Barring meaningful progress in power sector reforms in the next 18 months, about Rs 56,000 crore lent to the power producers and state distribution utilities would be under potential risk, rating agency Crisil said.
The total exposure to the power sector as of March is Rs 4.8 lakh crore of which 60 per cent or Rs 3 lakh crore is to the state electricity boards and distribution companies. Lenders include banks, Power Finance Corporation and Rural Electrification Corporation.
Addressing the media, Ms Roopa Kudva, Managing Director, Crisil, said, “There were two aspects to the reforms. First, an improvement in systemic efficiency is required through reduction in distribution losses, which remain upwards of 25 per cent. Second, a broad-based political consensus is needed for implementing tariff increases.”
Crisil estimates that tariffs need to be hiked 50 per cent for state utilities to breakeven and eliminate subsidy requirements. Equally important for lenders' confidence is the need for timely availability of dependable information on utilities' performance, besides receipt of subsidy by the distribution companies of the state governments.
Mr Pawan Agrawal, Director, Crisil Ratings, said the extent of effectiveness of reforms in the sector remains a key issue to be monitored over the next 18 months. Nevertheless, the strong credit risk profiles of specialised lenders such as PFC and REC continue to be underpinned by the expectations of support from the Central Government.