Long-term solution to power cuts to take years

The Indian government will push through some emergency fixes in response to the recent power outages, which affected 600 million people in northern India (See: World's biggest power outage hits 20 states), but the much needed long-term solution will take two years or more to put in place, says ratings agency Fitch Ratings.

In a note, it aid, "We expect the government to immediately implement short-term reforms, such as better grid discipline via increasing incentives and penalties. These will go some way to reducing the risks of such large-scale outages happening again, but significant structural changes are needed and these cannot be made within one or two years."

Fixing the poor financial condition of the utilities so that they can upgrade their infrastructure and improve their operating performance, and improving the supply of coal for the generation of power both require long-term measures.

The government is already in the advanced stages of formulating a long-term plan for restructuring the debt of state power utilities in Tamil Nadu, Uttar Pradesh, Rajasthan, Madhya Pradesh, Andhra Pradesh, Haryana and Punjab, the note said.

"The proposed packages seek to shift half of the debt burden to the respective state government, and to postpone repayment of principal by three years to allow loss-making utilities to achieve an operational and financial turnaround. Structural reforms focussed on regulation, tariff and technical inefficiencies will accompany financial restructuring so as to restore the viability of the state power utilities, it said.

The government has also made some headway in improving the supply of coal, although a lot more is needed before this aspect of the power shortages is resolved.