India Eyes $12 Billion Bailout to Rescue Struggling State Power Distributors

The central government is considering a bailout of more than ₹1 trillion ($12 billion) for financially stressed state power distribution companies, as per Reuters. The proposal, prepared by the Ministry of Power, is being discussed with the Ministry of Finance. An announcement is expected around the upcoming Union Budget in February.

Reform Conditions for States

To access the bailout, states will have to either privatise their electricity utilities or list them on a stock exchange. Each state must also ensure that at least 20% of its total power consumption is supplied by private companies. States will be required to take responsibility for a portion of the discoms’ debt as part of the process.

Privatisation Options

According to the proposal, states can choose between two models. In the first, a new distribution company can be created, with 51% of equity sold to private entities. This will allow access to a 50-year interest-free loan and low-interest federal funding for 5 years. 

The second option allows privatisation of up to 26% of an existing state-owned power distribution company in exchange for low-interest federal loans for the same duration.

Stock Listing Route

States that choose not to privatise will be required to list their utilities on recognised stock exchanges within three years. Those opting for this route would receive low-interest loans from the Centre for improving infrastructure and management efficiency.

Financial Burden on Discoms

State-run distribution companies reported accumulated losses of ₹7.08 trillion ($80.6 billion) and debt of ₹7.42 trillion ($84.4 billion) as of March 2024. Despite earlier bailout packages, these utilities continue to struggle due to subsidised tariffs, delayed payments, and limited cost recovery.

Private Sector and Legislative Steps

The government is also working on legal changes to permit private firms to use existing state networks. Companies such as Tata Power, Adani Power, Torrent Power, Reliance Power and CESC may participate in future reforms.

Read More: Tata Power and Suzlon Energy to Develop ₹6,000 Crore Wind Project in Andhra Pradesh!

Conclusion

The proposed ₹1 trillion package aims to address long-standing financial issues in state discoms through debt relief and structural reforms. The final decision will depend on consultations between the power and finance ministries.

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