UDAY debt recast reforms vital for power sector: Fitch

American Ratings agency Fitch on Monday maintained a stable outlook for state-run power utilities - NTPC PowerGrid and NHPC - saying the implementation of the government's UDAY debt recast and reform package is key to their ratings outlook in future.

"Successfully addressing the weak financial positions of state distribution companies (discoms) is key to improving the health of India's power sector. The weak fiscal position of these entities has led to sustained delays in payment to market participants and weak offtake from power generators, in addition to increasing the risks associated with much-needed investment in the sector," Fitch said In a report.

"States opting for the package and delivering on loss reductions and efficiency improvements over the medium term remains essential for the success of the programme.

"The debt restructuring plan will substantially reduce discoms' near-term debt burden; and more importanly, their high interest costs, which account for a large share of the discoms' losses," it added.

Fitch said a failure of the distribution companies' (discom) reforms would be negative for the entire power sector.

Moreover, any increase in receivable days for central utilities following the expiry of tri-partite agreements would be a negative for their financial profiles of these entities, it added.

State-run power distribution companies have accumulated a debt burden of over Rs.400,000 crore, crippling capacity in many cases to purchase power.

Earlier this month, the union cabinet approved the Ujjwal Discom Assurance Yojana (UDAY), under which states are being encouraged to take over 75 percent of the debt of the ailing state electricity boards.