attempt to restore power purchasing capacity of the debt ridden DISCOMS
and also to enable Banks to recover their loans, the Cabinet Committee
on Economic Affairs approved the scheme for Financial Restructuring of
State Distribution Companies (Discoms). The scheme contains various
measures required to be taken by State Discoms and State Governments for
achieving the financial turnaround of the Discoms by restructuring their
debt with support through a Transitional Finance Mechanism by Central
Government. The scheme is effective from the date of notification and
will remain open upto 31st Dec 2012 unless extended by the GOI. The
scheme would be applicable to all State owned Discoms having accumulated
losses and facing difficulty in financing operational losses.
accumulated losses of the state power distribution companies (Discoms)
are estimated to be about Rs 1.9 Lakh crore as on 31st March, 2011.Any
turn around strategy has to be based on the principle that gap between
Average Revenue Realization (ARR) and Average Cost of Supply (ACS) is
eliminated as early as possible, liability to be taken over by State
Government/ equity infusion by State Government, subsidy to be provided
in full by State Government as per the Electricity Act and Average Debt
Service Coverage Ratio (DSCR) to be atleast 1. The scheme has been
prepared keeping in view the fragile health of utilities and State
Government, coupled with serious systemic deficiencies in the working of
State Discoms and underlying principles of turnaround as aforesaid. The
scheme contains immediate/ continuing and short term measures required
to be taken in a time bound manner by the Discoms and State Governments.
These measures include Financial Restructuring, Tariff Setting & Revenue
Realization, Subsidy, Metering, Audit & Accounts and Monitoring.
50% of the
outstanding short term liabilities upto March 31, 2012 to be taken over
by State Governments. This shall be first converted into bonds to be
issued by Discoms to participating lenders, duly backed by State Govt
a. Takeover of liability by State Govt from Discoms in the
next 2-5 years by way of special securities and repayment and Interest
payment to be done by State Govt till the date of takeover.
b. Restructuring the balance 50% Short Term Loan by
rescheduling loans and providing moratorium on principal and the best
possible terms for this restructuring to ensure viability of this
c. The restructuring/reschedulement of loan is to be
accompanied by concrete and measurable action by the Discoms/States to
improve the operational performance of the distribution utilities.
d. For monitoring the progress
of the turnaround plan, two committees at State and Central levels
respectively are proposed to be formed.
e. Central Government will provide incentive by way of grant
equal to the value of the additional energy saved by way of accelerated
AT&C loss reduction beyond the loss trajectory specified under RAPDRP
and capital reimbursement support of 25% of principal repayment by the
State Govt on the liability taken over by the State Govt under the
f. Ministry of Power to bring out draft model legislation on
State Electricity Distribution etc. Responsibility bill, after due
inter-ministerial consultation within a period of twelve months from the
approval of the Scheme.
g. States will enact the legislation within twelve months from
the date of circulation of model legislation by Ministry of Power to
mandate the compliance of the provisions of FRP.
scheme proposes to enable the State Governments and the DISCOMs to carve
out a strategy for the financial turnaround of the distribution
companies in the State power sector which will be enabled by the lenders
agreeing to restructure/reschedule the existing short-term debt. As the
restructuring/reschedulement by lenders is subject to certain prior
steps to be taken by the State Government/DISCOMs and their commitment
to fulfil mandatory conditions which are aimed at bridging the gap
between the average cost of supply and the average revenue realized,
this would help in restoring the viability of the distribution sector in
the State. By restructuring and rescheduling the outstanding short term
debt and securing the commitment of the State Govt in the discharge of
debt service obligation, the Discoms would be nursed back to health.
Government of India support through the transitional finance mechanism
would serve the purpose of incentivizing the fulfilment of mandatory
Providing comfort to the lenders by securing State takeover of and
guarantee for debt,
Bringing about financial discipline in the distribution sector in the
Providing a commercial orientation to the functioning of the
Casting responsibility on the State Government to ensure a steady flow
of revenue to the distribution companies by improving the efficiency of
Accelerate the AT&C loss reduction effort of DISCOMs, through additional
incentive from Central Govt
Ensure regular rationalisation of tariff to cover cost of service,
Gradual elimination of the gap between ACS and ARR.
(h) Ensure timely audit of DISCOM
(i) Improve the financial health of
the Distribution Utilities to enable them to procure more electricity
for meeting their growing demands.
IMPORTANT MANDATORY CONDITIONS
1. 1. State Governments
shall convert all their loans to equity
2. All outstanding energy bills of State Departments/Agencies as on
31.3.2012 to be paid by 30.11.2012
3. Eliminate the gap between ACS and ARR within the period of moratorium
of the bonds
4. Involvement of private sector in state distribution sector through
franchisee arrangements or any other mode of private participation to be
prepared within a year by the Discoms
5. Tariff order to be notified by 30th April of each Financial year
6. Fuel cost adjustment to be allowed as directed by APTEL
7. FRP to include targets for progressive reduction in Short Term Power
(STP) purchase by the State Discoms
8. Subsidy should be paid upfront by State Govt.
9. Prepaid meters to be installed by 31.3.2013 for all Government
10. Audited accounts for and up to FY 2010-11 by 30.9.2012 and of FY
2011-12 to be finalized by 31.12.2012.