The unviable power generation and distribution sector could jeopardise loans worth nearly R2.65 lakh crore if issues plaguing these sectors are not resolved soon, rating agency Crisil Ratings said on Tuesday.
More than two-thirds of the total loan amount on the verge of becoming bad belong to six of the eight state discoms that have signed up for the financial restructuring plan (FRP). “Annual tariff hikes of 10% over the next three years and a reduction of at least 2% in AT&C (aggregate technical and commercial) losses are necessary for discoms to break even in the medium term,” Sudip Sural, senior director, Crisil Ratings said.
The total outstanding loans to all discoms in the country stood at R4.4 lakh crore as on March 31, 2015.
Crisil Ratings further said that states and discoms did not follow through fully with measures to improve financial discipline and the scheme only provided temporary liquidity respite. It added that an assurance of continuing financial support was needed to avoid risk on the debt. The moratorium on the principal repayment for discoms that was provided under the FRP announced in 2012 ends in the current and next fiscal.
Commenting on the proposed amendments to the Electricity Act, 2003, the rating agency said that success would depend entirely on implementation by state governments. It added that privatisation through distribution franchisees and evolving the open-access mechanism would make discoms more efficient.
Although Crisil estimates loans worth R75,000 crore to the generation sector are at risk, which is 30% of the total power sector loans at risk. The total stressed assets in the generation sector amount to R2.1 lakh crore.
This includes 46,000 MW of capacity — 36,000 MW of coal-based and 10,000 MW of gas-based capacity — that are facing viability issues due to lack of long-term buyers for electricity, inadequate fuel supply, and aggressive bidding to win projects and coal blocks.
While 20,000 MW of capacity has been impacted due to tariff under-recovery, the rest is reeling under inadequate fuel supply and poor demand from distribution companies. Additionally, nearly 10,000 MW of gas-based capacity has become unviable due to dwindling fuel supplies from the Krishna-Godavari basin, Crisil said.