In a welcome move, public sector companies NTPC and Power Grid Corporation of India have formed a joint venture to set up a national electricity distribution company. The decision paves the way for a central public sector entity to enter the power supply business, which up until now has been largely the preserve of state distribution companies. Coming at a time when state discoms are struggling to contain their losses, the move is likely to have far reaching ramifications for the distribution segment.

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Over the years, successive governments have tried to address issues plaguing the power distribution segment, but in vain. The segment is the weakest link in the power chain, and its poor health affects the entire power sector. In 2015, the NDA government had launched the Ujwal DISCOM Assurance Yojana (UDAY) to turn around the fortunes of beleaguered state discoms. But almost four years later, discoms continue to struggle, plagued by a host of issues ranging from inadequate tariff hikes, to high aggregate technical and commercial losses, inadequate and untimely subsidy disbursements, among others. Their flagging fortunes have not only affected power generation companies, but have also caused stress in the banking sector. The creation of a national electricity distribution company, which also serves as a central electricity buying agency, could potentially address several of these issues. It could bring relief to power producers, bring stranded capacity back to life, ensure timely payment and address the issue of stressed assets in power generation. The new entity could also procure electricity at competitive rates, the benefits of which could then be passed on to end consumers.

The move to create such an entity also signals the possibility of another round of reforms in power distribution, especially the separation of content and carriage: Carriage refers to distribution, while content refers to electricity supply. Separating them would allow consumers to buy electricity from a power company of their choice. In a market that is currently characterised by geographical monopolies, this would help usher in competition. Such measures along with the creation of a national distribution company also raise the possibility of rationalising the power tariff structure across the country. Currently, the power market in India is highly fragmented. Different state discoms charge different tariffs to different customers. These moves could potentially bring about a rationalisation in tariffs by providing national pricing benchmark across different categories of customers. However, these moves may face resistance from state discoms, as they could lose their better-paying customers to more competitive entities.