Modi Govt Plans Big Push for Power Sector Privatisation!

In the name of reforms, the Modi government at the Centre has been trying for a long time to privatise the power distribution sector. However, since this is not an easy process, several obstacles have been encountered. This time, though, it appears that the government is coming up with a well-prepared plan for it. Power distribution companies (DISCOMs) in several states across the country have fallen deep into a debt trap. In the Telugu states too, the situation is similar due to free electricity schemes and other welfare programmes. Not only in the Telugu states — but in most states across the country — the financial condition of DISCOMs is said to be very poor. All these distribution companies are heavily burdened with loans. Against this backdrop, the Modi government is reportedly planning a major proposal in the upcoming budget, allocating more than ₹1 lakh crore for this purpose. To improve the financial condition of DISCOMs, the Centre will offer loans at very low interest rates.

However, to avail these loans, states will have to privatise power distribution companies as per the conditions set by the central government. According to a Reuters report, the Union Power Ministry has prepared two models for this. Under the first model, states can establish a new power distribution company and sell 51% of its equity. This would enable them to avail a 50-year interest-free loan for the privatised company’s debt, along with low-interest loans from the central government for five years, as mentioned in the presentation. Under the second model, states can privatise up to 26% of the equity in an existing government-owned power distribution company. In return, they can access low-interest loans from the central government for five years, it said.

Although the Centre claims that this plan is being brought in to rescue debt-ridden power companies, critics argue that the real intention seems to be to privatise this crucial sector. If all state power company debts are combined, the total is estimated to be over ₹7 lakh crore. The report prepared by the Centre says that distribution companies are financially struggling due to the large subsidies being given to various sections of society. Moreover, state governments that announce subsidies are failing to make timely payments to the power companies. Observers note that private power companies in the country are likely to benefit from these new reforms. In the past too, similar attempts were made, but they were halted due to strong opposition from employees and political parties. This time, since the government is coming forward with a new model, it remains to be seen what results it will achieve.However, some argue that privatisation is essential to improve the performance of power distribution companies, both financially and operationally. On the other hand, others warn that such a move could cast a shadow over free power schemes for farmers and subsidies given to other sections of society.