Modi Gets Rival's Support for $73 Billion Power-Reform Agenda

  • Bihar becomes sixth state to join power-company debt plan
  • Modi seeks to provide power to every Indian household by 2020

India’s eastern state of Bihar signed up to restructure debt held by its power distribution utility, signaling a win for Prime Minister Narendra Modi’s electricity-reform agenda.

Bihar, which was won by Modi’s political opponent Nitish Kumar in state elections last year, officially joined the central government’s debt-restructuring plan at a signing ceremony in New Delhi on Monday. The six states that have have signed on so far, including Bihar, account for one-third of all power-retailer debts, according to a central government statement.

Reviving ailing power retailers is critical to fulfilling Modi’s promise of providing electricity to every household by 2020. The utilities have about 5 trillion rupees ($73 billion) of debt as they are forced to sell electricity at subsidized rates.

“Signing up for the plan is the best opportunity for the states to come out of the logjam,” said Sambitosh Mohapatra, a partner at PwC India. “States are concerned that the plan could stretch their finances but they don’t have other options.”

Most Indebted

Some of the nation’s most-indebted states have signed on for the plan, including Rajasthan and Uttar Pradesh. Others such as Madhya Pradesh, Haryana and Himachal Pradesh intend to join. India has 29 states and seven so-called union territories.

“We are in talks with other states and expect more of them to sign the scheme soon,” federal power minister Piyush Goyal said. “Despite political differences, the center and the states are working together.”

The plan, approved by India’s cabinet in November, requires states to take on 75 percent of the the debt held by the distributors as of Sept. 30, and then sell bonds to repay the debt. The utilities will retain the remaining 25 percent. The transfer of debt will reduce the cost of borrowing from about 12 percent to 8 percent, the average paid by states, according to the power ministry.

The plan seeks to make all distribution utilities profitable by March 2019, according to the power ministry.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE