A special package is being worked for Tamil Nadu, Andhra Pradesh, Uttar Pradesh, Bihar and Rajasthan

Even as the state electricity distribution companies (discoms) are faced with a whopping Rs.1.95 lakh crore losses, the Power Ministry is readying a bail-out package that could include tariff revision every nine months, issue of bonds for half of the losses and backing discoms with guarantees for 50 per cent of their loans.

The bail-out package is being worked out jointly by the Power Ministry, the Finance Ministry and the Planning Commission in a bid to restructure the discoms.

The move for a rescue package comes after the Finance Ministry and the Reserve Bank turned down the Power Ministry’s proposal seeking refinance of Rs.1.95 lakh crore accumulated losses incurred by these discoms. While seeking refinance, the Power Ministry stated that such debt was not viable and could increase the non-performing assets of banks and other financial institutions.

Officials in the Power Ministry said that a special package was being worked for States such as Tamil Nadu, Andhra Pradesh, Uttar Pradesh, Bihar and Rajasthan. These states were faced with mounting losses and found themselves in worse condition. A committee under the Secretary, Financial Services, has been set up to work out a plan for the seven stressed-out states.

Power cuts are an order of the day in South Indian States, and the situation is slowly turning bad in North India also. Majority of the discoms are faced with mounting loan repayments, pending subsidy receipts, piled-up payment to power producers, increasing utility losses due to low tariff hikes, rising burden of fuel prices and the like. Following the objections raised by the Finance Ministry and the RBI, the Power Ministry has gone into a strategy mode, and is working on the idea of issuing bonds by discoms to cover up to 50 per cent of debt and the possibility of State governments sharing a part of the burden. According to official sources, comprehensive bail-out package is expected to be placed before the Cabinet for approval in a month or two.

The bail-out package is likely to include a condition that would make it mandatory for the state discoms to revise power tariffs every nine months if they are to receive any kind of benefit from the central package. The government has already made its intentions clear to rate the discoms based on their financial performance and, therefore, a tariff hike across the country is imminent.

The Power Ministry has also suggested in its XII Plan draft before the Planning Commission that an amendment should be made to the Electricity Act, 2003, allowing the State Electricity Regulatory Commissions to hike tariffs without waiting for a nod from the government or proposals from the discoms.