Govt planning contentious laws to cut power utility debt worth Rs 6 trn

India is planning laws that would boost competition and lower debt at its power distribution companies, but also risks fomenting anger in a country where electricity is often used as an election sweetener.

Key proposals include allowing more utilities to operate within the same circles, mandating regulators to set tariffs based on market costs, and defining payment procedures and deadlines, according to people with knowledge of the matter, who asked not to be identified as the details aren’t yet public. The bill will be presented to parliament in the current session that runs through Aug. 12.

Prime Minister Narendra Modi’s government says the overhaul is essential to unclog a sector that is key to its energy transition ambitions but is choked with Rs 6 trillion ($75 billion) of debt. Critics say the amendments pave the way for big companies to take over the sector as richer customers would switch to private firms, leaving state-run utilities with users who rely on subsidies. 

“The day the bill is presented in the parliament, power industry employees around the country will go on a strike,” said Shailendra Dubey, chairman at the All India Power Engineers Federation, an advocacy body that produces energy policy suggestions. “This amendment only allows private companies to benefit from the states’ distribution networks and cherry-pick profitable distribution circles.”

A representative for the Power Ministry didn’t immediately respond to an email outside of business hours Friday. The bill asks regulators to set a ceiling and a floor tariff in areas where two or more suppliers are present in a single distribution circle.

The matter is contentious because several state governments promise free electricity to lure voters. Politicians then press regulators to prescribe artificially low tariffs or local administrations fail to transfer subsidies; money-losing retailers delay payments to power generators, grid operators and coal suppliers, weakening the entire supply chain.

Modi last week said unpaid bills amounted to nearly Rs 2.5 trillion, and urged states to clear the dues. State governments say the subsidies protect poor citizens and small businesses. 

“Electricity is an essential commodity, which needs to be regulated and managed and cannot be given up to the greed of profit,” said Avik Saha, secretary of the All India Kisan Sangharsh Coordination Committee, a farmers’ lobby that has been opposing the bill for months. He said farmers would protest if the bill is pushed through