No bailing out discoms,no SLR bonds: Govt

No bailing out discoms,no SLR bonds: Govt

Accumulated losses of state electricity distribution companies nationwide stand

The government has refused to bail out the tottering power distribution companies reeling under accumulated losses of Rs 1.90 lakh crore.

It has said that while losses of discoms cannot be bankrolled,there will be no relaxation in Fiscal Responsibility and Budget Management (FRBM) restrictions because of widening fiscal deficit. The Centre has also ruled out allowing discoms from raising Standing Liquidity Ratio (SLR) bonds,arguing that it can trigger similar demands from other sectors.

In course of a recent meeting chaired by Planning Commission Member BK Chaturvedi to assess the health of discoms,the top brass of states,including Uttar Pradesh,Rajasthan and Tamil Nadu said while they have been asked to unbundle their electricity boards mandatorily by September 2012,the government needs to factor in losses to the tune of Rs 1.90 lakh crore of discoms nationwide.

Tamil Nadu chief secretary DK Sarangi said that his state alone is shouldering a burden of Rs 40,000 crore.The situation has worsened as banks have refused to provide money to them.


In no mood to oblige,secretary (financial services) DK Mittal said that it is the primary responsibility of the states to ensure efficient functioning of discoms and state regulators so that there is proper cost recovery.

“Bank finance cannot be used for funding losses. Banks should not be allowed to negotiate on case-to-case basis and state governments should take full responsibility,” he contended.

Endorsing Mittal’s argument in the meeting,Chaturvedi suggested more focus on increase in tariff and state government funding,and added that it would not be desirable for banks to finance cash losses.

In reply to the demand of the state governments that FRBM targets should be relaxed to help them re-arrange their finances,Secretary (Economic Services) R Gopalan said the Centre is taking measures to contain a rising fiscal deficit and the interest burden on the government is already very high.

He told the meeting that states must adhere to FRBM provisions and it is not advisable to recommend issuance of SLR bonds. “The states should formulate a plan scheme for meeting the cost through budgetary support,” Gopalan said.

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