Despite a $265 billion economic recovery stimulus package, and a $12.5 billion bailout for state distribution utilities to pay-off their dues to generators, the economic impact of COVID-19 will still make it difficult for the government to support loss-making distribution utilities (DISCOMS) in the future.
Thus, according to data and analytics company GlobalData, complete privatisation or partial franchising will reduce the burden of the government and will increase competition and improve infrastructure through fresh investments.
It was recently announced that DISCOMS in the eight union territories, which are under the administrative control of the federal government, will be privatised, says GlobalData.
Distribution companies in India are largely state-owned and subsidy-driven. Regional governments provide direct subsidy payments to make-up utilities’ loss and industrial consumers pay higher tariffs to subsidise agricultural loads.
Privatisation of distribution companies
Somik Das, the senior power analyst at GlobalData, comments: “Privatisation is expected to provide better service to the customers, improve operational efficiency and financial efficiency of the distribution sector. The segment poses tremendous market opportunities for private players provided the state government plays its part and ensures a risk-free business environment.
“Private investments will help better the existing grid infrastructure resulting in reduced amounts of losses. Cities like Mumbai, New Delhi, and Kolkata, as well as some smaller towns can be cited as examples, where private participation has led to a reduction in revenue losses and more viable operations.”
Originally published on ESI Africa.