MSEDL to hive off agri users under demerger plan

The demerger, approved by the state government at its cabinet meeting on Tuesday, will also see the parent company list on the stock exchange and issue bonds worth ₹32,679 crore

MUMBAI: State-owned power distribution company MSEDCL will be restructured to create a new company to serve its agricultural consumers, a move that will benefit the MSEDCL as well as its industrial and commercial users. The demerger, approved by the state government at its cabinet meeting on Tuesday, will also see the parent company list on the stock exchange and issue bonds worth ₹32,679 crore.

MSEDL to hive off agri users under demerger plan

This is a milestone for power distribution in the state, and for the Maharashtra State Electricity Distribution Company Limited (MSEDCL), which is reeling under debt due to the supply of power to the agricultural sector.

Hiving off agricultural consumers to a new company will also hugely benefit MSEDCL’s industrial and commercial users, which will no longer be burdened by the cross-subsidy has been sustaining the company’s agricultural users.

MSEDCL distributes power to 34 million consumers across Maharashtra, including parts of Mumbai’s eastern suburbs, Thane, Navi Mumbai and Kalyan-Dombivali. Of these 34 million consumers, MSEDCL has around 4.5 million agricultural consumers. But for more than a decade and a half, the company has been in the throes of a financial crisis due to rising debt and arrears from agricultural users. Of its total arrears of over ₹76,000 crore, arrears from agricultural consumers alone are currently over ₹60,000 crore.

Under the new structure, MSEDCL will continue to supply electricity to industrial, commercial and domestic consumers, while a separate entity, MSEB Solar Agro Power Limited (MSAPL), will handle electricity supply and services for the agricultural sector. The de-merger will be complete by March 2027.

The state government has approved ₹2,500 crore as initial capital for MSAPL to begin large-scale work on solarising agricultural feeders. The initiative is expected to strengthen the use of renewable energy in the farm sector and ensure reliable daytime electricity supply for irrigation.

Officials with the energy department said MSAPL will play a central role in implementing the Chief Minister’s Solar Agriculture Feeder Scheme 2.0, which aims to provide farmers with solar-based power for irrigation.

According to the note presented to the state cabinet for approval, the restructuring also includes a financial clean-up. “The state will issue 15-year, long-term bonds to absorb MSEDCL’s debt of ₹32,679 crore. After the de-merger, MSEDCL will be listed in the market and could raise ₹7,500 crore to ₹10,000 crore through an IPO,” states the note.

The funds raised through the IPO will be invested in smart metering projects, digital electricity distribution systems, modernisation of the power grid and other energy transition initiatives. The note also said this move would reduce agricultural arrears to around ₹26,000 crore.

Due to the proposed de-merger, MSEDCL’s industrial and commercial consumers will get relief in power tariffs as the burden of cross-subsidy for providing cheap power to agricultural consumers will be eliminated. Due to the financial revival that would follow, MSEDCL will invest more in infrastructure development to provide more efficient service to its consumers.

Vishwas Pathak, independent director of MSEB Holding Company Ltd, MSEDCL’s holding company, said, “Through this decision (demerger), the state government is going to absorb and issue ₹32,679 crore bonds and a separate company for agricultural consumers will change the financial condition of MSEDCL. It will be listed in the market and provide services more effectively.”