Power distribution companies (discoms) are estimated to have incurred a whopping loss of Rs 70,000 crore last fiscal on account of the mismatch between tariffs and the cost of producing power.
"We expect several states including Tamil Nadu, Maharashtra, Karnataka and West Bengal to raise tariffs by December, 2011, due to State Electricity Boards` (SEBs) precarious financial position, improved political will and possibly increased consumer dissent over blackouts," according to financial services group Motilal Oswal.
In a report this month, Motilal Oswal noted that in the past 18 months, 22 states increased power tariffs, which is a record. "This includes the highest loss-making states like Tamil Nadu, Andhra Pradesh, Rajasthan, Madhya Pradesh, Maharashtra, Orissa, Punjab and Uttar Pradesh," it added.
Last month, the Delhi Electricity Regulatory Commission (DERC) hiked electricity tariffs by up to 22 per cent.
Meanwhile, there are also fears that loss-making discoms could default on their credit obligations, which could result in a significant amount of bad loans for the banking sector.
The country has about 73 power distribution entities.
The central government is also working on various initiatives to improve the performance of discoms and a high-level panel on the financial position of distribution utilities is expected to submit its report next month.
Furthermore, the government is working on a common rating system for discoms, which would help lenders extend loans only to entities that meet certain criteria.
Apart from banks, the major lenders for the power sector are Power Finance Corporation and Rural Electrification Corporation.
Sources said the Power Ministry and Finance Ministry, besides other stakeholders, have started discussions on evolving a rating system for discoms.
The Restructured Accelerated Power Development and Reforms Programme (R-APDRP) is also expected to help bring down power transmission and distribution losses to 15 per cent from the current level of about 27 per cent.