Discom restructure kicked off with 8 States in April 2013, Rs 1.60 lakh cr in bad debt

bl02_04_Discom_eps_1414320gUnder the Centre’s package, half of the losses would be taken up by the States, which would issue long-term bonds in phases. For the remaining losses, the distribution companies would get a three-year moratorium on principal payment.

The financial re-structuring programme for the sick State Electricity Distribution Companies (Discoms) has started with the new fiscal year 2013-14.

“Eight States with around Rs 1.60 lakh crore of bad loans are on board. Their State Governments have given approval,” confirmed a senior Power Ministry official.

The States include Tamil Nadu, Rajasthan, Uttar Pradesh, Haryana, Jharkhand, Kerala, Andhra Pradesh and Bihar.

According to the Centre’s package, 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.

For example, bad loans of around Rs 30,000 crore run up by utilities in Uttar Pradesh will be equally split between the State Government and the Discoms.

Similarly, in the case of Rajasthan, the Discoms would take up debts of around Rs 19,200 crore, while a similar amount would be handled by the State Government.

Tamil Nadu’s Finance Minister O. Panneerselvam, while presenting his Budget last week, said the State had debts of Rs 45,000 crore and the Government has given approval for restructuring.


In the three-year first 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. After facilitating the stimulus successfully over three years, 25 per cent of benefit would go to the respective States as incentive.

The coupon rates for these bonds would be at a premium to market rates. However, it will be at sub-9 per cent. The exact returns on the bonds would be known on the day the States launch them, said the Power Ministry official said.

The Discoms will take steps to reduce distribution losses and increase the electricity tariff based on power purchase fluctuations. All these steps would be monitored by the Power Ministry.


In the second phase, the Government expects the distribution utilities to become cash-surplus. The remaining debt would, thereby, be restructured for seven years.

Currently, the poor financial health of the State electricity distribution companies is preventing them from buying enough power to meet the demand. The high utility losses are because of low tariff hikes, the rising burden of fuel prices, and non-receipt and delayed subsidy payment from the States.

The aggregate annual loss of the utilities before subsidy has increased at 33 per cent annually.

Source: Business Line


About Ritesh Pothan

Ritesh Pothan, is an accomplished speaker and visionary in the Solar Energy space in India. Ritesh is from an Engineering Background with a Master’s Degree in Technology and had spent more than a decade as the Infrastructure Head for a public limited company with the last 9 years dedicated to Solar and Renewable Energy. He also runs the 2 largest India focused renewable energy groups on LinkedIn - Solar - India and Renewables - India
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