A recent study on the financial performance of electricity distribution companies (DISCOMs) in India, commissioned by the 16th Finance Commission and conducted by Prayas-a Pune-based non-governmental and non-profit organization-has reaffirmed Tamil Nadu's decision not to privatize electricity distribution in the state. This stance was echoed recently by Tamil Nadu's Minister for Energy Resources, R. Nirmalkumar, who emphasized that electricity distribution would remain under government control.
The study highlights that while privatization can potentially improve operational efficiency and might be suitable for DISCOMs struggling with very high Aggregate Technical and Commercial (AT&C) losses, it is unlikely to yield significant benefits in states like Tamil Nadu. The key reason is that Tamil Nadu's DISCOMs already maintain relatively low AT&C losses and deliver comparatively good supply and service quality.
According to the 14th edition of the Power Finance Corporation's (PFC) Integrated Rating and Ranking of Power Distribution Utilities, Tamil Nadu's AT&C losses have consistently been lower than the national average over recent years. Specifically, the losses stood at 10.92% for 2022-23, 11.39% for 2023-24, and 10.96% for 2024-25, compared with all-India averages of 15.22%, 15.97%, and 15.04% over the same periods. This data underscores Tamil Nadu's relatively efficient distribution system.
Furthermore, consumer service ratings prepared by the REC (formerly the Rural Electrification Corporation) reinforce the state's strong performance. The Tamil Nadu Power Distribution Corporation (TNPDC) reported a distribution transformer (DT) failure rate of just 2.65% for 2024-25, which is roughly half the national average of 5.02%. With approximately 448,000 DTs in operation across Tamil Nadu, this figure reflects a well-maintained infrastructure and reliable power supply.
Beyond performance metrics, the question of privatization also raises concerns about the willingness of private players to serve certain critical and less profitable consumer segments. Tamil Nadu has around 2.4 million agricultural connections, many located in the Cauvery delta, a vital agricultural region, and also serves challenging terrains like the Jawadhu Hills. Private firms, focused on financial returns, would likely avoid these segments due to lower profitability and higher operational challenges, preferring more lucrative urban and industrial consumers instead.
This potential selective targeting by private entities could leave the government with the responsibility of managing the less profitable or more complex areas, thereby weakening the financial health of the power distribution system rather than strengthening it. Historically, Tamil Nadu has resisted involving private or third-party operators in electricity distribution. More than 15 years ago, the REC had advocated for franchisees to manage rural power supply, but the state government did not adopt this approach.
In earlier decades, up until the late 1990s, a few electricity cooperative societies operated in regions such as Thirumayam and Kumbakonam. These cooperatives were eventually merged into the now-defunct Tamil Nadu Electricity Board (TNEB). Subsequent governments have also declined proposals to create regional power distribution companies, maintaining a unified state-run system.
Despite the robust operational performance, one persistent challenge for Tamil Nadu's power distribution sector has been the financial gap between the Average Cost of Supply (ACS) and the Average Revenue Realized (ARR). However, recent trends show improvement in this area. For the provisional year 2025-26, the gap reportedly turned slightly positive at ₹+0.04 per unit. This suggests that the revenue collected from consumers is, on average, covering the cost of supplying electricity.
Nonetheless, the Tamil Nadu government's White Paper on the power sector clarifies that this narrowing gap is not the result of enhanced operational efficiency or full cost recovery from consumers. Instead, it is largely attributable to substantial loss funding support provided by the state government, mandated by conditions set by the Union government. In other words, government subsidies and financial assistance have played a crucial role in improving the fiscal balance of the DISCOMs.
To ensure long-term financial sustainability, the White Paper recommends a "comprehensive resolution framework." This framework would encompass several key measures including a clear tariff strategy, subsidy rationalization to ensure targeted support, debt restructuring to reduce financial burdens, and operational reforms aimed at improving efficiency and accountability.
The Prayas study and related government analyses suggest that Tamil Nadu's power distribution challenges are not primarily due to the structural ownership of DISCOMs but hinge more on issues such as cost-reflective pricing, regulatory certainty, and performance accountability. Addressing these factors directly through policy and operational reforms is seen as a more effective approach than privatization.
In conclusion, the evidence points to Tamil Nadu's electricity distribution system as relatively well-managed, with low losses and good service quality compared to national averages. Privatization may not offer significant advantages and could introduce new challenges, especially in serving critical but less profitable consumer segments such as agriculture and remote areas. Instead, targeted reforms focusing on tariff rationalization, subsidy management, debt restructuring, and improved operational practices are recommended to enhance the sector's financial health and sustainability.
This perspective not only aligns with the state government's policy position but also reflects findings from independent studies commissioned by central bodies like the Finance Commission. As Tamil Nadu moves forward, maintaining public ownership of electricity distribution while implementing comprehensive reforms appears to be the preferred strategy to ensure reliable, affordable, and equitable power supply for all its residents.