Cabinet Committee on Economic Affairs Approves Scheme for Financial Restructuring of State Distribution Companies (Discoms).
In
an attempt to restore power purchasing capacity of the debt ridden DISCOMS and
also to enable Banks to recover their loans, the Cabinet Committee on Economic
Affairs approved the scheme for Financial Restructuring of State Distribution
Companies (Discoms). The scheme contains various
measures required to be taken by State Discoms and
State Governments for achieving the financial turnaround of the Discoms by restructuring their debt with support through a
Transitional Finance Mechanism by Central Government. The scheme is
effective from the date of notification and will remain open upto 31st Dec 2012 unless extended by the GOI. The scheme
would be applicable to all State owned Discoms having
accumulated losses and facing difficulty in financing operational losses.
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.Any turn around strategy has to be based on the
principle that gap between Average Revenue Realization (ARR) and Average Cost
of Supply (ACS) is eliminated as early as possible, liability to be taken over
by State Government/ equity infusion by State Government, subsidy to be
provided in full by State Government as per the Electricity Act and Average
Debt Service Coverage Ratio (DSCR) to be atleast 1.
The scheme has been prepared keeping in view the fragile health of utilities
and State Government, coupled with serious systemic deficiencies in the working
of State Discoms and underlying principles of turnaround
as aforesaid. The scheme contains immediate/ continuing and short term measures
required to be taken in a time bound manner by the Discoms
and State Governments. These measures include Financial Restructuring, Tariff
Setting & Revenue Realization, Subsidy, Metering, Audit & Accounts and
Monitoring.
Salient features
50% of the outstanding
short term liabilities upto March 31, 2012 to be
taken over by State Governments. This shall be first converted into bonds to be
issued by Discoms to participating lenders, duly
backed by State Govt guarantee.
a.
Takeover of liability by State Govt from Discoms in the next 2-5
years by way of special securities and repayment and Interest payment to be
done by State Govt till the date of takeover.
b.
Restructuring the balance 50% Short Term
Loan by rescheduling loans and providing moratorium on principal and the best
possible terms for this restructuring to ensure viability of this effort.
c.
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.
d.
For monitoring the progress of the
turnaround plan, two committees at State and Central levels respectively are
proposed to be formed.
e.
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 reduction beyond the loss trajectory specified
under RAPDRP and capital reimbursement support of 25% of principal repayment by
the State Govt on the liability taken over by the
State Govt under the scheme.
f.
Ministry of Power to bring out draft
model legislation on State Electricity Distribution etc. Responsibility bill,
after due inter-ministerial consultation within a period of twelve months from
the approval of the Scheme.
g.
States will enact the legislation within
twelve months from the date of circulation of model legislation by Ministry of
Power to mandate the compliance of the provisions of FRP.
Objectives
The scheme proposes to enable the State
Governments and the DISCOMs to carve out a strategy for the financial
turnaround of the distribution companies in the State power sector which will
be enabled by the lenders agreeing to restructure/reschedule the existing
short-term debt. As the restructuring/reschedulement
by lenders is subject to certain prior steps to be taken by the State
Government/DISCOMs and their commitment to fulfil
mandatory conditions which are aimed at bridging the gap between the average
cost of supply and the average revenue realized, this would help in restoring
the viability of the distribution sector in the State. By restructuring and
rescheduling the outstanding short term debt and securing the commitment of the
State Govt in the discharge of debt service
obligation, the Discoms would be nursed back to
health. Government of India support through the transitional finance mechanism
would serve the purpose of incentivizing the fulfilment
of mandatory conditions.
Expected Outcomes
(a) Providing comfort to the lenders by
securing State takeover of and guarantee for debt,
(b) Bringing about financial discipline in the
distribution sector in the State,
(c) Providing a commercial orientation to the
functioning of the distribution companies,
(d) Casting responsibility on the State
Government to ensure a steady flow of revenue to the distribution companies by
improving the efficiency of their operations,
(e) Accelerate the AT&C loss reduction
effort of DISCOMs, through additional incentive from Central Govt
(.f) Ensure regular rationalisation
of tariff to cover cost of service,
(g) Gradual elimination of the gap between ACS
and ARR.
(h) Ensure
timely audit of DISCOM accounts
(i) Improve the financial health of the
Distribution Utilities to enable them to procure more electricity for meeting
their growing demands.
1. State
Governments shall convert all their loans to equity
2. All
outstanding energy bills of State Departments/Agencies as on 31.3.2012 to be
paid by 30.11.2012
3. Eliminate
the gap between ACS and ARR within the period of moratorium of the bonds
4. Involvement
of private sector in state distribution sector through franchisee arrangements
or any other mode of private participation to be prepared within a year by the Discoms
5. Tariff
order to be notified by 30th April of each Financial year
6. Fuel
cost adjustment to be allowed as directed by APTEL
7. FRP
to include targets for progressive reduction in Short Term Power (STP) purchase
by the State Discoms
8. Subsidy
should be paid upfront by State Govt.
9. Prepaid
meters to be installed by 31.3.2013 for all Government consumers
10. Audited accounts for and up to FY 2010-11 by
30.9.2012 and of FY 2011-12 to be finalized by 31.12.2012.
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