Just restructuring of discoms’ power loans can’t solve problem: S&P

Just restructuring of discoms’ power loans can’t solve problem: S&PIndian government's plan to restructure the debt of state-run power-distribution companies (discoms) will not help improve ratings, rating agency Standard and Poor's (S&P) said on Monday.

S&P said restructuring the debt of descoms could allow cash-strapped discoms to cover costs in the short term, but such moves are inadequate to free the industry of the persistent troubles.

The ratings agency suggested that the discoms' underlying credit problems can be addressed only by eliminating the practice of cross-subsidies.

The agency said in a statement, "We don't believe the underlying credit problem of discoms can be addressed sustainably unless the practice of cross-subsidies is eliminated."

It said it would be difficult for the government to attract more investment in the power sector unless it eliminates the practice of subsidies. It added that restructuring debt is just the first step, and that the government should take next step to establish a fair and transparent tariff framework, independent of any political intrusion.

State-run discoms have long been operating under heavy losses, mainly due to their inability to raise prices and the undue subsidies. According to a last year's report by CRISIL, the power distribution companies were burdened with a mountain of losses of nearly Rs 35,000 crore to 40,000 crore in 2010-11.

The government has already restructures nearly 11 per cent of power sector loans during the last financial year, including that of distribution companies in the states of Punjab and Haryana. Power sector loans forms around 7.2 per cent of Indian banks' total loanbook of Rs 3.30 lakh crore.