Bailout, but no reform, for India's indebted power distributors

Mon Sep 24, 2012 3:15am EDT
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By Sanjeev Choudhary

NEW DELHI (Reuters) - India is set to offer a bailout to its cash-strapped power distributors that would help restructure more than $35 billion in debt but do little to reform a sector whose dysfunction has exacerbated the country's growth-sapping energy crisis.

The country's mostly state-owned distribution utilities are drowning in losses and were blamed for triggering probably the worst blackout in history in July, when power was cut for two consecutive days in a massive area home to 670 million people.

The federal cabinet will consider the bailout plan, the second in a decade, when it meets at 5.30 pm (8 a.m. EDT) on Monday, officials said.

Shares in some Indian power sector lenders and power producers rose 2-3 percent on hopes that the cabinet would approve the plan, the latest in a series of actions to address structural problems slowing down Asia's third largest economy.

A lifeline for power distributors would free up cash and help them buy more power to supply factories and homes that resort to expensive diesel generators and solar panels to plug their energy gaps.

Last week, the government cut subsidies on diesel and opened up the country's vast retail sector as well as aviation to foreign investment to win back investor confidence and attack the country's ballooning fiscal deficit.

Prime Minister Manmohan Singh, defending the measures, said "money does not grow on trees" and that failure to bridge the gap between government spending and income would stoke inflation and lead to further loss of confidence in the economy.

Under the rescue plan for power distributors, provincial governments will take on half of their short-term debt and convert them into long-term bonds over the next three years.   Continued...