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 that the former involves sharing of the debt burden by the state governments as it is stipulated that they have to take over half of the outstanding short term liabilities of discoms as of March 31, 2012. Further, the Centre-sponsored scheme provides for performance-based incentives – something which was missing in bilateral deals struck by banks and discoms earlier. The bilateral schemes between discoms and lenders did not inspire much confidence because it was felt that discoms might not adhere to financial discipline to generate profits to be able to repay their loans.
An expert on the power sector said both the discoms concerned and banks will benefit from a switch to the Centre-approved Rs 1.9 lakh crore loan restructuring plan. “The central scheme will benefit discoms as well as banks as restructuring will have no meaning if not related to performance,” said RV Shahi, a former Union power secretary. Haryana, Rajasthan and Uttar Pradesh had bilaterally signed loan recast deals with the concerned lenders last year due to delay in finalisation of central scheme. Contractual terms with lenders were different in these deals.
A UP government official told FE that restructuring under the central scheme would span 10 years, involving a consortium of 21 banks. “The state government has agreed to take over and service 50% of the loan amount out of the state budget in the next 10 years and it will also raising money from investors in the form of bonds,” he said, adding that the package is linked to the commitment by the state that it would increase power tariff by 30 % in 2012-13 and 15% in the next two years, bring down ATC losses by 5% every year and increase revenue collection from 88% to 98%.
(With inputs from Noor Mohammad)