Power Sector Update on Concall with Shri SK Tuteja - Member, Shunglu committee :: Emkay

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Power Sector

Update on Concall with Shri SK Tuteja - Member, Shunglu committee

VK Shunglu committee has made its recommendation to Planning Commission last week. We had arranged a conference call with Shri SK Tuteja, member of VK Shunglu committee to seek insights into the thought process behind the recommendations.

Preamble:

The government formed the VK Shunglu committee to assess and provide recommendations on improving the financial health of SEBs. The key recommendations of the committee are – (1) negotiations on rescheduling of loans between SEBs, State Governments and Banks, (2) forming of SPV by RBI and taking over bad loans of SEBs, in case issues persist on rescheduled timelines and (3) improvement in SEBs’ financials through various steps, as a precondition to SPV recourse.  During the concall, Shri Tuteja has clarified that the SPV would come into picture only when the State Governments/SEBs successfully negotiates with the bankers and adheres to certain preconditions on operating performance parameters. The committee aims to improve the operating performance of the SEBs rather than providing a temporary.

Our View:

With state governments shying away from guarantees recently and one of the reasons being strict regulations under State FRBM Act, we believe that the idea behind forming the SPV is to provide indirect guarantee of the State Government and a comfort and certainty to banking system on these loans. We believe recommendations are potentially very positive and if adopted and implemented effectively, will change the face of India’s power distribution sector.

What will be the future course of action?

Thorough vetting will be done by the Planning Commission before submitting the report to the Ministry of Power. After a round of discussions with the stakeholders (RBI, State Governments, Bankers), the recommendations will be referred to cabinet for its approval. No parliamentary approval is required for the implementation.