The Government today cleared the bailout of debt ridden State Electricity Distribution Boards (Discoms).

The Cabinet Committee on Economic Affairs (CCEA) approved the package, called ‘Financial Restructuring of Discoms’, of nearly Rs 2-lakh crore. The plan for restructuring the debt of Discoms has been in the works for some time now.

The accumulated losses of the State power distribution companies (Discoms) are estimated at Rs 1.9-lakh crore as on March 31, 2011.

The scheme contains various measures that the Discoms/State governments need to take for achieving the financial turnaround of the utilities by restructuring their debt through a transitional finance mechanism of the Central Government. The scheme will take effect as soon as it is notified and will remain open up to December 31, unless extended by the Centre.

Under the scheme, half of the outstanding short-term liabilities up to March 31, 2012, is to be taken over by State governments. First, these will be converted into bonds, which will be issued to participating lenders. The bonds will have State government guarantee, but not get SLR status.

In the second stage, State governments will take over the liabilities of Discoms in the next 2-5 years. This will be done through special securities.

The balance 50 per cent of the short-term loans will be restructured. This will be done by rescheduling loans and providing moratorium on the principal. The best possible terms will be offered to ensure viability of the effort.

The scheme also mandates measurable action by the Discoms or the State governments. This is to improve the performance of the distribution utilities. Two committees, one at the Centre and the other at the State level, will monitor the turnaround plan.

Commenting on the decision, Director-General of Association of Power Producers Ashok Khurana said, “We welcome the move as 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 three-four years and in the interim they need to be provided adequate transition finance.”

(This article was published on September 24, 2012)
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