As a part of the central government’s debt restructuring process, four states – Haryana, Uttar Pradesh, Rajasthan and Tamil Nadu – have begun the process of taking over their short term liabilities from the respective power distribution companies. According to the approved scheme, 50% of the liabilities would be taken over by the state governments. This would be converted into bonds issued by the Discoms (power distribution companies) and backed by a state guarantee.
- As a part of debt restructuring process, the central government will provide Transitional Finance Mechanism for liquidity support
- Solar power is becoming increasingly competitive across many states for commercial and industrial consumers
- Market participants now view the subsidy mechanism as a roadblock more than an incentive
The central government will provide the Transitional Finance Mechanism (TFM) for liquidity support and a capital reimbursement support of 25% of the principal amount if all terms are met. As per the requirements, these Discoms will need to become financially sound in a time bound manner, primarily by raising tariffs. For example, Tamil Nadu has already raised power tariffs by 37% last year and Uttar Pradesh by 40% this year.
Source: Bridge to India