UP to hike power tariffs, privatise discoms
Under the FRP, the UPPCL will issue bonds, backed by the state government's guarantee, equal to half of the outstanding dues to the lenders and independent power producers

Virendra Nath Bhatt
January 25, 2013
Lucknow: Compelled to take the highly unpopular decision of hiking the power tariff and privatising the power distribution companies (discoms) in the state to avail the benefit of the bailout package announced by the Centre, UP government is trying to delay the implementation of the package till the end of the crucial 2014 Parliamentary elections. UP Power Corporation Limited (UPPCL), the loss making PSU power utility, and its five subsidiary discoms are in dire need of fresh infusion of funds to keep the show running.

The Uttar Pradesh cabinet earlier this week granted in principal approval for the implementation of the bailout package and Financial Restructuring Plan (FRP) to be submitted to the Centre, as per the package. The cabinet, however, decided to set up a committee of officials of finance and power department to prepare a proposal for the Centre, seeking rescheduling of repayment of outstanding loans from five years to 15 years. As per the conditions, the state is required to implement the package within one year from the signing of the agreement with the Union ministry of power. The UP government wants to delay the signing of the agreement till July/August 2013 so that it can start working on its implementation of the package after the conclusion of the Parliament elections scheduled to be held in May 2014.

Under the FRP, the UPPCL will issue bonds, backed by the state government’s guarantee, equal to half of the outstanding dues to the lenders and independent power producers. The UPPCL will repurchase the bonds from the lenders after five years. For the remaining outstanding amount, the Centre will reschedule the repayment of dues to the financial institutions and banks. Under the FRP, UPPCL will issue bonds worth Rs 14,000 crore to the financial institutions and power producers.

The Centre had formulated the package, announced in September 2012 for clearing the outstanding debt on these companies till the end of March 2012. The accumulated losses of the UPPCL, including the outstanding loans from the banks and financial institutions and arrears to power generation companies, stand at a whopping Rs 40,000 crore by the end of March 2012. The UP government is left with no option but to avail the package as the banks and the FIs have refused to lend any further to the UPPCL.
The present loss on each unit sold by UPPCL and its five subsidiaries (the gap between the cost of power and revenue realized) is Rs 2 per unit and the power utility is losing Rs 44 crore every day.

The Centre has laid down two conditions — a hike in power tariff for the next three years from April 1, 2-013, to bridge the cash loss of the discoms and their privatization, as the key for availing the benefits of the bailout package. The UPPCL, as per the conditions, is required to submit revised tariff plan to the UP State Electricity Regulatory Commission, the power regulator by April 1 of the year and the revised tariff will be enforced by April 30 of each year. UP government will also be required to privatize the discoms within the next three years or hand them over to a franchise, which will recover the revenue from the consumers as per tariff determined by the regulator.

“Package or no package, the power tariff needs to be revised as the cost of input has gone up. We will submit the revised tariff plan to the regulator in March next and we expect that the revised tariff will be enforced from April 30’’, said AP Mishra, MD, UPPCL, adding, “we will seek at least 20 percent hike in tariff for domestic and commercial categories of consumers’’.

The previous government of Bahujan Samaj Party had initiated the process for the privatization of power distribution in eight big cities of UP. However, the government could only privatize power distribution in Agra where it was handed over to the Torrent group of Gujarat. The privatization plan for rest of the seven cities was shelved due to the intense opposition by the power employees and their threat of proceeding on strike.