It will be interesting to see if IBC's weapon will bring financial discipline to the discus.

- DISCOMs of various states owe more than one trillion rupees to power generating companies.

Conflicts between DISCOMs, power generating companies and lenders are likely to escalate in the coming days following the Centre's clarification that the Insolvency and Bankruptcy Code (IBC) could be applied against state power distribution companies (DISCOMs) for failing to pay power purchase bills to power generating companies. Watching. While we have seen many instances of discoms clashing with power generating companies over cancellation of old power contracts in the recent past, it remains to be seen what turn the Centre's clarification will take now. More than a trillion rupees is yet to be paid, according to government figures.

Non-payments by Discoms are also making it difficult for power companies to maintain their balance sheets and cash flows. Lack of money has forced power generating companies to buy raw materials at a slower pace, which cannot be ruled out. DISCOMS has long been a weak link due to its political dominance in the country's power sector. Discoms have been largely financially weak on issues such as low bill collection, high power purchase agreements, subsidy payments and delays in payment of electricity bills from government departments, which has had an impact on the financial position of power companies.

The politics of the state governments are largely responsible for the poor financial condition of the state's discoms. While some state governments provide relief in electricity tariffs to certain categories of people for counting bank votes, waivers are also announced in electricity bills at times like elections. The discoms have to supply electricity to this class at the rate fixed by the government or they have to waive the bill and the state government later pays the money to the discoms. These payments to discoms by state governments are rarely timely. A number of schemes have been announced so far, including the Uday Scheme to improve the financial position of the discoms, but without much success.

The country's overall power sector has been in a weak position for the past few years due to delays in disbursement of money to discoms and payment of bills by discoms to power producers. In talks with the Center, the states pledged their support to the Centre's efforts to strengthen the power sector and also expressed their commitment to reduce the losses of DISCOMs. Reducing the loss of discoms is a condition for the states to avail the benefits of the new Rs 4 trillion reform scheme for power sector reform.

The question is how the financial position of the discoms can be improved in the face of prolonged non-payment of bills from government departments and non-payment of bills from government departments. Under the previously announced scheme, Discom's aggregate technical and commercial (AT&C) losses were targeted to be reduced to 15 per cent, but according to the latest data, the losses are still hovering around 9 per cent.

The Uday scheme was expected to provide much needed relief to the country's discoms but was not as successful as expected. Taking advantage of the Uday scheme, DISCOMS had passed on its debt to the state governments. This led to an improvement in the financial health of the discoms in the early years of the Uday scheme and some of the discoms even started showing profits, but the picture has changed again and the discoms are deteriorating financially again.

As the power distribution system to the consumers is largely in the hands of the state governments, it remains the responsibility of the state governments to carry out the reform program in the power sector. States must have the will to carry out this responsibility. Operational creditors under IBC such as suppliers and other trading partners have been making effective use of IBC provisions for the last five years to recover their outstanding dues.

The power generating companies and other parties who have so far been unable to use force against DISCOMs or did not want to use it due to government intervention, will not hesitate to resort to IBC to get their money, after the Center clarified that DISCOMs can be taken to IBC. In such a scenario, the chances of state discoms going into private hands or going into liquidation have increased. If the financial position of Discoms is to be improved, there is no other option but to hand it over to private hands.

The Centre's notification to collect money from the company's promoters under IBC has also received legal support. It has also become clear that state governments will no longer be able to escape the financial liability of DISCOMs as they will be able to recover more and more money from creditors, defaulting companies and their promoters due to this support.