The Cabinet Committee on Economic Affairs has approved amendments to the scheme for Financial Restructuring of State distribution companies which had been approved by the CCEA on 24th September 2012 to enable the financial turnaround of the State distribution companies for their long term viability.

The Central Government had notified the Financial Restructuring Plan (FRP) for State owned distribution companies vide OM dated 05.10.2012. The scheme is under implementation in Tamil Nadu, Rajasthan, Uttar Pradesh, Haryana and Himachal Pradesh. Utilities of Jharkhand, Bihar and Andhra Pradesh which were facing financial difficulties and were keen to participate in the scheme could not do so due to practical difficulties in meeting certain requirements of the FRP scheme. Therefore, to enable these three States for participation under the scheme, the cutoff date for reckoning the eligible amount of short term liabilities for issuance of bonds / reschedulement by lenders is now shifted to 31.03.2013 from 31.03.2012 (for these three States only). The scheme will be available to these States upto 31 December 2013 unless extended by Government of India.

The expected outcomes from implementation of the scheme in these three States would be:

• Providing comfort to lenders by securing State takeover of and guarantee for debt.

• Bringing about financial discipline in the distribution sector in the State.

• Providing a commercial orientation to the functioning of distribution companies.

• Casting responsibility on the State Government to ensure a steady flow of revenue to the distribution companies by improving efficiency of their operations.

• Accelerate the AT&C loss reduction effort of DISCOMs, through additional incentive from the Central Government.

• Ensure regular rationalization of tariff to cover cost of service. • Ensure timely audit of DISCOM accounts.

• Gradual elimination of the gap between ACS and ARR.

• Improve the financial health of distribution utilities to enable them to procure more electricity for meeting growing demand.

Financial restructuring scheme amendment extends eligibility for certain state distribution companies, enabling bonds and state guarantees. Amendment moves the cutoff date for reckoning eligible short-term liabilities for issuance of bonds and reschedulement for three States and extends scheme access for them until a specified deadline; the scheme continues to provide State takeover and guarantee of debt, lender comfort through bond/reschedulement mechanisms, conditional central incentives for AT&C loss reduction, and obligations on States and DISCOMs for revenue flow, tariff rationalisation, timely audits, and narrowing the ACS-ARR gap.