Press Information Bureau

Government of India

Cabinet Committee on Economic Affairs (CCEA)

24-September-2012 20:19 IST

The Cabinet Committee on Economic Affairs today approved the scheme for Financial Restructuring of State Distribution Companies (Discoms). The scheme contains various measures required to be taken by State Discoms and State Governments for achieving the financial turnaround of the Discoms by restructuring their debt with support through a transitional finance mechanism by the Central Government. The scheme is effective as soon as notified and will remain open upto 31st Dec 2012 unless extended by the GOI. Support under the scheme will be available for all participating State owned Discoms on fulfilling certain mandatory conditions as outlined in Part C of the Scheme.

The salient features of the scheme are as follows:

a. 50 percent of the outstanding short term liabilities upto March 31, 2012 to be taken over by State Governments. This shall be first converted into bonds to be issued by Discoms to participating lenders, duly backed by State Governments guarantee.

b. Takeover of liability by State Governments from Discoms in the next 2-5 years by way of special securities and repayment and interest payment to be done by State Governments till the date of takeover.

c. Restructuring the balance 50 percent Short Term Loan by rescheduling loans and providing moratorium on principal and the best possible terms for this restructuring to ensure viability of this effort.

d. The restructuring/re-schedulement of loan is to be accompanied by concrete and measurable action by the Discoms/States to improve the operational performance of the distribution utilities.

e. For monitoring the progress of the turnaround plan, two committees at State and Central levels respectively are proposed to be formed.

f. 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 reduction beyond the loss trajectory specified under RAPDRP and capital reimbursement support of 25 percent of principal repayment by the State Governments on the liability taken over by the State Governments under the scheme.

The accumulated losses of the state power distribution companies (Discoms) are estimated to be about Rs 1.9 Lakh crore as on 31st March, 2011. In order to look into the issues of State Discoms and to suggest a strategy for the turnaround of the distribution sector, Planning Commission constituted an Expert Group under the chairmanship of Sh. B K Chaturvedi, Member (Energy), Planning Commission. The approved scheme is formulated based on the report of the Expert Group and deliberations in the PMO and Ministry of Finance.

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SH/RK

Debt restructuring for state power distribution shifts liabilities to states with operational reforms and performance-linked central incentives. The scheme requires State Governments to take over a major portion of Discom short-term liabilities converted into bonds backed by State guarantees, while the remaining short-term loans are to be rescheduled with moratoriums and concessionary terms. Participation is conditional on measurable operational improvements by Discoms and States, monitored by State and Central committees. Central incentives include grants tied to additional energy savings from accelerated AT&C loss reduction and capital reimbursement support for part of the principal repaid by State Governments on the taken-over liabilities.