World Bank against India’s bailout of troubled power distributors

Not an opportunity in disguise but a crisis, it says.

The World Bank remains skeptical about India’s ambitious bailout plan, noting it would take six months to a year for the results of the bailout plan to be visible. It termed the bailout more of a crisis for the banking sector than for power companies.

Electricity distributors owe US$32 billion to banks and other financial firms.

Under the bailout plan, state governments are to take over half the outstanding loans of state electricity distribution companies, also called discoms. It will convert these loans into bonds, which will then be issued to banks backed by state-government guarantees.

The remaining 50% debt will then be restructured by banks with a three-year moratorium on principal repayments.

This is the second such bailout for discoms in a decade. The first one failed to prod the states to act.

The World Bank and India’s power ministry remain skeptical about the seriousness of the implementation of the current bailout. Distribution losses, which occur due to theft and inefficiencies in transmission and billing, have been estimated at about 27%.