Preparation for privatization: initiative for personal investment in electricity distribution

The Center has proposed to launch a new scheme in the General Budget with the aim of improving the states to improve its power infrastructure and encourage it to open for private investment. This initiative has been taken at a time when two power distribution companies (Discom), which recorded the highest losses of Uttar Pradesh, are preparing for privatization. This is the biggest initiative after the privatization of Odisha’s discom in 2020.

Finance Minister Nirmala Sitharaman has announced in her budget speech that reforms in state level power transmission and distribution infrastructure will be encouraged. He said, “On the basis of these reforms, states will be allowed to borrow 0.5 percent of GSDP.”

The Union Budget has revealed the ‘distribution scheme related to reforms’ and Rs 16,021 crore has been allocated for this. It aims to invite private investment in the power transmission and distribution sector. The budget document states, ‘This scheme is for distribution sub-sectors as a financial assistance based on results and reforms to ensure 24-hour power for all and prepare a viable distribution area in financial terms. Under this scheme, a concept has been envisaged to provide assistance to Discom in the matter of adopting correction package, including PPP ownership of distribution companies, various franchise models at distribution level, etc.

In his response to the budget announcement, Union Power Minister Manohar Lal Khattar said, ‘The encouragement of the government’s commitment to improve the financial health and operational stability of the power distribution companies and incentive to increase the interstate transmission capacity will improve the efficiency of the power sector. . ‘

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Although the Center has tried to pursue reforms in Discom through schemes like Uday Yojana and current RDSS between 2015 and 2019, the deficit continued to increase with slight relief. Under the Uday Yojana, states taking measures to improve the improvement for electricity distribution companies were allowed to borrow additional borrowings. But no state adopted the path of privatization, but some states opted for technical partnership or franchise with private companies.

In fact, the latest attempt of the Center is the third such attempt to improve the financial health and operation of Discom or leads to measures such as PPP or franchise. Khattar had urged the states in November last year to lish the power distribution companies earning profits on the stock exchange. He also asked to prepare a list of threatened discoms. The minister said, “The current cumulative loan of DISCOM is Rs 6.84 lakh crore, while his accumulated deficit so far has been Rs 6.46 lakh crore.” According to PFC’s annual discom audit report last year, Discom’s total debt increased to Rs 70,000 crore during the year 2022-23. In this, 16 states recorded a significant increase in their financial deficit and have 11 large states. The total technical and commercial (AT&C) deficit showing the operational deficit was 15 per cent last year, which increased to 17 per cent in FY 2024.

In the year 2023, government -owned power distribution companies proposed to capitalize on some assets to raise working capital for the development of infrastructure. The idea of ​​setting up a committee for debt stability by the Union Power Ministry was supported by electricity departments and power distribution companies of many states.

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In 2016, the draft of the Electricity Act, 2003 was suggested to separate the ‘content-class’, where several power suppliers in any one area were asked to allow and keep the infrastructure owned by the state. . But that bill is yet to be introduced in Parliament. Thereafter, under the power rules in 2023, bid for another power supplier in any area was allowed, but for this the power regulator will have to apply. So far, only Adani Electricity Mumbai Limited has made such an effort. Last week, the power distribution of Chandigarh has been assigned to a group of RP Sanjeev Goenka.

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