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)