Home » CleanTech/ Renewable Energy » India Govt okays Rs 1900 billion discom loan recast

India Govt okays Rs 1900 billion discom loan recast

According to reports, the government on Monday cleared Rs 1.9-lakh crore debt restructuring for power distribution companies, the second such move in less than a decade for entities that keep running up losses due to severe political interference even in regulatory agencies that fix tariffs.
Four states — Rajasthan, Uttar Pradesh, Tamil Nadu and Punjab — which between them will be able to clean up the books of electricity distribution companies by over Rs 96,000 crore, would be the biggest gainers of the latest bailout.

The move will also benefit private power producers, who in the absence of payments, were operating below capacity and were facing difficulties in paying their installments to lenders. TOI was the first to report the details of the restructuring on June 9.

Under the scheme, which is open till the end of 2012, states will take over half of the liabilities of the electricity distribution companies, which will issue bonds to banks based on government guarantee. The takeover process will be spread over two to five years, an official statement issued after a meeting of the cabinet committee on economic affairs (CCEA) said.

The remaining 50% of the liabilities would be rescheduled by lenders by providing a longer tenure and also a moratorium on payment of installments. This comes with the caveat that restructuring will be accompanied by steps such as tariff revision, metering and payment of subsidies by the state governments to the electricity distribution companies, something that analysts are wary of.

“The desired impact of this restructuring will not be realized unless a broad-based political consensus is achieved to implement the much-needed tariff hikes, a timely and adequate financial support is provided by the state governments, and the discipline of the regulatory process and disclosures is enhanced. In addition, some flexibility may be needed by state governments to accommodate the additional debt into their fiscal space under the Fiscal Responsibility and Budget Management targets,” Pawan Agrawal a senior director at Crisil Ratings said.

In the past, politicians have prevailed upon the state electricity regulatory commissions, which are headed by retired bureaucrats, against hiking tariffs despite an increase in cost for distribution companies. As a result, the discoms have been saddled with losses, especially when they are unable to cut down on losses, again due to political pressure.

Leave a Reply

Your email address will not be published. Required fields are marked *


Scroll To Top