Modi government privatises power utilities in Union Territories ⁠— wants states to follow suit

• This will ensure better services to consumers and will also ramp up operational and financial efficiency in distribution, the Finance Minister said.
  
• States could then emulate the policy, she added.
  
• At present, DISCOM payable to power generation and distribution companies is nearly ₹94,000 crore.

A series of reforms have been announced for the power sector, the latest of them is the privatisation of power distribution companies in Union Territories. This will be a big change in India’s power distribution that is largely controlled by federal governments in states.

Union Territories like Delhi, Chandigarh, Jammu and Kashmir are controlled by the Central government and therefore the Narendra Modi administration could take this call. “This is aimed at ensuring better services to consumers and will also ramp up operational and financial efficiency in distribution,” Finance Minister Nirmala Sitharaman said and hoped that other state governments will be encouraged to emulate the experiment in UTs.

In addition, the subsidy will be paid directly into the consumer’s bank accounts and smart prepaid meters will be set up.

Power distribution companies do not get their dues on time from state governments. Power is usually subsidised for political benefit in all states leaving local utility providers stretched. At present, states owe nearly ₹94,000 crore to these companies, forcing the government to include a financial aid in the recent stimulus measures.

According to Edelweiss research, 13 states including Delhi, Punjab and Maharashtra cumulatively have as much as ₹797.8 billion due from DISCOMs (Distribution Companies), as of March 2020.

There will be impact from other reforms too

The finance minister announced a ₹90,000 crore cash injection to revive the DISCOMs (Power Distribution Companies) that have been facing a cash crunch, owing to the falling demand and revenues, amid the COVID-19 pandemic.

Aside from these, the government also announced the liberalisation of the coal mining sector including transfer of leases as well as surplus coal from power, steel, and cement producers and that may lead to cheaper inputs and subsequently, fall in the cost of generating electricity.

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