Haryana distribution companies debt restructuring issue resolved

Haryana government will take over 50 per cent of short-term liabilities of power utilities which would be converted into bonds to be issued to lenders, as part of debt restructuring plan for distribution companies, a senior official of Haryana Power Utilities said today.

"The department of financial services of Union Finance Ministry has made it clear that any debt even it was restructured before March 31, 2012, raised for short-term and working capital requirements of power distribution companies, will be eligible for debt restructuring by the state," the official said.

A committee constituted by Haryana's finance department had assessed the state-owned power distribution companies' liabilities at Rs 6,000-7000 crore against Rs 19,000 crore calculated by the companies for debt restructuring as part of Centre's bailout package for power distribution companies.

The Finance department had reasoned that the companies had already got short term liabilities amounting to Rs 9,000-10,000 crore restructured and hence "such restructured debt" could not qualify for restructuring.

Thereafter, the matter was taken up by department of Financial Services to sort out the issue, he said.

"Now, Haryana Finance department has to take approval from the state Cabinet in this regard," he added.

Under the financial restructuring programme, Haryana power distribution companies had sought from the state government to take over 50 per cent of 19,000 crore of short term liabilities of power utilities as per bailout package announced by Centre for power distribution companies in the September last.

As per the plan, state government will take over 50 per cent of short term liabilities of power utilities and they would be converted into bonds to be issued to lenders, backed by state government guarantees.

The rest of liabilities would be rescheduled and moratorium would be given on payment of principal amount under the scheme.

Haryana government has already given in principle approval to the Centre's financial restructuring plan for power distribution companies.

Haryana power utilities are eyeing to turnaround in next 3 years once the state government take over its 50 per cent of its liabilities.

The poor fiscal health of power utilities could be gauged from the fact that both distribution companies are facing short term liabilities of Rs 19,000 crore and accumulated losses to the tune of Rs 8,830 crore because of considerable difference between cost of power supply and rate of return.

Both the companies are facing a gap of Rs 2.50 per unit between average cost of supply and average revenue realised from power supply and moreover they are also bearing 90 paise to Rs 1 a unit as interest burden on account of huge short term liabilities.

The costly power purchase has also put a strain on utilities' resources. In last 10 years, the cost of power purchase (accounts for 80 per cent of cost of supply) for both the companies in Haryana have surged 330 per cent while tariff had just gone up by 27 per cent, resulting into sharp increase in debt burden for working capital requirements and debt servicing.