The Centre has ruled out yet another bailout for debt-ridden state electricity boards (SEBs) and has instead decided to “nurture” the state government’s initiatives to reform their distribution entities with funding support, technology and infrastructure upgrade.
The SEBs together owe over Rs 4 lakh crore to banks and are running out of cash to repay loans. This has limited the ability of banks to increase credit to the sector.
Power, coal and renewable energy minister Piyush Goyal on Wednesday said the Centre would not bail out any discom but would support state governments through investments in infrastructure upgrade, ensure adequate supplies of coal and support rural electrification, which would ultimately help in increasing the demand for power and cut the losses of discoms.
“We are trying to build a consensus on ways to reform the distribution sector and a solution is on the horizon. I am meeting representatives of state governments in the coming days towards this end,” Goyal said at a press conference.
Financial Chronicle reported about the Centre’s decision not to offer another bailout for discoms in its edition dated September 22.
The minister said that a rescue plan was in the works in consultation with the states and as part of this the government would like SEBs to gradually increase electricity tariffs so that they are more reflective of costs. The proposed rescue plan would go to the cabinet for clearance this month.
“We are trying to introduce innovative ways to encourage gradual increase in electricity tariff,” he said.
He added that though tariff setting was the prerogative of local regulators, the Centre wanted to help utilities fix the financial mess.
The decision not to offer central support by way of another round of debt restructuring has been taken in view of the poor track record of previous attempts to clean up the books of discoms.
After earlier unsuccessful rounds of debt restructuring of SEBs in the past, the Centre announced a Rs 1.93 lakh crore financial restructuring package in September 2012. But even though the debt restructuring programme by banks ends this month, SEBs are still saddled with accumulated losses amounting to over Rs 2.80 lakh crore and a total debt of over Rs 4 lakh crore.
Some of the SEBs are on the verge of defaulting on payment to banks. Eight states -- Rajasthan, Uttar Pradesh, Bihar, Tamil Nadu, Andhra Pradesh, Haryana, Jharkhand and Telangana -- account for more that 80 per cent of the losses.
“There is a limit to which the Centre can offer sops for restructuring SEBs. It is good that the onus has now shifted to the state governments to clean the books of SEBs by taking over their debt and service them on better terms,” said Debashish Misra, Deloitte Touche Tohmatsu India's senior director.
For the Centre, the immediate concern is to prevent the collapse of the country’s distribution sector. It is with this in mind that it is working overtime to address the issues and come to a long-term solution.
Last month Goyal met chief secretaries of states and representatives of the discoms to come up with a solution. After that meeting, Goyal had said that the Centre would handhold states and in two to three years time the distress of discoms would be a thing of the past.
Prime minister Narendra Modi has also held meetings on distribution reforms. A distribution reforms committee (DRC) headed by power secretary has been set up to address the problems.
