CAR­ROT & STICK AP­PROACH FOR SICK POWER DIS­COMS

FUNDS MAY BE CUT FOR STATES NOT FOL­LOW­ING RE­FORMS

Resource Digest - - POWER DEMAND -

The Cen­tre has come up with a slew of car­rot and stick mea­sures to push sick state power dis­tri­bu­tion com­pa­nies (dis­coms) to­wards fi­nan­cial and tech­ni­cal re­struc­tur­ing. In­stead of giv­ing fi­nan­cial back­ing, it is likely to cut cen­tral funds if th­ese com­pa­nies fail to cut losses and carry out the re­struc­tur­ing sug­gested by it.

Of­fi­cials privy to the mat­ter said now, the dis­tri­bu­tion re­forms com­mit­tee (DRC) would present th­ese re­forms to states.

Ac­cord­ing to the plan, dis­coms' debt will be trans­ferred to the state gov­ern­ment con­cerned, which will is­sue bonds from a part of it (this per­cent­age could vary across states). Sources in the know said if the state gov­ern­ment failed to hon­our the bond terms or de­faulted on the div­i­dend pay­ment, the Cen­tre would di­vert some of its fi­nan­cial grant in­tended for that state to bond own­ers.

Sources in the gov­ern­ment said the di­ver­sion of grant could be through tax de­vo­lu­tion from the Cen­tre to states.

To ser­vice the re­main­ing debt and bring about long-term ef­fi­ciency, states will have to in­crease power rates and re­duce tech­ni­cal losses with Cen­tre-ini­ti­ated re­form schemes - the In­te­grated Power De­vel­op­ment Scheme and the Deen­dayal Upad­hyay Gram Jy­oti Yo­jana.

The Cen­tre will pro­pose th­ese mea­sures to all sick state elec­tric­ity boards. Those agree­ing to th­ese will have to abide by the terms and con­di­tions set to re­form their power util­i­ties.

The DRC is pri­mar­ily fo­cus­ing on eight states that con­trib­ute the high­est to the over­all ac­cu­mu­lated debt of Rs 3.17 lakh crore - Ra­jasthan, Andhra Pradesh, Ut­tar Pradesh, Tamil Nadu, Haryana, Jhark­hand, Bi­har and Te­lan­gana.

The com­mit­tee, chaired by the sec­re­tary in the power min­istry, also has rep­re­sen­ta­tion from mem­ber states. The sec­re­tary (bank­ing) in the fi­nance min­istry, the chair­men of

Power Fi­nance Cor­po­ra­tion and Ru­ral Elec­tri­fi­ca­tion Cor­po­ra­tion are mem­bers, while se­nior ex­ec­u­tives from Tor­rent Power, Tata Power and CESC are spe­cial in­vi­tees.

"The idea is di­vided into two parts - how to re­duce cur­rent losses and how not to let any more loss/debt ac­cu­mu­late. Banks have al­ready stopped lend­ing to the sec­tor. Tight­en­ing by dis­coms can be car­ried out through such mea­sures alone. There is no sin­gle way to solve this prob­lem," said a se­nior ex­ec­u­tive in­volved in the dis­cus­sions.

The debt por­tion in the gross state Bud­get plan would also be in­creased to fa­cil­i­tate state gov­ern­ments to take over dis­coms' losses and lend more from the mar­ket, said the of­fi­cial quoted ear­lier.

"In turn, states are be­ing given around 0.25 per cent re­lax­ation in their fis­cal re­spon­si­bil­ity and Bud­get man­age­ment (FRBM) limit.

This would help them ab­sorb the losses and is­sue bonds in the short term," said the of­fi­cial.

FRBM shows the amount of deficit a state can have. Re­lax­ation on this front will re­sult in states ad­just­ing more fis­cal deficit in their pub­lic ac­counts.

"States would have to take the re­forms till the last point of the chain, which will mean re­form­ing the oper­a­tions of the SEBs (state elec­tric­ity boards) to de­mand-side man­age­ment. Th­ese short-term mea­sures will work only when the long-term tra­jec­tory for bring­ing down the losses is strictly ad­hered to by states," said Sam­bitosh Mo­ha­p­a­tra, part­ner (power & util­i­ties), PwC In­dia.

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