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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 as part of a potentially controversial reform as the government tries to reduce blackouts and stem huge losses.
Tata Power, the energy arm with a history of over a century, Large Indian Corporation and one of the country’s largest power suppliers, will consider expanding its distribution reach if public companies are brought under control, said chief executive Praveer Sinha.
“One of the areas where we also expect to see some change is in distribution reform,” Sinha told the Financial Times at Tata’s headquarters in Mumbai, declining to comment on when that might happen.
“That is the final piece of the expected changes or transformations in the electricity sector,” he added. “We are very confident that many of the reforms that have not been completed will take place.”
As India races to meet soaring energy demand as its economy expands rapidly, powerful domestic conglomerates including Adani Group, Reliance Industries and Tata are investing billions of dollars to help meet the government’s ambitious targets, including doubling renewable energy generation to 500 gigawatts by 2030.
Yet of the country’s 70 distribution companies, 54 remain state-controlled. These aging, underinvested systems are partly to blame for power shortages and unreliable power supplies in many parts of India.
The industry’s cumulative deficit has soared 62% to $74.4 billion in the six years to 2022, according to a study published earlier this year by the Washington-based Center for Strategic and International Studies. The center also recommended further privatization.
Tata Power has extensive experience in cutting technical and commercial losses in power distribution, including in the capital Delhi and the eastern state of Odisha, where it operates through majority partnerships with local governments.
While the industry’s overall loss ratio has fallen from 25% to 15% over the past decade, that’s still no better than the 5% in China and the United States, according to CSIS.
“Unless they are profitable and have the ability to take on some more loans and come up with new projects, it will be very difficult for them to come out of this challenge,” Sinha said. “It is a dilemma.”
But the broader transformation of the sector is fraught with political problems, with many state governments reluctant to give up the levers that allow them to subsidize electricity. A law drafted two years ago, aimed at making it easier for the private sector to participate in power distribution and rationalizing electricity prices, has yet to be passed by India’s parliament.
A surprisingly poor election result last month saw Prime Minister Narendra Modi’s ruling Bharatiya Janata Party lost majority in parliamentIt also raises doubts about the central government’s ability to push through politically sensitive reforms or force states to implement difficult policies.
Vibhuti Garg, director of South Asia at the Institute for Energy Economics and Financial Analysis, calls the issues in this area “political economy issues.”
“There has been a lot of pushback from the states,” she said. But “to improve efficiency… we need more money to be put in, and with limited government funding, I think the private sector should play a role.”
Tata Power is also expanding its clean energy projects, which now account for 38 percent of its 14.7 gigawatts of capacity, with the rest coming from thermal power plants. Sinha said he expects Tata’s renewable power generation to surpass its coal-fired capacity within five years.
Last month, group chairman Natarajan Chandrasekaran announced that Tata Power will invest 200 billion rupees ($2.4 billion) in capital expenditure in the financial year ending March 2025, up 66 percent from this year.
Sinha said 60 percent of that spending would go toward building out the green energy arm, which is less than a third of the $4.3 billion annual revenue of the transmission and distribution arm, where the rest of the funding would go toward building out the arm.
The company is also exploring a move 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 make a decision, but it is definitely an area of concern,” Sinha said. “We can come up with a very aggressive plan.”
