Cabinet may take up Rs 2 lakh crore debt restructuring of power distribution companies

NEW DELHI: The Cabinet is likely to soon take up the proposal of restructuring about Rs 2 lakh crore debt of power distribution companies, whose precarious financials have raised concerns of default in the banking system.

According to Power Ministry officials, the proposal of restructuring discoms' debt to the tune of Rs 2 lakh crore has been finalised.

Power Secretary P Uma Shankar today said here the proposal was aimed at providing assistance to discoms.

"It will be an interim financing arrangement (based) on a tight reform path... The Cabinet is likely to take up the proposal in the next 15 to 20 days," he said.

About 50 per cent of the debt would be converted into bonds, that would be issued by the respective state governments. The Finance Ministry is on board regarding this plan, another official said.

The remaining 50 per cent liabilities would be restructured. Discoms would be provided a three-year moratorium and during that period, they would not have to repay the principle amount on the loans taken, he noted.

Further, discoms would have to repay the whole debt within seven years.

"We have also asked the state discoms to come up with definite plans on improving their financial health," he said. Discoms are also required to submit plans aimed at having cash profits (within three years), the official pointed out.

Finance Ministry, Power Ministry and the Planning Commission were working in co-ordination for restructuring the debt liabilities of discoms.

Lower tariff realisation and high transmission and distribution losses have been mainly blamed for the poor financial position of discoms.

As per the Shunglu panel report released last year, the net loss, after subsidies, of 15 discoms -- which account for over 90 per cent of the country's power consumption -- was Rs 27,000 crore for the year ended March 31, 2010.

Earlier this year, rating agency ICRA projected the losses for discoms -- before accounting for government subsidy -- in the country at Rs 80,000 crore in FY 2012, much higher than Rs 63,500 crore seen in FY 2010.

About more than three-fourth of the estimated loss is on account of discoms in Uttar Pradesh, Tamil Nadu, Madhya Pradesh, Rajasthan, Punjab and Haryana.