Discom debt restructuring takes off with TN issuing bonds

State issues bonds worth Rs 6,144 cr; Kerala model of unbundling power biz rejected by govt

After initial hiccups, the Centre's debt restructuring scheme for power distribution companies has taken off with Tamil Nadu becoming the first state to issue bonds worth Rs 6,144 crore in the first phase. The Union government has, however, refused to accept the Kerala model of unbundling the power business, making it difficult for the state to subscribe to debt restructuring package.

Jharkhand, which has not yet unbundled its power operations, may be able to get into the scheme with a caveat that it will complete the unbundling exercise within a stipulated time. With this, the number of states that are eligible and will be part of the government's financial restructuring package (FRP) is likely to be six.

A senior government official said some of the other states, like Gujarat, Madhya Pradesh and West Bengal, where the state governments have already restructured the distribution business, do not need FRP. This would mean that around 70- 80 per cent of the power consumers in the country would see the distribution business coming out of distress, said the official. "Besides, there are discoms in the northeast who have not yet unbundled the power business, but do not have significant losses." (Click here for chart)

A consortium of 17 banks, led by State Bank of India (SBI), have an exposure of about Rs 12,000 crore to the distribution business of Tamil Nadu Generation and Distribution Corporation.

Though the Kerala government has created different units within the Kerala State Electricity Board, which has a debt of around Rs 2,887 crore, the official said these were only functionally different and did not have cost and recovery activity clearly differentiated. "We are currently considering whether Kerala is eligible for the debt restructuring package since the unbundling of power business was not according to the Electricity Act," another senior government official said.

Kerala is one of the few states yet to fully unbundle their state electricity boards. Lhe latest year for which the state has its annual statement of accounts prepared was 2009-10, according to the power ministry. Besides, Kerala and Punjab have reservations on privatisation conditions attached to the scheme.

Uttar Pradesh and Haryana have already settled terms for FRP with bankers, while Rajasthan is also expected to be part of the scheme. "There are some differences between the Rajasthan distribution company and the bankers on the interest premium to be charged by the banks," said the official. Rajasthan had total outstanding short-term liabilities of Rs 50,000 crore at the end of March this year. A half of this are to be converted into bonds, backed by state government guarantee, to be issued to lenders.

With the Centre having worked out the coupon rate for bonds at 8.9 per cent, more states are expected to issue bonds kicking off a revival of the distribution sector. The states have already missed two deadlines for restructuring - December 2012 and March 2013. The Centre is now expected to close subscription to the scheme by July 31.

Seven major defaulting states together have a total liability of Rs 1.2 lakh crore, accounting for a bulk of the total. Half of this, or Rs 59,228 crore, is to be taken over by state governments through bonds. This includes Rajasthan's Rs 19,855 crore, Uttar Pradesh's Rs 12,967 crore, Tamil Nadu's Rs 9,573 crore, Haryana's Rs 7,859 crore, Punjab's Rs 5,823 crore, Andhra Pradesh's Rs 3,151 crore and Madhya Pradesh's Rs 585 crore. The other half would be restructured by providing three year moratorium on principal amount and "best possible" terms for repayment.