The Indian States play Politics with Electric Power payments as Utilities look to Survive

The Indian federal government has recently brought out a package of nearly $12 billion to rescue the different state-owned distribution power utilities which were facing multiple problems due to the COVID-19 crisis. They were facing the problem of declining demand on one hand and the problems of collections of utility bills on the other, as customers were not getting their bills and some were not willing to pay because of the strict national lockdown. To prevent cascading defaults across the power supply chain, the Indian federal government through its pure-play power lenders REC and PFC had decided to give loans to the state-owned distribution utilities so that they could pay the generation companies to solve the liquidity crisis affecting the sector.

However, these cheap loans were to come with a rider that they would be backed by the respective state guarantees as well as the commitment of the states to make reforms which would lead to the utilities becoming more sustainable in the long run. Now, the states which have generally mismanaged the power sector in a catastrophic manner have refused to come on board. They are reluctant to give guarantees that will lead to additional debt burden on them and don’t want to make reforms that might not be politically easy on them.

Giving subsidized power through inefficient state-owned distribution utilities has long been a staple way of earning votes for most of the political parties. Their unwillingness to change has resulted in the whole power sector being perennially stressed under losses and debt. The crisis has just made the situation even worse but still, the states don’t want to reform and change. The federal government has been trying to change the sector for the last 5-6 years with reforms like UDAY that have ground to a halt without states making a genuine effort. The situation has remained more or less the same with the new Electricity Act facing flak by states for infringing on their independence, as power remains a concurrent subject with both the state and the federal government having the authority to regulate it. The federal government wants serious reforms and strict contract enforcement and payments to be made on time. However, the states want to continue to use power as a vote earning tool despite it leading to a continuous state of disaster for the power sector.