MC EXCLUSIVE UP power regulator flags asset, loan mismatches in discom privatisation plan; warns of tariff impact

In FY24, Uttar Pradesh’s five discoms reported combined losses of around Rs 1.18 trillion.

Uttar Pradesh’s ambitious attempt to privatise electricity distribution in two of its largest regions has run into trouble after the state’s power regulator flagged serious flaws in the financial framework of the plan.

The Uttar Pradesh Electricity Regulatory Commission (UPERC), the statutory body responsible for approving tariffs and monitoring the financial health of power utilities, has warned that the draft bid documents for Dakshinanchal Vidyut Vitran Nigam Ltd (DVVNL) and Purvanchal Vidyut Vitaran Nigam Ltd (PuVVNL) overstate asset values and loan levels, which could unfairly raise tariffs for consumers.

Privatisation of power distribution, often seen as a test of a state’s ability to attract private investment while protecting public interest, is a politically sensitive reform in India.

Uttar Pradesh, the country’s most populous state, has long grappled with loss-making distribution companies (discoms), creaking networks and mounting liabilities, despite repeated bailouts and Centre’ reform schemes.

Bringing in private companies is being projected as a way to infuse capital, efficiency and accountability into the sector. But UPERC’s intervention highlights that if the financial foundation of the bidding process is not accurate, the reform could end up tilting the balance in favour of investors rather than consumers.

Regulatory red flags

In May, the request for proposal (RFP) prepared by Uttar Pradesh Power Corporation Ltd (UPPCL) for privatisation of distribution in 42 districts was cleared by the state government and sent to UPERC for scrutiny.

In its 24-page observations, dated June 21, the commission pointed out mismatches in asset valuations, inflated loan figures, and questionable reserve price calculations. Moneycontrol has reviewed a copy of the report.

"As per draft the standard bidding document, the value of assets under Asset Category 1 is not matching with the value of assets approved by the commission. Provisional balance sheet wrongly includes assets funded through government grants and consumer contributions… Including them would unfairly inflate the asset base and give undue benefit to the new entity,” UPERC said.

The regulator stressed that such assets were not eligible for return on equity (RoE), interest, or depreciation, since they were not financed by the discom itself. Including them would allow private bidders to claim benefits they are not entitled to, creating an inflated equity base.

UPERC also found that the provisional opening balance sheet included loan levels higher than those approved on normative grounds. “As a result, there will be an increase in equity and normative loan for the new discoms, which will result in higher tariffs just by way of restructuring,” the commission said, instructing UPPCL to redraft the balance sheet.

As a consequence, the regulator said the reserve price for the 51 percent equity stake, which had been calculated by including grants, consumer contributions and current assets, was wrongly derived.

Other concerns

The commission’s objections are not limited to the balance sheet.

UPERC also flagged unclear provisions on equity infusion and issuance of preference shares, recovery of arrears, distribution loss trajectories, and broader questions over the viability of the successor entities.

The privatisation model envisages bidders acquiring a majority 51 percent stake in the carved-out discoms, with the state retaining 49 percent. According to people familiar with the matter, companies such as Tata Power, Adani Group, Torrent Power and RP-Sanjiv Goenka Group’s CESC have expressed interest.

Mounting losses

The push for privatisation comes amid mounting losses across the state’s distribution network. According to official data, Uttar Pradesh’s five discoms, including DVVNL and PuVVNL, reported combined losses of around Rs 1.18 trillion in FY24.

While aggregate technical and commercial (AT&C) losses have come down from 22.6 percent in 2014 to about 15 percent in 2025, they remain well above the national target. The Centre has set a goal of cutting these to 10 percent by 2030.

State discoms employees have been staging protests against the plan for months, warning that it could lead to job losses and higher tariffs.

With the regulator now questioning the very foundation of the bid documents, the state government may have to revisit key elements of the process before moving ahead.

UPERC’s intervention underscores a broader challenge: for privatisation to deliver results, the process must not only attract private investment but also ensure that the burden on consumers does not rise simply because of how assets and loans are recorded on paper.