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Govt okays massive bailout package for power bodies

Pushing new reforms in the power sector and in a move to turnaround the near-bankrupt power distribution companies, the centre approved restructuring of Rs 1.9 lakh crore debt of state electricity boards on Monday.

Under the scheme approved by the Cabinet Committee on Economic Affairs, 50 per cent of the short-term outstanding liabilities would be taken over by state governments. The balance 50 per cent loans would be restructured by providing moratorium on principle and best possible terms for repayments, an official statement said.

As part of mandatory condition, 50 per cent of the outstanding liabilities up to 31 March 2012 is to be taken over by state governments. This will be first converted into bonds to be issued by discoms to participating lenders, duly backed by the state government's guarantee. The scheme is effective as soon as notified and will remain open up to 31 December 2012 unless extended by the government, the statement said. The support under the scheme will be available for all participating state-owned discoms on fulfilling short-term mandatory conditions, it said.

The restructuring or rescheduling of loans is to be accompanied by concrete and measurable actions by discoms or states to improve the operational performance of the distribution utilities. As per the statement, the takeover of liability by state governments from discoms in the next two-five years by way of special securities and repayment and interest payment to be done by state governments till the date of takeover.

For monitoring the progress of turnaround plan, two committees at state and central levels, respectively, are proposed to be formed, the statement said.

The central government will provide incentive by way of grant equal to the value of the additional energy saved by way of accelerated AT&C loss and capital reimbursement support of 25 per cent of principal repayment by the state governments on the liability taken over by them under the scheme, it added.

The accumulated losses of the state power distribution companies are estimated to be about Rs 1.9 lakh crore as on 31 March 2011.

'It is a step in the positive direction. The loss reduction and tariff increase plans would need to be monitored very strictly so that utilities are able to break even in next three to four years and in the interim they need to be provided adequate transition finance,' Ashok Khurana, director general of the Association of Power Producers said.

Commenting on the debt restructure, the State Bank of India chairperson Pratip Chaudhuri said, 'Our exposure to discoms is perhaps the lowest … and that would also be covered by state government guarantee.'

The Central Bank of India chairperson M V Tanksale said: 'It is a welcome move from the government and will definitely help the power sector. Here on, it would be important for discoms to operate at an “cost plus” basis and let the subsidies come from the respective state governments on a cash basis.'
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