UDAY: Reviving Power Discoms
In a bid to rescue almost bankrupt state electricity retailers, the Cabinet recently approved this scheme for reviving power utilities having debt amounting to Rs 4.3 lakh crore.
What is Ujjwal Discom Assurance Yojana?
UDAY provides for the financial turnaround and revival of Power Distribution companies (DISCOMs), and importantly also ensures a sustainable permanent solution to the problem. It has ambitious target of making all discoms profitable by 2018-19.
The scheme will ease the financial crunch faced by power distribution companies, that has impaired their ability to buy electricity.
It is based on the premise that it is states’ responsibility to ensure that discoms become financially viable.
How UDAY will revive Discoms?
It has all the 3 elements —
- Clear up the legacy issues of past losses and debt.
- Provide a financial road map to bring tariffs in line with costs by FY19.
- Provide enough deterrents for the state govt to not allow the state discoms to become loss ridden post FY18, as losses start to impact their FRBM limits.
- The State govt. will takeover the discom liabilities over 2-5 year period.
- This will allow discoms to convert their debt into State bond. These bonds will have a maturity period of 10-15 years.
- It will allow transfer of 75% outstanding debts incurred by stressed discoms to States’ debt, 50% in 2015-16 and 25% in 2016-17.
- The central government will not include the loans of the discoms in calculation of the state’s deficit till 2016-17.
Why are these Discoms so stressed?
There are various reasons that lead to Discoms becoming unsustainable over the period of time.
- Politics of free power, repressed tariffs and power thefts leading high transmission losses.
- Poor infrastructure and low standard of management.
- Power subsidies are given to all, irrespective of rich/poor.
- Discoms in states of Rajasthan, Tamil Nadu and UP are the most stressed ones.
Almost 25% T&D ( Transmission & Distribution) losses suffered by discoms. Remaining 75% is sold at a price much lower than discoms’ procurement costs. Wondering Why??
The most obvious reason is political interference, i.e. tariff is set by a group of largely political appointees.
Financially stressed DISCOMs are not able to supply adequate power at affordable rates, which hampers quality of life and overall economic growth and development.
What will be the impact of this scheme?
- It is expected to help the banks in managing their bad loans.
- It will relieve discoms who can push power distribution in right way.
- It will allow states to align tariff costs, so that discoms run on a sustainable basis.
What are thrust areas of UDAY to turnaround discoms?
- Improve operational efficiency.
- Reduction in cost of power – By monitoring technical and commercial losses by smart metering and feeder separation.
- Reduction in the interest cost of discoms.
- Enforcing financial discipline on discoms through alignment with States’ finances.
What could be potential challenge to UDAY?
- Electricity is not a central subject, states’ cannot be made to participate in the programme.
- Finding buyers for such bonds might prove difficult, as these would enjoy the SLR status.
- It has not laid down a specific performance-monitoring and compliance mechanism.
- It does not cover inadequate investment in network & poor supply, which is essential for reliable and quality supply.
- No central monetary assistance is provided, rather states’ will be provided subsidised funding from the central govt.’s power schemes as well as priority in supply of coal.
Published with inputs from Pushpendra