Power ministry dials 15th Finance Commission on discom distress, seeks FRBM relaxations for state borrowings

New Delhi: With the power sector caught in financial distress over burgeoning discom losses- made worse due to COVID 19- a single financial package may not be enough.
Deeper sectoral reform and relook may be in order---an issue that has now been red flagged by the Power ministry to the 15th Finance Commission as it readies its final report.

A key request made to the Finance Commission is seeking relaxation for states in the borrowing limits under the Fiscal Responsibility and Budgetary Management (FRBM) Act and expand borrowing space for states especially for power dues related concerns.

The power ministry is learnt to have written to the 15th Finance Commission drawing attention to the exceedingly worrying situation of discoms and has made several suggestion for a reboot, so that these may be accomodated in the final FC report.

ET gathers that Power minister R K Singh has also directly taken up the issue with the 15th Finance Commission.

Sources told ET that the Commission is preparing to comprehensively address the ‘elephant in the room’- the discom issue and its overall impact on a state’s financial health as well as the efficacy of the Ujjwal DISCOM Assurance Yojana ‘(UDAY)- in light of the power ministry communication.

Concern has been raised by the power ministry over how several states have exhausted the borrowing limits under the FRBM Act.

In such a situation, they will also not be able to stand guarantee to the Rs 90,000 crore central package announced this week.

The Centre has- as part of its first tranche of announcements towards economic revival amid the COVID 19 pandemic-announced a ?90,000-crore loan “against State (government) guarantee” to discoms.

The Power ministry has sought that the Finance Commission re-examine the FRBM borrowing limit for states so as to allow discom losses/dues to be included. The ministry has sought the FC make this recommendation in its report to pave way for states to amend the required laws for the same and to open up borrowing space for states to clear pending discom dues.

The ministry has further suggested that provisions be made so that dues to National Thermal Power Corporation be directly deducted by RBI from state budgets- a NTPC proposal.

Over 14,000 crore is due to be paid to NTPC from various state electricity boards. At discoms’end- their overall dues to power producers are at a whopping Rs 90,577 crore as on March 2020. Over 80% of these are overdues with highest pending dues in Uttar Pardesh, Telangana, Karnataka, J&K and Ladakh.

NTPC has been seeking that the provisions of the Tripartite Agreements (TPAs) that were renewed in 2016, may be invoked to get dues from discoms cleared.
As per the TPAs- to which the RBI, Power ministry and states are signatories- the RBI is authorised to directly deduct due amounts from states and pay it to power producing companies. However the TPA is not usually resorted to due to the impact it may have on a state's finances.