Successfully addressing the weak financial positions of state distribution companies (discoms) is key to improving the health of India's power sector, it added.
In order to meet the higher costs of power, discoms will have to either increase prices proportionately or seek government subsidy. The latter seems to be the only way out as increasing electricity prices will be a politically upopular decision
Banks have an exposure of nearly Rs 5.5 lakh crore to the over-leveraged power sector, and nearly 12 percent of this are already restructured as of March-end
Kingfisher is not alone in its woes. There are a number of companies struggling to fight off bankruptcy. Several state-owned entities and some private sector-ones too are potential basket cases.
As distribution companies losses mounted and coal production saw no improvement, power expansion plans went for a toss.
A steep hike in tariffs will be seen as having a harsh impact on consumers and the idea is, therefore, likely to run into stiff political opposition.
State distribution companies, which are already reeling under losses of more than Rs 1 lakh crore, face the very real threat of having their interest costs being raised further.
The Citi report makes it a point to mention that in the 11th Plan, Power Grid will push through a capital expenditure of Rs 48,900 crore as against a target of Rs 54,500 crore, implying an achievement of 89 percent of the target compared to 85 percent in the 10th Plan.