Bengaluru: The Karnataka government has taken a significant step to address the outstanding power bills owed by rural local bodies, including gram panchayats, by securing a loan from the Housing and Urban Development Corporation (HUDCO). The loan, amounting to ₹5,257.70 crore, will be used to clear dues accumulated from April 1, 2015, to March 31, 2023.
The total outstanding amount is indebted to the Karnataka Power Corporation Limited (KPCL), Karnataka Power Transmission Corporation Limited (KPTCL), and various electricity supply companies (ESCOMs). The dues have accumulated for services including drinking water supply and the installation of street lights across rural areas.
According to a note issued by the finance department on March 25, the state government ordered the energy department on March 30 to secure a loan to settle these dues. The government guaranteed the loan, ensuring its security.
The Finance Department agreed to match the loan amount from the annual grant provided to gram panchayats or from the Guarantee Release Fund established for such needs. The Power Company of Karnataka Limited (PCKL) was appointed as the nodal agency to facilitate this loan from banks or financial institutions.
Following a bid process, the government permitted PCKL to secure a long-term loan from HUDCO. After completing all procedures, HUDCO issued the loan sanction letter on May 28 and deposited the funds into PCKL’s account on June 19.
The loan will be used to repay the old debts of the electricity supply companies as per the outstanding amounts submitted by these companies to the government. Energy Minister K.J. George approved this proposal on June 21, stipulating that a report on the fund usage be submitted to the government.
Three financial institutions participated in the bidding process: UCO Bank, HUDCO, and Rural Electrification Corporation (REC). UCO Bank offered a loan of ₹500 crore at an interest rate of 8.85% per annum, HUDCO at 8.99% for the entire amount, and REC at 9.15%. Both UCO and HUDCO waived various fees associated with the loan.
Negotiations led by the Additional Chief Secretary of the Energy Department resulted in HUDCO agreeing to a reduced interest rate of 8.75%. Consequently, the loan was secured from HUDCO under the following conditions:
- Interest rate: 8.75% per annum
- Monthly interest payments and quarterly principal payments
- Loan repayment period: 10 years (including a 2-year moratorium and an 8-year repayment period)
- Loan security: Guaranteed by the state government This loan will be critical in addressing the financial backlog faced by rural local bodies in Karnataka, ensuring the continuity of essential services. However, the effective utilization and timely repayment of the loan will be crucial for maintaining fiscal stability.
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