The bleeding finances of power distribution companies (discoms) and mounting bad loans of banks have got the government worried, and the Prime Minister’s Office (PMO) is examining a raft of unconventional measures to nurse state power utilities back to health.
Giving funds directly to state power utilities from states’ share of central tax revenues was one option that the Centre was studying, a source, who did not wish to be identified, told HT.
The health of discoms were crucial for the NDA government’s plan to offer 24X7 power supplies within five years, as well as the success of Prime Minister Narendra Modi’s signature ‘Make in India’ initiatives, which aims to turn India into a manufacturing powerhouse.
Debt-laden power distribution companies are already implementing a financial restructuring plan (FRP) approved by the Centre and the Reserve Bank of India (RBI) in October 2012.
In the report State Finances: A Study of Budgets, the RBI has warned that the financial health of power distribution utilities have fallen considerably, pulled down by inappropriate tariffs, high transmission and distribution (T and D) losses, inadequate metering and inefficiencies in billing and collection.
“Deterioration of financial health of power utilities affects the fiscal position of states,” the central bank had said in its report. “Apart from the impact on the finances of states, restructured loans to discoms add to the debt and contingent liabilities of the participating states.”
Banks have already restructured loans worth over Rs 53,000 crore of distribution companies.
The FRP, which allows state governments to underwrite cash flow shortfalls in discoms as equity or interest-free loans, has only deferred problems, not resolved them, credit rating agency India Ratings has said.
The outstanding debt of seven discoms (Rajasthan, Uttar Pradesh, Tamil Nadu, Haryana, Jharkhand, Bihar, and Andhra Pradesh), which had their debt restructured, has grown 23.3% to Rs 2,75,400 crore in 2014-15 from 2012-13.
In the last few years, non-performing assets (NPAs) of banks, particularly those in the public sector, have been rising due to stalled projects and special recast plans for utilities such as power distribution companies.
NPAs are loans that do not yield returns.
“We are looking at all possible options to manage financial stress of power distribution companies and rising bad loans of banks,” the source added.
The NDA government has placed a major emphasis on improving India’s creaky infrastructure — roads, ports and railways — with finance minister Arun Jaitley proposing Rs 70,000-crore investment increase for the sector in budget 2015-16.