The Cabinet Committee on Economic Affairs’ Rs.1.9 lakh crore debt recast package for State Electricity Boards and distribution companies (discoms) appears to be the last opportunity for the SEBs to set their house in order. The government of India gave the States an earlier opportunity to adopt power sector reforms and recommended the unbundling of the boards to improve their efficiency. Unfortunately, the losses of the electricity agencies have increased over the years and the energy deficit in the country has reached alarming proportions. Except for Gujarat, Jharkhand and Chhattisgarh, most States are resorting to power cuts and spot purchases from independent power producers to tide over crisis-like situations. The SEBs sometimes buy power at Rs.7 to Rs.8 per unit, and sell it to consumers at anything from Rs.3 to Rs.5 per unit, incurring additional losses. The estimated total losses run up by the SEBs has been pegged at Rs.1.9 lakh crore, which is the package the CCEA has now worked out. States have till December 31, 2012 to opt in. Of course, the money comes with reform strings attached and this is where State governments and their ruling parties have to bite the bullet.

The package has two parts: States have to take over 50 per cent of the liabilities of the SEBs as of March 31, 2012. This part can be converted into bonds to be issued by the discoms to lenders, under guarantee by the State government. The other half of the short-term liabilities will be rescheduled by lenders and serviced by discoms with a three-year moratorium on the principal. To avail themselves of this package, State governments must commit to revising their power tariff annually, through the regulatory boards. The tariff order for 2012-13 will have to be notified before the restructuring package gets approved. The SEBs must also commit to cutting transmission and distribution losses, which account for as much as 40 per cent of output in some States. Of course, revising the power tariff every year in line with the package calls for political will on the part of the State governments. Those States which provide free or cheap power to particular sections of consumers are already obliged to reimburse their SEBs every year. On the upside, rationalisation of tariffs will allow them to mop up more revenue and increase power generation so as to bridge the widening supply-demand deficit. Though there are bound to be political repercussions and even protests, now may well be the last opportunity for the States to revamp their electricity boards and put them on solid financial ground. Of course, it is vital that the regulatory boards objectively validate all tariff revisions, especially in those jurisdictions where private players have entered the distribution business.

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