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At least six states have agreed to subscribe to the Centre’s debt restructuring plan for power distribution companies. The deadline for states to opt for the package has been extended by three months and would now end on March 31.
The three-month period would be used to accommodate agreements by more states and ensure consensus building among stakeholders. Once accepted by all states, the Rs 1.9-lakh-crore package is expected to bail out financially-stressed distribution companies and usher in long-pending reforms in the power sector.
“Six states — Rajasthan, Uttar Pradesh, Tamil Nadu, Andhra Pradesh, Haryana and Jharkhand — have formally communicated their agreement on the financial restructuring package (FRP) to us,” a senior ministry official told Business Standard.
He added the six states were ready to accept the terms and conditions of the plan, including reduction of aggregate technical and commercial (AT&C) losses and timely tariff revisions. “As a state’s FRP has to be agreed to by stakeholders, including bankers and the state electricity regulatory commission concerned, the deadline for the states to accede to the package has been extended,” he said.
Five of the six states —Rajasthan, Uttar Pradesh, Haryana, Tamil Nadu and Andhra Pradesh — are among the seven which together account for 75 per cent of the Rs 2.4 lakh crore of losses of distribution companies accumulated over the past decade; the other two states are Punjab and Madhya Pradesh. The huge losses resulted from the gap between average revenue realisation and the cost of supply. With input costs rising and revenue coming under constraints due to stagnant rates, the gap rose from 76 paise a unit in 1998-99 to 145 paise a unit in 2009-10.
In March last year, the combined debt of all distribution companies stood at Rs 1.9 lakh crore, with a growing number of distributors resorting to loans to meet even operational costs. In 2001, a similar situation had forced the government to try and bail out distribution companies through a “one-time-settlement” of their dues. As that initiative had failed, the current bailout package has various riders — annual tariff rationalisation, reducing AT&C losses, timely release of subsidy by state governments, regular metering of supply and introducing private participation in distribution.
Following an Appellate Tribunal of Electricity order, through the past year, 21 Indian states have revised power rates by an average of 20 per cent. It is expected this year, too, similar rate revisions would lead to increased revenue for distribution companies.
However, ensuring states revise power rates, a politically sensitive issue, would prove to be an uphill task for the Centre. The issues with the FRP came to the fore at the recent National Development Council (NDC) meeting.
“The unrealistic conditions laid down in the scheme make the situation very difficult for states to propose financial restructuring. Many other states are similarly placed and find it extremely difficult to join the scheme,” Karnataka Chief Minister Jagadish Shettar had said at the meeting. He had also doubted the Centre’s seriousness in “providing an appropriate turnaround scheme for discoms” and had urged it to re-consider the scheme and include total short-term liability of states in the FRP, including power purchase dues and accumulated losses.
Chhattisgarh Chief Minister Raman Singh had acknowledged revising electricity rates was a “sensitive issue”.
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