Cabinet
Committee on Economic Affairs Approves Scheme for
Financial
Restructuring of State Distribution Companies (Discoms).
In an attempt to restore power purchasing capacity of the
debt ridden DISCOMS and also to enable Banks to recover their loans, the
Cabinet Committee on Economic Affairs approved the scheme for Financial
Restructuring of State Distribution Companies (Discoms). The scheme contains
various measures required to be taken by State Discoms and State Governments
for achieving the financial turnaround of the Discoms by restructuring their
debt with support through a Transitional Finance Mechanism by Central Government. The scheme is
effective from the date of notification and will remain open upto 31st Dec 2012
unless extended by the GOI. The scheme would be applicable to all State owned Discoms
having accumulated losses and facing difficulty in financing operational
losses.
The accumulated losses of the state power distribution
companies (Discoms) are estimated to be about Rs 1.9 Lakh crore as on 31st
March, 2011.Any turn around strategy has to be based on the principle that gap
between Average Revenue Realization (ARR) and Average Cost of Supply (ACS) is
eliminated as early as possible, liability to be taken over by State
Government/ equity infusion by State Government, subsidy to be provided in full
by State Government as per the Electricity Act and Average Debt Service
Coverage Ratio (DSCR) to be atleast 1. The scheme has been prepared keeping in
view the fragile health of utilities and State Government, coupled with serious
systemic deficiencies in the working of State Discoms and underlying principles
of turnaround as aforesaid. The scheme contains immediate/ continuing and short
term measures required to be taken in a time bound manner by the Discoms and
State Governments. These measures include Financial Restructuring, Tariff
Setting & Revenue Realization, Subsidy, Metering, Audit & Accounts and
Monitoring.
Salient features
50%
of the outstanding short term liabilities upto March 31, 2012 to be taken over
by State Governments. This shall be first converted into bonds to be issued by Discoms
to participating lenders, duly backed by State Govt guarantee.
a. Takeover
of liability by State Govt from Discoms in the next 2-5 years by way of special
securities and repayment and Interest payment to be done by State Govt till the
date of takeover.
b. Restructuring
the balance 50% Short Term Loan by rescheduling loans and providing moratorium
on principal and the best possible terms for this restructuring to ensure
viability of this effort.
c. The
restructuring/reschedulement of loan is to be accompanied by concrete and
measurable action by the Discoms/States to improve the operational performance
of the distribution utilities.
d. For
monitoring the progress of the turnaround plan, two committees at State and
Central levels respectively are proposed to be formed.
e. Central
Government will provide incentive by way of grant equal to the value of the
additional energy saved by way of accelerated AT&C loss reduction beyond
the loss trajectory specified under RAPDRP and capital reimbursement support of
25% of principal repayment by the State Govt on the liability taken over by the
State Govt under the scheme.
f. Ministry
of Power to bring out draft model legislation on State Electricity Distribution
etc. Responsibility bill, after due inter-ministerial consultation within a
period of twelve months from the approval of the Scheme.
g. States
will enact the legislation within twelve months from the date of circulation of
model legislation by Ministry of Power to mandate the compliance of the
provisions of FRP.
Objectives
The scheme proposes
to enable the State Governments and the DISCOMs to carve out a strategy for the
financial turnaround of the distribution companies in the State power sector
which will be enabled by the lenders agreeing to restructure/reschedule the
existing short-term debt. As the restructuring/reschedulement by lenders is
subject to certain prior steps to be taken by the State Government/DISCOMs and
their commitment to fulfil mandatory conditions which are aimed at bridging the
gap between the average cost of supply and the average revenue realized, this
would help in restoring the viability of the distribution sector in the State.
By restructuring and rescheduling the outstanding short term debt and securing
the commitment of the State Govt in the discharge of debt service obligation,
the Discoms would be nursed back to health. Government of India support through
the transitional finance mechanism would serve the purpose of incentivizing the
fulfilment of mandatory conditions.
Expected Outcomes
(a) Providing comfort to the lenders by
securing State takeover of and guarantee for debt,
(b) Bringing about financial discipline in
the distribution sector in the State,
(c) Providing a commercial orientation to
the functioning of the distribution companies,
(d) Casting responsibility on the State
Government to ensure a steady flow of revenue to the distribution companies by
improving the efficiency of their operations,
(e) Accelerate the AT&C loss reduction
effort of DISCOMs, through additional incentive from Central Govt
(.f) Ensure regular rationalisation of tariff
to cover cost of service,
(g) Gradual elimination of the gap between
ACS and ARR.
(h) Ensure timely audit of DISCOM accounts
(i) Improve the financial health of the
Distribution Utilities to enable them to procure more electricity for meeting
their growing demands.
IMPORTANT MANDATORY CONDITIONS
1. State Governments
shall convert all their loans to equity
2. All outstanding energy
bills of State Departments/Agencies as on 31.3.2012 to be paid by 30.11.2012
3. Eliminate the gap
between ACS and ARR within the period of moratorium of the bonds
4. Involvement of
private sector in state distribution sector through franchisee arrangements or
any other mode of private participation to be prepared within a year by the Discoms
5. Tariff order to be
notified by 30th April of each Financial year
6. Fuel cost
adjustment to be allowed as directed by APTEL
7. FRP to include
targets for progressive reduction in Short Term Power (STP) purchase by the
State Discoms
8. Subsidy should be
paid upfront by State Govt.
9. Prepaid meters to
be installed by 31.3.2013 for all Government consumers
10.
Audited accounts for and up to FY 2010-11 by 30.9.2012 and of FY 2011-12
to be finalized by 31.12.2012.
Source: Press Release, Ministry of
Power
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Prakash Verma
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