The power ministry has asked banks to be cautious when giving loans to state power distribution utilities. The Centre has issued a warning to banks for the first time owing to the adverse impact it could have on the financial system.
As per a report by the Economic Times, Union power secretary Alok Kumar wrote to various financial institutions last month asking them to follow prudential checks introduced by Power Finance Corp (PFC) and REC Ltd before sanctioning loans to state electricity distribution utilities.
In the letter he stated, "A burgeoning debt and outstanding payables of distribution companies to their creditors, predominantly gencos and transcos, is a matter of concern."
He said that this poses a challenge to the viability of the power sector while causing concerns for the financial sector.
It is expected that restricted access to bank credit is expected to force states to undertake reforms to make discoms viable
Total outstanding dues owed by power distribution utilities or discoms to generation firms (gencos) are estimated to be more than Rs 1.56 lakh crore, Parliament was informed on Thursday.
"Discoms have not been able to pay the generation companies for the power procured, and the outstanding payments to generation companies are estimated to be in excess of Rs 1,56,000 crore. The outstanding dues to renewable generators are around 11 months of revenues. Therefore, reforms have been deliberated upon in consultation with the states and all stakeholders," Power Minister R K Singh said in a written reply to the Lok Sabha.
The condition of most of the state government owned distribution companies is a matter of grave concern, the minister stated.
About the government's plans to introduce a Bill, enabling the power consumer to choose from multiple service providers, the minister said, "No final decisions have been arrived at so far."
Earlier this week, the minister had indicated that the bill (Electricity Amendment Bill, 2021) is unlikely to be tabled in Parliament in the ongoing Winter Session as it awaits Union Cabinet approval.
The power ministry proposes to de-licence the power distribution business through this bill which would eventually make way for multiple (electricity supply) service providers in an area.
Boards of PFC and REC had in March last year approved revised prudential norms, which make it difficult for states to avail working capital for the power sector unless they agree to bring about financial and operational efficiency.
(With inputs from PTI)
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