Bonds from state discoms won’t have SLR status

Failing to get the statutory liquidity ratio status will make such bonds less attractive for lenders
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First Published: Tue, Feb 05 2013. 11 33 PM IST
The cumulative losses of distribution utilities increased from `1.22 trillion in 2009-10 to `1.9 trillion as of March 2011. Photo: Mint
The cumulative losses of distribution utilities increased from Rs.1.22 trillion in 2009-10 to Rs.1.9 trillion as of March 2011. Photo: Mint
New Delhi: The Union government will not provide statutory liquidity ratio (SLR) status to bonds sold by state electricity distribution companies (discoms), Jyotiraditya Scindia, minister of state for power with independent charge, told state power ministers on Tuesday.
In another development, Scindia said the standard bid documents (SBDs) norms of the so-called case 2 projects, where resources such as land, fuel and water are identified and, in some situations, also provided to the developer quoting the lowest power tariff, will be finalized shortly. The issue is before an empowered group of ministers (eGoM), he added.
“The documents have been finalized and before eGoM. We expect the decision this month,” said a senior power ministry official requesting anonymity.
Failing to get the SLR status for bonds sold by discoms will make it less attractive for lenders. Banks are required to invest at least 24% of their deposits in government bonds to meet the norms. Once a bond gets SLR status, banks can treat their investment in such as part of SLR holdings even if it is not sold by the government.
This comes amid the government plan to bail out debt-laden discoms through a revamp of short-term loans. Discoms owned by state governments are finding it difficult to raise working capital and owe Rs.2.46 trillion to lenders.
While states have been asking for SLR status to be accorded to bonds issued by discoms, Scindia, speaking at the sixth annual meet of state power ministers, said “going forward, it will be difficult to look at it”, given the states’ fiscal responsibility and budget management limits.
According to the contours of the bailout package proposed by the power ministry and approved by the cabinet committee on economic affairs, states will take over half the outstanding loans of state electricity boards (SEBs) and convert them into bonds that will be issued to lenders and backed by state guarantees. The lenders are to restructure the remaining 50% and provide a three-year moratorium on principal repayments.
These states will be part of tripartite pacts signed to implement the debt recast. SEBs will also promise to revise tariffs in correlation with costs, besides working to reduce theft, transmission and billing losses from the present levels of 27%. The Union government will provide a grant if states exceed loss reduction targets, and reimburse states 25% of the principal they repay. Such an exercise will help infuse capital and boost net worth of SEBs. The plan isn’t mandatory, but SEBs and states were given a 31 December deadline, which was extended to 31 March. “An extension has been given and the states are preparing the financial restructuring plans,” said P. Uma Shankar, Union power secretary.
While Rajasthan, Haryana, Tamil Nadu, Andhra Pradesh and Uttar Pradesh have given “in principle” approval for their participation, Punjab and Madhya Pradesh have expressed reservations. These were the states the restructuring plan was aimed at.
While Madhya Pradesh isn’t in favour of it, Punjab “has given conditional nod, subject to relaxation of mandatory conditions and higher reimbursement support”. These states account for around 75% of total distribution losses.
The cumulative losses of distribution utilities increased from Rs.1.22 trillion in 2009-10 to Rs.1.9 trillion as of March 2011. According to a study by consulting firm Mercados EMI Asia for the 13th Finance Commission, the projected losses in 2014-15 are expected at Rs.1.16 trillion.
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First Published: Tue, Feb 05 2013. 11 33 PM IST
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