Power: Relief on the way for discoms

Published: September 16, 2015 - 16:52 Updated: September 16, 2015 - 18:02

Noor Mohammad Delhi

In what should bring a big relief to power distribution companies ( Discoms) which have availed the Rs 1.93 lakh crore bail-out package but are unable to repay loans as per the agreed schedule, the Centre may allow states to issue additional bonds to securtise the balance 50% of their discoms’ loans, enabling loss-making utilities to kick the can down the road.

Sources said the Modi government is seriously considering this option as it feels discoms’ worsening financial could lead to derailing of its ambitious 24X7 power supply plan. Discoms are facing difficulties in loan repayment after moratorium period ended in March.

The Prime Minister’s Office (PMO) discussed this issue with senior officials of the power ministry on Monday in view of the rising debts of the power sector which are now estimated at Rs 3.5 lakh crore.

The Reserve Bank of India (RBI) has, in its latest Financial Stability Report, raised concern over signs of financial stress in the state power sector and expressed fear that discoms could default on Rs 53,000 crore loans taken from public sector banks.  In the event the fear comes true, banks’ non-performing assets (NPAs), which are already at record high of 12%, could further rise.

Eight states including UP, Rajasthan, Haryana, Jharkhand and Bihar have availed the bail-out package and issued bonds worth Rs 56,000 crore to cover half of their debts taken from banks. If the Centre okays  securitisation of the remaining debts of discoms under the 2012 bail-out package, states will have to issue bonds worth similar amount.

States have taken up this matter with the PMO and the power ministry in a series of meetings over last few months.

Significantly, the Modi government has unveiled huge expenditure plans to strengthen transmission and distribution network and also acted speedily to auction coal blocks to ward off fuel crisis that loomed over the power sector  after the Supreme Court revoked allocations of all coal blocks last year.

However, the Centre’s uninterrupted power supply plan could get short-circuited if utilities’ debts pile up to an unmanageable level.

In 2012, the then UPA-II government at the Centre unveiled the Rs 1.93 lakh crore-Financial Restructuring Plan (FRP) to help out discoms tottering on the verge of financial collapse. That was the second bail-out of the state power sector. The first one came in 2001. Banks had to take a hair cut while agreeing to extend loan repayment period for discoms as per the FRP.

While signing up on the dotted line, states had agreed to undertake key power sector reforms, including regular tariff revision to help discoms bridge their revenue gaps. States had also agreed to streamline functioning of electricity regulatory commissions by reforming appointment procedures of key functionaries following the recommendations of the Shunglu committee which was set up by the Centre in 2010 to identify factors impacting financial health of discoms.

However, discoms are showing signs of financial stress just three years after availing the FRP, serving a grim reminder that state power reforms remain an unfinished agenda and that the Centre needs to take initiatives to persuade states on further reforms as a matter of urgency.