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Power sector debt recast proposal might get government’s nod

The much-awaited debt recast package for state electricity boards (SEBs) may soon receive government approval. 
 
As part of the renewed push to big bang economic reforms, the Manmohan Singh government is likely to clear a proposal to restructure the debt of state electricity boards (SEBs) and power distribution companies (discoms) to revive the ailing sector.
 
“We have worked out some financial package and also a debt restructuring package that will be approved by the Cabinet in a week or two,” power minister M. Veerappa Moily told reporters on the sidelines of a Confederation of Indian Industry (CII) corporate governance summit in Mumbai on Tuesday.
 
The power sector has a total debt of around Rs 3.25 lakh crore, or 7.41 per cent of the banking sector's total loans, according to Reserve Bank of India figures. As much as 25 per cent of this debt is reported to be on the books of discoms.
 
Banks have continued to fund losses of SEBs in the belief that the state government concerned will ultimately pay for them. But since this has not happened and bad loans have piled up, banks have turned cautious in lending to SEBs and discoms. Some states such as Punjab have also been providing free power to farmers, which has added to the losses.
 
“Discoms have an asset-liability mismatch,” said the chairman of a state-run bank, who did not want to be named. He added that internally the process of debt recast was already underway in his bank. “The government is finalizing the guidelines right now for everyone.”
 
However, a package is been discussed wherein about half of the loans could be transferred to the respective state governments through guarantees on bonds that the discoms will issue.
 
SBICAP Securities Ltd’s lead sector analyst Rabindranath Nayak said this “would provide relief to discoms and banks” but states may differ in their ability to shoulder their share of the burden. States with lesser revenues “may need some more central assistance,” he said.

 

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