India may offer a bailout of more than ₹1 trillion ($12 billion) for debt-laden state-run power distribution companies. To accept the funds, the state will be required to privatise its electric utilities and transfer managerial control, or keep control while listing them on a stock exchange, according to government officials and a Ministry of Power document outlining the plan.
The significant plan marks Prime Minister Modi’s toughest reform push yet to overhaul the chronically inefficient loss-making electricity companies, considered the weakest link in India’s energy chain. Two Government sources said the Power Ministry and the Ministry of Finance are discussing the final details of the bailout to be announced in the February budget. Earlier, the Ministry of Finance implemented the One State One RRB (Regional Rural Bank) to streamline operations and strengthen the financial stability of rural banking institutions.Â
According to the power ministry presentation, under the proposal, 20% of the state’s total power consumption must be matched by private companies, and the state must assume part of retailers’ debt. For this, the states can privatise their distribution operations for access to loans to pay off existing debt under two options.
Firstly, states can establish a new distribution firm, divest 51% of the equity, and access a 50-year interest-free loan for the privatised company’s debt, with access to low-interest central loans for the next five years, the presentation showed.
And the second thing is that the states can privatise upto 26% equity of an existing state-owned power distribution company in exchange for access to low-interest loans from the Central Government for five years, it showed.
