Advantages of Transforming Distribution Companies into Private Entities

Advantages of Transforming Distribution Companies into Private Entities

In the heart of India, the state of Uttar Pradesh is making waves with its plans to privatise two of its electricity distribution companies (discoms): Dakshinanchal Vidyut Vitran Nigam Ltd. (DVVNL) and Purvanchal Vidyut Vitaran Nigam Limited (PuVVNL). These two utilities serve 42 of the 75 districts in the state and account for a significant share of electricity sales.

However, the privatisation push has sparked strong opposition from power sector workers, who fear job losses and potential disruptions to power supply. Over 27 lakh electricity employees across India have voiced their concerns, with protests and a nationwide strike planned for July 9, 2025, and demonstrations starting from July 2.

The state government aims to divest 51% of the equity in the two discoms identified, proposing a public-private partnership (PPP) in the ratio of 51:49. The bidding parameter for the privatisation of these discoms could be the reduction in the loss level trajectory if it is more than 15%, or a premium on the reserve price if it is less than 15%.

The loss levels declared for the new utilities are likely to be debated due to incomplete consumer indexing. Lower loss levels indicate that a larger portion of what has been spent on power purchase has been recovered. However, the current state of metering presents a mammoth task in the creation of new balance sheets for the five private utilities.

Trade unions and the All India Power Engineers' Federation (AIPEF) have raised allegations of collusion between Uttar Pradesh Power Corporation Ltd (UPPCL) and senior government officials with private players to sell these public assets at prices far below their value. This claim points to concerns of transparency and fairness in the privatisation tender process, fueling distrust among workers and opposition groups.

The privatisation of these two discoms marks the first significant privatisation push in India's power sector since Odisha in 2020-21. The standard model bidding document floated by the ministry of power states that the geography of the incumbent utility should not be tampered with.

In 2023-24, about Rs 8,000 crore was provided as subsidy for the two discoms in question. The government hopes that with the reduction in loss levels, which may follow privatisation, the government subsidy will no longer be required.

Critics argue that privatisation might lead to higher tariffs or reduced service quality, though proponents cite improved efficiency and management as benefits. The scale and significance of the two discoms, which handle about 45% of electricity units sold in Uttar Pradesh and about 4% of the electricity sold pan-India, make this privatisation a significant move in India's power distribution sector. Its outcome could set precedents for similar initiatives elsewhere but also increases the stakes of managing the transition carefully.

In summary, the privatisation effort in Uttar Pradesh is challenged by strong workforce resistance driven by fears of job security and charges of opaque, possibly biased asset sales. Financial and operational weaknesses in the targeted discoms present both the need for reform and risks to successful handover. These issues highlight the political, social, and economic complexities inherent in privatizing large public utilities in India.

[1] "UP Power Sector Workers' Strike: Over 27 lakh employees oppose privatisation of two UP discoms." The Hindu, July 1, 2025. [2] "Uttar Pradesh Privatisation: Challenges, Opportunities, and Implications." Economic and Political Weekly, June 26, 2025. [3] "UP Power Sector Privatisation: AIPEF Alleges Collusion, Demands Transparency." The Times of India, June 28, 2025. [4] "The Impact of Privatisation on Electricity Distribution in Uttar Pradesh." Energy Policy, June 20, 2025.

1. Despite the potential benefits of privatization, such as improved efficiency and management, the effort in Uttar Pradesh's power sector faces strong opposition from over 27 lakh electricity employees, who are concerned about job security.
2. The privatization of the two discoms in Uttar Pradesh could lead to significant changes in the energy market, as these utilities handle about 45% of electricity units sold in the state and about 4% of the electricity sold nationwide.
3. The financial industry is closely watching the privatization of the two discoms in Uttar Pradesh, as the success of the effort could set precedents for similar initiatives in other sectors and regions, but also increases the stakes due to the complexities involved in managing the transition.
4. The potential privatization of Uttar Pradesh's electricity distribution companies has raised concerns about transparency and fairness, as trade unions and the All India Power Engineers' Federation have alleged collusion between government officials and private players to sell these public assets at prices below their actual value.

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