Bailout for state electricity distribution companies extended to three states

Extending its ambitious plan to bail out beleaguered state electricity distribution companies (discoms), the government on Thursday cleared a special package for three more states—Jharkhand, Bihar and Andhra Pradesh.

 

The move to reduce the debt overhang of Rs.2 trillion owed by all discoms in the country is likely to benefit private power producers as the discoms will now be able to procure electricity to meet additional demand. At present, power producers are unwilling to supply them power as they fear they will not be paid.

 

At the same time, it will provide comfort to lenders as the state government will take over the debt burden and also provide guarantees. It would unlock resources for fresh lending. Indian banks’ loans outstanding to the power sector rose to Rs.3.4 trillion as of July 2012 from Rs.2.9 trillion in July 2011, up 17.2%, according to Reserve Bank of India (RBI) data.

 

The cabinet committee on economic affairs (CCEA) on Thursday approved amendments to the scheme for Financial Restructuring of State Distribution Companies approved by it on 24 September 2012 to enable the financial turnaround of the state distribution companies for their long-term viability.

Accordingly, the cutoff date for determining the eligible amount of short-term liabilities for issuance of bonds or rescheduling of loans with lenders has now been fixed as 31 March 2013 for these states; earlier it was 31 March 2012.

 

With this, Jharkhand, Bihar and Andhra Pradesh come onboard a scheme that already covers Tamil Nadu, Rajasthan, Uttar Pradesh, Haryana and Himachal Pradesh.

 

According to the restructuring package, states will enter a tripartite agreement wherein they will, in return for recasting of debt, promise to revise tariffs regularly in step with the escalation of costs, besides reducing power theft and transmission and billing losses. The three states have until 31 December to sign up for the package, which is not mandatory.

 

Shubhranshu Patnaik, senior director at Deloitte Touche Tohmatsu India Pvt. Ltd, said the expansion of the scheme to three more states was a welcome move. “More states included mean they will be bound by the conditionalities put under the scheme, which is good. This will also help address the liabilities outstanding with the banks,” he said.

 

Separately, the cabinet on Thursday approved a proposal for extending the validity of the Central Order, which enables state governments to take effective measures against de-hoarding operations under the Essential Commodities Act, 1955, by fixing stock limits and licensing requirements for rice and paddy.

“This is expected to help in the efforts being taken to tackle the problem of rising prices and also improve the availability of these commodities for the general public, especially the vulnerable sections,” a government statement said.

 

The cabinet took a strong stance on the food security issue that could scuttle a multilateral trade deal at the World Trade Organization (WTO) meeting in Bali.

 

The cabinet mandated the commerce ministry to negotiate a trade deal with a four-year “peace clause” under which no country will sue India if it breaches the WTO-mandated food subsidy limit for the duration the clause is in effect, and will be linked to a permanent solution to the subsidy issue.

 

It also asked the commerce ministry to ensure that no country can challenge India under another agreement under the WTO on subsidies and countervailing measures, an official said on condition of anonymity.

 

A deal at the Bali meet starting 3 December is seen by many as critical to ensure the credibility of the multilateral organization as an institution. A strong stance by India on the food security and subsidy issue may prove a deal breaker.

 

The cabinet put off a decision on relaxing foreign direct investment (FDI) norms for the housing sector and reducing the foreign investment limit to 49% in so-called rare and critical areas of the pharma segment.

The decision on FDI in pharmaceuticals and housing has been deferred, information and broadcasting minister Manish Tewari said after the cabinet meeting in New Delhi.