New Delhi: Eight states issued bonds to the tune of 1 trillion till 31 March, bringing down the accumulated debt of power distribution companies to 3.3 trillion, power minister Piyush Goyal said in a tweet on Friday.

According to a government official, who asked not to be identified, the eight states raised 99,541 crore in 2015-16 under the Ujwal Discom Assurance Yojana (UDAY), approved by the Union cabinet on 5 November 2015.

The bonds they issued were subscribed to state-owned institutions like Life Insurance Corporation of India (LIC) and the Employees’ Provident Fund Organisation, as well as existing lenders whose loans to distribution companies are being retired by states using proceeds from UDAY bonds, said another official, also on condition of anonymity.

According to provisional figures, Rajasthan has raised 37,350 crore so far through UDAY bonds to retire over 60,500 crore of its power utility’s debt. The rest will be issued in fiscal 2017. Chief minister Vasundhara Raje had on 8 March projected a fiscal deficit of 5.62% owing to the bailout.

The central government has eased borrowing restrictions for all states that sign up for UDAY. The gap between states’ receipts and expenditure, usually met through borrowings, are otherwise not allowed to exceed 3%
of states’ gross domestic product under the Fiscal Responsibility and Budget Management Act of 2003.

A power ministry statement on Friday said that the quantum of loans being taken over by states that have adopted UDAY so far adds up to 1.96 trillion, accounting for 45% of the 4.3 trillion utility debt outstanding as of 30 September 2015.

Ten states have joined the scheme. Gujarat and Uttarakhand have not issued any bonds.

Uttar Pradesh has raised about 24,000 crore, Haryana about 17,300 crore, Punjab 9,800 crore and Jharkhand about 6,100 crore through UDAY bonds in 2015-16. Chhattisgarh, Bihar and Jammu and Kashmir, which have lower power utility debt to take over, raised smaller amounts, totalling about 4,500 crore, said the first official cited earlier.

States are issuing bonds to repay half the debt of their respective distribution companies as on 30 September 2015. An additional quarter of the outstanding debt will be taken over in 2016-17 by states with funds raised through UDAY bonds, while discoms will refinance the remainder with fresh state-guaranteed debt.

“The UDAY scheme also aims to reduce the underlying costs in the sector such as costs of power generation, transmission and distribution. For this, the utilities and state governments have to work towards reducing the technical and commercial losses (loss of energy during transmission and revenue loss due to power theft, respectively) as per the promised targets and focus on effective implementation," said Santosh Kamath, partner, KPMG in India.

The savings in interest cost to utilities due to the debt takeover will give enough fiscal space to them to spend money on investments and power procurement. This is necessary for the revival of the sector, including the unlocking of stranded assets, supporting renewables and providing uninterrupted power to all, said Kamath.