“Under this scheme, management control from the private sector would be transferred to the strategic partner and the discom’s debt would be taken over by the Center in an attempt to make the transaction attractive to the partner,” said one of the two people cited above.
The proposal, drawn up by a group of ministers on the fiscal viability of discoms, gives states three reform paths: privatize majority ownership within three years, divest a limited stake or list their power companies. Each option ties financial support to performance, including access to 50-year interest-free loans and capital grants to upgrade the network, the first person added.
A panel of ministers has pegged the total unsustainable debt of the country’s discoms at ₹2,74,120 crores.
If approved by the power ministry, the scheme will be submitted to the Union Cabinet for approval.
A panel headed by Power Minister Manohar Lal met last month to look at the viability of discoms and discuss the Centre’s new debt restructuring reform scheme.
The scheme proposed two models of disinvestment for discoms: states that go for the first option would have to create a new entity and divest at least 51% of the company’s equity, allowing them to access a 50-year interest-free loan on the privatized company’s debt through Special Assistance to States for Capital Investment (SASCI), the second person cited above said.
A panel of ministers estimated the cumulative expenditure ₹78,119 crore from the Center through SASCI loans to states.
The Center will provide loans at an interest subsidy of 3.5% for five years to other discoms in the state as well, the second added.
The proposal aims to encourage states to allow private participation in the state and increase the financial viability of discoms. “It will ensure that every state looks at its energy operations and restructures current entities; it will lead to the emergence of new private operators to drive innovation and competitiveness,” said Sambitosh Mohapatra, partner and climate and energy leader at PwC India.
The second option allows for the sale of a minimum 26% stake in the discoms, when the right of management would be transferred to a strategic partner and the unsustainable debt would be taken over by the state.
In both scenarios, the government would provide a capital subsidy for infrastructure development for five years.
In case the state government does not want a change in the management of the discoms, they would have to list the discoms within three years of the announcement of the scheme and show a net profit for five years of joining the scheme to get capital expenditure support from the government. They would also have to achieve and maintain an A or higher rating in the annual PFC Integrated Ratings, issued by state-owned Power Finance Corp.
“The scheme is the best to come out in the last two decades, covering all aspects – governance, management, efficient operation and investment in modernization of distribution systems, avoidance of tariff shocks and customer services,” said Mohapatra of PwC India. “It provides state governments with all three options — listing, majority divestiture and limited divestiture — given the scale of utility performance.”
The system has the potential to transform the industry’s value chain and attract investment in last-mile connectivity, he added.
The renewed push to sell control of public sector discoms and run them in public-private partnerships reflects the government’s drive to monetize energy companies and create value through stake sales or initial public offerings (IPOs).
India has about 67 discoms, including 16 run by the private sector in Delhi, Mumbai, Odisha, West Bengal, Gujarat and Dadra and Nagar Haveli.
Work in progress
Currently, the Uttar Pradesh government is privatizing two of its discoms. Mint had earlier reported that at least eight firms, including Adani Group, Tata Power Ltd and Greenko Group, are seeking a majority stake in Purvanchal Vidyut Vitran Nigam Ltd (PUVVNL) and Dakshinanchal Vidyut Vitran Nigam Ltd (DVVNL).
In 2020, the Center decided to privatize all electricity distribution companies in the territories of the Union, which it manages directly. CESC got control of Chandigarh discom while Torrent Power took control of Dadra and Nagar Haveli discom. The sales were coupled with incentives from the Center that encouraged discoms to seek new investors.
That year the government also announced a reform linked ₹90,000 crore liquidity injection to cash-strapped discoms as part of and ₹20 trillion stimulus package to revive the economy.
Odisha was the first state to privatize its power distribution sector in 1999 into four distros. Delhi followed, privatizing three of its discoms in July 2002: BSES Rajdhani Power Ltd, BSES Yamuna Power Ltd and Tata Power Delhi Distribution Ltd.
