Easing power distribution woes

The Rs 1.9 lakh crore debt recast package for state power distribution utilities, though a necessary step, may not permanently ease their problems. As is known, most of these utilities are reeling under losses and operational inefficiencies that have accumulated over a long time, though the situation in all the states is not the same. The recent power crisis in India during which there were immense blackouts was caused in part because of the  woes of the power companies. This is a move that therefore seeks to revive the ailing power sector and thereby induce growth in the economy. The financial clean-up exercise is aimed at easing immediate cash flow problems and stemming recurring losses. The states will restructure 50 per cent of SEB loans, and the remaining will be restructured by the lenders. About half of the outstanding short term liabilities of distribution utilities will be taken over by state governments and converted into bonds, to be issued by the utilities to participating lenders, duly backed by state government guarantees. These steps are necessary as without them the distribution utilities will not be able to function. A result of these steps, in the short term, the financial situation of distribution utilites will become easier. Among the reasons that distribution companies have been under severe financial stress owing to electricity thefts as well as the failure to increase power tariffs over the years due to fears of a political and consumer backlash. Companies have had to borrow heavily from state-run financial institutions to pay-off their suppliers. The financial constraints have meant that the power companies have also been buying less power, forcing producers to scale back production.

However, this step merely buys time. It may be remembered that a similar bailout package introduced about 10 years ago did not work mainly due to unwillingness of states toequitably distribute the debt burden and increase power tariffs, because they were afraid of a  backlash from the public.The problems in the power sector, especially the distribution companies, are more deep-rooted. There is a need to look very carefully at the structure of pricing. There is a need to cut the subsidies that are at the bootom of the financial inefficiencies of the distribution utilities. People may not be unwilling to pay a higher price for power provided they are assured of a regular supply. This is something for the government to consider.