Rescue Package for Distressed Power Sector Approved By Government

New Delhi: A rescue package for loss-making power utilities was approved by the government today, to allow distressed power distribution companies in some states to convert their debt into state bonds.

Power Minister Piyush Goyal said states would be allowed to take over 75 per cent of the debts of their utility companies, which now stand at Rs 4.3 lakh crore rupees ($65.3 billion) after years of undercharging customers for electricity.

By clearing past debts and putting them on a better financial footing, Mr Goyal said the "severely mismanaged" utilities would be returned to profitability by 2019, ending electricity blackouts and spurring economic growth.

"The cabinet believes that this will help the Indian power sector turn around once and for all and for the states to provide 24x7 power," he told reporters after the cabinet cleared the rescue plan.

Prime Minister Narendra Modi has urged the power ministry and states to find a way to overhaul the power distribution sector, whose weak finances have crimped bank lending and undermined the push to provide reliable electricity in Asia's third-largest economy.

Past government attempts at instigating reform, including a 2012 rescue plan under Prime Minister Manmohan Singh have largely failed because utilities - whose prices are set by local regulators and not by New Delhi - continued to sell power below cost.

States and utilities which want to take up the rescue package under Ujwal Discom Assurance Yojna (UDAY) will sign agreements with the power ministry committing them to improve performance in return for the debt swap, Mr Goyal said.

The natural fallout of this restructuring could be quarterly revision of tariffs in consultations with state electricity regulators, officials said.

The government pledged to cut electricity theft and other transmission losses to 15 per cent from 22 per cent within four years.