Government Plans to Cut Rs. 6 trillion Power Utility Debt

India is planning laws that would increase competition and reduce debt at its power distribution companies, but it also risks provoking anger in a country where electricity is frequently used as an election sweetener.

Key proposals include allowing more utilities to operate within the same circles, requiring regulators to set tariffs based on market costs, and defining payment procedures and deadlines, according to people who have knowledge of the matter but who asked not to be identified as the details aren’t yet public. The bill will be presented to parliament in the current session that runs through August 12.

Prime Minister Narendra Modi’s government says that the overhaul is necessary to clear a sector that is vital to its goals for the energy transition but is clogged with 6 trillion rupees ($75 billion) of debt. Critics say the amendments pave the way for big companies to take over the sector as richer customers would shift to private enterprises, leaving state-run utilities with customers who depend on subsidies.

"Power industry employees across the country will strike on the day the bill is introduced in parliament, "said Shailendra Dubey, chairman of the All-India Power Engineers Federation, an advocacy group that develops recommendations for energy policy. 

He further added, “This amendment restricts the use of the distribution networks of the states to private enterprises, preventing them from cherry-picking profitable distribution networks."

A representative for the Power Ministry didn’t immediately respond to an email outside of business hours Friday. In cases when two or more suppliers are present in a single distribution circle, the bill asks regulators to set a floor rate and an upper limit tariff.

The matter is contentious because several state governments promise free electricity to lure voters. Politicians then press regulators to set artificially low tariffs, or local administrations neglect to transfer subsidies, while cash-strapped merchants postpone paying electricity producers, grid operators, and coal suppliers, weakening the entire supply chain.

 “Electricity is an essential commodity, which needs to be regulated and managed and cannot be given up to the greed of profit," said Avik Saha, secretary of All India Kisan Sangharsh Coordination Committee, a farmers' organisation which has been fighting against the bill for months. He said farmers would protest if the bill is forced through.