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Sep 24, 2012 at 09:33pm IST

Cabinet clears restructuring plan for state electricity boards

New Delhi: In a major decision, the Cabinet Committee on Economic Affairs (CCEA) on Monday evening cleared the restructuring plan of the state electricity boards. Sources say the states can now covert all loans into equity.

The association of power producers has welcomed the move calling it a step in the positive direction.

Sources say the government has cleared the proposal to restructure debt worth nearly Rs 2 lakh crore of state electricity boards, giving a boost to the ailing power sector. The plan for restructuring the debt of discoms has been in the works for some time now.

The Power Ministry had earlier prepared a Cabinet note on the issue. It reworked the proposal, reportedly after the Finance Ministry expressed reservations.

The decision has come with the following conditions:

- States are barred from raising fresh short-term loans

- States to settle outstanding power dues

- Grant only if loss reduced by 25 per cent

The scheme is effective as soon as notified and will remain open up to December 31, 2012 unless extended by the government, the statement said.

The support under the scheme will be available for all participating state-owned discoms on fulfilling short-term mandatory conditions, it said.

The restructuring or reschedulement of loans is to be accompanied by concrete and measurable actions by discoms or states to improve the operational performance of the distribution utilities.

As per the statement, the takeover of liability by state governments from discoms in the next two-five years by way of special securities and repayment and interest payment to be done by state governments till the date of takeover.

The approved scheme is formulated based on report of expert group headed by B K Chaturvedi, Member (Energy) Planning Commission and deliberations in the PMO and Finance Ministry, it said.

For monitoring the progress of turnaround plan, two committees at state and central levels, respectively, are proposed to be formed, the statement said.

The Central government will provide incentive by way of grant equal to the value of the additional energy saved by way of accelerated AT&C loss and capital reimbursement support of 25 per cent of principal repayment by the state governments on the liability taken over by them under the scheme, it added.

The accumulated losses of the state power distribution companies (Discoms) are estimated to be about Rs 1.9 lakh crore as on 31st March, 2011.

"It is a step in the positive direction. The loss reduction and tariff increase plans would need to be monitored very strictly so that utilities are able to break even in next 3 to 4 years and in the interim they need to be provided adequate transition finance," Ashok Khurana Director General Association of Power Producers said.

Commenting on the debt restructure, State Bank of India Chairman Pratip Chaudhuri in Mumbai said, "our exposure to discoms is perhaps the lowest...and that would also be covered by state government guarantee."

"...to UP is Rs 800 crore, out of Rs 20,000 crore total. We think that the most stressed discoms are Rajasthan, UP, Andhra Pradesh, Tamil Nadu and perhaps to some extent Punjab.

"These are the discoms which will have to work extra hard and look at higher revenue generation in order to meet this benchmark but overall our discom exposure is 4 or 5 per cent. Our power sector exposure is loaded towards the large generating companies, rated companies, he added.

Central Bank of India Chairman and Managing Director M V Tanksale said: "It is a welcome move from the government and will definitely help the power sector. Here on, it would be important for discoms to operate at a 'cost plus' basis and let the subsidies come from the respective state governments on a cash basis.

"All the discoms where we have an exposure have already increased the tariffs, which is one of the conditions of the restructuring package. The assets continue to remain standard on our books as they were only restructured till now."

(With Additional Inputs from PTI)