Macro Economy

Discoms can raise fresh funds at cheaper rates

Surabhi Debabrata Das New Delhi | Updated on January 22, 2018

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discoms-table

Centre finalising debt restructuring plan, rules out financial bailout package

The government is finalising the contours of a debt-restructuring plan for ailing power distribution companies that would allow the utilities to access funds at cheaper rates and has ruled out a financial bail-out package from the Centre.

The proposed mechanism will allow discoms to raise fresh funds at cheaper rates of 8- 8.5 per cent instead of the existing rates of near 14 per cent.

Under the proposal, which is expected to be taken up by the Union Cabinet soon, States would be allowed to take over the discom loans by converting them into State bonds that would also have a sovereign backing. This, in turn, will facilitate cheaper borrowings for the discoms, as this will clean up their balance sheets.

The States may also be given an additional dispensation allowing for relaxation in the borrowing limit of 3 per cent of the State gross domestic product under the Fiscal Responsibility and Budget Management Act.

The plan is said to have been finalised after discussions between the Ministries of Power and Finance as well as State discoms and bankers.

The debt restructuring is expected to help eight States with the highest loans in their electricity distribution utilities — Rajasthan, Andhra Pradesh, Uttar Pradesh, Tamil Nadu, Haryana, Jharkhand, Bihar and Telangana— to clear up their balance-sheets. Together, these States have collective dues of over ₹2.5 lakh crore as of March 2014.

“Almost all States are on board over the financial package and one-on-one meetings are now taking place to work out State-specific reform plans,” said an official familiar with the development.

Along with the financial bail-out, the Centre expects State discoms to work on reforms to improve their efficiency and lower transmission losses to prevent the need for future bail-outs.

“Discom package has many issues, largely focussed on efficiency — helping bring down interest cost, supporting the upgradation of infrastructure, ensuring that a framework is created that in future discom process cannot be allowed to continue in the path that it has. Final stages of consultations are underway to further improve this framework,” Piyush Goyal, Minister of State (Independent Charge) for Power, Coal and New and Renewable Energy, had said recently.

Published on October 12, 2015

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