Modi to meet utilities to fix electricity debt mess

To chair meet with finance ministry officials and head of individual state distribution companies

Prime Minister Narendra Modi is set to meet bosses of loss-making electricity utilities on Monday to debate a rescue package for a sector whose vast debts weigh on the banking system and undermine promises to provide power for all.

The government has identified $66 billion of troubled debt held by state-run utilities as a major obstacle to efforts to speed up growth in Asia's third-largest economy, hurting both credit growth and industrial performance.

Modi earned praise for fixing the power sector in Gujarat when he was chief minister. A national solution would burnish his reputation after a series of setbacks to his agenda of economic reform in recent months.

The pressure to act is rising as a three-year financial restructuring package introduced in 2012 comes to an end, with the utilities still selling power to consumers at below the cost of production and ignoring rampant theft.

The prime minister will chair a meeting with finance ministry officials and the head of individual state distribution companies, a top government source and an official in the power ministry told Reuters.

The government has not made public the contours of the package, but options under discussion include allowing states to take over debts of distribution companies to ease their financial crunch, in return for a renewed clampdown on electricity losses.

Utilities' weak finances mean they cannot buy in more power or invest in transmission lines that are needed if Modi is to get power flowing to industry and to the 300 million Indians living without electricity.

India has doubled energy generation capacity in the last decade, helping to more than halve its peak power deficit, but transmission and distribution have remained largely unreformed, leading to regular blackouts across large swathes of the country and debts that threaten the health of the banking system.

A fifth of India's electricity still goes unpaid for.

"The poor financial health of the distribution utilities has the potential to make all investments made in the electricity value chain unviable," said Umesh Agrawal, a power expert at PwC.

"A comprehensive set of measures targeting efficiency improvements as well as setting tariffs to recover costs is required to prevent the situation becoming worse," he said.