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Tata Sons has expressed interest in buying some of India’s heavily indebted state-owned power distribution companies, some of which could be sold off as part of a potentially contentious reform process as the government seeks to ease power outages and stem huge losses.
Tata Power, the century-old energy arm of the giant Indian conglomerate and one of the country’s largest electricity providers, would consider expanding its distribution area if listed companies were up for sale, Chief Executive Praveer Sinha said.
“Another area where we expect to see movement is distribution reform,” Sinha told the Financial Times at Tata’s headquarters in Mumbai. He declined to comment on when that might happen.
“This is the final part of the expected changes or transition in the energy sector,” he added. “We are very confident that many of the reforms that could not be completed will be implemented.”
India is trying to meet rising energy demands as its economy grows rapidly. Powerful domestic conglomerates such as Adani Group, Reliance Industries and Tata are investing billions of dollars to meet the government’s ambitious goals, including a target to more than double electricity generation from renewables to 500 gigawatts by 2030.
However, of the country’s 70 electricity distribution companies, 54 are still state-owned. These outdated, under-invested systems are partly blamed for blackouts and unreliable power supply in many parts of India.
The industry’s accumulated deficit has increased by 62 percent to $74.4 billion in the six years to 2022. This is according to a study published earlier this year by the Washington-based Center for Strategic and International Studies, which recommends further privatizations.
Tata Power has extensive experience in reducing technical and commercial losses in power distribution, including in the capital Delhi and the eastern state of Odisha, where it operates in majority partnerships with local governments.
Although the industry’s overall loss rates have declined from 25 percent to 15 percent over the past decade, these rates still compare unfavorably with the 5 percent rates in China and the United States, according to CSIS.
“Unless they become profitable and are able to take more loans and implement new projects, it will be very difficult for them to get out of this challenge,” Sinha said. “It’s a dilemma.”
But a broader transformation of the sector is politically sensitive, with many state governments unwilling to give up the opportunities that allow them to subsidise electricity. A law drafted two years ago to involve the private sector in power distribution and rationalise energy tariffs has yet to be passed by the Indian parliament.
A surprisingly poor election result last month, which saw Prime Minister Narendra Modi’s ruling Bharatiya Janata Party lose its parliamentary majority, also raised doubts about the central government’s ability to push through politically sensitive reforms or force states to implement difficult policies.
Vibhuti Garg, South Asia director of the Institute of Energy Economics and Financial Analysis, described the problems in the sector as “a political-economic problem”.
“There has been a lot of resistance from the states,” she said. But “to improve efficiency … we need to pump more money into it, and given the limited financial resources of the government, I think the private sector should play a role.”
Tata Power is also expanding its clean energy projects, which currently account for 38 percent of its 14.7 gigawatt capacity, with the rest coming from thermal power plants. Sinha said he expects Tata’s renewable energy generation to overtake coal-fired power plants within five years.
The conglomerate’s chairman, Natarajan Chandrasekaran, announced last month that Tata Power would make capital expenditures of 200 billion rupees ($2.4 billion) in the fiscal year ending March 2025, an increase of 66 percent from this year.
Sinha said 60 percent of the spending would go towards expanding the green energy arm, which is less than a third the size of the group’s transmission and distribution business, which generates annual revenues of $4.3 billion, and which is where the rest of the funds would go.
The company is also exploring entering nuclear power with small modular reactors. India’s finance minister said last month the government plans to open up the sector to private partnerships, with nuclear power “expected to form a significant part of the energy mix.”
“At the right time we will make a decision, but this is definitely an area we are interested in,” Sinha said. “We can come up with a very aggressive plan.”
