Govt notifies debt rejig scheme for discoms

The government today said it has notified the financial restructuring scheme for state-owned power distribution companies that includes conversion of 50 percent of their short-term debt into bonds backed by respective states.

Aimed at improving the financial health of discoms, the scheme, recently approved by the Cabinet, was notified on October 5. The scheme-which would be open till December 31, 2012-would be supported through a transitional finance mechanism by the central government.

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“Support under the scheme will be available for all participating state-owned discoms having accumulated losses and facing difficulty in financing operational losses,” the Power Ministry said in a press release.

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The scheme comes at a time when the precarious financial position of discoms has raised concerns that the situation could adversely impact the overall financial system.

According to the Power Ministry, the scheme would provide comfort to the lenders by securing state takeover of and guarantee for debt, besides bringing financial discipline in the distribution sector.

The Ministry said that the scheme would also “ensure regular rationalisation of tariff to cover cost of service”. Further, the scheme would ensure that state governments would have the responsibility to ensure a steady flow of revenue to the distribution companies by improving their operational efficiency.

Under the restructuring initiative, 50 percent of the outstanding short term liabilities of discoms, up to March 31, 2012, would be taken over by respective state governments. “This shall be first converted into bonds to be issued by discoms to participating lenders, duly backed by state government guarantee. Then takeover of liability by state government from discoms in the next 2-5 years by way of special securities and repayment and interest payment to be done by state government till the date of takeover,” the release said.

The Ministry said that restructuring of the remaining 50 percent short term debt would be by way of rescheduling loans and providing moratorium on principal. “The restructuring/reschedulement of loan is to be accompanied by concrete and measurable action by the discoms/states to improve the operational performance of the distribution utilities,” the release said.

To monitoring the progress of the turnaround plan, two committees at state and central levels would be set up. As part of the scheme, the central government would provide incentive to discoms for reduction in AT&C (Aggregate Technical & Commercial) losses.

PTI