Home >Industry >Energy >Banks may cut funding to Rajasthan discoms missing UDAY targets

New Delhi: Lenders are planning to cut working capital finance to Rajasthan’s power distribution companies which have failed to meet the financial targets set under the Ujjwal Discom Assurance Yojana (UDAY), a discom bailout package.

Rajasthan’s state-owned utilities have not revised power tariffs as previously agreed, two bankers aware of the matter said.

“The scheme was implemented with the promise that these distribution companies will revise their tariffs on time. However, that is not happening," said the first of the two bankers quoted above, speaking on condition of anonymity.

According to the banker, this has forced bankers to rethink their strategy on funding state government-owned utilities. Under UDAY, banks can fund up to 25% of a state’s //discom’s?// previous year revenues as working capital.

“If there are no revisions in tariffs, the ability of the state electricity boards to generate necessary cash flows is limited. Unless this is taken care of, we have decided not to extend any working capital loans," said the second banker quoted above, also speaking on condition of anonymity.

A spokesperson at the central power ministry did not respond to an email sent on Friday. Sanjay Malhotra, power secretary in Rajasthan did not answer several calls made to him.

Before the state electricity board (SEB) turnaround plan was implemented in November 2015, Rajasthan was the biggest defaulter with a total debt of over 80,000 crore, of which short term liabilities were about 50,000 crore.

With UDAY, 75% of the debt as on 30 September 2015, was to be taken over by states, which could in turn issue long-term bonds to the banks with state guarantee. This took care of the majority of the debt pile at these state utilities; however, future funding was linked to performance.

The first 14 states that signed up for UDAY were Rajasthan, Haryana, Uttar Pradesh, Jharkhand, Chhattisgarh, Gujarat, Bihar, Punjab, Jammu & Kashmir, Uttarakhand, Goa, Manipur and Andhra Pradesh.

According to power ministry data, a total of 15 states (including Tamil Nadu) have so far issued bonds worth 1.83 trillion under the UDAY scheme, which accounts for 63% of the total debt of all the utilities in these states. Rajasthan alone has issued bonds worth 70,525 crore, the highest among all states.

UDAY is not the first bailout plan for power distribution firms. This is the third such bailout for the Indian distribution sector in around 13 years; the first two failed to incentivize the states to act.

“Under the government’s scheme of loans being converted to bonds, the SEBs were to make a lot of interest savings. However, for this to be useful, the tariffs have to change accordingly, so that cost can be reduced. In the absence of bank support, the states would have to borrow on their balance sheet, or the discoms will have to reach out to state-owned power finance agencies," said Sabyasachi Majumdar, senior vice president, ICRA Ltd.

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