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• To avail of short-term loans, the power distribution utilities will need to raise consumer tariffs and embrace reform measures that reduce distribution lossesHuman interactions can prove to be complex, drawing from the varied strands of emotions. In an attempt to understand some aspects, psychologists look for “commitment devices”. For instance, love is a device that bonds relations between human beings in an enduring manner.

• Move into the world of commerce, and one finds that commitment devices are the underpinnings of any relationship. Beyond the profit motive, transactions are incentivized by steep default penalties. The power sector eminently qualifies in this category. Run down by political interference, the distribution utilities haven’t been earning enough to keep business going for several decades. The play has been about the direction of the gap. A decade ago, it seemed as if the gap was narrowing. However, over the last few years, this has widened, owing to higher fuel prices and negligible consumer tariff hikes. With the distribution companies heading for seizure, lenders decided to close the tap a few months ago.

• Last month, Power Finance Corp. (PFC) and Rural Electrification Corp. (REC), key lenders to the sector, decided to open the tap, though in a regulated fashion, setting in place “commitment devices”. To avail of short-term loans, utilities will need to raise consumer tariffs and embrace reform measures that reduce distribution losses.According to a report in Mint, Rajasthan, Punjab, Haryana, Uttar Pradesh and Delhi have agreed to the conditions. The larger question is: why the delay in this prescription? Typically, in other sectors, lenders would not have hesitated so long to step in with “commitment devices” to resuscitate the health of the company.

• The “soft” approach by the two lenders has evidently slowed the revival of the utilities and the sector, leading to “unhealthy” lending that runs the risk of default.No doubt, their pedigree is partly to blame—owned by the Union government, any harsh measure by the lender in the absence of a full-blown crisis (of the kind being witnessed now) runs the risk of being shot down at the political level. However, that is not the concern of the CEOs of PFC and REC. By failing to proactively crack down on the utilities, they have failed to harness their lending power as reform instruments.

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