The Delhi government has turned down a request for issuing a letter of comfort (LoC) in favour of Reliance Infrastructure-owned electricity distribution utilities (discoms), a precondition for the companies to secure a Rs 11,000-crore loan from the public sector Power Finance Corporation (PFC). The decision is primarily due to the controversy around the issue and the difference in interpretations between the stakeholders over the scope of the LoC.
A group of lenders led by PFC had approved disbursal of the loan to BSES Yamuna Power and BSES Rajdhani Power. The final disbursal of loan was subject to the LoC to be issued by the Delhi government to the lenders as it holds 49% stake in the discoms.
“The issue (of LoC) has become a political hot potato and the Delhi government is not actively considering it for that reason,” Sukesh Kumar Jain, power secretary in the Delhi government told FE here on the sidelines of a conference organised by Independent Power Producers’ Association of India (IPPAI). “We believe that the LoC wouldn’t make the government liable or a guarantor in the event of default by the company but the government has interpreted it differently,” a senior BSES executive told FE on condition of anonymity on the sidelines of the conference. He added that the company doesn’t expect the government to issue the letter in the current circumstances.
The advances would have enabled the two discoms, under stress due to delays in monetisation of regulatory assets, to retire existing debt of half the size of the proposed loan from a 19-bank consortium led by State Bank of India and pay the dues to the generation and transmission companies. The loan would have come with an interest relief of 1.5-2% that could bring down the cost of power by 13 paise per unit if the reduced cost was passed through to the consumers. These distribution companies also owe over R6,000 crore to the government-owned generation and transmission companies.
The Delhi government has been no stranger to issuing LoCs on behalf of the power companies. It had issued an LoC to NTPC in December 2011 to ensure that power supply remained uninterrupted. In May 2014, an LoC was granted to PFC and Rural Electrification Corporation for raising short-term loans of R1,000 crore to pay power supplier dues in compliance of orders of the Supreme Court.
Of the Rs 11,000-crore loan that PFC has offered, about Rs 5,000 crore would be disbursed by PFC while the rest will be available from other lenders in the consortium. The tenure of the new loan, if approved, could be for a period of seven to eight years and the interest savings for the BSES firms would translate to about Rs 250 crore annually.
