Discoms undergoing Treatment

It has been a no-brainer for the Indian power industry on the health of Indian Discoms; who are buying power at a much higher rate than their selling rate.  Several state discoms have been under acute financial distress and reached out to the power ministry to help restructure their loans.

Recently the Central Government had initiated work on the restructuring of the Discoms and has concluded Financial Restructuring Package (FRP) for four states — Haryana, Rajasthan, Uttar Pradesh and Tamil Nadu. Next on the cards for FRP are Jharkhand, Andhra Pradesh and Bihar.

Power Minister, Mr. Scindia has said that the FRP does mandate a tariff-setting mechanism.  He is confident of that power off-take would pick up after loans at several distressed state electricity boards (SEBs) are restructured.

Another interesting update is the discussion with Mr.Arun Kaul Chairman UCO Bank by moneycontrol.com. During the discussion, Mr.Kaul does talk about UCO Bank having an exposure for discoms of approximately Rs 9,000-10,000 crore which is primarily the four – Tamil Nadu, UP, Rajasthan and Haryana and they have all been restructured.

When asked on how will the recent updates from Delhi and Haryana impact banks [Delhi’s new State Government is looking to reduce power tariffs to the end consumer and Haryana has stated that they are not looking to raise tariffs in the near future]; Mr. Kaul explained that There are two issues. Number one, if there is a price rise are the discoms able to pass it on the consumers or not. Second, they do not increase their tariff but they get subsidy for the government. So far they get subsidy from the government discoms health would remain okay. The problem comes when they would not get subsidy. Banks will have to wait and see how the situation plays out.

Moneycontrol also spoke to CVR Rajendran CMD Andhra Bank on their Rs.2000 crore exposure to Andhra Discom. In the FRP process, the bank has agreed for restructuring and 50 percent of its exposure is to be converted into long-term bonds which comes at about 9.85% and remaining amount is restructured over a longer period.

These bonds with state government guarantee at 9.85 will be picked up by the provident fund.

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