The government is planning several major reforms to revive India’s struggling power distribution sector. These include privatisation, partial stake sales, and possible market listings of state electricity distribution companies (discoms). The state power retailers have accumulated losses of 7.08 trillion rupees ($80.6 billion) and outstanding debt of 7.42 trillion rupees ($84.4 billion) as of March 2024.
The plan aims to allow private companies to participate in the management and operations of state discoms. This proposal follows earlier efforts such as the planned privatisation of selected power distribution circles in Uttar Pradesh. The government is also considering selling part of its ownership in discoms that are heavily in debt. If investors show little interest, the ministry may list these companies on stock exchanges to raise funds and improve transparency.
India is considering a bailout exceeding 1 trillion rupees ($12 billion) for debt-laden state-run power distribution companies. To receive the bailout funds, the states will be required to privatise their electric utilities and transfer managerial control or keep control but list them on a stock exchange, according to three government officials and a document outlining the plan prepared by the Indian Ministry of Power. Under the proposal, at least 20 per cent of the state’s total power consumption must be met by private companies and the states must assume part of the retailer’s debt, according to sources.
To do so the states can choose to privatise their distribution operations for access to loans to pay off existing debt under two options. First, the states can create a new distribution company, divest 51 per cent of the equity, which will enable them to access a 50-year interest-free loan for the privatised company’s debt, along with access to low-interest federal loans for five years, the presentation showed. The second option would let states privatise up to 26 per cent of the equity of an existing state-owned power distribution company in exchange for access to low-interest loans from the federal government for five years, it showed.
Alternatively, states that do not decide to transfer managerial control through privatisation must list their utilities on a recognised stock exchange within three years.
The reform plan also suggests making electricity tariffs more realistic and closer to actual costs. This would help reduce losses and make the sector financially stronger. Another proposal being discussed is to remove the “banking” system for open access, which currently lets power producers store surplus energy for later use. Officials believe this step will improve efficiency and strengthen financial institutions like the Rural Electrification Corporation (REC) and Power Finance Corporation (PFC), which fund power projects across India.
Reviving the discoms is expected to have a positive impact on the entire power sector. A stronger distribution network would benefit electricity utilities, power producers, and financial institutions. It would also encourage more private participation from companies such as Tata Power, Torrent Power, and CESC.
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