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State electricity distribution utilities can expect a smooth road ahead with the Power Ministry finalising a loan restructuring programme spread over three-seven years.
To handle short-term loans of Rs 2 lakh crore in the books of these utilities, a two-phase agenda has been charted out to bring these distribution companies out of the red.
Nearly 75 per cent of the debt are with seven States — Madhya Pradesh, Rajasthan, Tamil Nadu, Uttar Pradesh, Haryana, Punjab and Andhra Pradesh. The proposal has been mooted by the Power Ministry after deliberating with the States and all electricity distribution utilities. The Ministry will seek approval from the Cabinet Committee on Economic Affairs (CCEA) soon.
“Half of these losses would be taken up by the respective States, which will issue long-term bonds in phases. For the remaining 50 per cent of the losses, distribution companies would get three-year moratorium on principal payment,” a Government official told Business Line .
“Government expects distribution companies to come out of red within three years and report cash surplus,” he added.
In the three-year first phase, the States would issue bonds based on their targets under the Fiscal Responsibility and Budget Management (FRBM) Act. “All bonds would not be issued in the first year. After facilitating the stimulus successfully over three years, 25 per cent of benefit would go to the respective States as incentives,” the official added.
At the same time, the distribution companies would get moratorium on principal payment.
They will take steps to reduce distribution losses and increase electricity tariff based on power purchase fluctuations. All these steps would be monitored by the Power Ministry.
Second phase
In the second phase, the Government expects the distribution utilities to become cash-surplus. Thereby the remaining debt would be restructured for seven years.
Currently, the poor financial health of State electricity distribution companies is preventing them from buying enough power to meet demand. The high utility losses are because of low tariff hikes, rising burden of fuel prices, and non-receipt and delayed subsidy payment from States.
The aggregate annual loss of the utilities before subsidy increased at 33 per cent annually.
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