Bailout plan for State-run power distribution companies

Why in news?

In a major move to revive India’s struggling discoms, the government is considering multiple reform measures to improve their financial health.

• India is considering a bailout plan of exceeding Rs. 1 trillion ($12 billion) to support these reforms and put discoms on a sustainable growth path.

Bailout – When a government or big organization gives money to a struggling company or industry to avoid failure. They can take the form of loans, cash infusions, and/or stock purchases.

• Aim – To improve the financial health of the  debt-laden state-run power distribution companies.
• Nodal Ministry – Ministry of Power.

Key proposals  

• Mandatory privatization – States would be required to ensure that at least 20% of the State’s total power consumption must be met by private companies.
• The states must assume part of the retailer’s debt.
• Partial divestment to pay off existing debt –
  • Create a new distribution company, divest 51% equity, and gain access to long-term, interest-free loans and 5 years of low-interest federal loans.
  • Privatize up to 26% of an existing state-owned discom's equity in exchange for 5 years of low-interest federal funding.
• Listing in Stock Exchange – Alternative to privatization, states that decide to retain their managerial control must list their utilities on a recognized stock exchange within 3 years to receive low-interest loans for infrastructure management.
• Cost reflective tariffs – Recommends to make electricity tariffs more cost-reflective, aiming to reduce losses and ensure operational viability.

Cost-reflective means that the price charged for a service, like electricity, reflects its actual cost of production and supply.

• Elimination of banking for open access – It currently allows power producers to store surplus energy for later use, help improve the efficiency & financial performance of key lenders like Rural Electrification Corporation (REC).
• Present privatized distribution zones — Including Delhi, Maharashtra and Gujarat.

References

1. The Hindu | Bail-out plan for State power distributors
2. CNBCtv18 | Bail-out plan for State power distributors