financed by the discoms by taking a fresh loan from other lenders.
The restructuring and rescheduling of loan is to be accompanied by concrete and measurable action by discoms and states to improve the operational performance of discoms.
To avoid a repeat of the failure of the 2001 bailout package, stringent conditions on achieving financial viability of discoms and regulator monitoring mechanism to ensure compliance by states have been mooted, sources said.
It (the concept of transition financial restructuring) will help discoms cover their cash deficit till break-even takes place,? said Ashok Khurana, director general, association of power producers.
The loans provided by state financial agencies to discoms were estimated at R35,000 crore as on March 31, 2010.
The facility will be available to all loss-making discoms. It will open on the day the Cabinet approves the debt restructuring plan and close on December 31. State government will have to pay all outstanding electricity dues of various state departments and agencies as on March 31, 2012, to avail the debt recast facility.
According to the scheme, the state governments must also notify their discoms? tariff orders for the current year (2012-13) to qualify for the financial restructuring plan.
State governments will tell their electricity regulatory commissions to implement revised tariff with effect from April 1 every year so that the impact of tariff revision is fully realised during the financial year.