American rating agency Fitch on Wednesday said adequate and timely tariff hikes, and lower aggregate technical and commercial losses are required to sustain structural improvement of power distribution companies or discoms.
"The government's revival package introduced in November 2015 for the distressed distribution companies will provide some breathing space, but successful implementation of adequate and timely tariff hikes, and lower aggregate technical and commercial (AT&C) losses will be essential to sustain structural improvement," Fitch said in a statement.
It said India's power generators continue to face low and declining capacity utilisation, primarily because cash-strapped discoms are unable to purchase power.
With the losses of electricity distribution companies in India touching a staggering Rs.3.8 trillion ($58 billion), the cabinet last week approved a major restructuring and revival package for the sector, with both checks and incentives, to remove what is considered the weakest link in the government's ambitious plan of power for all by 2022.
The Ujjwal Discom Assurance Yojana (Uday) package includes steps to reduce the interest burden of discoms by as much as 600 basis points, by converting 75 percent of their debt into state governments bonds.
The overall coal-fired plant load factor (PLF) in India fell 3.2 percent year-on-year to 60 percent in the first half of 2015-16.
On the other hand, India's thermal power generation capacity has increased by an 11 percent over the last year to 194 GW at September-end of 2015, driven by additional coal-fired power plants and privately owned facilities, Fitch said.
Coal and Power Minister Piyush Goyal told state power ministers at a meeting in Kochi earlier this month that the Uday scheme would help wipe out the accumulated losses of state discoms by 2019.
