Centre suggests State take-over of debts of power distribution companies

By Kartik Lokhande 
The Union Ministry of Power has floated a proposal to reduce debt burden of power distribution companies as well as reduce losses. Under the plan, the Ministry has suggested take-over of debts of power distribution companies (DISCOMs) by respective States. Through this, the Centre aims at ‘permanent resolution’ of DISCOM issues concerning debt.
During a meeting of State Power Ministers held recently, this proposal was floated and discussed. Under the Ujwal DISCOM Assurance Yojana (UDAY), the Union Ministry of Power has made several suggestions including respective States taking over debts of DISCOMs, enabling quarterly tariff revision, increasing operational efficiency, lowering the cost of power, and laying emphasis on budgetary discipline. The quarterly revision of tariff has been suggested as the Union Ministry thinks that such periodic revision will be ‘easier to implement’ and that it will be ‘absorbed’ by consumers. In this regard, necessary changes in tariff policy are expected soon.
The debt burden of DISCOMs is a talking point as the accumulated losses of power distribution companies across the country are pegged at a whopping Rs 3,66,156 crore in the past six years, that is, from 2009-10 to 2014-15. The States borrow at around 8 per cent rate of interest, and the interest rate on DISCOMs’ debt is an average of 12 per cent, and as high as 14-15 per cent for many distribution companies. However, the trouble is that the regulators do not allow pass-through of interest on past losses in tariff. Hence, it is learnt, the Union Ministry of Power has suggested ‘surgical intervention’ to rationalise outstanding debt.
Considering the DISCOMs’ debt as de facto borrowing of States, Union Ministry of Power has suggested States to take over 75 per cent of debt of respective DISCOMs. As per the proposal, the principal debt taken over will not be included in fiscal deficit of States. However, interest has to be serviced within Fiscal Responsibility and Budget Management (FRBM) limits. According to sources, this is a tricky area. For, it will not be easy for the States to service interest within FRBM limits, given the already existing liabilities.
The debt of DISCOMs will be taken over by States in priority of debt already due, followed by debt with the highest cost. Transfer to DISCOMs by respective States will be as grant with an option to spread the grant over three years. States can grant loan to DISCOMs at the same rate of interest as that of State borrowing, it is suggested. However, given the current situation, how Maharashtra responds to the proposal remains to be seen.

Accumulated losses of power distribution companies
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Year                   Losses
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2009-10         Rs 41,558 cr
2010-11         Rs 51,971 cr
2011-12         Rs 76,877 cr
2012-13         Rs 71,690 cr
2013-14         Rs 64,060 cr
2014-15         Rs 60,000 cr
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Total         Rs 3,66,156 cr
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(15-11-15)