Energy reforms are gathering steam. Soon after the government pledge to overhaul fuel subsidies, the stalemate over the R1.9-lakh-crore debt restructuring scheme for state-run power distributors has ended. The Reserve Bank of India (RBI) has suggested suspension of ongoing bilateral schemes between the discoms in three states and their lenders, paving the way for their nullification and alignment with the Centre’s reform-linked scheme announced in September 2012.
Power distributors in Uttar Pradesh, Rajasthan and Haryana — which together account for 44% or R84,220 crore of outstanding liabilities of all discoms — had entered into bilateral debt recast schemes with lenders last year and the restructuring had just begun. Under RBI rules, if the failure of one debt recast programme is followed by another one, the assets must be declared as NPAs. The RBI wants to avoid this situation and so recommended suspension of the incipient restructuring without any definite reform obligation on the discoms, official sources told FE.
Meanwhile, the Uttar Pradesh Cabinet on Wednesday gave an in-principle approval for restructuring its bleeding power sector — the state’s discoms have accumulated losses of R42,700 crore — by agreeing to the Centre’s restructuring package. The package makes it mandatory for all loss-making discoms to agree to privatisation, annual increases in tariffs to bridge the gap between input cost and revenue realisation and cutting down AT&C losses. The state government will soon dispatch its acceptance letter to the Centre, an official source said in Lucknow.
According to finance ministry sources, the central bank recently said in an internal note that adopting the Centre’s package by states be treated an ‘alignment’ and not an exercise amounting to a ‘second restructuring’ of the debt of the discoms. “A major irritant has been removed. Now, it will be easier for us (the Centre) to implement debt restructuring,” a ministry official said.
As per the debt recast scheme mooted by the Centre, 50% of the outstanding liabilities of discoms up to March 31, 2012, must be taken over by state governments.
This would be converted into bonds to be issued by discoms to the lenders, duly packed by the state government's guarantee. The states will start feeling the pinch in 2013-14 when they start paying interest on the bonds. It is reckoned that the states will be able to afford the package.
The key difference between the Centre's package and the bilateral schemes entered into by the three states is