Cabinet approves bailout for power distributors

Under the scheme approved by the Cabinet Committee on Economic Affairs, 50 percent of the short-term outstanding liabilities would be taken over by state governments.

Balance 50 percent loans would be restructured by providing moratorium on principle and best possible terms for repayments, an official statement said.

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As part of mandatory condition, 50 percent of the outstanding liabilities up to March 31, 2012 is to be taken over by the state governments. This shall be first converted into bonds to be issued by discoms to participating lenders, duly backed by the state government's guarantee.

The scheme is effective as soon as notified and will remain open up to December 31, 2012 unless extended by the government, the statement said.

The support under the scheme will be available for all participating state-owned discoms on fulfilling short-term mandatory conditions, it said.

The restructuring of loans is to be accompanied by concrete and measurable actions by discoms or states to improve the operational performance of the distribution utilities.

As per the statement, the takeover of liability by state governments from discoms in the next two-five years by way of special securities and repayment and interest payment to be done by state governments till the date of takeover.

The approved scheme is formulated based on report of expert group headed by B K Chaturvedi, Member (Energy) Planning Commission and deliberations in the PMO and Finance Ministry, it said.

For monitoring the progress of turnaround plan, two committees at state and central levels, respectively, are proposed to be formed, the statement said.

The 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 and capital reimbursement support of 25 per cent of principal repayment by the state governments on the liability taken over by them under the scheme, it added.

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.

"It is a step in the positive direction. The loss reduction and tariff increase plans would need to be monitored very strictly so that utilities are able to break even in next 3 to 4 years and in the interim they need to be provided adequate transition finance," Ashok Khurana Director General Association of Power Producers said.

Commenting on the debt restructure, State Bank of India Chairman Pratip Chaudhuri in Mumbai said, "Our exposure to discoms is perhaps the lowest...and that would also be covered by state government guarantee."

Central Bank of India Chairman and Managing Director MV Tanksale said: "It is a welcome move from the government and will definitely help the power sector. Here on, it would be important for discoms to operate at a 'cost plus' basis and let the subsidies come from the respective state governments on a cash basis.