Future loss funding denied to discoms under UDAY

Putting brakes on the vicious circle of loss funding to the power distribution companies across the country, the agreement for restructuring of loans under UDAY restricts the states signing up from availing any short-term loan from any bank or financial institutions.

Further to it, the working capital of the discoms would be funded by states through loans which could be only 25% of the discoms’ revenue from last year. The loans can be availed from state owned Power Finance Corporation (PFC) and Rural Electrification Corporation (REC).

The Ujwal Discoms Assurance Yojana (UDAY) announced last year envisages financial and operational turnaround of the stressed power distribution companies. Till yet, 16 states have given in-principle approval to join UDAY and six — Rajasthan, Uttar Pradesh, Jharkhand, Chhattisgarh, Gujarat and Bihar — have signed the agreement.

Government officials said the applications for loss funding by some states has been rejected. “One major component of the MoU is that banks/financial institutions will not advance any short-term debt to the discoms for financing losses,” said the official.

One of the first steps enlisted in the MoU is takeover of 75% of discom’s cumulative debt of 50% by March 2016 and balance by next year March. States would issue non-SLR SDLs (State development loans) against it at prevailing market rates. The balance 25% would be issued as sovereign backed bonds by discoms.

State governments are also supposed to provide operational funding requirement support to the discoms till they achieve turnaround. PFC and REC officials said the either the state would guarantee the bonds issued by the discoms or issue it would issue bonds to meet the current losses of the discoms.

Apart from financial improvements, the discoms would need to improve operational efficiency. Major targets being reducing AT&C losses from current levels to 15% by 2019. Also, improving collection and billing efficiency, considerably reducing energy theft, reducing gap between ACS and ARR of discoms are also part of the targets.

• No loss funding by any banks or FIs to the discoms that join UDAY
• Either state through its bonds or discoms’ bonds to fund losses
• States’ applications looking for loss funding rejected
• 25% of last year’s revenue only to be financed as working capital