Debt of discoms may be converted to central loans

  • Shishir Gupta & Aman Malik, Hindustan Times
  • Updated: Sep 26, 2015 12:12 IST

The government could soon convert the burgeoning debt of power distribution companies (discoms) into sovereign central loans issued to the respective state governments, officials in direct knowledge of the matter said.

The conversion of debt on the companies’ books will improve their financial health and allow them to raise fresh funds even as government-owned discoms in at least two states — Rajasthan and UP — could be staring at the prospect of still more of their loans turning into non-performing assets (NPAs).

At least two people separately told HT that in July and August, Rajasthan and UP defaulted on monthly interest payments on bonds they had raised as part of the financial restructuring package put in place in October 2012.

“If they default again by the end of September, some of these bonds would turn into NPAs,” one of the two people cited earlier said.

The discoms are burdened with debt of more than 3 lakh crore and losses in excess of 2.5 lakh crore. Some of the offenders include the state discoms of Rajasthan, UP, Tamil Nadu, Andhra Pradesh, Haryana and Telangana. These companies have been reluctant to buy costlier electricity and most have not signed any new power purchase agreements in more than two years.

Another person the Rajasthan government is consulting told HT agencies such as the World Bank could be brought in to help the state restructure its loans. “Rajasthan could get another two years to defer payments,” this person said, wishing not to be identified citing confidentiality agreements between the state and the consultancy he works for.

Officials said the restructuring package signatories could be asked to put in place mechanisms not only to raise tariffs but also cut down on losses due to pilferage.

Earlier this month, HT reported the Narendra Modi government had moved into high gear to resolve the problem as a threeyear moratorium on principal repayment ends for some of the eight states that had signed up for the package.

In August, HT reported one of the options on the table was to give funds directly to power utilities from the states’ share of central tax revenues.

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