Shunglu Committee Proposes An SPV to Buy Bad Debts of Discoms

A recent article in Business Standards mentioned that an SPV is being proposed to buy the bad debts of Discom’s. The fact that Discom’s are essentially bankrupt has been known for a long time. The good news that is there is increasing focus on this issue now. (See past articles – Pramod Deo, Chairman, CERC Talks About Open Access and the State of Electricity Markets; States Need to do More to Provide Open Access)
The REC market is also closely tied to the fate of Discom’s and how their financial problems are resolved. Eventually, Discom’s will be the biggest participants in the REC markets, and how do you ask a bankrupt company to pay more? This is also the reason why open access and other reforms are hardly implemented.
The article mentions that the SPV model will only be provided to those Discom’s that also undertake reforms:

However, buying out the loans of discoms from banks would depend on various conditions, including state governments’ agreements for a regular tariff increase, a plan to meet technical and operational performance parameters, an agreement between the state government and banks regarding interest rates, the period of repayment and the amount of repayment.

The discoms would also be asked to undertake capital expenditure, since this would generate additional income, as a precondition to set up the SPV. In case of non-compliance of the terms of the SPV, state governments would have to give an undertaking to RBI that the amount defaulted would be debited to the state government accounts with RBI, the report added.

Very sensible suggestions. Lets hope we move to a point of implementing these soon, and start sorting out the mess.
 
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