Two years after the first restructuring of its debt, the Rajasthan State Electricity Board (RSEB) has asked banks to consider a second round of restructuring for a whopping Rs 55,000 crore. Documents accessed by FE show the SEB has approached banks for easier repayment terms given the utility is reeling under losses.
“In order to optimise the costs and reduce the burden of short-term loans, there is a need to undertake restructuring/swapping of existing loans to reduce interest rates and also to identify available options for financing the future loan requirement of the Rajasthan power utilities at competitive rate of interest,” the document notes. The quantum of outstanding short-term working capital loans as on March 31 stood at Rs 52,402 crore.
RSEB made a loss of Rs 10,643 crore in 2013-14, according to the annual report of the power and energy division of the erstwhile Planning Commission. The share of interest in total cost rose from 12% in 2009-10 to 21% in 2013-14.
Bankers in the know of RSEB’s request for another restructuring told FE the utility wants a lower rate of interest for the working capital, currently averaging 12.75%. As such, lenders may approach the RBI for a special dispensation. If the central bank doesn’t provide forbearance, banks would be required to classify the loans as a non-performing asset (NPA) and make full provisions.
However, since April 1, the RBI has withdrawn forbearance for restructured loans and is, therefore, unlikely to oblige the banks. The central bank has indicated on more than one occasion that it would like banks to make the requisite provisions for stressed assets well in time, instead of postponing the problem.
According to an undated document, Rajasthan invited bids from merchant bankers to arrange for debt restructuring of the state-owned power companies, the bids for which will close on June 23.
The request for proposal (RFP) document notes that during the last five years, all the Rajasthan power companies have resorted to short-term working capital loans to meet operational expenses. Moreover, there has been a huge rise in regulatory assets — money owed by consumers to the discoms — but no corresponding rise in tariffs.
RSEB was unbundled into one generation company, one transmission company and three distribution companies in July 2000. It underwent one round of financial restructuring for Rs 38,000 crore worth of short-term liabilities in 2013, which FE had reported.
The high interest rate has resulted in an annual interest burden of about Rs 6,000 crore on Rajasthan discoms and including the generation and transmission companies, the amount is Rs 6,270 crore.
In addition to the short-term working capital loans, the companies have also taken capex loans to upgrade and strengthen generation, transmission and distribution capacity; for the five companies, the amount adds up to Rs 42,368 crore, resulting in an annual interest burden of around Rs 4,500 crore for all the utilities.
Discoms in the BJP-led state increased power tariff by nearly 17% in February 2015. However, the absence of tariff hikes to recover the average cost of supply in the six and a half year years prior to tariff order 2011-12 have resulted in formation of regulatory assets of Rs 12,560 crore by FY14.
For perspective, the regulatory assets of Haryana discoms stood at Rs 3,900 crore at the end of FY14 while Uttar Pradesh discoms had recognised an accumulated untreated revenue gap of Rs 3,980 crore during FY08-12, according to a report issued by CARE Research in October 2014.
The report added that Rajasthan’s financial restructuring scheme is yet to deliver improvement on financial parameters with the state’s discom having lowest cost coverage ratio.
An ICRA report dated December 2014 noted that in FY13, tariff hikes varied across the states from 2% to 37% with average tariff hike at 14% for the distribution sector as a whole. The report noted that among the FRP approved states of Andhra Pradesh, Bihar, Jharkhand, Haryana, Rajasthan, Uttar Pradesh, Telangana and Tamil Nadu, only four states — Bihar, Haryana, Tamil Nadu and Uttar Pradesh — had issued tariff orders.