Scheme for one-time settlement of SEB dues - Views on News from Equitymaster

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Scheme for one-time settlement of SEB dues

Feb 26, 2002

A Conference of Chief Ministers/Power Ministers was held in March 2001 under the chairmanship of the Prime Minister. The Conference noted that the large amount of dues owed by the State Electricity Boards to the Central Power Sector undertakings (CPSUs) was a major impediment to power sector reforms and resolved that an Expert Group would be set up to recommend a one time settlement of power sector past dues to the CPSUs and the dues of the CPSUs to State Power Utilities. The Expert Group was set up under the Chairmanship of Shri Montek Singh Ahluwalia, then Member (Energy), Planning Commission. The Group submitted its report in May 2001. The Group proposed a scheme of settlement of outstanding dues linked to a mechanism that would ensure payment of current dues in the future. The recommendations of the Group, interalia, included securitisation of the outstanding dues through bonds issued by the respective State Governments. These bonds would be tax-free bonds and would have a tenure of 15 years.

The Group also proposed a 50 per cent waiver of the surcharge on outstanding surcharge as an incentive for the States to take up the scheme of securitisation. In addition, during the first 4 years from the commencement of the scheme, bi-annual cash incentives would be paid by the CPSUs equal to 2 per cent of the value of bonds. This would be linked to the States complying with the provisions of the scheme and reforms to be undertaken by the concerned State government.

The Empowered Group of Chief Ministers in its meeting held on July 6, 2001 accepted the recommendations of the Expert Group with minor modifications. These modifications included increase in waiver of surcharge from 50 to 60 per cent and incentives for a period of 4 years @ 4 per cent of the face value of the bonds for achievement of performance and milestones by the SEBs shall be increased from 6 per cent in the first year and 5 per cent in the second year. States have been requested to implement the scheme at the earliest by giving their consent for tripartite agreement. So far Andhra Pradesh and Jammu & Kashmir have conveyed their consent.

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