Fixing state-government discoms: Reform or privatise

State-government owned distribution utilities (discoms) continue to be plagued by challenges, and thus remain the weakest link in the power sector value chain. As a result, the many discom bailout/relief packages announced over the past two decades are now seen as a periodic phenomenon.

The recent liquidity relief package announced by the Centre in May 2020 is the fourth such. Its predecessor, the UDAY scheme (announced in November 2015) mainly enabled a reduction in the interest cost for participating discoms, led by debt refinancing and take-over of debt by their respective state governments. However, slow progress in efficiency improvements by discoms and delays in the tariff-determination process remain areas of concern.

The implementation of the new `90,000 crore liquidity relief announced in May 2020 is still under progress and is being keenly watched. To talk of the positives so far, this scheme has certainly spurred the discoms in few states to implement certain reforms, which in turn has allowed them to avail the loans and reduce the dues pending (as on March 2020), to be paid to the independent power producers and gencos.

On the flip side, this scheme is a short-term measure in our view, as the structural issues confronting the discoms are far from being addressed. Further, with the sharp dip in energy demand from the commercial and industrial segment post the lockdown restrictions since March 2020 because of Covid-19

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