Govt Plans IPOs for Five State-Run Power Firms to Boost Expansion Funds
The Indian government is considering privatising state-run discoms (distribution companies) that are grappling with tariff limits, rising power costs, high transmission and distribution (T&D) losses, and delayed consumer payments.
- Stock Market Listings: To raise capital for capacity expansion, the government has identified five state-owned power generation and transmission companies for potential stock market listings.
- Current Progress: Among these, Andhra Pradesh Power Generation Corporation and Gujarat Energy Transmission Corporation are already in the process of appointing merchant bankers for the listings.
Privatisation of State-Owned Discoms Under Consideration
The government is also exploring the privatisation of state-owned distribution companies, which are struggling due to power procurement costs, high T&D losses, and delayed payments from consumers.
- Financial Strain: Discoms face significant financial challenges with tariffs that don’t cover supply costs and increasing losses.
- Support for Privatisation: In recent regional meetings, states have urged the Centre to support privatising these utilities to improve service efficiency and reliability.
Discoms’ Financial Concerns and Government Actions
The government has set up a group of ministers to tackle the financial issues of discoms but has ruled out the possibility of a financial bailout.
- Stock Exchange Listings for Discoms: The government is also considering stock listings for some discoms, contingent on reducing their accumulated losses.
- Outstanding Debt: As of FY24, discoms’ outstanding debt was Rs 7.53 trillion, while their total losses amounted to Rs 6.92 trillion.
Although states have improved subsidy payments to discoms, there are still some pending dues from the government. The gap between the average cost of supply (ACS) and average revenue realised (ARR) has decreased from 45 paise per kWh in 2022-23 to 0.10 paise by January 2025.
Suggestions for Strengthening Discoms’ Financial Health
Experts recommend a combination of measures to improve the financial health of discoms:
- Phased Tariff Adjustments: Gradual increases in tariffs to match the rising costs of supply.
- Reducing AT&C Losses: Minimising aggregate technical and commercial losses.
- Optimising Power Procurement: Focus on reducing reliance on expensive power purchase options and integrating renewable energy sources.
Challenges in Power Procurement and Tariffs
Despite a reduction in coal prices from the peak levels in FY23, short-term power tariffs remain high, making power procurement costly for discoms.
- Optimising Procurement Strategies: Reports suggest that discoms should focus on optimising procurement strategies, increasing renewable energy reliance, and reducing dependence on expensive alternatives.
Power Demand and Government’s Plans for Management
India’s peak power demand is projected to reach 270 gigawatts (GW) this year. Measures are already in place to manage the upcoming summer demand.
- Future Projections: The government anticipates that peak power demand will rise to 335 GW by 2030, up from the 250 GW peak in 2024.
In exceptional circumstances, the government could invoke Section 11 of the Electricity Act, 2003, directing generation companies to operate under specific conditions to meet rising demand.
