State-Owned Power Distribution Companies Will Be Sold To Private Firms; Bidding Starts Soon

As per the report, the Union ministry of power has drafted a ‘Standard Bidding Document’ (SBD) for the privatization of both, state-owned as well as the union territories power distribution companies.  

Standard Bidding Document

In recent times, the Centre announced that discoms in all Union Territories will be privatized under the Atmanirbhar Bharat package.

So, the ministry of power had suggested several private franchisee models to states for the power distribution sector last year.

Now, the Union Ministry has come up with a draft that will become the guiding document for state governments that are set to offer their discoms to private players.

They have come up with this approach in hopes to further improve the operations and finances of state discoms.

The ministry has suggested several options that include suggestions on the stake of state governments in the power distribution company, ranging from zero (no involvement) to a minority stake of 26 percent.

Further, the draft contains the format for request for proposal, shareholders agreement, share acquisition agreement, policy directions, and bulk supply agreement.

What Does The Expert Say?

For corporate India, privatization of discoms is probably the biggest investment opportunity that is staring at it right now, said Vinayak Chatterjee, the Chairman of Feedback Infra.

For the First time, the Central government has drafted a guiding SBD for discoms’ privatization and stakeholders can send their comments by October 5, 2020.

So far, the power sector works on a federal structure, where the Centre has a guiding role, while distribution is a state subject. 

Although, generation and transmission come under the central government.

So far, few cities have private discoms that include Delhi, Mumbai, Ahmedabad and Agra.

“The biggest positive interestingly in all urban areas is that the government expects the private sector to own 100% of electricity distribution operations and in mixed rural-urban areas, it expects the private sector to own 74%. That is a significant handover of a sector which has largely been 100% state-controlled, into private hands,” Mr. Chatterjee said.

He further complimented the power ministry and their advisors saying that there is a very good process overview of how the transaction would be moving.

According to him, the draft clearly lays out the pre-transaction handling of processes, transaction stage activities and post-transaction activities.

He praised that the standard bidding document puts forth very clearly that the winning entity will be provided with a clean balance sheet, free of accumulated losses and all unserviceable liabilities unlike the other discussions on Air India and some other PSU.