India is to bail out its heavily-indebted power generators to the tune of $35 billion. This huge amount of short-term debt will be converted into long-term bonds on which the state-owned electricity companies will only have to pay the interest over the next three years. The idea is that this will give the generators the breathing space to work on their creaking system, which collapsed completely last July leaving 670 million people without power for up to two days. Restructuring the debt will also restore the companies' access to funding for urgent major infrastructural work. There is, however, no guarantee that this is going to turn around an industry which for years was forced to sell electricity for less than it cost to generate. Power prices have been raised but it is far from certain that the companies will be able to make any profit which they can then re-invest in their technology and networks. Indeed, given that they have been obliged to operate uneconomically for so long, it must be wondered if there exists currently the sort of positive culture that is required to inject new life into this ailing industry. There are certainly outstanding engineers within the companies who have worked miracles to keep the system running, even as badly as it does. However, there has been widespread criticism of top management, many of whom are political appointees from the state or central government. The uneconomic pricing of electricity was a matter of politics. So too was the lending to the state-owned power companies by government-owned banks. There was no incentive to count the pennies, no clear duty to seek real value for money and only rarely the opportunity to think of long-term investments. The danger of course is that the time given the industry by the debt-restructuring could be wasted. Indeed the program of converting the maturity of what is owed is not going to happen overnight. Moreover, if public anger at the phasing out of subsidies causes Manmohan Singh's government, or a successor, to reverse the change, then the whole rationale behind the debt change will be negated. The challenge of change cannot be underestimated. India's sustained economic growth depends on reliable sources of power. There are still tens of millions who do not have access to any electricity at all, except by running their own generators. The years of “muddling through” must come to an end. If India gives its power sector the focus and support that is urgently needed, then there may also be a considerable opportunity here. That would be to demonstrate to international investors that it is a Tiger economy, which is thoroughly capable, when it puts its mind to it, of tackling such an immense undertaking as upgrading and expanding its 205 gigawatt network, which is the world's fifth largest in terms of capacity. The $35 billion debt relief is only the start of a long, tough program.
