Fitch Ratings in a new report has
observed that losses at state power
utilities could threaten fiscal
consolidation in five Indian states of
Rajasthan, Tamil Nadu, Madhya Pradesh,
Uttar Pradesh and Bihar.
"Losses in power distribution in these
states exert additional pressure on
state finances and it would be difficult
for these states to achieve the
fiscal consolidation targets established
by the Thirteenth Finance Commission,"
says Dr. Devendra Kumar Pant,
Director in Fitch's International Public
Finance team.
Aggregate losses of SPUs selling power
directly to consumers on subsidy-received
basis widened to
444.7 billion (0.7 per cent
of GDP) in FY10 from
138.6 billion (0.3 per
cent) in FY07, a CAGR of 47.5 per cent.
In FY10, the power deficit of these five
states alone accounted for 70.6 per cent of
the country's SPUs' total losses.
Incremental losses in FY07-FY10 for these
five states were 87.2 per cent of SPUs'
aggregate losses.
The report notes that limited fiscal
flexibility of state governments is
constraining state support for power
utilities. Share of borrowing from state
government in SPUs' total borrowing
declined to 14.3 per cent in FY10
from 27.8 per cent in FY07. At the
same time subsidy realization (subsidy
received as a percentage of subsidy
booked by power utilities) also declined
to 56.1 per cent in FY10 from 94.5 per
cent in FY07.
Aggregate debt of all SPUs from nonstate
government sources (loans from
financial institutions, banks and bonds)
increased to 4.1 per cent of GDP in FY10
from 3.1 per cent of GDP in FY07. If the
power sector is consolidated with the
state's fiscal deficit, debt deterioration
would be in excess of 5 per cent of the
GSDP (gross state domestic product) in
FY10 in Rajasthan, Haryana, Punjab,
Meghalaya, Tamil Nadu, Himachal
Pradesh, Andhra Pradesh and Uttar
Pradesh. Unlike Haryana, Tamil Nadu and
Andhra Pradesh the five other Indian states
are more leveraged and have a less
favourable growth profile, making it difficult
for them to absorb the SPUs' losses.
Despite upward revisions of power
tariffs by most state regulators in FY10
and FY11, Fitch believes that they would
need to be accompanied by reduced
aggregate technical and commercial
losses in order to have an impact on the
financial health of SPUs.