Banks are likely to push for a say in power tariff decisions of states that have signed up for the Centre-assisted financial restructuring plan (FRP) and those planning to join the bandwagon soon.
The move is prompted by a recent decision of the Haryana government, one of the four states that has formally embraced the FRP, to roll back the 13% tariff hike announced in April. According to the FRP scheme, operational losses of the discoms will be financed by the banks to the extent of 100% in 2012-13, 75% in 2013-14 and 50% in 2014-15.
The FRP requires state governments to take over 50% of discoms? outstanding short-term liabilities as at end-March 2012 through issuance of special securities in favour of lenders in a phased manner over two to five years and redeem these from 2018-19 onwards in annual installments over the next 10 years.
If the states fail to implement the reforms mandated under the FRP, they will have to take the hit in the form of higher budget subsidies.
While Rajasthan, Uttar Pradesh and Tamil Nadu are the other three states that have adopted FRP, another three ? Bihar, Jharkhand and Andhra Pradesh- are about to join soon.
According to sources, PSBs have upped the ante after Haryana’s virtual violation of the FRP conditions, fearing that similar populist moves by other states could upset their asset-liability calculation.
Haryana recently withdrew the 13% tariff hike made from April onwards for domestic consumers consuming up to 500 units per month, deviating from the terms and conditions of the FRP agreement between Haryana discoms, government and lenders lead by Oriental bank of Commerce.
The Haryana State Electricity Board?s financial restructuring plan (FRP) of Rs 15,000 crore of short-term liabilities (STLs) was approved by a consortium of 11 lenders with conditions to increase tariff every year, but CM Bhupinder Singh Hooda announced that the power prices for consumers will remain the same next year too.
“We have written to Haryana discoms to clarify if the revenue gap would be made up by state’s budgetary allocation. Naturally the gap would have to be covered by the state but we have written to sensitivise the issue,” said SL Bansal, CMD of OBC, the lead bank for Haryana discoms.
Bansal also added that they will assess the whole issue in a meeting with the 11-bank consortium soon. The Haryana discoms have a projected revenue gap of over Rs 2,200 crore in FY15.
One of the two discoms in Haryana, UHBVN, has asked for tariff hikes in FY16 and FY17 to help meet the parameters of FRP but the Hooda government has so far been non-committal.
“If more FRPs are signed in the future, the bankers should assure that view of the lenders is taken before slashing prices so that we can assess the viability and impact of such a move,” Shubhalakshmi Panse, CMD of Allahabad Bank, said, adding banks should have the final say on allowing such a move.
Punjab National Bank CMD K R Kamath said, “If the states do not stick to the terms and conditions, the Centre will have to either make them behave or ensure that we don’t suffer.”
He added that it must also be noted that the package is not just bank-focussed and is meant to reform the power sector by bringing down transmission losses and tariff hikes.
Kamath said there is already a review mechanism at the Central level for any violation of the FRP norms, adding such issues should be addressed in that forum.
The bankers also said that they do not have any board representation in the restructured discoms and they would not push for it as a single-board position would not address their problems. Banks have agreed to restructure short-term liabilities (STLs) worth Rs 1 lakh crore of four state electricity boards (SEBs) ? Rajasthan, Tamil Nadu, Uttar Pradesh and Haryana.
These states, along with Punjab and Madhya Pradesh, account for 70% of the total package envisaged of Rs 1.9-lakh crore worth losses restructuring. Punjab, which has STLs of Rs 12,000 crore, and Madhya Pradesh, which has STLs of Rs 1,100 crore, have not agreed to join the restructuring programme.