Tamil Nadu issues order for counter guarantee

With the State government issuing a formal order for a counter guarantee on transitional loans of Rs. 10,000 crore to be drawn from two Central financial institutions (FIs), the Tamil Nadu Generation and Distribution Corporation is likely to sign loan documents shortly with Power Finance Corporation (PFC) and Rural Electrification Corporation (REC).

The order, issued on Tuesday, essentially means that while the TANGEDCO will be primarily responsible for repayment and debt servicing, the State government will, irrevocably and unconditionally, assume the responsibility in the event of default.

The two FIs will give Rs. 5,000 crore each to the Corporation, which hopes to clear outstanding bills raised by contractors, suppliers and power sellers.

The tenure of the loans will be five years with a moratorium of two years. The rate of interest will be 12.75 per cent with a rebate of 0.25 per cent for timely repayment of dues.


What is more important, from the point of view of electricity consumers, is that the FIs have laid down some crucial conditions for the TANGEDCO which will eventually affect electricity consumers.

One of the conditions is that the State power utility has to file a tariff revision petition for 2012-2013, latest by November 30. Hike in fuel cost or power purchase cost has to be passed through. To facilitate it, a mechanism has to be activated. A financial restructuring plan (FRP), on formulation, has to have the approval of the State government.

The broad ingredients of the FRP include annual revision of retail tariff and the preparation of a business plan that will give, among others, projected figures of cash flow for five years. The TANGEDCO has engaged a consultancy firm to prepare the proposed FRP, which is expected to be ready in a month.

The State government has agreed to absorb 30 per cent of the current year’s losses, whose exact figure will be known only next year. It has also decided to take over 50 per cent of outstanding short term and medium term loans (as on March 31, 2012) which relates to Rs. 9,529 crore. Chief Minister Jayalalithaa announced these measures a few weeks ago.

In fact, as per the Union Cabinet’s decision, State governments are required to take care 50 per cent of only short term liabilities. Going by this, in the context of the TANGEDCO, only Rs. 4,300 crore would have been covered. But, as such a move would give only limited relief to the power utility, the Tamil Nadu government has gone in for including medium term loans.

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