DISCOMS: Why Do They Need A 90,000-Crore Bailout?

Earlier this year, Rs. 20 lakh crore stimuli were announced by Prime Minister Narendra Modi in response to the economic shock of Covid-19. Out of this, 90,000 crore were designated to DISCOMS (Power Distribution Companies). This is a significant amount for a single domain for our country. Why did the DISCOMs need such a massive bailout?

DISCOMS are the utilities that purchase from power generating companies and retail it to customers. Electricity generation, electricity transmission to industries, commercial establishments, agriculture consumers, and homes is a long-drawn process, which involves multiple stakeholders.

Firstly, electricity is supplied by public sector players such as NTPC Ltd. or NHPC Ltd. or by the private sector energy producers such as TATA Power, and Adani Power. The electricity then moves through a transmission grid system, which is dominated by state-owned companies such as PowerGrid and state transmission utilities. The last mile is where the DISCOMS step in. They are operated mainly by state governments. However, in cities like Delhi, Mumbai, Kolkata, and Ahmedabad, and a few tier two cities, private companies own the distribution network.

DISCOMS sign a Power Purchase Agreement(s) with generation companies on a long-term basis and have obligations to pay for the energy they use and fixed cost for the plant’s capacity charges.

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