Efforts at getting states on board to ratify the Centre’s ambitious Rs 1.9-lakh-crore financial restructuring plan (FRP) for the power distribution sector is beginning to gain traction. The first lot of four states — including Andhra Pradesh, Bihar and Jharkhand — have managed to achieve the prescribed milestones, which includes the state-owned distribution utilities getting their FRPs approved by their respective state governments, lenders and bagging an in-principle approval of State Electricity Regulatory Commissions.
With a cumulative debt of Rs 85,000 crore, the first list of four states is key to getting the initial momentum on the debt recast scheme, seen as crucial to restoring a semblance of bankability to the debt-laden distribution-side of the country’s power sector. Despite delays, partly necessitated by the subdued conditions prevailing in the bond markets, another list of four more states is reported to in the works, which could take up the total debt under recast to over Rs 1,00,000 crore, a sizeable number from all accounts. Rajasthan, Haryana, Uttar Pradesh and Tamil Nadu had earlier given in-principle consent to be part of the FRP scheme and abide by the various mandatory and recommendatory conditions of the scheme.
Under the restructuring plan, states are expected to take over 50 per cent of the outstanding short-term liabilities of the discoms as of March 31, 2012. This is to be first converted into bonds to be issued to participating lenders, duly backed by state guarantees. The state government will take over the liability during next 2-5 years by issuing special securities in favour of participating lenders in a phased manner, keeping in view the fiscal space available till the entire loan is taken over by the government. Besides, states would have to provide full support to the discoms for repayment of interest and principal for this portion. The process of consensus-building was formidable, considering the reservations voiced by states had in light of the difficulties for them to stick to their respective Fiscal Responsibility and Budget Management (FRBM) targets if they were to go ahead with the scheme. Additionally, some of them wanted the incentives that the Centre has promised — 25 per cent of the principal repayment of the state once they take the entire 50 per cent of the burden of the discom — to be handed over right upfront and not at the end of the cycle.
Keeping all this in mind, the progress is clearly