CNBC-TV18's economic policy editor Siddharth Zarabi has learnt that the governemnt may be mulling a comprehensive bailout package for power distribution companies (discomms). Sources indicate that the Prime Minister's Office (PMO) has directed the power ministry to prepare a suitable bailout package.
The final details of the package is to emerge soon. On Wednesday, the PMO issued instructions to the power ministry to address the problems of power distribution companies through a comprehensive Cabinet note. Also watch the accompanying video
All the power distribution companies are reeling under debt. Tamil Nadu's power distribution companies alone have a debt of around Rs 50,000 crore. The total outstanding debt for 2011 was Rs 1,20,000 crore and if you add the losses, it is about Rs 2 lakh crore.
The Union power ministry's rescue plan consists of a comprehensive revival package that will restructure and reduce the debt burden, and a bond issue. Bonds were last issued in 2002 by state-governments as part of a bailout package prepared by Montek Singh Ahluwalia.
Though the proposal will pass though many stages including inter-ministerial consultation and experts' recommendations, the news has sent out a very positive signal for power distribution companies. This may be the first focused attempt to address the problems in the power distribution sector.
Power distribution companies have been plagued by increasing fuel costs including the price of coal. In the current structure, the entire cost burden is passed on to the distribution companies. Power distribution companies have sought the regulator's nod to initiate a series of tariff hikes.
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