Free Power Discom to End Decades-Long Cash Crunch for Telangana Discoms

 Hyderabad: In almost every state, power distribution companies (discoms) have borne the brunt of the state government’s welfare schemes to provide subsidised electricity to farmers and economically weaker sections of society, leading to accumulating losses and mounting power-related debt.

Despite state governments periodically taking over the debt of the discoms to make their balance sheets healthy, the power companies could not escape the power subsidy quagmire, as losses began to accumulate from the very next year.

In an attempt to solve this issue, the Telangana government is planning to create a separate discom dedicated exclusively to administering free electricity schemes, which is akin to a bad bank that takes over non-performing assets (NPAs) or bad loans to make the balance sheets of commercial banks healthy.

Led by Chief Minister Revanth Reddy, this new entity is envisioned as a model for transparency, fiscal discipline, and specialised governance. The newly announced third Discom will operate with statewide jurisdiction, taking over the entire administration of free power schemes, including distribution and subsidy accounting.

“This model is designed to strengthen transparency and accountability, enabling the existing DISCOMs to focus on commercially viable operations while the new entity manages all subsidy-related complexities,” an energy department official said.

As of March 31, 2023, discoms in Telangana had the third largest accumulated losses among the state discoms, preceded by Tamil Nadu and Uttar Pradesh, taking the first and second spots.

According to Power Finance Corporation reports, discoms in Telangana reported an accumulated loss of Rs 41,808 crore during the six years between 2017-18 and 2022-23.

The mounting losses make the balance sheets of the discoms unhealthy and prevent them from raising loans even to fund plans to increase operational efficiency. The dedicated discom for subsidised power will enable take over of all losses — either retrospectively or prospectively — caused by the free power schemes. This would make two discoms — TGNPDCL and TGSPDCL — free of loss-making schemes and allow them to run the entities commercially.

However, questions remain over how the third Discom will function in practice. Since the state’s distribution infrastructure will remain under the two existing companies, clarity is awaited on how operations, funding, and administrative costs will be shared.

Officials assured that systems will be put in place for workforce transition, grievance redressal, and uninterrupted supply. As the initiative garners national attention, Telangana is positioning itself as a pioneer in energy sector reform, offering a potential template for other states to follow.

Officials explained that the reform is also expected to drive investment in infrastructure and renewable energy, with the government considering a push for rooftop solar installations across public buildings under the coordination of the new company.

What’s Free?

Gruha Jyoti: 200 units free power for domestic consumers – Rs 1,612 crore spent in 2024–25; Rs 3,000 crore proposed for 2025–26.

Farm Sector: Free power worth Rs 11,602 crore in 2025–26, covering over 27 lakh pump connections.

Shops: 250 units of free power for barber and laundry shops.

Overall: About Rs 11,500 crore earmarked for power subsidies in 2025–26, within a total energy department budget of Rs 21,221 crore.

Accumulated losses from 2017-18 to 2022-23

Tamil Nadu: Rs 77,643cr

Uttar Pradesh: Rs 47,707cr

Telangana: Rs 41,808cr

Rajasthan: Rs 41,759cr

Maharashtra: Rs 34,511cr

Madhya Pradesh: Rs 30,945cr

Andhra Pradesh: Rs 24,552cr

Karnataka: Rs 12,906cr

Bihar: Rs 2,152cr

Jharkhand: Rs 9,875cr

West Bengal: Rs 8,788cr

Punjab: Rs 3,018cr

Uttarakhand: Rs 2,757cr

SAGA OF SERIAL BAILOUTS

2002: States take over the debt of state electricity boards worth Rs 35,000 crore, 50% waiver of interest payable by state electricity boards to central PSUs.

2012: States take over 50% of the outstanding short-term liabilities worth Rs 56,908 crore.

2015: States take over 75% of the debt of discoms worth Rs 2.3 lakh crore and provide grants for future losses.

2020: Discoms get loans worth Rs 1.35 lakh crore from Power Finance Corporation and REC Limited to settle outstanding dues of generators; states provide guarantees.

2022: Centre to provide result-linked financial assistance worth Rs 97,631 crore for strengthening of supply infrastructure.