Consumers nationwide should brace themselves for higher electricity tariffs, with the Cabinet Committee on Economic Affairs (CCEA) on Monday approving a Rs. 1.90-lakh crore debt restructuring package for the State Electricity Boards to facilitate a turnaround of the State distribution companies (discoms).

The CCEA, which met under the leadership of the Prime Minister, approved the package that will force the distribution companies, which are in the red, to begin a fresh round of tariff increase.

“The restructuring by lenders is subject to certain steps to be taken by the State government/discoms and their commitment to fulfil mandatory conditions aimed at bridging the gap between the average cost of supply and the average revenue realised to restore the viability of the sector,” says a Cabinet note.

In other words, it will be mandatory for the State governments or distribution companies to revise their tariffs regularly to avail themselves of the package.

“For financing operational losses and interest for the first three years on a diminishing scale, a separate arrangement will be worked out in respect of focus States such as Rajasthan, Tamil Nadu, Haryana and Uttar Pradesh after due consultations with the States concerned and the Ministry of Power,” the note states.

The scheme provides for 50 per cent of the outstanding short-term liabilities as of March 31, 2012 to be taken over by the States governments. This shall be first converted into bonds to be issued by the distributing companies to lenders and guaranteed by the State governments.

The State government will take over the liability during the next 2-5 years by issuing special securities in favour of the lenders in phases, keeping in view the fiscal space available till the entire loan is taken over. The State governments will also provide distribution companies full support in repayment of interest and principal. The rest of the short-term liabilities will be rescheduled by the lenders and serviced by the distribution companies with a three-year moratorium on principal.

The State governments will convert all loans into equity or defer their recovery, along with interest, until the loans rescheduled by banks/financial institutions are fully repaid. The State governments shall pay by November 2012 all their outstanding energy bills as on March 31, 2012, and the utilities shall give a certificate to this effect by December 31.

Furthermore, a road map for involving the private sector in the State distribution sector through franchisee arrangements or any other mode of private participation will be prepared within a year by distribution companies and submitted to the Central Electricity Authority (CEA) for approval.

The tariff order for 2012-13 will have to be notified before the financial restructuring package is approved, and for subsequent years, it should be notified by April 30 of each financial year as per the model tariff regulation. The State Electricity Regulatory Commission (SERC) shall be requested to allow revised tariff with effect from April 1 each year so that the impact of tariff revision is fully realised during the financial year.

The scheme also makes prepaid meters mandatory by March 31, 2013 for all government consumers and large consumers (1 MW and above), in whose cases defaults have occurred.