State power company wants govt to take over 75 % of its debt
The state government will have to assume responsibility 50 per cent of MSEDCL’s debt in the first year and 25 per cent in the second yearmumbai Updated: Sep 23, 2016 00:34 IST
At a time when the state government’s coffers are under severe pressure, the state electricity distribution company has sent a proposal to the Maharashtra government to take over 75 per cent of its debt under a central scheme to relieve state electricity retailers of financial stress.
The Maharashtra State Electricity Distribution Company Ltd (MSEDCL) has a debt of about Rs21,000 crore, of which Rs 13,000 crore is in the form of long-term loans. Rs8,000 crore is in the form of short-term loans. The power distribution company supplies electricity to 2.2 crore consumers across the state. Maharashtra’s latest economic survey report says the state already has a debt of 3.33 lakh crore on its books.
Under the scheme, ‘Ujwal Discom Assurance Yojana’ (UDAY), state governments across the country can opt to assume up to 75 percent of the state electricity distributors’ debt and issue sovereign bonds to raise capital, which distribution companies will use to pay down debt. The scheme, launched in November last year, is aimed at improving the overall financial and operational efficiency of ailing state power distribution companies across the country.
“We submitted the proposal on Wednesday. We have given the state an undertaking that there will not be any impact on the state government’s finances and that the MSEDCL will take the responsibility of ultimately servicing the debt. However, with the UDAY scheme, the MSEDCL will get a significant interest rate benefit, reducing the company’s cost and ultimately lowering tariffs,” said a senior official from the Maharashtra State Electricity Distribution Company Ltd (MSEDCL).
As part of the scheme, the state government will have to assume responsibility 50 per cent of MSEDCL’s debt in the first year and 25 per cent in the second year. The centre will not count the taken-over loans in the states’ fiscal responsibility and budget management numbers. The state will sell bonds in the market to pay back lenders. The restructuring scheme is expected to reduce the interest rate on debt to about 9 percent from the over 13 percent that distribution companies are currently charged.
“The liability of paying off the debt will remain with the power distribution company, but the state’s taking over the debt will help extend sovereign guarantee, thus giving a net relief on the total interest burden,” a state energy department official said.
He said the state is in-principle interested in going ahead with the scheme to show support of what is one of the Bharatiya Janata Party (BJP)-led Union government’s flagship plans. “Being a part of the scheme will also give Maharashtra benefits such as additional or priority funding under other schemes of the Union power and renewable energy ministry. The proposal is likely to come up before the cabinet for discussion next week,” he added.
So far, at least 14 states have signed up for the UDAY scheme, namely, Jharkhand, Chhatisgarh, Rajasthan, Uttar Pradesh, Gujarat, Bihar, Punjab, Jammu & Kashmir, Haryana, Uttarakhand, Goa, Karnataka, Manipur and Andhra Pradesh.