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Indian cabinet approves rescue for power firms

September 24, 2012


Indian Prime Minister Manmohan Singh — AFP Photo
Indian Prime Minister Manmohan Singh. — Photo by AFP

NEW DELHI: An Indian cabinet panel has approved a rescue package for power distributors after they racked up $35 billion in losses due to populist policies, graft and electricity theft.

The scheme is aimed at removing a long-term impediment to economic growth by freeing up money for distributors to buy more power and increase supplies to industrial and residential users who suffer frequent blackouts.

The rescue was approved late on Monday by the Cabinet Committee on Economic Affairs headed by Prime Minister Manmohan Singh, a government statement said.

It comes after Singh unleashed a string of bold economic reforms in the past two weeks to shore up India's badly slowing economy, ending longstanding government policy paralysis.

The near bankrupt state-run distributors have racked up 1.9 trillion rupees ($35 billion) in losses due to pressure from populist state governments to keep electricity prices low, corruption and theft from power lines.

Under the plan, 50 percent of the firms' short-term debts would be taken over by state governments and converted into bonds, a government statement said.

The rest of the debts would be restructured by imposing a moratorium on repayment of the principal and offering easy terms for the remaining interest payments.

In return for the loan restructuring, distribution companies must show “concrete and measurable actions” to improve their operating performance, the statement said, by raising tariffs and taking other actions.

The plan “is a step in the positive direction,” Ashok Khurana, director general of the Association of Power Producers, told the Press Trust of India.

“The loss reduction and tariff increase plans would need to be monitored very strictly so that utilities are able to break even,” he added.

The poor performance of India's electricity distributors has aggravated the country's major energy problems, holding back economic growth, experts say.