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Budget may subsidize interest on loans

Budget may subsidize interest on loans
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First Published: Wed, Feb 09 2011. 01 15 AM IST
Updated: Thu, Feb 10 2011. 02 19 PM IST
New Delhi: The government is likely to subsidize interest on loans taken by beleaguered state electricity boards (SEBs) to cut distribution losses in its budget on 28 February.
“The government will bear the interest on loans as a subsidy,” said a senior power ministry official, who did not want to be identified.
State-owned Power Finance Corp. Ltd (PFC) is expected to regulate the proposed subsidy.
“The provision for this subsidy is expected in this budget,” said another power ministry official, requesting anonymity.
Most SEBs make substantial losses and are either not able to raise money or can do so only at high rates of interest.
A dependence on subsidies and the political compulsion of providing free power to farmers reflects poorly on the books of these state-owned boards, which together have accumulated losses approaching Rs2.5 trillion.
According to the proposed scheme worked out under the National Electricity Fund, the boards will get a 3-5% discount depending on performance, which will be paid by the Union government to the lenders.
Mint had reported on 31 January 2008 about plans to set up the fund. It was first announced in the 2008-09 budget speech by then finance minister P. Chidambaram.
“Whenever the interest for loan will be due, the government will service that to the bank from where the loan has been availed,” said a senior PFC executive, who also requested anonymity. “This will also ensure that the SEBs can avail loans from any bank and not only state-owned Rural Electrification or us.”
Bloomberg had reported on the plan to include banks for offering subsidized loans.
The finance ministry’s position could not be confirmed as it is under quarantine during the last phase of preparations for the budget.
Bloomberg contributed to this story.
utpal.b@livemint.com
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First Published: Wed, Feb 09 2011. 01 15 AM IST