New Delhi, Oct. 30 -- The Centre is preparing a new scheme to recast the massive debt of state-owned power distribution companies (discoms) and open them up to private participation, said two people in the know of the development. This could mark the most sweeping reform in two decades for India's loss-making utilities.

"Under the scheme, management control would be transferred to the strategic partner from the private sector and the debt of the discom would be taken over the Centre in a bid to make the transaction attractive for the partner," said one of the two people mentioned above.

Developed by a group of ministers on fiscal viability of discoms, the proposal gives states three reform paths: privatize majority ownership, divest a l...