Govt mulls bailout for power utilities to retain stability amid high demand

India is considering injecting cash into heavily indebted government-owned power distribution utilities, according to a document from the Ministry of Power reviewed by Reuters, to ensure the stability of the sector amid surging power demand. 

In the document circulated this week, the ministry mentioned the formation of a group of ministers to identify states that urgently need cash for their utilities, design a "fiscal discipline program to enable them to avoid a debt trap", and suggest measures to bring private investment. 

This would be the first time since 2021 that the federal government has injected money to state power utilities, which cost the government $35 billion then. 

The Ministry of Power document also recommended privatising the power distribution utilities, mostly run by states and which cannot easily increase tariffs but face rising power-purchase costs, high transmission and distribution losses, and delays in payment from customers. 

 

The distribution companies had accumulated losses of $75 billion as of the fiscal year that ended in March 2023, about 2.4% of the states' gross domestic product, according to a December 19 report by the Reserve Bank of India. There are 65 power distribution companies run by states. 

"The financial health of distribution companies (DISCOMS) is crucial for sustaining a reliable and uninterrupted electricity supply to consumers," the document said. 

"DISCOMs face challenges such as inadequate tariff structures, rising power procurement costs, high transmission and distribution losses, and delayed payment collections, which can lead to revenue shortfalls and operational inefficiencies." The ministerial group mentioned in the document met for the first time on January 30 and are expected to meet again this month to further discuss a financial package for the utilities, said two government sources who did not want to be named as they were not authorised to talk to the media. 

Reuters could not immediately identify the ministers who are part of the panel. The power ministry did not immediately respond to an email seeking comment.