Government Approves Rescue Package for Power Sector

New Delhi: Government approved a rescue package for its loss-making power utilities on Thursday, a major reform that Prime Minister Narendra Modi hopes will end electricity blackouts and spur economic growth.

Power Minister Piyush Goyal said states would be allowed to take over 75 percent of the debts of their utility companies, which now stand at Rs 4.3 lakh crore ($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 utilities would be returned to profitability by 2019.

“The cabinet believes that this will help the Indian power sector turn around once and for all and for the states to provide 24/7 power,” he told reporters after the cabinet cleared the rescue plan.

PM 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.

Worried about a series of setbacks to his economic reform agenda, PM Modi has in recent months marked out utilities as an area where he can revive his reputation as a leader ready to take tough decisions.

Past government attempts at instigating reform, including a 2012 rescue plan under PM Modi’s predecessor, 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 will sign agreements with the power ministry committing them to improve performance in return for the debt swap, Mr Goyal said.

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

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Source:Ndtv