Implications of using bankruptcy code against discoms

The central government has recently clarified that IBC proceedings could be triggered against state government-owned electricity distribution companies (discoms). This could have major implications for the electricity sector. Successful resolution of discoms would, however, require further policy thinking.

Electricity is a concurrent subject under the Constitution. Yet, state governments have played a critical role in this sector since pre-Independence times. The Electricity (Supply) Act, 1948 established State Electricity Boards (SEBs) for the development and operation of generation, transmission and distribution of electricity. In 1991, electricity generation was opened-up to the private sector.

However, state government control over electricity distribution continued. Push came to shove in 2001 when SEBs had to be bailed out due to their mounting arrears towards central public sector generation companies. This paved the way for the Electricity Act, 2003. It mandated all SEBs to be unbundled into separate generation, transmission and distribution companies.

Since then, most states have unbundled their electricity utilities with varying market structures. While around 47 per cent of electricity is now being generated privately, most discoms are still state government owned.

Indian Express
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