India to Recast $76 Billion Debt at Ailing Power Retailers

  • States will take over 75% of dues, sell bonds to pay lenders
  • Retailers to issue bonds for the remaining amount outstanding

India plans to reorganize about 5 trillion rupees ($76 billion) of debt at regional electricity retailers that have been weighed down by accumulated losses and loans, aiming to turn them profitable in three years, Power Minister Piyush Goyal said.

The plan will allow state governments, which own the retailers, to acquire over two years 75 percent of their debt as of Sept. 30, Goyal said. The states will repay by selling bonds in the market or issuing them to the lenders.  

The retailers have been advised to issue bonds for the remaining 25 percent of the debt. The federal government will also ease rules to allow the states to borrow more and help with the additional burden, Goyal told reporters Thursday in New Delhi. The recast will reduce the interest cost to about 9 percent from as much as 15 percent, according to a government statement released Thursday.

“The objective of the plan is to bring the power retailers out of losses and
ensure they don’t slip back again,” Goyal said.

Getting the distribution companies back on their feet is key to providing electricity to every Indian household, a pledge Prime Minister Narendra Modi made after winning a record electoral mandate last year. The proposed revival will also help allay risks of bad debt at lenders, including Bank of India, Punjab National Bank and Power Finance Corp.

Blackouts

The retailers are forced by their state governments to sell electricity at subsidized rates, leading to losses and undermining their ability to repay debt. Starved of funds, the retailers often cut purchases, leading to blackouts, even as power plants remain idle. The retailers lose a combined 600 billion rupees ($9.1 billion) every year as costs surpass tariffs.

“Regular tariff increases to match costs of distribution companies and monthly payment of cash subsidy declared by the state governments will be critical for the long-term financial health of the distribution companies,” said Debasish Mishra, a senior director at Deloitte Touche Tohmatsu India Pvt. in Mumbai.

The federal government will work with the states to lower the so-called aggregate technical and commercial losses to 15 percent in three years, compared with 22 percent, according to the statement. The focus will be on improving metering and curbing theft, which accounts for a bulk of those losses.

The gap between revenue realization and the cost of procurement of electricity will be bridged by 2019, Goyal said. The cost of power will be lowered by allowing generation companies to route more coal to fuel-efficient plants, Goyal said. That will help NTPC Ltd., the biggest power producer, save more than 90 billion rupees and the nation save about 200 billion rupees a year, he said.

“If we don’t resolve this, it’s going to affect banks, hinder new investments
in the energy sector and affect the economy,” Goyal said.

(A previous version of this story corrected the amount of debt at power retailers.)

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