Why Tamil Nadu does not need privatisation of power distribution

A recent assertion by Tamil Nadu Minister for Energy Resources R. Nirmalkumar that  electricity distribution would not be privatised in the State is not only a policy statement but also a reiteration of the finding of a study commissioned by the 16^th Finance Commission on the financial performance of electricity distribution companies (DISCOM).

Carried out by Prayas, a Pune-based non-governmental and non-profit body, the study states that “privatisation can improve operational efficiency and may be relevant in DISCOMs  with unmanageably high AT&C [Aggregate Technical and Commercial] losses. However, it may not lead to major benefits” in States such as Tamil Nadu, where “AT&C losses are low and supply and service quality is relatively good,” the study observes. 

As per the 14th edition of the Power Finance Corporation (PFC)’s  Integrated Rating and Ranking of Power Distribution Utilities across the country,  Tamil Nadu’s AT &C losses were 10.92% for 2022-23; 11.39% for 2023-24 and 10.96% for 2024-25 against the all-India average figures of 15.22%, 15.97% and 15.04%  respectively. According to the Consumer Service Ratings of the DISCOMS prepared by the REC [formerly Rural Electrificiation Corporation], the Tamil Nadu Power Distribution Corporation’s score with regard to distribution transformer (DT) failure rate, an indicator of supply and service quality, was 2.65% for 2024-25 against the national average of 5.02%.  There are about 4.48 lakh DTs in the State.  The reports of the PFC and the REC were released early this year. 

Besides the two performance parameters,  the issue of privatisation, even if it is considered independent of the government’s stand against such a course of action, raises the question whether private players would be keen on taking the load of  about 24 lakh agricultural connections,  a substantial portion of which is in the Cauvery delta, or serving hilly areas such as the Jawadhu Hills. Invariably, the answer would be an emphatic “no” as the private firms would like to bag the plum segment of consumers. This would leave the government to wonder why it should embark on privatisation as the move would only financially weaken the power DISCOM. Also, the State’s legacy has been against the involvement of any third party in electricity distribution.

Despite the REC’s push over 15 years ago, Tamil Nadu did not agree to let franchisees run rural power supply. Till about the late 1990s, a few electricity cooperative societies were functioning in areas such as Thirumayam and Kumbakonam and they were later merged with the now-abolished Tamil Nadu Electricity Board (TNEB). Successive governments have not been receptive even to creating regional power distribution companies. 

But, the key problem with the TNPDCL or its predecessors has been the gap between the Average Cost of Supply and the Average Revenue Realised. Of late, the gap has gone down substantially, turning positive (₹+0.04/unit) on a provisional basis during 2025-26. “However, the gap’s narrowing is not owing to the operational efficiency or full recovery of the cost of supply from consumers,” the State government’s White Paper says, attributing the reduction to huge loss funding support given by the State government pursuant to the conditions imposed by the Union government.  The prescription suggested in the document is a “comprehensive resolution framework” — covering tariff path, subsidy rationalisation, debt restructuring, and operational reform.

As hinted in the study commissioned by the Finance Commission,  the problems such as cost-reflective pricing, regulatory certainty and performance accountability should be addressed effectively instead of merely going in for privatisation in Tamil Nadu which has relatively low AT&C losses and good supply quality.  Else, financial stress within the system will get only redistributed.