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Tata Sons has expressed interest in buying some of India’s debt-laden, state-owned power distribution companies, some of which could be sold off as part of a potentially contentious reform process as the government attempts to ease blackouts and stem huge losses.
Tata Power, the more than century-old energy arm of the vast Indian conglomerate and one of the country’s largest electricity providers, would consider expanding its distribution reach if public companies are put on the block, said its chief executive Praveer Sinha.
“One of the areas that we are also expecting some movement is on distribution reforms,” Sinha told the Financial Times at Tata’s headquarters in Mumbai, while declining to comment on when that could happen.
“That’s the last part of the power sector changes or transition that is expected,” he added. “We are very confident that many of the reforms, which could not be completed, will happen.”
With India rushing to meet ballooning energy demand as its economy rapidly expands, powerful domestic corporations, including Adani Group, Reliance Industries and Tata, are investing billions of dollars to help meet ambitious government targets. These include an aim to more than double renewable generation to 500 gigawatts by 2030.
However, out of the country’s 70 distribution companies, 54 remain in public control. Those ageing, investment-starved systems are in part blamed for power shortfalls and an unreliable electricity supply in many parts of India.
The industry’s accumulated deficit shot up 62 per cent to $74.4bn in the six years to 2022, according to a study published earlier this year by the Washington-based Center for Strategic and International Studies, which has recommended further privatisations.
Tata Power has considerable experience cutting power distribution’s technical and commercial losses, including in the capital Delhi and the eastern state of Odisha, where it operates through majority partnerships with local governments.
While industry aggregate loss rates have declined from 25 per cent to 15 per cent in the past decade, those levels still compare unfavourably with 5 per cent levels seen in China and the US, according to the CSIS.
“Unless they become profitable and they have the ability to take some more loans and implement new projects, it would be very difficult for them to come out of this challenge,” Sinha said. “It’s a catch-22 situation.”
But wider transformation of the sector is politically fraught, with many state governments unwilling to relinquish levers that allow them to subsidise electricity. A law drafted two years ago, which aims to make private sector entry into power distribution easier and rationalise energy tariffs, has yet to be passed by India’s parliament.
A surprisingly poor electoral showing last month, which saw Prime Minister Narendra Modi’s ruling Bharatiya Janata party lose its parliamentary majority, has also placed in doubt the central government’s ability to ram through politically sensitive reforms or coerce states to implement difficult policies.
Vibhuti Garg, South Asia director at the Institute for Energy Economics and Financial Analysis, called the problems in the sector “a political economy issue”.
“There has been a lot of resistance from states,” she said. But “to improve efficiency . . . we need more money to be pumped in and with limited financial resources from the government I think the private sector should play a role.”
Tata Power is also scaling up its clean energy projects, which currently account for 38 per cent of its 14.7 gigawatt capacity, with the rest coming from thermal plants. Sinha said he expected Tata’s renewable generation to overtake coal-fired energy capacity within five years.
The conglomerate’s chair Natarajan Chandrasekaran announced last month that Tata Power would invest Rs200bn ($2.4bn) in capital expenditure in the financial year through March 2025, a 66 per cent increase from this year.
Sinha said that 60 per cent of that spending would go to building out its green energy arm, which is less than a third of the size of its $4.3bn annual revenue transmission and distribution business where the rest of the funding will go.
The firm is also exploring entry into nuclear power with small modular reactors. India’s finance minister said last month that the government plans to open up the sector to private partnerships with nuclear generation “expected to form a significant part of the energy mix”.
“At the right time we will take a call, but that’s definitely an area of interest,” Sinha said. “We can come up with a very aggressive plan.”