Link power reform funds to milestones that show deployment of political will

The Centre’s massive exercise to shore up the moribund finances of power utilities across seven states reportedly involves bond guarantees, interest payments and other requirements by the concerned state governments.

Yet, sans explicit political backing for the reforms, the latest technical attempt at revamp in the vexed power sector has dim prospects indeed. Technicalities are just not sufficient to walk the talk and follow through with purposeful reforms.

Without the political executive specifically committing to put paid to runaway revenue leakage, attendant populism in tariffs and plain open theft in distribution, the latest reform plan would fizzle out sooner than later given the sheer increase in power volumes.

Note that a similar debt recast was essayed just over a decade ago, complete with hived-off distribution companies (discoms) and notionally independent tariff-setting regulatory bodies.

But the actual record of distribution reforms has been mostly suboptimal thanks to reckless giveaways and politically-mandated tariffs, with most state regulators preferring not to revise power rates for years. It has meant electricity economics standing on its head. A few state governments like Gujarat under Narendra Modi seem to be leveraging, rightly, their political capital to reform power distribution, but clearly much remains to be done pan-India.

The latest Rs 1.2-lakh-crore debt recast plan is that the cashstrapped discoms would issue bonds backed by state guarantees for one half of the amount, with the other half being rescheduled by banks and financial institutions. The proposal requires the states to meet the interest payments on the bonds and rescheduled borrowings, with the Centre providing financial incentives to the states stemming distribution losses.

The bottom line is that sound politics must remedy the bad politics that is skewering the power sector. Without political will to stamp out power theft, end giveaways and pass on the cost of fuel to consumers, financial largesse will achieve little. Funds must be linked to milestones that reflect deployment of the needed political will.