The debt restructuring plan for state electricity boards (SEBs), approved by the Cabinet, has fixed a targeted framework for reduction of short-term power purchases.
According to this, which has been made part of the restructuring plan at the insistence of finance ministry, the SEBs will have to slash their short-term power purchases by 5-10 per cent every year, taking 2011-12 as the reference year.
A senior finance ministry official told Business Standard that short-term power purchase was one of the major causes for the deterioration of financial health of SEBs, and the power ministry agreed to the idea of capping it.
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The mandatory requirement of a planned reduction in short-term power purchases will force the SEBs to do long-term planning, which will help them improve their financial health, said a power ministry official.
“All the SEBs should do long-term power procurement planning as it is considerably cheaper than short-term power purchases,” he added.
The official added that the short-term power bought by the SEBs during the three years, 2007-2009, added substantial burden on the SEBs, leading to the current situation.
The official said that the power ministry had issued instructions last year itself, authorising state power regulators to put a cap on short-term power purchases by SEBs.
Besides, the ministry issued short-term procurement guidelines recently.
Other than meeting the short-term power purchase guidelines, state governments opting for the SEB restructuring plan will also have to clear the pending bills of SEBs, including subsidy dues, which they have to clear first.
The Cabinet committee on economic affairs (CCEA) cleared the financial restructuring plan on September 25 to restore power purchasing capacity of the debt ridden state distribution companies (discoms) and also to enable banks to recover their loans.
The scheme will remain open up to December 31 this year, unless extended by the central government.
The accumulated losses of the discoms are estimated at about Rs 1.9 lakh crore as on March 31, 2011.
Under the financial restructuring plan, state government will take over 50 per cent of the outstanding short-term liabilities up to March 31, 2012. To facilitate this, the discoms will issue bonds, duly backed by state government guarantee, to participating lenders.
The remaining 50 per cent short-term liabilities will be restructured by rescheduling loans and providing moratorium on principal by the banks.
The plan stipulates that the discoms and states follow up the restructuring efforts with concrete action to improve the operational performance of the distribution utilities.
