New rule: Additional borrowing space only if states agree to take over discoms’ future losses

States will have to agree to take over the future losses of state power distribution companies in a graded manner to be eligible for additional borrowing space of 0.50% of GSDP for four years.

In case the states commit but fail, the losses not taken over will be treated as state’ fiscal deficit and their borrowing limit will reduce proportionately. As per the guidelines issued by the finance ministry, states cannot renege on power purchase contracts, cannot have unpaid subsidies to discoms, will have to reduce operational and financial losses, and will have to reduce industrial tariffs.

The finance ministry has issued conditions and performance criteria for the special dispensation allowing additional borrowing space in addition the borrowing limit of 4% of gross state domestic product (GSDP) from FY21 to FY25 to improve power distribution sector, a senior official said. The special dispensation was recommended by the 15th finance commission.

The power distribution companies will provide monthly statement of liabilities/ dues to generation companies, financial institutions and supporting state government guarantees. For eligibility under the scheme, the discoms will have to ensure publication of audited accounts for FY21 by October this year, disclosing unpaid subsidies in annual accounts and unpaid government office dues in annual accounts, the official said.

During performance evaluation, states which privatise their discoms or appoint franchisees and do not give agricultural subsidies will get more marks.