UDAY Scheme

The Jharkhand government on Sunday joined Andhra Pradesh in opting for the UDAY (Ujwal Discom Assurance Yojana) scheme for recasting debts of distressed power distribution companies (discoms). Andhra Pradesh had on Saturday conveyed its in-principle approval for UDAY.

The power sector has of late been witnessing a series of historic improvements across the entire value chain, from fuel supply (highest coal production growth in over 2 decades), to generation (highest ever capacity addition), transmission (highest ever increase in transmission lines) and consumption (over 2.3 crore LED bulbs distributed).

The weakest link in the value chain is distribution, wherein discoms in the country have accumulated losses of approximately Rs 3.8 lakh crore and outstanding debt of approximately Rs 4.3 lakh crore (as of March 2015). Financially stressed DISCOMs are not able to supply adequate power at affordable rates, which hampers quality of life and overall economic growth and development.

UDAY empowers discoms with the opportunity to break even in the next 2-3 years. This is through four initiatives (i) Improving operational efficiencies; (ii) Reduction of cost of power; (iii) Reduction in interest cost; and (iv) Enforcing financial discipline on discoms through alignment with State finances.

Operational efficiency improvements like compulsory smart metering, upgradation of transformers, meters etc., energy efficiency measures like efficient LED bulbs, agricultural pumps, fans & air-conditioners etc. will reduce the average AT&C loss from around 22% to 15% and eliminate the gap between Average Revenue Realized (ARR) & Average Cost of Supply (ACS) by 2018-19.

Reduction in cost of power would be achieved through measures such as increased supply of cheaper domestic coal, coal linkage rationalization, liberal coal swaps from inefficient to efficient plants etc.

States shall take over 75% of DISCOM debt as on 30 September 2015 over two years - 50% of DISCOM debt shall be taken over in 2015-16 and 25% in 2016-17. This will reduce the interest cost on the debt taken over by the States to around 8-9%, from as high as 14-15%; thus improving overall efficiency.

Further provisions for spreading the financial burden on States over three years, will give States flexibility in managing the interest payment on the debt taken over, within their available fiscal space in the initial few years. A permanent resolution to the problem of DISCOM losses is achieved by States taking over and funding at least 50% of the future losses in a graded manner.