Mar 13, 2013 07:20 PM IST | Source: CNBC-TV18

UP Power to recast loans worth Rs 15000cr under FRP scheme

UP Power to recast loans worth Rs 15000 cr under centre's Financial Restructuring Plan.

Uttar Pradesh Power Corporation hopes to decline its revenue deficit by around to Rs 7,000 crore from Rs 10,000 currently, after restructuring of its loans worth Rs 15,000 crore under the government's Financial Restructuring Plan, SK Agarwal, CFO, UP Power Corporation told CNBC-TV18 in an interview today.

Power distribution companies which have been reeling under high debt and interest are likely to get some relief from government's debt restructuring scheme announced last year. The scheme proposes that state governments will accept half the loans of the power distribution companies and the other half will be converted into 10 year bonds.

Although some state government like Madhya Pradesh has shown reluctance to go for the debt recast scheme, Agarwal said that they have already initiated the process with the UP state government and have also got approval to recast loans worth Rs15,000 crore.

UP Power also expects its power tariffs hikes taken in 2012-13 and the one's proposed in the Budget for next financial year will fetch company Rs 5,000 crore additional. 

Below is the verbatim transcript of the interview

Q: Have you all started any negotiations with banks? This tripartite agreement whereby the UP state will accept some of your loans and the banks will convert the balance into long-term bonds, has the process kicked off?

A: We have accepted the scheme announced by the Government of India and our total outstanding loans and the outstanding power purchase liabilities- the total was about Rs 30,000 crore, out of that Rs 15,000 crore is to be taken over by the state government. We have sent our consent to the Government of India and our cabinet has also approved that. The state government will take over loans worth Rs 15,000 crore and first we will issue the bonds in favour of the bank and then these bonds will be replaced by the state government bonds.

Q: The biggest variable on which the success of this scheme hinges perhaps is the tariff hikes. In that, we learn that you have proposed somewhere like a 40 percent hike. Could you confirm those figures? In the recent budget you all have applied for about Rs 5.20 per unit?

A: Rs 5.25 is the highest tariff that we have applied to the regulatory commission for 2013-14. For 2012-13 also we have implemented one hike. That in some cases goes up to even 35 percent. But the average works out to about 21 percent.

Q: Along with this hike that you are proposing for the current year, what would have been the hike?

A: The discoms will start getting about Rs 2,700 crore extra in one year. The hike that we have implemented in current fiscal will fetch us another Rs 2,500 crore in a year. So, two hikes will fetch us more than Rs 5,000 crore extra.

Q: At the moment how much are your expenses over your revenues. What is the deficit you are running?

A: We have a deficit of about Rs 10,000 crore, but the major portion was of interest burden because of the borrowings we have made in past. So far we have been paying the interest from our reserve of funds, but now this loan liability is being taken over by the state government. So that interest burden will be served by the state government out of budgetary resources. So once this burden goes away then our losses will come down and it will be easier for us to turnaround in the next 3-4 years.

Q: What is the annual interest burden as of last year, as well if you take that out what will be the annual deficit?

A: The annual interest burden is about Rs 3,500 crore and once this is taken over by the state government then our deficit will come down to about Rs 7,000 crore.

Q: We have some reports suggesting that players like Reliance Power and Lanco have talked about terminating their supply because of their outstanding dues. Once this process gets cleared and the state government takes over, are the private companies-the independent power producers (IPPs) are going to start supplying again? At what stage are the talks with the IPPs?

A: Rosa is already running three units out of four and Lanco recently has shut down two units. But the payment issue is not the only one issue, they have some other issues also because this was a Case II project in which they had quoted a bid price. I don't know somehow they have quoted a price, which was not viable for them so whatever we pay to them that’s not enough to meet their repayment obligations. So, they approached the regulatory commission for revision of tariff.

We have recently discussed with Lanco, we have started making payment to them. We have paid immediately Rs 20 crore to them. So, they are starting the plants in the next two days.

Q: I also wanted to find out about the Case II bidding norms. What have you heard, there were expectation that we could get some finalisation by March end; is it possible? Case II bidding projects in UP has been stuck. In Case I about 6 Gigawatt or so has been stuck in UP because of the lack of clarity, do you expect these norms to be finalised by the month end in Case II at least?

A: I don't think that they will be finalised by the month end because many of the stake holders had issues in that. I think it will take another two months before they are finalised.

Q: If you could outline what the key issues are?

A: The major issue is the pass through of the coal price and the variable cost. In the earlier document, in the Case I bidding whatever the bidders were quoting that became the final price for assessing the variable cost. This became a problem for the bidders who had quoted earlier; they were not able to meet their obligations because the coal prices increased and so lot of increase in the variable cost. So, they want to be hedged in the new document. They want only fixed cost to be quoted by the bidder and variable cost to be made as a pass through. This is the crux of the new document that has been finalised by the ministry of power.

Q: Do you think the state government has the Fiscal Responsibility and Budget Management (FRBM) room to accept Rs 15000 crore of your loans?

A: FRBM prescribes the total loan limit -the loans that can be raised by the state government in a particular. So, suppose in case of Uttar Pradesh it is Rs 25000 crore. So, the total loans will remain within Rs 25000 crore and then state will utilise say about Rs 3500 crore for us and remaining about they will utilise for other development loans. They don’t have any problem on that.

Q: They will take a lot of time to come to your Rs 15000 crore until then it will be on your books?

A: This scheme provides for that. We will issue the bonds initially in favour of the banks and gradually the state will take it over. In our case we have proposed that in four years time the bonds issued by the discoms will be converted into state government bonds.

Q: By when do you think the package will be finally ready and you will be issuing these bonds?

A: Our package is ready and our FRP has also been prepared and we are sending it to the regulatory commission for approval. We have started the consultative process.

Q: Who are the banks, which is the lead lender?

A: In our case it is Punjab National Bank (PNB).

Q: What is the exposure?

A: Punjab National Bank's individual exposure is about Rs 2500 crore and there are 21 bankers in the consortium.


Q: By when do you think you will be able to get fresh loans from the banks? Their argument was that if the loans taken over by banks were converted into bonds it will free-up some space for you to get more money. Do you see that happening in FY14? By when do you think you can get more money?

A: Right now the banks have exhausted their exposure limits because these loans which are standing in our books they are the loan liability of the banks and once bonds are issued by us then this loan will get converted into the investment in the banker’s balance sheet. So that loan limit will get some space in there.

Q: Some of your peers like Punjab have chosen to opt out of this scheme. What do you think is the driving force behind this and do you see any threat to the scheme itself because of some of the state electricity boards (SEBs) pulling out. Do you envisage some more states to back out?

A: I personally feel that Punjab might be having some issues regarding the tariff and the other things and particularly the private sector participation. I suppose that is the one hindrance for their reluctance. If you see Rajasthan has already submitted the FRP and they have given their consent. We have given our consent. Andhra Pradesh has given its consent. So is the case with Haryana. So, most of the focused states have already participated in the scheme. So, Punjab also later on may decide to come and join the other states.

Q: How much more power do you think you will buy in FY14, given the financial status that you envisage of your own profit and loss (P&L)?

A: We have normally a growth of about 9-10 percent every year and in this year 2012-2013, we had bought about 76,000 million units. In the next year, we are having a plan of 84,000 million units. So, this much power we will necessarily buy and the main thrust of the debt recast scheme is that we have the liquidity in our hand.

Q: That's exactly why I was coming to the liquidity part. When will the banks give you that liquidity? So in the summer months from say April to September, first half of the year?

A: In summer months the demand is always 20 percent higher than what we have usually. So that necessarily we will buy because we cannot starve the people for power.

Q: And you will have the liquidity for it, the banks will give you?

A: Yes naturally because banks have not denied that they will not fund. This scheme has been finalized with the consent of the department of financial services. The scheme very clearly says that the funds will be provided till the utilities will turnaround. So, I don’t see any problem because whatever we have discussed with the banks in the consortium meeting - they have not said that they will not fund.

The exact quantum of funds will be decided once we are through the FRP process and all these formalities are taken care of.

Q: So when will the deadline be, when do you think the entire package will be implemented?

A: 31st March is the deadline.

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