Stressed Indian sectors that had unsustainable business models and high debt before the COVID crisis are now facing an acute crisis on their own as their large debt burdens become unsupportable since revenues and profits dry up. Many of these sectors and companies do not have the money to pay down their interest and fixed costs. The Indian power distribution companies are one such sector that is facing huge issues with customers not paying on time and their best customers not buying power as industries and commercial establishments have shut down.

Also, read about the Massive Losses seen for Indian Power Distribution Companies due to COVID-19 outbreak

Some of the worst utilities in India are now crying for a bailout from the federal government as state governments do not have money themselves to help their state-owned utilities. The Tamil Nadu utility is one of the worst utilities in terms of financials and now its chief minister has appealed to the central government for help as one month of low profits and revenues has pushed TANGEDCO to the very brink. With bill collection falling by 80%, the utility does not have money to pay for the power that it buys from the power generators nor to pay the Railways or the coal companies.

This is the case with most distribution companies spread across India who are looking to raise debt from any source that they can find to continue operations. The central government is now planning a USD 12 billion liquidity scheme to bail out the power sector in India. As per the scheme, the funds will be raised from Indian pension and insurance funds and routed through the specialist power lenders PFC and REC directly to the power generating companies on behalf of the distribution companies. These will be very long term loans with easy payment terms. The loans will have a state government guarantee which will make it palatable for the investors. The central government has no choice but to bail out the distribution companies as generators will shut down, leading to power cuts across the country and bringing the whole economy to a halt. How the central government uses this crisis to force reforms of these corrupt indebted distribution sector is important. It is being discussed that the government will put conditionalities such as commercial loss reduction trajectories, prepare proper energy accounting systems and action plans to reduce financial losses, and bring in operational efficiencies. However, the proof of the pudding will be in the eating!!!!!!