The Rs 1,20,000 crore restructuring package for the state electricity boards,soon to come up before the Union cabinet,will arguably be another reason for the suddenly rejuvenated UPA to congratulate itself. States like Punjab,where the deficit of the state power utility at Rs 8,983 crore is roughly equal to the fiscal deficit of the state government,will have reason to cheer. Past experience shows that the mess in the power sector has a habit of returning to haunt governments. Power ministers forget that,along with the cheques they write to sign off the arrears,they are also supposed to revise tariffs periodically for various user groups. Without this correction,as Standard & Poors pointed out last week,the restructuring of dues will only create a tepid improvement in Indian public finance. Under the package,half the loans will be reset as long-term loans while another half will be transferred to the respective states,which in turn will provide guarantees to bonds that the SEBs will issue to banks. There will also be a rollover of the repayment schedule,with lenders taking some sort of a haircut. A proposal like this one has many moving parts,which makes it essential that all participants,especially the state governments,keep their side of the bargain. There are signs that it could happen this time. Punjab,along with 12 states,has raised electricity tariffs by impressive margins in the last two years. The large states that have raised tariffs are Rajasthan,by 27 per cent,Tamil Nadu,by 37 per cent,Andhra Pradesh,by 20 per cent,and Punjab,by 12 per cent. This is critical because the banking sector already has an exposure of 7.5 per cent of its loan book to the power sector. Unless the state utilities put more money on the table,the banks cannot give any more loans as they are precariously close to their exposure limits for the sector. Unless there are fresh loans,investments in improving distribution systems remember the July 31 tripping of the national power grid will not come through. Which means that despite the loan recast,the sector remains in the doldrums,and Indias energy security is still in danger. Since the recast would,in the first round,benefit only the independent power producers,it is important that the government stays the course.
