May 11, 2001

    The Expert Group on the one-time settlement of outstanding dues of State Electricity Boards (SEBs) Chaired by the Member, Planning Commission, Shri M.S. Ahluwalia submitted its report to the Minister of Power, Shri Suresh Prabhu, here today. The report addresses the problem of outstanding dues of SEBs of Rs. 41,473 crore (as on February 28, 2001). These dues consist of Rs. 25,727 crore of principal and Rs. 15,746 crore of interest / surcharge. The Group has noted that these dues have arisen not because of some exceptional event or problems that arose in the past, which are no longer operative, but because of inherent non-viability of the current operations of the SEBs. A settlement of past dues alone will not solve the basic problem facing the SEBs, and unless the problem of current un-viability is speedily addressed, over dues would mount again. However, without such one-time settlement, the financial liability of future reforms is threatened.

    The main features of the scheme recommended by the Group are as follows: -

• 50 per cent of the surcharge / interest on delayed payments are to be waived. The rest of the dues amounting to the full principal amount as well as the remaining 50 per cent of the interest / surcharge, aggregating Rs. 33,600 crore shall be securitised through bonds to be issued by the respective State Governments.
• The bonds shall be of 15 years tenure, issued through the Reserve Bank of India at a tax-free interest rate of 8.5 per cent per annum. The bonds may be structured to achieve a moratorium of 5 years on repayment of principal with the entire principal be repaid between the 6^th and 15^th year. These bonds would be similar to the SLR eligible market borrowing of the State Governments, with the attendant discipline in repayments. The bonds will be subject to lock in restrictions that will allow release of only 10 per cent of the bonds in the secondary market each year.
• For ensuring timely payment of current dues in future, defaults in current payments for power / fuel shall attract a graded reduction in the supply of power from Central Power Stations and in coal supplies. Where such defaults exceed 90 days from the date of billing, the Ministry of Finance shall be authorised to recover these dues through adjustment against Central releases due to the State.
• The SEBs shall accept reform based performance milestones such as setting up of State Electricity Regulatory Commissions, metering of distribution feeders and improvement in revenue realization.
• The State shall be offered incentives for complying with the scheme. If the SEBs do not default on their current dues and adhere to the performance milestones, the Central Public Sector Utilities (CPSUs) shall pay them, during the first four years of the operation of the scheme bi-annual cash incentives equal to 2 per cent of the value of bonds. Further, if the SEBs open LCs before 31.7.2001 and operate them without default till December 2001, the CPSUs shall pay them a one-time cash incentive equal to 2 per cent of the value of bonds. These incentives could add up to over Rs. 6,000 crore. In addition, States undertaking reforms shall also be assisted through the Accelerated Power Development Programme (APDP) grants and discretionary allocation of power.
• The scheme shall enter into force only after one-half of the States that have an annual billing of over Rs. 5,000 crore per annum from CPSUs give their consent and shall be effective in respect of the States that give such consent.
• The States that do not consent to the scheme within 60 days after the scheme enters into force shall be denied any shall in the discretionary allocation of 15 per cent from the power stations of CPSUs as well as assistance under APDP. If the over dues of such States exceed Rs. 50 crore in respect of any CPSU, they shall also attract reduction in power and coal supplies, as applicable to the States participating in the scheme.

    The Group has pointed out that the scheme has sought to balance the benefits and burdens relating to different stakeholders and, therefore modifications aimed at reducing the burden on one or more of the stakeholders will only increase the burden on others. The Group has stressed that there should be no relaxation in the various disciplines prescribed in the scheme, as this would seriously compromise the integrity of the scheme.

    The Group was set up following the Chief Ministers’ Conference held in March 2001 under the Chairmanship of the Prime Minister, Shri Atal Bihari Vajpayee.

    The other members of the Group including co-opted members were:

1. Shri Jairam Ramesh, Deputy Chairman, Karnataka Planning Board.
2. Shri Harish Salve, Solicitor General of India.
3. Shri Rakesh Mohan, Advisor to the Finance Minister.
4. Shri V.M. Lal, Principal Secretary (Energy), Govt. of Maharashtra.
5. Shri Deepak Parekh, Chairman, IDFC.
6. Shri K.V. Kamath, MD & CEO, SBI Caps.
7. Shri Ajay Shankar, JS, Ministry of Power.
8. Shri Ranjit Bannerjee, JS (PF-I), Ministry of Finance
9. Shri Gajendra Haldea, Chief Advisor and Head of the Centre for Infrastructure and Regulations, NCAER
10. Shri K.K. Maheshwari, Group Executive president (Chemicals), Aditya Birla Group.
11. Shri R. Ramanujam, JS & FA, Ministry of Power – Member-Secretary.