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It will have an electric effect

The Rs. 200,000-crore lifeline to sick power distribution companies dwarfs the Indian government's handouts to any other ailing industry in the recent past.
Hindustan Times | By HT Correspondent, New Delhi
UPDATED ON SEP 26, 2012 01:41 AM IST

The Rs. 200,000-crore lifeline to sick power distribution companies dwarfs the Indian government's handouts to any other ailing industry in the recent past. Yet the time had arrived to pay up for all these years of subsidised electricity that state governments have used to nurture vote banks.

Distribution companies in the states have accumulated Rs. 190,000 crore in losses, and unless this sea of red ink was cleaned up, their ability to buy power had all but disappeared. This was exerting an enormous pressure upstream on power producing companies which, not sure whether they would be paid for the electricity they generated, had very little incentive to increase capacity. Power generation is struggling in the country primarily because of populism by states and the widening gap between demand and supply resulted in the catastrophic grid collapse of July.

The Centre is right in seeking correctives before it hands over the taxpayers' money to states. State governments will take over half the outstanding debt of the distribution companies and issue bonds against it. The other half of the debt will be rolled over on easy terms. The Centre will chip in with a quarter of the principal owed by the state governments on this account.

The idea of getting the state governments to bear most of the burden is to make them more responsible when it comes to promising cheap, and sometimes free, power to the electorate. This also limits the capability of populist states to borrow for other purposes.

Hopefully, the message to the state governments has gone home and they will be more circumspect with their promise of subsidised energy in future. The other motive of the debt restructuring is to visit some corporate accountability on the electricity distribution companies. Losses will have to be trimmed under a continuous audit by both the state and the central government.

With the debt recast, the Centre has addressed the demand side of the country's dismal power equation. But similar distortions occur on the supply side as well. Electricity generation companies have to grapple with a shortage of coal and natural fuels, the fossil fuels most commonly used in Indian power plants. Coal is mined hesitantly because of a restrictive State monopoly.

A recent government audit over the allocation of captive coal blocks to select industries has revived the debate over the need to persist with the inefficiencies of a nationalised coal mining industry. Natural gas, the other principal feedstock for our power plants, is trickling in from new offshore finds. This could be because there is not enough of it or due to anaemic exploration.

The government rations both coal and gas among competing industries, including power. The immediate response to a power sector in distress is to give it a bigger slice of the pie. The sustainable response will need the pie to grow overall.

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