The stage is set for a mega loan restructuring package for power distribution companies (discoms) — estimated to be worth close to Rs 1.2 lakh crore — with major states agreeing to the plan suggested by the Centre, including revision of tariffs over the next few months and roping in the private sector.
Half the short-term loans outstanding on March 31, 2012 will be taken over by the state government after discoms issue bonds to lenders. The maturity of these bonds will be 15 years and the issuance calendar will be based on the fiscal space available with states.
The remaining 50% of the liabilities will be rescheduled and serviced by discoms with a three-year moratorium. On their part, state governments will have to ensure that electricity tariffs are revised, release subsidy in advance, metering and audit are undertaken. In addition, they will have to convert the loans given to discoms into equity and ensure that the gap between the average revenue and the average cost of supply is wiped out over a three to five-year period.
Lenders will waive the penal interest on the loans and be given fresh loans to meet the operational need for three years. The Centre will also set up a transitional finance mechanism that will enable the better-performing states to get 25% of the bond amount from the power ministry, and also be eligible for additional grants if they check pilferage.
Sources said several states were initially reluctant to agree to the package as it was against the initial proposal, where the lenders would have taken at least 50% of the burden. But, with the financial services department against any such move, there was no choice for states as the flow of fresh loans from banks has dried up.