Shunglu panel recommends SPV to buy-out bank loans of SEBs

The Shunglu Committee has submitted its report to the planning commission on the resurrection of State Electricity Boards that have of late been in a deep mess. SK Tuteja, panel member of the Committee spoke to CNBC-TV18 about the recommendations of the panel and the possible solutions to issues of the power sector.

Below is the edited transcript of the interview. Also watch the accompanying video. Q: Before I ask you about the report itself, what is your understanding of the process that will follow the vetting of the report and the eventual submission to the cabinet? What are the process and the timeline?
A: The process involves constitution of an implementation committee by the planning commission, then this committee will have interaction with the several other agencies mainly the Ministry of Power, and then they will take it to the cabinet. Q: At the crux of your suggestions is the formation of SPVs by the Reserve Bank of India, is it with an eye on the fact that the state government has been shying away from giving guarantees to the banks off late?
A: No, it is not like that. What we have found and what the report brings out is that out of an accumulated loss of about Rs 80,000 crore, we have noted that there is an increase in the borrowings by commercial banks to the extent of Rs 55,000. It is presumed therefore that a part of the money that the banks gave them has gone to meet their day-to-day losses. In order to make these institutions sustainable, it is important that their earnings match their expenditure. So we have given a several suggestions on that, but the main point was this- how do you tackle this accumulated loss?
What we are suggesting in this is that first of all, the state governments and the distribution companies which are the primary agencies for this borrowings, they will have negotiated settlement with the commercial banks. After they have done, and this may involve re-schedulement, so two-three years down the line, if the re-schedulement is not again honored, then we are suggesting a constitution of an SPV which buys these things from them and pays off the banks and then recovers it.
There is a guarantee redemption reserve created by the state government and that can also be used at that stage. The SPV has not been suggested straight away. The primary responsibility, the primary borrower must honor its commitment. Q: Some pre-conditions for such purchase of loans have been put forward by the committee such as the execution of regular tariff hikes. A) Do you think that will lead to sticky implementation and B) Are you are little encouraged by the fact that some of the SEBs off late have been pressing for implementing tariff hikes?
A: On that tariff hike, the appellate tribunal against Central Electricity Regulatory Commission (CERC) has already directed all CERCs to do this work by the March 31 and they have said that even if the discom does not submit it