Uttar Pradesh won’t fix power sector: Stalling Varanasi discom privatisation makes this clear


As a result of this, its share in India’s total state electricity board losses rose from 7.4% in FY17 to 10.4% in FY19.As a result of this, its share in India’s total state electricity board losses rose from 7.4% in FY17 to 10.4% in FY19.

Uttar Pradesh is one of India’s top five or six worst-performing states when it comes to the power sector—its losses doubled to Rs 6,497 crore between FY17 and FY19—and the gap between the cost of buying electricity and selling it rose from 33 paise per unit to 60 paise in the same period. And, despite promising to reduce its ATC losses to 14.86% by FY20 as part of the Uday bailout package less than five years ago, its losses were more than double at 30.3% for April-December 2019. As a result of this, its share in India’s total state electricity board losses rose from 7.4% in FY17 to 10.4% in FY19.

Given this performance—and Uttar Pradesh is not the only state doing a bad job—it is hardly surprising that the state’s distribution companies (discoms) are finding their outstanding loans piling up. While a sum of around Rs 120,000 crore is to be lent—by government-owned PFC and REC—to various discoms across the country, and Uttar Pradesh was to get around a sixth of this, it was hoped that this would result in genuine reforms this time around; indeed, Union power minister RK Singh has promised this from time to time. So, it comes as a shock that, as this newspaper reported on Wednesday, the Uttar Pradesh government has decided to put off its plan to privatise the Varanasi discom in the face of protests by the staffers of the Purvanchal Vidyut Vitran Nigam Limited (PVVNL); interestingly, this comes even as the central power ministry is trying to fast-track discom privatisation by issuing draft standard bidding guidelines. At 38%, PVVNL has the highest ATC losses of all the state’s five discoms.

On the face of it, the process is still on, and a final call will be taken after three months. But, given that the government has assured workers that no decision would be taken without taking them into confidence, it is unlikely that any privatisation can now take place; more so since the workers have seen that pressure tactics work. If the central government genuinely wants reforms—as opposed to just giving the discoms more money to burn—it has to ensure there is a meaningful penalty for errant states. The only way to do this is to enter into a tripartite agreement with the states and SEBs that allow RBI to deduct the states’ balances with it—the central government deposits the states’ share of taxes in an RBI account—whenever discoms fail to make a payment to suppliers; once states realise they have a lot to lose and that another bailout won’t be around the corner, they will automatically fall in line. Whether they privatise discoms or raise tariffs or cut theft is up to each state. So far, government policy has been about carrots, it needs to be about sticks now.

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