World Bank Reform Packages
The Ministry of Power is working on a special package for reforming states, whereby, the reform process could be partly funded through World Bank assistance. During the visit of the President of World Bank to India in November 2000 the issue of providing structural loans to reforming states was discussed and the World Bank has agreed to the following in principle:
- Assistance for preparation of bankable DPRs for run of the river hydro projects.
- Structural adjustment assistance for reforming states.
- Assistance for renovation, modernisation
and uprating of generating stations.
Implementation of Montek Singh Ahluwalia Report
In pursuance of one of the resolutions passed in the Chief Ministers’ Conference presided over by the Hon’ble Prime Minister on 03.03.2001, the Government of India constituted an Expert Group under the Chairmanship of Shri Montek Singh Ahluwalia, Member (Energy), Planning Commission to:
- Recommend measures for one time settlement of outstanding dues of SEBs to CPSUs
- Suggest a strategy for capital
restructuring of SEBs including the provision of structural
adjustment of loans so as to enable them to tide over present
financial crisis and make them operationally viable.
The Expert Group has submitted its report to the Ministry of Power on Part (a) above in May 2001. As per the report, as on 28.02.2001, the SEBs owed about Rs.41,473 Crore to various CPSUs and Railways. This amount consisted of Rs.25,725 crore of principal payment and Rs.15.746 Crore by way of surcharge/interest on delayed payments. The Group deliberated on whether the settlement should be attempted independently or as a part of the reform process. They however felt that although both are interlinked, it would be prohibitively difficult for the SEBs to reform if they have to carry the huge financial burden of outstanding dues. The Group therefore recommended that this financial liability should be taken over by their States and the CPSUs should also share this burden by waiving off part of their debt. The main features of proposed scheme for one time Settlement are:
- 50% of the surcharge/interest on delayed payments should be waived for the participating States.
- Remaining 50% of the surcharge/interest and the full principal amount has to be securitied through bonds issued by State Governments.
- The bonds should be issued through the RBI at a taxfree interest rate fo 8.5% per annum with terms such that entire principal is repaid between 6th and 15th years and with lock-in restrictions allowing release of only 10% bonds earch year in secondary market.
- Timely payment of current dues and opening of LC equal to 105% of average monthly billing for preceding 12 months.
- SEBs should accept reform based performance milestons such as setting up of SERCs, issuance and implementation of tariff orders, energy audit at 11 kV feeders, metering of distribution feeders & improvement in revenue realisation.
- Scheme to be effective only after half of
the States with Annual Billing of over Rs.500 crores from CPSUs
give their consent.
Incentives
- If SEBs do not default on their current dues and adhere to performance milestones, CPSUs should pay them bi-annual cash incentives equal to 2% of value of bonds for first 4 years starting 01.04.2001.
- If SEBs open and maintain LCs by Dec 2001,
CPSUs should pay them one time cash incentive equal to 2% of value
of bonds.
Disincentives
- Graded reduction in supply of power/coal from CPSUs for defaulters on current payments.
- Where defaults exceed 90 days from the date of billing, GOI to recover through adjustment against Central Plan Assistance and other devolutions from the Centre.
- States withholding consent beyond 60 days
of the scheme becoming effective to be denied discretionary
allocation as well as any assistance under APDP.
The high level Empowered Group consisting of Chief Ministers, Deputy Chairman, Planning Commission, Finance Minister and Power Minister, which has been constituted to monitor and guide the reform process, has approved the recommendations with the following modifications:
- Waiver of surcharge recommended by the Expert Group shall be increased from 50 to 60%
- Incentives for a period of 4 years @ 4% of
the face value of the bonds for achievement of performance
milestones by the SEBs shall be increasd to 6% in the first year
and 5% in the second year.
The Expert Group has also submitted the second report relating to strategy for capital restructuring of the SEBs. The Report is under examination.
Draft Electricity Bill
Steps are being taken to introduce the Electricity Bill in Parliament after wide ranging consultations and discussions with all the stakeholders. The Bill aims at creating an enabling frame work for a competitive and efficient power sector, which can contribute significantly to the requirements of all sectors of the economy and population. This bill, when enacted and enforced, will give a major boost to the process of power sector reforms.