The government is planning to give power distribution companies the option of recasting debts to the tune of Rs. 2 lakh crore.
The package, likely to be approved by the Union cabinet on Tuesday, is aimed at enabling state governments and electricity boards to carve out a strategy for the financial turnaround of their distribution arms.
Under the proposed plan, short-term loans worth Rs. 2 lakh crore, which these companies had taken from banks, is likely to be restructured in a manner in which half of the amount would be converted into state-government bonds.
“By restructuring and rescheduling the outstanding short-term debt, lenders would be able to avoid the impending possibility of debt turning into non-performing assets and also securing the commitment of the state governments,” a source requesting anonymity said.
There could also be plans to ensure that regular tariff revision takes place, the source said.
A distribution company provides the crucial last-mile connectivity in the electricity sector and plays an important role in the power value chain.
The distribution sector continues to be almost entirely served by government-owned utilities.
The accumulated losses of state power distribution companies are estimated to be about Rs. 1.9 lakh crore as on March 31, 2011.