The Telegraph
Since 1st March, 1999
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Power reform fund waits for state initiative

Calcutta, Nov. 3: The Centre has asked state governments to work out modalities for setting up the power sector reforms fund—a key recommendation made by the Deepak Parekh committee.

In proposals sent to Union power minister Anant G. Geete, the panel said the fund will assume all liabilities of state electricity boards (SEBs) as part of a larger financial revamp aimed at turning them around.

The Parekh Committee had been asked to work out a strategy to restructure SEBs and suggest ways in which they can get transitional finance. “The proposal is currently being discussed in the ministry. We have also asked the state governments to give their views on the matter and suggest strategies on setting up of the fund,” senior power ministry officials said from Delhi.

The committee suggested that as a first step towards resolving the problems of SEBs, state governments, as their sole owners and primary drivers of reforms, should consolidate the liabilities of boards, take them over and transfer them to the fund. The next step would be for the state to write off its own loans to the SEB.

Senior officials of the West Bengal power department also said they were “working on the entire issue”.

The Parekh committee observed that these steps are not only necessary in order to enhance the credibility of the restructuring process but would also enhance the sale value at the time of privatisation.

In order to enhance credibility and mitigate the risk of policy reversals, the committee recommends that the state government should ring-fence both the liabilities and inflows earmarked for the restructuring into the fund

All existing liabilities of the sector should be transferred to the fund and concomitantly, existing receivables, privatisation proceeds, grants from the Central government and other donor agencies and a portion of the surplus from future operations should be transferred to the fund to defray these liabilities.

Commenting on existing creditors, the committee said all of them, including financial institutions, may be requested to write-down their claims, in view of the fact that they would be the principal beneficiaries of the financial restructuring exercise that is aimed at facilitating power reforms.

“While continuance of the status quo would mean that the assets of the creditors are likely to turn sour, reform is expected to enhance the sector’s capacity to meet its liabilities and consequently make it more creditworthy,” a committee member said.

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