Uttar Pradesh?s bleeding power sector can breathe a sigh of relief from the never-ending saga of resource crunch, pressure from financial institutions and day-to-day exercise of managing funds for virtually everything, thanks to the Centre?s approval in principle for a R15,000-crore financial restructuring plan spanned over a period of 10 years by a consortium of 21 banks, which would provide the loan amount over the next three years.

An official in the state energy department said that the consortium, led by PNB, will provide a loan of R3,800 crore in the first year, R7,000 crore in 2013-14 and R4000 crore in the third year (2014-15).

Talking to FE on the condition of anonymity, the official said, ?the state government shall take over and service the loan amount out of the state budget in the next 10 years.?

This package is linked to the decisive outcome of increasing power tariff by 30%, increasing revenue collection from 88% to 98% and bringing line losses down from 30% to 18%. ?There has been no increase in power tariff during the last three years, largely due to political considerations; and line losses too have been mounting. We need to address these issues immediately in order to post a positive trend. These outcomes appear to be easily achievable if we follow the ground rules,? said the official.

In order to achieve this, what’s required is the state government’s continuous support by way of budgetary allocations in terms of upscaled levels of subsidy, liberal assistance for loans and conversion of loans into equity, besides allowing of the discoms to function as professional bodies.

?In its dying days, the regime of Mayawati had doled budgetary support to the tune of R4,500 crore for the existing losses accruing due to subsidised electricity for the farm sector. If we are to provide free electricity to farmers and weavers as per the new government’s manifesto, we would require another R650 crore to come out of the losses,? said the official, agreeing that it will be a challenge for the state government to continue giving higher levels of budgetary support from a cash-starved economy already trying to raise money for laptops and unemployment allowance.

The restructuring in UP comes in the backdrop of mounting losses in power distribution utilities of seven states, including TN, Rajasthan, MP, AP, Haryana, UP and Punjab.

The worsening health of the discoms has been a matter of grave concern for the Planning Commission, the Central power ministry and also the banking sector, with most of the lenders becoming wary of extending loans to the power sector as a whole. In order to get out of the logjam and meet the 11th Plan revised target of 62,000 MW of capacity addition, a panel headed by Planning Commission Member B K Chaturvedi, has been trying to work on the financial restructuring of discoms since the last few months.

?One of the chief reasons for the ill-health of discoms is the mismatch between tariff and cost of generating power. In order to reverse that, there is an urgent need for revision of the existing power tariff to the tune of 30% across all consumer categories,? said the offcial.