Financial restructuring discoms in offing

VK Gupta
Yogindra Mohan
Patiala

The bailout plan for power sector by way of debt restructuring of power distribution companies (Discoms) with total losses of Rs 1.9 lakh crore is a welcome step but mandatory conditions linked with it may not yield desired results.

Northern India Power Engineer’s Federation Secretary (Finance) Er VK Gupta, who is also All India Power Engineers Federation (AIPEF) Executive Member, told Daily Post here on Sunday that the government had never tried to diagnose the problems faced by power sector but only tried to treat the symptoms. The experimentation in power sector continues only to benefit the private players at the cost of tax payer’s money. Franchisee system in power distribution means beginning of end of role of state Discoms.

Er VK Gupta said that the support under the scheme will be available for all participating state owned Discoms on fulfilling certain mandatory conditions. The state governments will have to convert all their loans to equity. All outstanding energy bills of the state departments as on March 31, 2012 are to be paid by November 30, 2012. Although the scheme is not mandatory for all states, but it requires that the states which agree on adopting the package will have to pass the State Electricity Distribution Responsibility Bill in their respective states following which the package will be made effective and the government grants will start flowing in. The real bail out will come only after five years of consistent performance by Discoms when the centre will pay 25 per cent of restructured debt.

Gupta said the restructuring package for the State Electricity Boards (SEBs) has to be supported by tariff hikes, a timely and adequate financial support by the state governments, and better regulatory process and disclosures to yield results. He further stated that the most dangerous condition is that involvement of private sector in state distribution sector through franchisee arrangements to be prepared within a year by the Discoms.

The AIPEF executive member said the debt restructuring plan is based on the report of Shunglu Committee. The Shunglu committee had come to the mistaken conclusion that distribution franchise was the only solution to the ills of power sector. Further the sweeping conclusion that reduction in AT & C losses is not possible until the distribution companies are under state control.