Govt approves bailout package for discoms hit by Rs 4.3 lakh-crore debt | business | Hindustan Times
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Govt approves bailout package for discoms hit by Rs 4.3 lakh-crore debt

business Updated: Nov 06, 2015 01:46 IST
HT Correspondent
Discoms bailout

In a move aimed at rescuing almost-bankrupt state electricity retailers, the Cabinet on Thursday approved a scheme to rejig Rs 4.3 lakh-crore debt of discoms, besides announcing measures to cut power theft and align consumer tariff with the cost of generating electricity.(HT Photo)

In a move aimed at rescuing almost-bankrupt state electricity retailers, the Cabinet on Thursday approved a scheme to rejig Rs 4.3 lakh-crore debt of discoms, besides announcing measures to cut power theft and align consumer tariff with the cost of generating electricity.

Power distribution companies or discoms are reeling under losses of around Rs 3.80 lakh crore, which has impaired their ability to buy electricity.

Power minister Piyush Goyal said state governments, which own the discoms, can take over 75% of their debt as of September 30 and pay back lenders by selling bonds. Discoms will issue bonds for the remaining 25%.

The rescue plan, called Ujwal Discom Assurance Yojna or UDAY, provides “a permanent resolution of past as well as potential future issues of the sector” and empowers the utilities to break-even in next 2-3 years.

Under UDAY, the government will not include the debt taken over by states while calculating their respective fiscal deficits during 2015-16 and 201-17. Effectively, states will not breach their fiscal deficit limits set under the Fiscal Responsibility and Budget Management (FRBM).

“The interest costs would come down by `12,000-15,000 crore,” power minister Piyush Goyal said.

Rajasthan, Uttar Pradesh, Tamil Nadu and Haryana are among the worst hit. The government introduced the Financial Reconstruction Package (FRP) in October 2012, for which eight states had signed up. But three years on, the FRP has been largely ineffective.

Individual states will have to sign up for UDAY, for which they would be incentivised with additional coal at government-notified prices and by giving them priority funding via central schemes.

Goyal said that as part of the deal, the Central government would ask state power regulators to allow fuel-cost adjustment on a quarterly basis, against annually now. Losses would also be brought down by bridging the gap between the average revenue realisation and the average cost of supply, and eliminating the same by 2018-19.