The Central government has announced a debt recast package for state electricity distribution companies, but the question that looms large is will it help turn around these loss making entities? The new scheme has three components -- restructuring, tariff rationalisation and reduction of losses which appears workable on paper, but goes haywire in reality. The experience is that restructuring goes through quite well whereas the remaining two drag on. Distribution companies, read state electricity boards, have an accumulated loss of Rs 4.3 lakh crore which is a combination of low tariff costs, inefficiency, political largesse and inability to tackle theft and plug transmission losses. A similar plan launched by the UPA government in 2012 failed because pricing mechanism lies with State governments which, for political reasons, sell power below cost. Higher tariff costs are naturally unpopular and State governments tend to do what is popular instead of what is responsible. On the other hand, a point made by Power, Coal and Renewable Energy Minister Piyush Goyal that consumers, both domestic and commercial, should not be penalised for inefficiencies, needs to be taken on board. The problem needs a set of solutions and cannot be resolved by increasing tariffs alone. A long term solution is required because losses are being financed through debt and banks are exposed to a tune of Rs 4.3 lakh crore.
