The Centre has approved of a financial package for state power distribution companies. The main objective is to restructure their debt amounting to Rs 1,90,000 crore.
The centre will provide grants totalling Rs 25,000 crore as part of the package. States can access the grants only if their power distribution firms reduce their losses by 25 per cent each year.
The cabinet committee on economic affairs (CCEA) cleared the package on Monday. In the restructuring of debt, loans extended by state-run banks will be retired.
Half the short-term debt of the distribution companies will be taken over by state governments over a two to five-year period.
The modus operandi will be: first the debt will be converted into special bonds. The distribution firms or electricity boards will issue the bonds to their creditors which are banks and financial institutions.
The bonds will have state government guarantee.
Later, the debt will be transferred to states. On their part, the states have to ensure that the bonds are issued within the targets prescribed in the Financial Restructuring and Budget Management Act and also within their net borrowing ceilings set by the 13th finance commission.
The remaining half of the debt will have a three year moratorium on repayment of principal. But the distribution companies cannot use fresh loans to repay the loans.
The centre will create a transitional finance mechanism to the support states with cash grants in their task to restructure the power distributors' debt. On their part, the states have to ensure that the distributors cut their losses by a quarter ever year.
The states will be reimbursed by way of capital equivalent to 25 per cent of principal repayments they make on power liabilities they take over.
The scheme will be implemented in all states except Uttar Pradesh, Rajasthan, Tamil Nadu and Haryana, for whom separate deals will be worked out.
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