No institutional funds for states without SERC

NEW DELHI, JUNE 8: The Union Government is going to ask domestic financial institutions (FIs) not to finance power projects in states which ...

NEW DELHI, JUNE 8: The Union Government is going to ask domestic financial institutions (FIs) not to finance power projects in states which do not have a State Electricity Regulatory Commission (SERC). While no official directive will be issued, the FIs will be asked not to entertain applications for loans from private and public sector power projects if they are in a non-SERC state.

This move is aimed at putting external pressure on states to set up SERCs. While most states have conveyed their willingness to set up the SERC, the Union Power Ministry does not want to leave any thing to chance and wants to expedite the process.

This follows the recent statement by Power Minister P R Kumaramangalam that no counter guarantees by the Central Government will be issued to projects in non-SERC states. But Tamil Nadu reacted negatively to this saying that counter guarantees and SERC should not be linked as they are two seprate issues.

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“The move to ask the FIs not to fund projects in non-SERC states is alogical step. How can FIs lend to states when the Central Government is not giving counter guarantees. If the Central Government itself is not willing to take the risk in these states, it would be very odd if the FIs went ahead and lent money,” said sources in the Ministry.

Power sector PSUs are being increasingly forced to raise money from internal and external sources as their budgetary support has been coming down. From Rs 1,569 crore in 1995-96, the external support through budget to PSUs has fallen to Rs 904 crore in 1998-99. The Government has encouraged these PSU to raise money from multilateral, bilateral and market sources.

These sources may also seek an SERC for loans to projects. The Power Finance Corporation’s loans to State Electricity Boards (SEBs) will also be affected by this move. Already the PFC does not issue loans to SEBs which default on payments. The loans from PFC to SEBs are for fresh capacity generation and for renovation and modernisation programmes.

If PFC stops funding theseprogrammes, the SEBs would come to a grinding halt. With the SEBs not being able to generate fresh power, and no public and private sector willing to enter, the state would be a severe power shortage. “We are trying to create conditions where the state will be forced to have an independent SERC. There will be internal pressure from the state and external pressure from the investors to set up the SERC,” say sources.

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The setting up of SERC will also go a long way in improving the paying capacity of SEBs. Since the SEBs are not able to charge adequate tariffs and are often on the verge of bankruptcy, they have not been able to pay for the power taken from central generating companies.

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