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  3. Financial reform of DISCOMS starts with 8 States

Financial reform of DISCOMS starts with 8 States

02 Apr 2013 Evaluate

With the start of new fiscal year 2013-14, the financial re-structuring programme for the sick State Electricity Distribution Companies (DISCOMS) have started and eight States with around Rs 1.60 lakh crore of bad loans are on board. The States include Uttar Pradesh, Haryana, Jharkhand, Tamil Nadu, Rajasthan, Kerala, Andhra Pradesh and Bihar. 

As per the Centre’s package, losses will be equally split between the state government and the DISCOMS. Half of these losses would be taken up by the respective States, which will issue long-term bonds in phases. For the remaining 50 per cent of losses, the distribution companies would get a three-year moratorium on principal payment.

In the first three-year phase, the States would issue bonds based on their targets under the Fiscal Responsibility and Budget Management (FRBM) Act, all bonds would not be issued in the first year. Further, after facilitating the stimulus successfully over three years, 25% of benefit would go to respective States as incentives. In the second phase, the government expects the distribution utilities to become cash-surplus and the remaining debt be restructured for seven years.

Moreover, the DISCOMS will have to take steps to cut down distribution losses and increase the electricity tariff based on power purchase fluctuations, which will be monitored by the Power Ministry. The overall annual loss of the utilities before subsidy has increased at 33% annually.

Apart from growing electricity scarcity, the poor financial health of the State electricity distribution companies is also stopping them from buying enough power to meet the demand. During the 11th Five Year Plan (2007-12), India witnessed a peak power shortage of 9%, when over 50,000 MW new generation capacity was created during the same period. The rising burden of fuel prices, low tariff hikes, and non-receipt and delayed subsidy payment from the government are the major reasons for power scarcity. 

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