For a year or two, the fiscal deficit limit for states would be relaxed to equip them to take over the bulk of outstanding debts of their electricity boards (SEBs) and service them at a concessional interest rate. The states would, however, need to take steps to reduce the SEBs’ aggregate technical and commercial (AT&C) losses from the current average of 27% to 15%, sources privy to the discussions in the power ministry over the new SEB revamp package told FE.
AT&C loss reduction, these sources explained, would enable the SEBs to generate additional revenue equivalent to an average tariff hike of around 15%, largely obviating politically unpalatable big tariff increases to cover incremental costs in the short term.
The central government would be giving states around R1.6 lakh crore over the next two to three years under the Integrated Power Development Scheme and the Deen Dayal Upadhyay Gram Jyoti Yojana to help them achieve the AT&C target by strengthening transmission lines and distribution networks, separating feeders, greater metering, and IT-enabling the entire system.
The one-time waiver from the Fiscal Responsibility and Budget Management (FRBM) obligations would mean that the fiscal deficit limit of 3% prescribed by the 14th Finance Commission could be allowed to be breached for one or two years. With the additional borrowing that this waiver would allow, the states would be able to service the debt (which stood at R2.6 lakh crore in FY14).
However, after this period, the states will have to restore compliance with the FRMB targets and cut back on some other expenditure to be able to service the debt.
Among the states, Rajasthan’s SEB is bogged down by the highest level of losses (Rs 72,858 crore in FY14). Given that the state also has one of the highest fiscal deficit levels (the state’s fiscal deficit was budgeted to be 3.5% of its GSDP in FY15), it would require to take the deficit to a disturbing 4.6% to take over the SEB loans. Many other states like Uttar Pradesh and Tamil Nadu would also require to borrow significantly more than the FRBM allows to service the SEB debt — the fiscal deficits of these states would increase to 3.39% and 3.2%, respectively, owing to the one-time FRBM waiver. However, in the case of most other states, given their benign deficit figures at present and relatively low levels of SEB debts, the FRBM violations would practically be non-existent or negligible.
However, revised fiscal estimates of some of the states for FY15 had shown significant slippages as the VAT revenue buoyancy that lasted for a few years had been hit. Despite the higher (up 10 percentage points) devolution of tax revenue from the Centre starting this fiscal, the overall increase in transfers from the Centre has been moderate. So, unless their own revenues pick up, many states including those with the mostly badly affected SEBs could feel increased fiscal strain in the current year and next, analysts feel.
In reducing the AT&C losses, the task would be tougher for Haryana, Bihar, Jharkhand and Rajasthan given their current losses range between 27% and 48%.
The Centre is hoping the discoms would be able to buy more power with lower interest burden, thus providing a lease of life to several thermal power plants that have been stranded or running sub-optimally due to lack of buyers and are in danger of turning into non performing assets for their lenders.