UDAY Scheme for Discoms

UDAY Scheme for Discoms

[op-ed snap] Power replayop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Not much.

Mains level : Paper 3-Indian power sector-Problems faced by the Discoms and their solutions.


Five years after the launch of UDAY, power-sector once again seems to be going deep into the troubles.

Where the Discoms stand now?

  • Losses increased: The losses of state-owned distribution companies (discoms) risen.
  • Dues increased: Discom’s dues for power purchases have also surged.
    • Dues owed by discoms to power producers, both independent and state-run entities, stood at Rs 80,930 crore.
    • Of these, Rs 71,673 crore extends beyond the allowed grace period of 60 days.
    • Rajasthan leads the states with the most dues, followed by Tamil Nadu and Uttar Pradesh.

Components of UDAY and progress made

  • The UDAY scheme, which involved state governments taking over the debt of discoms, had three critical components
  • First-Reduction in AT&C losses: While progress has been made on some of these fronts, it hasn’t been in line with the targets laid out under UDAY.
    • AT&C (Aggregate Technical and Commercial) losses have declined in some states, but not to the extent envisaged.
    • Under UDAY, discoms were to bring down AT&C losses to 15 per cent by FY19.
  • Second- Timely revision of tariffs: While some states have raised power tariffs, the hikes have not been sufficient.
    • In tariff revision decisions political considerations prevailed over commercial decisions.
  • Third- elimination of the gap between per unit of cost and revenue realised: The gap between the average cost per unit of power and the revenue realised has not declined in the manner envisaged.
    • Because of this discoms were forced to reduce their power purchases and delay payments to power producers.

Way forward:

  • The new plan, being formulated by the government reportedly, aims to address these issues by-
    • Reducing electricity losses.
    • Eliminating the tariff gap.
    • Smart metering.
    • Privatising discoms.
    • Having distribution franchisees.
  • Altering incentive structure: Along with the above, the Centre should also look at altering the incentive structures of states in order to ensure compliance.
  • Provision of penalties: Stiff penalties need to be imposed for not meeting the targets laid out in the new scheme.




UDAY Scheme for Discoms

Explained: Why power costs vary across statesMains Only


From UPSC perspective, the following things are important :

Prelims level : Not Much

Mains level : Discrepancies in Indian power sector

  • Recently a MP from Rajya Sabha suggested that power tariffs should be uniform across the country so that affordable power is available to all.
  • He complained that consumers in Punjab paid Rs 8 per unit of electricity, much more than consumers in neighbouring Himachal Pradesh and J&K.

Power tariffs across state

  • The electricity tariff paid by consumers in each state is directly reflective of the cost of power procurement by the power distribution companies (discoms) in the state.
  • There are state-specific factors for this.
  • So, states such as Jharkhand or Odisha or Chhattisgarh, which have had coal-fired thermal capacity, would typically have lower tariffs because of the base-load capacities that they possess.
  • Or, states such as Himachal or Uttarakhand would have low tariffs because of hydropower capacities .
  • On the other hand, a state like Gujarat, which has capacities based on imported coal, will have comparatively higher tariffs.

So is the idea of having a flat countrywide rate feasible?

  • The State Electricity Regulatory Commissions (SERCs) decide on the power tariff after utilities file their cost of power with the regulators.
  • Because power tariffs entail a number of state-specific factors a uniform nationwide tariff is a proposition that would be difficult to implement.
  • Electricity was a state subject and there has to be consensus for uniform power tariffs among state players.
UDAY Scheme for Discoms

[op-ed snap] Power playMains Onlyop-ed snap


From UPSC perspective, the following things are important :

Prelims level : Nothing much

Mains level : Reforms in Power Sector



In a welcome move, public sector companies NTPC and Power Grid Corporation of India have formed a joint venture to set up a national electricity distribution company.

Implications of this decision

1.Power Supply Chain – The decision paves the way for a central public sector entity to enter the power supply business, which up until now has been largely the preserve of state distribution companies.

2.Distribution – Coming at a time when state discoms are struggling to contain their losses, the move is likely to have far reaching ramifications for the distribution segment.

  • Over the years, successive governments have tried to address issues plaguing the power distribution segment, but in vain.
  • The segment is the weakest link in the power chain, and its poor health affects the entire power sector.
  • In 2015, the NDA government had launched the Ujwal DISCOM Assurance Yojana (UDAY) to turn around the fortunes of beleaguered state discoms.
  • But almost four years later, discoms continue to struggle, plagued by a host of issues ranging from inadequate tariff hikes, to high aggregate technical and commercial losses, inadequate and untimely subsidy disbursements, among others.
  • Stressing Banking Sector – Their flagging fortunes have not only affected power generation companies, but have also caused stress in the banking sector.

National electricity distribution company

  • The creation of a national electricity distribution company, which also serves as a central electricity buying agency, could potentially address several of these issues.
  • Addressing pertinent Issues – It could bring relief to power producers, bring stranded capacity back to life, ensure timely payment and address the issue of stressed assets in power generation.
  • Benefiting Consumers – The new entity could also procure electricity at competitive rates, the benefits of which could then be passed on to end consumers.

Other Reforms

The move to create such an entity also signals the possibility of another round of reforms in power distribution,

1.The separation of content and carriage: Carriage refers to distribution, while content refers to electricity supply.

  • Separating them would allow consumers to buy electricity from a power company of their choice.
  • In a market that is currently characterised by geographical monopolies, this would help usher in competition.

2. Rationalising the power tariff structure

  • Such measures along with the creation of a national distribution company also raise the possibility of rationalising the power tariff structure across the country.
  • Currently, the power market in India is highly fragmented.
  • Different state discoms charge different tariffs to different customers.
  • These moves could potentially bring about a rationalisation in tariffs by providing national pricing benchmark across different categories of customers.
UDAY Scheme for Discoms

[op-ed snap] Power under pressureMains Onlyop-ed snap


From UPSC perspective, the following things are important :

Prelims level : UDAY

Mains level : UDAY has not been Successful in achieving its aim.


Launched in November 2015, the Ujwal DISCOM Assurance Yojana (UDAY) was designed to turn around the precarious financial position of state distribution companies. But as the NDA government ends its term, indications are that the turnaround hasn’t materialised, with several targets being missed.


  • Broadly, the scheme had three critical components.
  • Takeover of discom debt by state governments, reduction in aggregate technical and commercial (AT&C) losses, timely tariff revisions and elimination of the gap between the average per unit cost of supply (ACS) and average revenue realised (ARR) by FY19.
  1. AT&C losses
  • First, at the aggregate level, the AT&C losses for major states stood at 19.05 per cent as against the target of reducing them to 15 per cent by the end of FY19.
  • In the case of some states, especially in the northern and central parts of the country, the losses are of a much higher magnitude, suggesting that pilferage continues to be rampant.

2. ACS- ARR Gap

While the ACS-ARR gap was supposed to be eliminated by FY19, it remains as high as Rs 0.25 per unit. In many states, the gap is even higher. Part of the problem can be traced to inadequate tariff hikes. While it is true that some states have aggressively raised tariffs, the median hike remains muted. This is where political compulsions overtake commercial decisions.

3. Power subsidy

Then there’s also the issue of whether the power subsidy released by state governments is adequate. As a result, discoms have reported financial losses to the tune of Rs 21,658 crore at the end of FY19, reversing the declining trend since the launch of UDAY, say reports.


  • This deterioration in the financial position of discoms does not bode well for the entire power sector chain.
  • Reports suggest that dues by state discoms to power generators have in fact risen.
  • And though the recent CERC order on tariff relief for independent power producers is positive for producers, it runs the risk of timely realisation, as the financial position of discoms continues to precarious.


Other Inefficiencies –

  • Apart from these, there are several other operational efficiency targets under UDAY, such as feeder metering, smart metering and feeder segregation. Progress on these is mixed.
  • For instance, not much progress has been made in the case of smart metering above 200 and upto 500 kwh and above 500 kwh.

Need for quick action – These issues need to be addressed quickly or else discom losses will rise further to levels where talks of another bailout are likely to surface.

More fiscal space with states – The only difference being that, this time around, state governments have little fiscal space to offer support.

UDAY Scheme for Discoms

Govt must learn from its failure before launching UDAY 2.0Govt. Schemes


Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: UDAY Scheme

Mains level: The newscard critically evaluates UDAY Scheme


  • While the Centre plans to come up with Ujjwal DISCOM Assurance Yojana (UDAY) 2.0 after the first one failed, experts highlights certain issues to prevent it against failure.
  • The Ministry of Power has put its faith in the second leg of power distribution company reforms under the UDAY 2.0.

UDAY 1.0 was a failure

  1. When the government launched UDAY in 2015, it wanted to improve the financial health and operational efficiency of the country’s debt-ridden power distribution companies.
  2. However, the scheme failed to achieve this target.
  3. According to the latest numbers, the nationwide AT&C losses stood at 18.6 per cent at the end 2017-18.
  4. So far, only seven states including, Tamil Nadu, Telangana, Kerala, Gujarat, Andhra Pradesh, Goa and Himachal Pradesh, have registered losses below 15 per cent while rest of the states have failed to achieve even this.
  5. The scheme also requires DISCOMs to bring down the gap between average cost of supply and average revenue realized to zero.
  6. Instead of reducing this gap, a number of states — Punjab, Jammu and Kashmir, Manipur and Goa — have seen this gap widen in the last few years.
  7. It added that only few states like Gujarat, Karnataka, Himachal Pradesh and Telangana have performed well on most parameters of the scheme.

Way Forward

  1. UDAY 2 addresses the problems of meter reading, billing, collections and leakages or theft.
  2. The government should ensure that short-term borrowings by DISCOMS are monitored.
  3. DISCOMS should get regular payments.
  4. All states should follow one methodology to measure aggregate technical and commercial (AT&C).

Read more about UDAY Scheme at:

UDAY scheme for financial turnaround of Power Distribution Companies

UDAY Scheme for Discoms

After Saubhagya, govt plans induction stoves for the poorGovt. SchemesPriority 1


Mains Paper 2: Governance | Welfare schemes for vulnerable sections of the population by the Centre & States & the performance of these schemes

From UPSC perspective, the following things are important:

Prelims level: Saubhagya scheme

Mains level: India’s low per capita power demand & how the resolution of power sector NPAs can help boost it

Ensuring a safe cooking atmosphere

  1. The government is working on an ambitious plan to provide induction stoves to poor households in rural and urban India
  2. The scheme being explored by the Union power ministry will help reduce import of fossil fuels and generate fresh demand for electricity and consequently support underutilized power plants

Why induction stoves?

  1. Induction cooking is more efficient as energy is directly transferred to the pan
  2. India is the biggest emitter of greenhouse gases after the US and China and among the countries most vulnerable to climate change
  3. India plans to reduce its carbon footprint by 33-35% from its 2005 levels by 2030, as part of its commitments to the United Nations Framework Convention on Climate Change adopted by 195 countries in Paris in 2015

Implementation of the scheme

  1. The shift to induction cooking will be possible after the Pradhan Mantri Sahaj Bijli Har Ghar Yojana (Saubhagya) is implemented
  2. The scheme is expected to increase India’s electricity demand, with the centre setting a December 2018 deadline to provide electricity connections to more than 40 million rural and urban households

Increasing electrical demand

  1. The country’s energy demand is likely to go up by 2.7-3.2 times between 2012 and 2040
  2. Any substitution of fuels for cooking and heating will improve India’s per capita power consumption of around 1,200kWh, which is among the lowest in the world
  3. According to the government, the Saubhagya scheme will require an additional 28,000 megawatts (MW) of power, considering an average load of 1 kilowatt (kW) per household for eight hours in a day
  4. The measures to boost demand include setting up a pan-India power distribution company, given that the segment will be key to the long-term fortunes of the power sector
  5. Distribution companies (discoms) have so far been the weakest link in the electricity value chain
  6. Poor payment records of state-owned discoms have not only adversely affected power generation companies, but have also contributed to stress in the banking sector

Reducing NPAs too

  1. A total of 34 coal-fuelled power projects, with an estimated debt of ₹1.77 trillion, have been reviewed by the government
  2. These projects face problems such as a paucity of funds, lack of power purchase agreements and absence of fuel security
  3. Of the projects accounting for 75,000MW facing problems, those accounting for 40,000MW can be salvaged
UDAY Scheme for Discoms

Centre cannot guarantee power supply to all villages, says officialPriority 1


Mains Paper 2: Governance | Government policies and interventions for development in various sectors and issues arising out of their design and implementation.

From UPSC perspective, the following things are important:

Prelims level: UDAY and stats related to it.

Mains level: The newscard discusses the issue of discoms and highlights the role of states to give financial support to the stressed state discoms.


State DISCOMS be responsible for power supply in rural areas

  1. The Centre has claimed 100% electrification of all villages and 83% of all households across the country. It has said that all households will be electrified by the year-end.
  2. While it is the Centre’s responsibility to connect households and villages to the power grid or provide them alternative sources of electricity, it cannot guarantee the supply of electricity to them.
  3. Access to electricity also means consistent supply but that has to be done by the State governments and the discoms, said Power Ministry official.

Discrepancies in claims

  1. In some cases, the electrification infrastructure such as cables and transformers were stolen days after they were installed, leaving the target village unelectrified in reality but connected on paper.
  2. In other cases, electricity was supplied for just a few hours a day.

Rampant power cuts

  1. Despite the government pegging India as a power surplus nation, almost every State in the country reels under power cuts, especially during peak summer.
  2. This, according to power sector analysts, is because discoms are still very inefficient, with the costs they incur in the transmission far outweighing revenue.
  3. Government data show discoms across the country, on an average, lose ₹0.22 a unit of electricity supplied.

UDAY for rescue

  1. However, the Power Ministry has claimed that this situation is improving rapidly under the Ujwal Discom Assurance Yojana (UDAY).
  2. Power Minister recently said that discom losses have drastically reduced to ₹17,352 crore in 2017-18 from ₹51,096 crore in the previous year.

Way Forward

  1. While the performance of discoms is improving, they are still not at the performance level to supply electricity 24×7. The only hope of the utilities is continued assistance from the State governments.
  2. On their own, the many of the discoms right now are not ready to provide 24×7 power, for two reasons
  3. The first is their financial health. Most of them are not financially capable to do this.
  4. Secondly, only some of the discoms have the infrastructure to supply good quality power on a sustained basis.
  5. But if the respective State governments continue to give financial support and assurances to the discoms, then this could definitely improve.
UDAY Scheme for Discoms

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
UDAY Scheme for Discoms

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?

UDAY Scheme for Discoms

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
UDAY Scheme for Discoms

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
UDAY Scheme for Discoms

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

UDAY Scheme for 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.
UDAY Scheme for Discoms

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 Scheme for Discoms

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.
UDAY Scheme for Discoms

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.

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 —

  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


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