The government has offered state power distribution companies the option to recast debts of nearly Rs. 1.9 lakh crore. The Cabinet Committee on Economic Affairs, headed by the PM, approved it to enable state electricity boards to turn around finances of cash-starved power distribution wings.
But it is likely to raise consumers' electricity bills as the package comes bundled with a rider that will force discoms to raise power tariffs at least once a year.
The move suggests the government's bold drive to push ahead with critical measures demonstrating its willingness to bite the bullet despite howls of protests that its recent moves to allow foreign direct investment (FDI) in retail, hike in diesel prices and cap the sale of cheaper cooking gas had triggered.
"The poor health of the discoms has so far affected their ability to procure sufficient power besides creating uncertainty regarding the scheduling of new power generation capacity," said former power secretary RV Shahi.
Most state discoms have been borrowing afresh to service the interest on existing loans falling into a virtual debt trap.
Under the scheme cleared by the CCEA, 50% of the short-term outstanding liabilities of discoms would be taken over by state governments. The balance 50% loans would be restructured by providing moratorium on principle and best possible terms for repayments, an official statement said.
"It is a step in the positive direction. The loss reduction and tariff increase plans would need to be monitored very strictly so that utilities are able to break even in next 3 to 4 years and in the interim they need to be provided adequate transition finance," Ashok Khurana director general Association of Power Producers said.
Two committees at state and central levels will monitor the turnaround plan's progress, the statement said.