Power ministry warns 6 states on Discom reform, demands privatisation or loss reduction

In a move aimed at paving the way for subsidy-free power supply and enforcing stricter guidelines, the Ministry of Power has issued a stern warning to distribution companies (Discoms) in six states to “either adopt privatisation or reduce their losses.”

The ministry has also made it clear that central financial grants will be withheld if these states fail to comply with the required reforms.

As per information obtained by The Tribune, the states of Uttar Pradesh, Andhra Pradesh, Madhya Pradesh, Maharashtra, Rajasthan, and Tamil Nadu were informed during a meeting held on October 10 that they will not receive any financial assistance from the Central Government unless they implement measures such as privatisation or reforms to improve efficiency and reduce losses.

The states have been offered three reform options: Sell 51% equity of Discoms to private firms, with the government bearing the debt, sell 26% share to a private company, with full management control or list the Discoms on the stock exchange, with at least an 'A' rating, to qualify for central financial aid.

V K Gupta, media advisor for the All India Power Engineers Federation (AIPEF), emphasised that the growing losses and mounting debt of Discoms were the primary reasons behind these warnings.

“The total accumulated losses of the Discoms have increased due to problems such as political pressure to provide electricity at cheaper rates and the failure to pay government dues on time,” he said.

The advisory is part of the Central Government's comprehensive plan to reform the power sector and increase private sector participation. In states like Punjab, where free power is a norm for agriculture and Below Poverty Line households, such measures could have significant repercussions.

AIPEF chairman Shailender Dubey called it a form of “blackmail” directed at state Discoms. He also expressed strong opposition to the involvement of the All India Discom Association (AIDA) in the meeting, accusing it of serving as an intermediary between private entities and the government.

Meanwhile, the Ministry of Power has planned a bailout package for power utilities that agree to privatisation or listing on the stock exchange. The bailout could exceed Rs 1 trillion for debt-laden, state-run distribution companies.

The plan marks the government's most decisive reform push yet to overhaul the chronically inefficient state-run electricity distribution companies. This would be the fifth bailout package offered by the Ministry of Power.