UP Regulator Sounds Alarm: Discom Privatization Plan Under Fire Over Asset-Loan Mismatches and Potential Tariff Shock

Uttar Pradesh's ambitious plan to privatize its power distribution companies (discoms) has hit a significant hurdle, as the state's power regulator, UPERC, raises serious red flags. The Uttar Pradesh Electricity Regulatory Commission has voiced grave concerns over glaring asset-loan mismatches within the discoms, warning that these financial discrepancies could ultimately burden consumers with higher tariffs.

At the heart of the controversy is the discovery that several assets held by discoms, particularly Madhyanchal Vidyut Vitran Nigam Ltd (MVVNL) and Purvanchal Vidyut Vitran Nigam Ltd (PVVNL), were originally funded by state government grants or direct budget allocations, not by the discoms' own borrowed funds.

Despite this, substantial loans are reportedly associated with these very assets, creating a perplexing and potentially problematic financial landscape for any prospective private buyer.

The regulator's deep dive into the financial health of these entities reveals that many assets, such as power infrastructure, substations, and lines, were developed using public funds.

However, the balance sheets of the discoms often reflect significant debt against these, raising questions about accountability and the true valuation of the companies. This anomaly complicates the privatization process, making it difficult to establish a fair and accurate value for the assets and liabilities.

UPERC has emphatically stated that consumers should not be made to pay for these historical financial irregularities.

The Commission is poised to scrutinize the valuation process rigorously, ensuring that any financial gaps or misrepresentations are not passed on to the public through inflated electricity tariffs. This stance underscores the regulator's commitment to protecting consumer interests amidst significant policy changes.

Furthermore, the regulator has highlighted the substantial loans taken by discoms from financial institutions like Power Finance Corporation (PFC) and Rural Electrification Corporation (REC).

These loans are often secured by guarantees from the state government. UPERC has suggested that the state government might need to consider taking over these loans to prevent the new private entity from inheriting unmanageable debt, which could inevitably lead to higher power costs for consumers.

The Uttar Pradesh government has been pushing for the phased privatization of its discoms, believing it will improve efficiency and service delivery.

However, the regulator's cautionary notes indicate that without addressing these fundamental financial discrepancies, the privatization move could be fraught with challenges and potentially adverse outcomes for the state's power consumers. UPERC’s intervention signals a critical moment for the privatization plan, demanding transparency and accountability before any further steps are taken.