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Two discoms issue bonds of over Rs 16,000 cr under Centre’s restructuring plan

According to reports, power distribution companies of two states have issued bonds of over Rs 16,000 crore under the centre’s ambitious Financial Restructuring Package (FRP) for bleeding state utilities, within a year of its launch. Also, two more states, which are technically ineligible, are pleading for even their inclusion in the scheme.

The Rs 1.9 lakh crore debt recast package, launched on 24 September 2012, will bailout financially-ill discoms and usher in long-pending reforms in the power sector. Under the scheme, discoms are to issue bonds, backed by state government guarantee, for half of the short term liabilities. The other half of the discoms’ liabilities are to be restructured by providing three year moratorium on principal amount and best-possible terms for repayment.

“Two states have already issued bonds. These include Rajasthan and Tamil Nadu. Three more states, Uttar Pradesh, Haryana and Himachal Pradesh, are ready to issue bonds soon,” a senior executive from one of the three Rajasthan discoms told Business Standard. He also confirmed his company has issued bonds of Rs 10,000 crore in the first phase last week. “We have to issue bonds for a total of over Rs 18,000 crore,” he said.

Seven major defaulting states have a total outstanding liability of 1.2 lakh crore, accounting for a bulk of the total. Half of this or Rs 59,813 crore was to be taken over by state governments through bonds. This includes Tamilnadu’s Rs 9,573 crore, Rajasthan’s Rs 18,000 crore, Uttar Pradesh’s Rs 12,967 crore, Haryana’s Rs 7,859 crore, Punjab’s Rs 5,823 crore, Andhra Pradesh’s Rs 3,151 crore and Madhya Pradesh’s Rs 585 crore.

Of these states, Tamil Nadu has already issued bonds of Rs 6,144 crore and Rajasthan has now issued bonds of Rs 10,000 crore. UP and Haryana are likely to issue bonds soon. While Andhra Pradesh is preparing to fall in line, Punjab and Madhya Pradesh have opted out of the scheme. While Punjab had reservations on the privatization conditions attached with the FRP, Madhya Pradesh declined accepting the scheme arguing its losses were insignificant.

Further, two states – Kerala and Delhi – which are technically ineligible, have requested the power ministry for their inclusion. While the FRP insists on unbundling as a pre-condition for assistance under the scheme, Kerala is yet to completely segregate generation, transmission and distribution functions.

However, Kerala insists that it has incorporated Kerala State Electricity Board and the assets and liabilities of the utility, currently with the state government, will soon be re-vested in the company.

“In the restructured format, generation, transmission and distribution functions shall be dealt under three different strategic business units. We humbly request that favorable decision may be taken to sanction our proposal for assistance under the FRP,” Kerala power minister Aryadan Muhammed told Scindia on Tuesday. He said even currently, annual revenue accounts are being submitted to the regulator from the three separate profit centres. Also, the state utility can be compared with the best performing restructured utilities in the country in terms of loss reduction and collection efficiency, he added.

Delhi is ineligible to adopt FRP owing to the privatized nature of its power distribution business. However, power minister Haroon Yusuf told Scindia on Tuesday the national capital needs inclusion in FRP more than any other state. “We have regulatory assets of over Rs 12,000 crore with discoms creating a cascading effect on payment of dues to generation and transmission companies. This could soon put the entire power sector in Delhi in jeopardy,” Yusuf said. With cash flow from banks to this sector drying up, the state is not left with funds to upgrade network, he added.

The scheme has already started bringing reforms on the ground. Consider the case of Rajasthan – the state with accumulated losses of Rs 50,000 crore, highest among all the states. In order to avail FRP benefits, the state has finalized audited accounts for discoms for both 2011-12 and 2012-13 financial years; tariff petition for 2013-14 has been filed; discoms have implemented the new tariff order of June this year; line losses have been minimized to a record low of 19% last fiscal; the gap between Annual Cost of Supply (ACS) and Annual revenue Requirement (ARR) will be eliminated by 15 September; and the state is on track to reduce short-term power purchase by 5-10%. In addition, all the consumers in the state, barring 1.5 lakh agricultural consumers, are metered.

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