Cabinet okays debt restructuring of 3 state power discoms

The Cabinet Committee on Economic Affairs has approved the union power ministry's proposal of amending the debt restructuring package for electricity distribution companies, or discoms.

Under the new package, the state electricity boards of Jharkhand, Bihar and Andhra Pradesh would be allowed to convert their loans outstanding till March 2013 into bonds.

These states had approached the power ministry seeking the special provision to extend the repayment date by a year.

An official statement said the CCEA has approved amendments to the scheme for financial restructuring of state power distribution companies.

Under the current financial restructuring package (FRP), which was approved by the government last year, 50 per cent of the accumulated debt of the discoms till March 2012 can be converted into bonds.

These bonds will be issued by the distribution companies to the participating lenders, backed by state government guarantees.

The balance 50 per cent loans will be restructured by providing moratorium on principal and best possible terms for repayments.

Support under the scheme is available for all participating state-owned discoms on fulfilling short-term mandatory conditions.

The accumulated losses of state power distribution companies were estimated to be about Rs1.9 lakh crore as on 31 March 2011 and Rs2.46 lakh crore as on 31 March 2012.

"To enable these three states (Jharkhand, Bihar and Andhra Pradesh) for participation under the scheme, the cutoff date for reckoning the eligible amount of short term liabilities for issuance of bonds / reschedulement by lenders is now shifted to 31 March 2013 from 31 March 2012," the CCEA statement said.

The utilities of these states were facing financial crises and were keen to participate in the scheme, but could not do so due to practical difficulties in meeting certain requirements.

Implementation of the scheme in these states will help lenders by securing state takeover and guarantee for debt, besides bringing about financial discipline in the discoms.

It will also help provide commercial orientation to the functioning of discoms and putting responsibility on state governments to ensure a steady flow of revenue to them by improving efficiency of their operations.

It will accelerate the 'aggregate technical and commercial loss' reduction of discoms, through additional incentive from the central government.