On the heels of a slew of reform measures, the government would soon announce the much-awaited financial restructuring of power distribution companies (discoms).
Though the scheme would specify some mandatory conditions on state governments, including annual revision of power tariff, conversion of loans to equity and ushering private participation in distribution, the Centre would do its bit by putting in place a transitional finance mechanism. This would be available to states in accordance with an accelerated reduction in aggregated technical and commercial losses. It is estimated to see an outgo of Rs 1,500 crore annually for every one per cent loss reduction nationally.
With an accumulated loss of Rs 1.9 lakh crore as on March 31, 2011, the state governments are expected to bear an impact of about Rs 24,000 crore after issuance of bonds with a five-year moratorium and repayment of 10 years.
The last such restructuring of state electricity boards was in 2001. The objective of the new scheme is to pull out the distribution sector from losses and reduce the gap between the average cost of supply of power and average revenue realised by state utilities through an annual tariff hike. According to the proposal sent to the Cabinet Committee on Economic Affairs, half the short-term liabilities as on March 31, 2012, would be taken over by state governments. This would be first converted into bonds, to be issued by discoms to participating lenders, backed by a state government guarantee.
The state government concerned would take over the liability during the next two to five years by issuing special securities to lenders in a phased manner till half the short-term loans are taken over. The exercise will be in accordance with the targets set by the Fiscal Responsibility and Budgetary Management Act.
The balance half of short-term liabilities would be rescheduled and serviced by the discoms, with a moratorium of three years on the principal, backed by state government guarantees.
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The transitional finance from the Centre would provide liquidity support through a grant equal to the value of the additional energy saved through loss reduction. States will be eligible for it only if the gap between average revenue realised and and average cost of supply is reduced by at least 25 per cent during a year over 2010-11. The department of financial services will be nominating a nodal bank for every state or discom. For financing operational losses and interest for the first three years on a diminishing scale in focus states, a separate arrangement would be worked out for Rajasthan, Tamil Nadu, Haryana and Uttar Pradesh.
According to the proposal sent to the Cabinet Committee on Economic Affairs, half the short-term liabilities as on March 31, 2012, would be taken over by state governments. This would be first converted into bonds, to be issued by discoms to participating lenders, backed by a state government guarantee. The state government concerned would take over the liability during the next two to five years by issuing special securities to lenders in a phased manner till half the short-term loans are taken over. The exercise will be in accordance with the targets set by the Fiscal Responsibility and Budgetary Management Act.
The balance half of short-term liabilities would be rescheduled and serviced by the discoms, with a moratorium of three years on the principal, backed by state government guarantees.
The transitional finance from the Centre would provide liquidity support through a grant equal to the value of the additional energy saved through loss reduction. States will be eligible for it only if the gap between average revenue realised and and average cost of supply is reduced by at least 25 per cent during a year over 2010-11. The department of financial services will be nominating a nodal bank for every state or discom. For financing operational losses and interest for the first three years on a diminishing scale in focus states, a separate arrangement would be worked out for Rajasthan, Tamil Nadu, Haryana and Uttar Pradesh.
To avail of the scheme, a state government will have to fulfill certain mandatory conditions such as payment of pending bills and notification of tariff order for 2012-13 prior to availing of the scheme. State governments are also required to permit fuel cost adjustment in tariff to adjust power procurement cost. The financial restructuring plans would have to be approved by state regulators.
To avail of the scheme, a state government will have to fulfill certain mandatory conditions such as payment of pending bills and notification of tariff order for 2012-13 prior to availing of the scheme. State governments are also required to permit fuel cost adjustment in tariff to adjust power procurement cost. The financial restructuring plans would have to be approved by state regulators.