UDAY Scheme for Discoms

Reforms-Linked, Result-Based Scheme for Distribution’ (RLRBSD)

Note4Students

From UPSC perspective, the following things are important :

Prelims level : RLRBSD

Mains level : Paper 3- Issues with the RLRBSD scheme for discoms

The debt burden of discoms is estimated to touch 4.5 lakh crore by the end of 2020-21. This high level of debt underscores the need for reforms in the discoms. With this in view, RLRBSD has been launched by the Centre. The article highlights the issues with this scheme.

Reforms-Linked, Result-Based Scheme for Distribution’ (RLRBSD)

  • In her FY22 Budget speech, Finance Minister proposed Electricity (Amendment) Bill, 2021, which intends to delicence the distribution business, bring in competition, and give the consumer power to choose her supplier.
  • She also unveiled the Rs 3 lakh crore electricity distribution reform programme to reduce losses and improve the efficiency of discoms.
  •  Against this background, the RLRBSD aims at helping discoms trim their electricity losses to 12-15% from the present level.
  • The aggregate technical and commercial (AT&C) losses and shortfall in the average revenue realisation from the sale of electricity vis-a-vis the average cost of supply or the ACS-ARR gap, are major causes for losses of discoms.
  • Accordingly, the scheme sets the target for both to be achieved by 2025.
  • It also aims to gradually narrow the deficit between the cost of electricity and the price at which it is supplied to ‘zero’ by March 2025.
  • It will also have a compulsory pre-paid and smart metering component to be implemented across the power supply chain, including in about 250 million households.

Funding for RLRBSD

  • The Centre is expected to contribute around Rs 60,000 crore to the scheme’s corpus.
  • The rest may be raised from multilateral funding agencies such as ADB and World Bank (WB).
  • The Centre’s contribution will be met through the previous commitment of the ongoing schemes, viz. the Integrated Power Development Scheme (IPDS) and the Deen Dayal Upadhyaya Gram Jyoti Yojna (DDUGJY).
  • The funds will be released subject to discoms meeting reform-related milestones.

Analysing RLRBSD against the context of UDAY

  • Under UDAY, discoms were required to reduce AT&C losses from 20.7% during 2015-16 to 15% by 2018-19.
  • During 2019-20, their AT&C losses were 18.9% against the 15% target for 2018-19.
  • Further, they were to reduce the ACS-ARR gap from Rs 0.59 per unit during 2015-16 to ‘zero’ by 2018-19.
  • The ACS-ARR gap during 2019-20, stood at Rs 0.42 per unit against target of ‘zero’ for 2018-19.
  • Simultaneously, the government gave them a financial restructuring package (FRP).
  • The FRP was nothing but a condoning of discoms’ staggering debt of about Rs 4 lakh crore.
  • Against this backdrop, aims of achieving those targets by 2025 under RLRBSD, which should have been achieved by 2018-19 under UDAY seems difficult.

3 factors that contribute to  debt of discoms

  • 1) At the root of persistent and increasing losses of discoms is the orders issued by state governments to sell electricity to some preferred consumers, viz. poor households and farmers.
  • Electricity is supplied to these customers either at a fraction of the cost of purchase, transmission and distribution, or even free.
  • On the units sold to these groups, discoms incur colossal under-recovery.
  • 2) This is aggravated by AT&C losses—most of it plain theft.
  • 3) Inflated tariff allowed to independent power plants (IPPs) under purchase agreements adds to the revenue shortfall.

Consider the question “Why the discoms in India require frequent bail-outs? How far will the Reforms-Linked, Reforms-Based Scheme for Distribution be successful in addressing the woes of discoms?”

Conclusion

The problem is entirely political. In a bid to win elections almost every political party promises sops which include, among others, power supply to farmers and poor households at a throwaway price or even free. As long as this effect of populist politics persists, the discoms will continue to be in the red, needing a bailout at frequent intervals.

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