Taking over of Discoms losses linked to plan for franchising system
V K Gupta

19 December, 2011

The Shunglu Committee has linked taking over of Discoms financial losses with an operational plan for franchising of distribution services. 0 1 NewShare00.0/52 3 4 5
ACCORDING TO the recommendation, the RBI would offer line of credit to the Special Purpose Vehicle 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 up gradation

Share The Special Purpose Vehicle (SPV) will be headed by Reserve Bank of India to take the Discoms losses on its balance sheets as assets. The SPV would comprise of representatives from Public Sector Banks who would jointly negotiate with the Discoms for restructuring of their loans. The SPV would be owned by RBI to the extent of 76% and the balance would be contributed by the Power Finance Corporation and Rural Electrification Corporation.

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. The report suggests power regulators should allow distribution companies to pass on the entire burden to consumers to help them come out of annual losses. It has also suggested restructuring distribution companies, imposing penalties on consumers in high theft areas, pre-paid metering for non-paying customers and billing agricultural users.

Another major suggestion is that regulators must ensure that the entire validated costs of distribution companies get recovered. The Appellate Tribunal for Electricity in a sue motto case has ordered that regulators must ensure that tariff petitions are filed in time and tariff revised every year.