The Centre may not have succeeded in getting all State Electricity Boards on board with its loan recast proposal to revive the ailing distribution utilities.

States such as Jharkhand and Tamil Nadu have voiced concern about the proposal’s impact on their finances. “As far as I am aware, the proposal is to do with only the loan recast. There is no clarity on whether adequate tariffs are provided. Some States provide a subsidy to certain categories of consumers. It is not clear whether this burden will be passed on to distribution utilities,” said a state electricity board official. The official did not want to be named.

The Cabinet is expected to take up the proposal shortly.

The proposal is for eight States with the highest loans in their electricity distribution utilities — Rajasthan, Andhra Pradesh, Uttar Pradesh, Tamil Nadu, Haryana, Jharkhand, Bihar and Telangana. Together, their loans add up to over ₹3 lakh crore. However, state electricity distribution utilities fear that while it takes care of the loans, if the State governments pass on the subsidy burden to the distribution utilities, nothing changes for them.

For example, Uttar Pradesh’s distribution utilities are to receive ₹5,913 crore in subsidies from the State government in 2015-16 while their interest cost is estimated to be ₹2,112.94 crore, as per their tariff petitions for the fiscal.

The proposal also states that the State governments will take on 100 per cent of the loans of the distribution utilities and then covert it into bonds. This, according to SEB officials, has been objected to by some States.

Default risk would be covered by the tax devolution fund, wherein the Central Government will use the funds to pay back bondholders in case of a default.

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