No easing of norms for debt recast of discoms: Centre

Jan 14 2013, 01:20 IST
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SummaryDespite the unwillingness of many states to bite the bullet on reforms so as to avail of the debt recast scheme for power distribution companies, the power ministry has ruled out relaxing the conditions.

Despite the unwillingness of many states to bite the bullet on reforms so as to avail of the debt recast scheme for power distribution companies, the power ministry has ruled out relaxing the conditions.

Sources said the ministry has made its stand clear in response to a recent request from the Punjab government seeking more sops for taking over the debts of its discoms. Punjab has asked for a doubling of the financial support promised by the Centre to take half of its discoms’ loans on its own balance sheet. Besides, it also sought upfront payment of the bailout funds from the Centre. “We will tell the state (Punjab) that its demand is not in line with the scheme approved by the cabinet,” P Uma Shankar told FE.

The R1.9-lakh-crore debt recast scheme approved by the Cabinet recently promises 25% capital reimbursement by the Centre after states take over half of the loans from their discoms by issuing special securities.

“The whole purpose of the scheme is to link incentives to discoms’ performance. If the incentive is paid upfront, it will defeat the very purpose of the scheme,” said Shubhranshu Patnaik, senior director, Deloitte Touche India.

Eight states including Uttar Pradesh, Rajasthan, Tamil Nadu and Karnataka have evinced interest in the debt recast facility. Apart from Punjab, no other state has sought any change in debt recast guidelines though progress in implementation of the scheme remains slow as states are yet to sign on the dotted line. So far, only Tamil Nadu has submitted a financial restructuring plan (FRP) for its discoms to the Centre.

Meanwhile, given the slow progress, the Centre has extended the deadline for availing the facility till March.

Some states have hired consultants to prepare FRPs for their discoms. But it is taking time since the proposal needs the approval of agencies like the state cabinet and the electricity regulator concerned, besides bankers.

The debt recast scheme offers incentives for both state governments and their discoms. While it promises capital reimbursement to state governments, cash incentives are on offer for discoms to encourage them to reduce their commercial losses. However, states like Punjab — where the agricultural sector accounts for a significant share of power consumption and free power to farmers are a drain on the government's finances — fear that they could fail to comply with the conditions binding discoms to financial prudence.

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