The Hindu Business Line : IDFC offers to refinance SEB dues to PFC\REC <br>But says discoms must be privatised

INFRASTRUCTURE Development Finance Company Ltd (IDFC) has offered to refinance the dues of State electricity boards and corporations to Power Finance Corporation (PFC) and Rural Electrification Corporation (REC) Ltd.

IDFC officials said they were prepared to refinance these dues and also restructure/reschedule them.

However, one of the preconditions fixed by IDFC is that the distribution entities created out of unbundling the integrated entities would have to be privatised. This means the State governments would have to pass on majority equity or 51-per cent stake to the private sector.

In fact, sources said the issue of dues to PFC/REC is one of the major impediments to the privatisation process of distribution companies in various parts of the country. One of the major proposals put forward was that the State governments themselves take over the dues and assume them as part of their own liabilities.

However, sources said, few States were prepared to absorb the liabilities in view of the fiscal impact. The absorption of dues to PFC/REC by the State governments would result in an escalation of their own liabilities and increase the fiscal deficits.

Currently these dues to PFC/ REC and financial institutions such as LIC alone figure as contingent liabilities for the State Government and are not taken as part of the fiscal deficit. If the liabilities become direct, the sources said, they would then become part of the State's fiscal deficit. None of the States, the sources said, were interested in pushing up their deficits. , particularly at a time when they were in the process of fiscal correction.Many of the State governments, including Karnataka and Andhra Pradesh, that have unbundled have bifurcated the debts taken for improvement of generation, transmission and distribution, domiciled them in the respective balance sheets of the generation, transmission and distribution companies. This was done without altering any of the loan covenants that included State Government guarantees and an escrow account mechanism for ensuring prompt repayment of dues.

This has resulted in the distribution companies ending with large debts, making the balance sheet clean-up difficult. Therefore, few investors were interested in assuming control of these entities with such large liabilities.

For instance, in the case of the unbundled Bangalore Electricity Supply Company Ltd, the debt alone is Rs 731 crore, against an equity of Rs 201 crore or a debt-equity ratio of close to 3.62:1. IDFC officials said that restructuring the dues would make the distribution entities attractive for private sector buyouts and at the same time make them fiscally acceptable to the State governments. IDFC will also stand to gain in the process, since it will have a much larger asset base.

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