Fiscal prudence, the need of the hour for Tamil Nadu’s power utilities

The grim financial health of the Tamil Nadu government has been accentuated by the plight of State Public Sector Undertakings (SPSUs), which are hit by chronic problems.

The recently released White Paper on public finances of Tamil Nadu has highlighted the deteriorating financial situation of the SPSUs, the total of which is 78 with about 2.55 lakh employees.

Describing the aggregate financial trajectory of the SPSUs as one of “deepening losses,” the White Paper provisionally puts the accumulated debt of select major undertakings at ₹3.18 lakh crore as on March 31, 2026.

The chart below shows the outstanding debt of Tamil Nadu government’s select public sector undertakings as on March 31, 2026.

The reasons for the SPSUs’ poor financial performance are not far to seek. Fundamentally, the enterprises recover only a small portion of their operational costs. It is not because of their inability to recover but because of the approach of successive governments in the State, which did not approve any proposal for the hike in user or service provider charges at regular intervals or as and when the situation demanded.

Consequently, the SPSUs are left with no surplus for investments in new capital assets or for the proper maintenance of existing assets, besides a persistent increase in their consolidated debt and accumulated losses.

The chart below shows the outstanding debt and accumulated losses of State-run power sector entities. Figures in ₹ lakh crore.

Before dwelling upon this further, it is worthwhile to highlight how the power sector SPSUs have been reorganised in the past 16 years. Tamil Nadu Electricity Board (TNEB) — which existed as a vertically integrated power utility between July 1957 and November 2010 — was reduced to a shell firm with the formation of two companies: Tamil Nadu Generation and Distribution Corporation Limited (TANGEDCO) and Tamil Nadu Transmission Corporation Limited (TANTRANSCO).

In 2024, TANGEDCO ceased to exist after it was split into three new entities. Tamil Nadu Power Generation Corporation Limited (TNPGCL) and Tamil Nadu Power Distribution Corporation Limited (TNPDCL) were created to handle generation and distribution respectively. TANGEDCO’s renewable energy operations and Tamil Nadu Energy Development Agency (TEDA) were clubbed to set up the Tamil Nadu Green Energy Corporation Limited (TNGECL).

Primarily, the policy of free electricity, which was initially offered to farmers regardless of the size of their landholdings and huts, and subsequently extended to a host of other types of consumers like powerlooms and the domestic category, has substantially eroded the fiscal autonomy of the TNPDCL (previously the TNEB or TANGEDCO), rendering it perpetually dependent on the financial assistance of the State government, which is even otherwise struggling to meet its commitments.

This has been confounded by the practice of upward revision of the power tariffs only occasionally. In the last 10-odd years, only twice did the end domestic consumers witness a tariff increase, once with a “suo motu” tariff order in 2014 by the Tamil Nadu Electricity Regulatory Commission (TNERC) and another order in 2022 — this time, after holding consultations with stakeholders.

The number of domestic consumers alone went up by about 70 lakh in these years. Costly power purchases and materials procurement have contributed in no small measure to the stress on the discom’s finances.

The power tariffs were increased in 2024 and 2025, but the domestic consumers were spared as the government decided to absorb the increase through tariff subsidies.

The chart below shows the gap between the Average Cost of Supply (ACS) and the Average Revenue Realised (ARR) narrowing.

While the tariff hike in 2022-23 helped to an extent, what has led to a positive change in the discom’s finances is the huge financial support given by the State government, after taking a bailout package in 2020-21 from the Union government.

The chart below shows the assistance provided to the entities of the Tamil Nadu Electricity Board by the State government. Figures in ₹ crore

These numbers together underscore that fiscal prudence in every aspect of the workings of the TNPDCL and its sister companies should become the norm, at least hereafter.