New Delhi: The Union cabinet is likely to consider this week a proposal to recast 4.3 trillion loans of nine state power distribution companies with a view to bring down their liabilities. People familiar with the matter said the debt restructuring proposal once approved would help the distribution companies in these states to access cheaper loans at an interest rate of around 9%, compared to around 14% that they are presently paying.

The total loans to the discoms in the nine states—including Uttar Pradesh, Tamil Nadu, Telangana, Rajasthan, Madhya Pradesh and Jharkhand—add up to 4.3 trillion, they said. The cabinet, at its meeting on Wednesday, would consider the finance ministry’s proposal to recast the debt of nine state power discoms so that the companies can repay their debt easily, they added. On account of subsidised tariffs, the state electricity discoms are facing cash crunch and are incurring annual losses of about 60,000 crore. The debt burden has been one of the reasons for state power utilities not going in for new projects to raise electricity generation capacity. The debt liability has also forced them to not buy any additional power from new project, thereby creating peak hour deficit.

The National Democratic Alliance (NDA) government recognises power availability as key to pushing GDP growth rate to 8%. Meetings at the level of the Prime Minister’s Office have been held to clear roadblocks to stalled projects in the sector and high debt of state utilities has been identified as the prime reason for the current state of the sector. People familiar with the matter said after the debt recast, the interest liability of power distribution companies in the nine states will come down besides extension of their loan tenure.

According to data by the Central Electricity Authority (CEA), the country’s peak power deficit—shortage in electricity supply when demand is at its highest—was 3.2% in March 2015. The ministry of power has set a target of generating close to 1,100 billion units of electricity during the current financial year. Power generation during 2014-15 was 1,048.403 billion units.

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