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.

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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.

UDAY

 


How UDAY will revive Discoms?

It has all the 3 elements —

  1. Clear up the legacy issues of past losses and debt.
  2. Provide a financial road map to bring tariffs in line with costs by FY19.
  3. 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.

  1. Politics of free power, repressed tariffs and power thefts leading high transmission losses.
  2. Poor infrastructure and low standard of management.
  3. Power subsidies are given to all, irrespective of rich/poor.
  4. 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?

  1. Improve operational efficiency.
  2. Reduction in cost of power – By monitoring technical and commercial losses by smart metering and feeder separation.
  3. Reduction in the interest cost of discoms.
  4. 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

 

Any doubts?


  1. Profile photo of akarsh khare akarsh khare

    What SLR status mean?
    What are FRBM limits?

    1. Profile photo of Pranav Pranav

      SLR status for bonds in this context means that holdings in these bonds would be accepted as part of Statutory Liquidity Ratio.
      read this http://www.civilsdaily.com/blog/budget-deficits-explained/ for FRBM
      and this for what is SLR http://www.civilsdaily.com/blog/economics-monetary-policy-explained-with-examples/

      and all of these for basic economic concepts http://www.civilsdaily.com/collection/eco-concepts-simplified/

  2. Profile photo of Sandeep Shukla Sandeep Shukla

    PIB NEWSCARD COMPILATION DECEMBER-2016 KAB TAK AVAILABLE HOGA?

    1. Profile photo of Discuss Discuss

      All commpilations will be available by the 10th of the month.

UDAY helps reduce subsidy dependence of power discoms

  1. Source: A report released by the Rural Electrification Corporation (REC)
  2. What? Ujwal Discom Assurance Yojana (UDAY), has helped discoms reduce their subsidy dependence on state governments
  3. How? Due to improved liquidity position
  4. Facts: State-owned power distribution companies of Rajasthan, Haryana, Andhra Pradesh, Chhattisgarh, Madhya Pradesh and Bihar have reduced their subsidy, booked as percentage of the revenue, in the range of 5-10 per cent in the current financial year
  5. States like Andhra Pradesh, Bihar, Assam, Haryana and Jharkhand reduced power purchase cost up to 35 paise, 16 paise, 12 paise, 10 paise and 8 paise per unit, respectively, in the October-December quarter of 2016-17, compared to the same period the previous year

Note4students:

UDAY is a very important scheme for the power sector and for India. India has more than enough power generating capacity to give power to everyone. However, distribution companies often do not have the money to buy this power and supply it to customers. The poor financial condition of discoms is due to reasons such as political interference (e.g. free power for farmers), theft etc. UDAY is meant to correct this situation, and according to reports, it is succeeding. Click on the UDAY Scheme for Discoms story to read the Backgrounder and previous news.

Back2basics:

Rural Electrification Corporation Limited

  1. It is a Navratna Company, functioning under the purview of the Ministry of Power
  2. A leading public Infrastructure Finance Company in India’s power sector
  3. Finances and promotes rural electrification projects across India
  4. Provides loans to Central/ State Sector Power Utilities, State Electricity Boards, Rural Electric Cooperatives, NGOs and Private Power Developers
  5. Listed on both National Stock Exchange and Bombay Stock Exchange
  6. Currently, among the top 500 Global Financial Services brands by UK-based plc Brand Finance
  7. Also among the Forbes Global 2000 companies for 2010

[pib] ‘UDAY’ Web Portal and Mobile App launched

  1. Context: Ujwal DISCOM Assurance Yojana (UDAY) Web Portal & Mobile App launched
  2. Aim: To track and monitor the progress of DISCOMs on operational and financial parameters under the UDAY scheme
  3. The portal/app will ensure transparency, enhance accountability of various stakeholders and facilitate view of near real time progress, enabling consumers to demand better services for themselves
  4. It will bring about an ethos of ‘Competitive Federalism’ among different States to achieve best progress in public schemes, especially in the power sector

Note4Students:

UDAY is an important part of the ‘Digital India Initiative’. Make note of the terms for your Prelims exam.

Back2Basics:

  1. Ujwal DISCOM Assurance Yojana (UDAY): financial turnaround and revival package for electricity distribution companies of India (DISCOMs)
  2. Intent to find a permanent solution to the financial mess that the power distribution is in
  3. Scheme comprises four initiatives: Improving operational efficiencies of discoms, reduction of cost of power, reduction in interest cost of discoms and enforcing financial discipline on discoms through alignment with state finances
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Discom losses may fall to 28 paise per unit by fiscal 2019

  1. Source: Crisil report
  2. Finding: The aggregate loss of distribution companies (discoms) of the 15 states that have joined the Ujwal Discom Assurance Yojna (UDAY) so far will more than halve to 28 paise per unit by fiscal 2019
  3. Earlier losses: 64 paise in fiscal 2016
  4. However, they will miss the target of zero losses by fiscal 2019
  5. Reasons for missing target: First, increase in tariff will be lower in states with a weak policy ecosystem
  6. Second, most indebted states have lesser ability to reduce AT&C losses

Bonds worth Rs 1.67 lakh crore sold under UDAY

  1. Union Power Minister: So far Rs 1,67,000 crore worth of bonds have been issued under the Ujjwal Distribution Assurance Yojana (UDAY)
  2. It is now a hot property and in demand
  3. Game changer: There will be annual savings of Rs 1,80,000 crore for the country from 2019 onwards

Discuss: What are the issues faced by power distribution sector in India? How does UDAY  seek to solve them?

Cabinet extends UDAY scheme deadline

  1. News: Cabinet approved an extension in the deadline for implementing the Ujjwal Discom Assurance Yojana (UDAY) by a year to March 31, 2017
  2. Context: UDAY scheme is aimed at reviving the power distribution companies (discoms) and had an initial deadline of March 31, 2016
  3. So far, 19 states have given in-principle approval to join the scheme, out of which 10 states have signed MoUs with the Centre
  4. Impact: The decision to extend the deadline will allow states, which could not participate in UDAY earlier, to join the scheme
  5. The move will also allow states who have granted an in-principle agreement, to arrange their finances better before signing the official document

RBI moves to boost bonds issued by states under UDAY

  1. Context: State govts that have signed up for the UDAY scheme have started issuing bonds to banks
  2. News: RBI has allowed banks to classify bonds issued by state govts as part of the UDAY scheme under held-to-maturity (HTM) category
  3. Impact: The remaining discom loans would attract lower provisioning for banks now, as they would be classified as standard
  4. Banks that have the highest exposure to discoms will benefit the most

Govt. nod for UDAY bonds

  1. Context: Union govt.’s effort to revive ailing discoms through Ujjwal Discom Assurance Yojana
  2. News: The Finance Ministry has approved the issuance of  UDAY bonds by 4 states
  3. Mechanism: State govts can take over 75% of discom debt and pay back lenders by issuing bonds
  4. The scheme provides for the remaining 25% of the debt to be paid back through discom-issued bonds
  5. Challenge: Total discom debt in the country amounts to Rs.4.3 lakh crore

Read more about UDAY: Reviving Power Discoms

Rajasthan Govt. signs MoU to join UDAY

  1. The Rajasthan Government and its power distribution companies or discoms signed a pact with the Centre.
  2. Under the Ujwal Discom Assurance Yojana (UDAY) aimed at relieving the debt burden of the most indebted discoms in the country.
  3. Rajasthan discoms have a total debt of Rs.80,500 crore which is 18.7 per cent of the country’s total discom debt of Rs.4.3 lakh crore.
  4. This signing of the MoUs with Rajasthan is very significant because the state’s discoms have the largest debt.
  5. Rajasthan was the first to come to meet us when we came to power to highlight this problem.

Response to UDAY scheme from States positive: Centre

  1. Centre expects almost all States to join the UDAY scheme for revival of debt-laden power distribution companies by March 2016.
  2. 9 states have already signed up, including AP, Jharkhand, Rajasthan, Punjab, J&K, Uttarakhand and HP.
  3. The Union Cabinet may consider the amendments to the national tariff policy for electricity.
  4. The policy is likely to help bring in efficiency in working of Discoms and boost revenues which will in turn help attract more investments in the sector.

UDAY lays thrust on 4 initiatives for financial turnaround of Discoms

  1. Improving operational efficiencies of DISCOMs.
  2. Reduction of cost of power.
  3. Reduction in interest cost of DISCOMs.
  4. Enforcing financial discipline on DISCOMs through alignment with State finances.
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UDAY scheme for financial turnaround of Power Distribution Companies

Ujwal DISCOM Assurance Yojna (UDAY) for financial restructuring of debt of power distribution companies.

  1. Scheme aims at financial turnaround and revival of Power Distribution companies (DISCOMs) and ensures a sustainable permanent solution.
  2. Allows power DISCOMs in selected states to convert their debt into state bonds as well as roll out number of measures to improve efficiency at power plants.
  3. It Improves operational efficiencies of DISCOMs, Reduce of cost of power, Reduce interest cost of DISCOMs, Enforce financial discipline on DISCOMs.
  4. Improve operational efficiency by swapping of coal linkages, monitoring technical and commercial (AT&C) losses , smart metering and feeder separation in states.

With UDAY Scheme, Union Government seeks to accelerate the process of reform across the entire power sector in order to ensure affordable and accessible 24×7 Power for All.

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