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States give green signal to big ticket restructuring package for discom

19 Jul 2012 Evaluate

In a big relief to the ailing power distribution companies, states have given a green signal to the big ticket restructuring package for discom, estimated to be worth Rs 1.2 lakh crore. As decided by the Centre, 50% of the short term loans outstanding on March 31, 2012 will be taken over by the state government after discoms issue bonds to lenders, while 50% of the liabilities will be rescheduled by banks and financial institutions, which would have moratorium of three years for payment of the principal amount along with the interest.

The maturity of these bonds will be 15 years and the issuance calendar will be based on the fiscal space available with states. However, the states will take on the liability of these bonds, permitted by their respective Fiscal Responsibility and Budget Management targets.

As per the mandatory condition of the Financial Restructuring Plan (FRP), each of the state must show the projection of the revenue stream for the discoms over the next three to five years, with the further condition of recovery of the loans until the discom turnaround.

A total of seven states governments, Uttar Pradesh, Punjab, Rajasthan, Haryana, Andhra Pradesh, Tamil Nadu and Madhya Pradesh, on their part would ensure that electricity tariffs are revised, subsidies are released in advance, besides, metering and audit are also taken well care off.

Further, in an incentive to the states in which the discoms FRP gets successfully implemented, 25% of the bond’s principal amount would be reimbursed by the Central government. Additionally, a matching grant would be allowed to states achieving a reduction in transmission and distribution losses over and above the targeted level in three years.

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