With the Tamil Nadu government signing on, the Union government?s financial restructuring plan (FRP) for state electricity boards (SEB) has taken off. Shyamal Acharya, deputy managing director, State Bank of India (SBI), told FE on Thursday that all parties to the recast package ? the state government, banks and TNEB ? had all come on board. SBI is the lead banker to TNEB with an exposure of R3,000 crore while the 17-bank consortium has lent it R12,000 crore. The Tamil Nadu government will offer a 10% rate of interest on bonds issued to banks. That would be lower than interest rate of 12-13% interest rate charged by the bank. ?The coupon on these bonds is lower than loan rates but when you are doing a restructuring you have to be prepared for some of these things,? Acharya said.
Acharya said the state government had not yet announced the tariff revision for the next fiscal. For 2012-13, TNEB announced hikes to the tune of R7,880 crore, which translates into a 37% increase over the previous tariff on average. The last tariff hike was in August 2010 when it increased power price for the first time in seven years by 30 paisa to R1.10/unit.
The restructuring package requires that every year TNEB undertake a tariff revision. Acharya said that according to the package, TNEB will break even by March 2016. This would be achieved through tariff revisions as also generation of additional power in the state, which would prevent the need for importing costly power from other states.
According to the terms of the restructuring, these bonds would be classified in the available for sale (AFS) category in the first five years. Banks need to mark to market AFS bonds every quarter.
The TNEB recast is in accordance with the Cabinet Committee on Economic Affairs (CCEA) decision to call for a a bailout package for ailing SEBs in September 2012. Accordingly, 50% of the outstanding short-term liabilities (STLs) as of March 2012 will be taken over by the state governments. This shall be first converted into bonds to be issued by the SEBs to the participating lenders, duly backed by state government guarantees. The remaining 50% of the STLs will be rescheduled by the lenders and serviced by the SEBs with a moratorium period of three years on principal repayments.
The total accumulated book losses of SEBs till March 31, 2011, are estimated by ICRA at Rs 1.9 lakh crore. Around 70% of these losses are estimated to be contributed by SEBs in six states: Rajasthan, Tamil Nadu, Uttar Pradesh, Haryana, Punjab and Madhya Pradesh. The department of financial services (DFS) had appointed nodal banks for preparing FRPs to restructure loans of SEBs in 10 states. While states like Andhra Pradesh have been issuing regular tariff orders each year thus accounting for the increased costs, others like Rajasthan and Tamil Nadu recently issued tariff orders after a long gap.
A Macquarie Equities Research report estimates that discoms would require an annualised tariff increase of around 10-11% to recover all costs and services of the 50% balance short-term debt (assuming 6-8% hike in coal costs and an increase in the proportion of imported coal from around 15% currently to around 25% by FY17). However, for the outliers, mainly discoms with very high current gap and substantial debt levels, the hikes required could be 15-17%.