With several states that are set to take over the bulk of the short-term liabilities of their power discoms under the Ujwal Discom Assurance Yojna (UDAY) contemplating to treat part of these as loans — rather than grants — to them, the discoms’ savings on this account could be significantly lower than estimated by the power ministry, analysts sai
With several states that are set to take over the bulk of the short-term liabilities of their power discoms under the Ujwal Discom Assurance Yojna (UDAY) contemplating to treat part of these as loans — rather than grants — to them, the discoms’ savings on this account could be significantly lower than estimated by the power ministry, analysts said.
Assuming that half of the discoms’ debt would show on the states’ books as assets, being loans advanced to the discoms carrying interest of 8-9%, the discoms’ savings on this front would be between R13,000-15,000 crore, instead of R27,000 crore, as put out by the ministry. So, the overall UDAY benefits — which includes, apart from the debt relief, the gains from government-assisted cuts in transmission and distribution losses, fuel supply reforms and demand-side management — for the discoms over the next two years could be R1.67 lakh crore, as against R1.8 lakh crore envisaged by the ministry.
And many states, given their fiscal constraints, have already shown their preference to treat parts of the discom debt as fresh loans to these entities.
“We would treat part of discoms’ debt that we are bound to take over as loans and the discoms will have to pay interest on the same. The rate could be 4% lower than the average interest cost of 12.5% currently incurred by these companies,” C S Rajan, chief secretary of Rajasthan, told FE. He added that the state has not yet decided the exact loan component as it still has over two months to officially sign up for the scheme. Rajasthan’s discoms are estimated to have a combined outstanding debt of over R80,000 crore as on September 30, 2015.
The discoms’ outstanding debt was seen at Rs 4.5 lakh crore as on September 30, 2015, with 70% of the same borne by entities in Rajasthan, Tamil Nadu, Uttar Pradesh and Haryana. Under UDAY, 75% of these overall short-term liabilities are to be taken over by the state governments; additionally, the discoms will get a 3 percentage point interest relief on the remaining portion of the debt. The current interest rates on these loans are in the 12-14% range.
Apart from Rajasthan, Tamil Nadu, Uttar Pradesh and Haryana are also likely to earmark a portion of the discoms’ debt as loan, putting the onus on discoms to service the same at 8-9%.
States with high accumulated discom debts would rather convert part of these to loans given to these entities, as treating the entire amount as grant may be fiscally impractical for them, a power ministry official said, on the condition of anonymity.
However, Jharkhand, which became the first state to sign an MoU with the power ministry under UDAY, has taken over the entire debt burden of its discom as grant, enabling the discom to now foot only the (reduced) interest bill on a fourth of its accumulated debt.
Under UDAY, states can also take over the liability as equity in exceptional cases where the discoms need it but the amount cannot exceed more than 25% of the total amount. For the amount categorised as loan, the discoms are liable to pay interest to the states that should not exceed rate of interest on bonds issues by the states.