Shunglu Committee proposes Special Purpose Vehicle to manage Discom losses
As per the recommendations of Shunglu Committee report the restructuring of Discom losses may be in the offing. The Shunglu committee has recommended the formation of a Special Purpose Vehicle (SPV) to be headed by Reserve Bank of India to take the Discom losses on its balance sheets as assets. The SPV would comprise of representatives from PSU banks who would jointly negotiate with the Discoms for any restructuring of their loans. The committee has also recommended draw down of about 4,000 crore state guarantees by banks.

The SPV would be owned by RBI to the extent of 76% and the balance would be contributed by the leading Govt. owned financial institutions - PFC and REC. The drawdown of 4000 Cr. That has been recommended might affect the balance sheets of REC and PFC but the extent of it is unknown.

The committee has asked all public sector banks to jointly negotiate with states and their distribution utilities the final settlement amount and schedule. It is a known fact that PSU banks like PNB and Allahabad Bank have already gone ahead with the debt restructuring exercise. In cases where distribution utilities are unable to meet repayment liability, the SPV will purchase the liability and this would become as asset to it. According to the recommendation, the RBI would offer line of credit to the SPV to make purchases. The distribution companies would pay interest on repayment liability purchased by SPV enabling it to pay interest charges of the RBI. However, liability purchase by the SPV would be subject to state governments agreeing for regular and adequate tariff increase, an operational plan for franchising of distribution services and financial upgradation.

These recommendations are expected to serve the dual purpose of avoiding any exigencies for Discoms which are financially stretched to buy any power in the short term as well as bringing them under the leash of the exchequer. Any issue of credit lines to Discoms is expected to be monitored tightly through the rating system for evaluating Discom finances.