UDAY- Ujwal DISCOM Assurance Yojna

Union Cabinet has given its nod to Ujwal DISCOM Assurance Yojna (UDAY) to ease the financial crunch facing power distribution companies, or discoms, which has impaired their ability to buy electricity. This scheme allows power Distribution Companies (DISCOMs) to convert their debt into state bonds in selected states as well as rise number of measures to upgrade efficiency at power plants.It has a clear focus on technological improvement, urges states to be accountable for losses and inefficiency of their distribution companies (discoms), and suggests measures for operational improvement.

The scheme was announced in the wake of state-owned discoms defaulting on their loans for years, leaving the banking sector exposed debt of as much as Rs 3.5 lakh crore.It is indeed an all-encompassing scheme for reforming the power distribution sector.

Salient Features of UDAY: The new scheme UDAY lays thrust on four 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.

Operational efficiency 

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. 

Cost of Power

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, coal price rationalization based on GCV (Gross Calorific Value), 

Financial turnaround- Alignment with State finances and reducing interst

• 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. Government of India will not include the debt taken over by the States as per the above scheme in the calculation of fiscal deficit of respective States in the financial years 2015-16 and 2016-17. 
• DISCOM debt not taken over by the State shall be converted by the Banks / FIs into loans or bonds with interest rate not more than the bank’s base rate plus 0.1%. Alternately, this debt may be fully or partly issued by the DISCOM as State guaranteed DISCOM bonds at the prevailing market rates which shall be equal to or less than bank base rate plus 0.1%.
• States shall take over the future losses of DISCOMs in a graded manner. 
• State DISCOMs will comply with the Renewable Purchase Obligation (RPO) outstanding since 1st April, 2012, within a period to be decided in consultation with Ministry of Power. 
• States accepting UDAY and performing as per operational milestones will be given additional / priority funding through Deendayal Upadhyaya Gram Jyoti Yojana (DDUGJY),Integrated Power Development Scheme (IPDS), Power Sector Development Fund (PSDF) or other such schemes of Ministry of Power and Ministry of New and Renewable Energy. 
• States are encouraged to take the benefit at the earliest as benefits are dependent on the performance. It empowers DISCOMs with the opportunity to break even in the next 2-3 years. 

Challenges

This is not the first attempt to restructure discoms in the country; previous attempts have failed miserably with states defaulting on the measures suggested by the Centre. Electricity is a state subject and the Centre can only be guiding authority. Of the three components of the power sector, generation and transmission are easier to turn around as these are with the Centre. However, distribution, which is with the states, is usually the broken link in the whole connection.

National Award winning documentary ‘Katiyabaaz’, based on power theft in the bustling industrial town of Kanpur started a conversation on the crumbling power distribution in the country, last year, the same year when NDA government came to power promising ‘24X7 Power for All’. A 'katiya' or 'kanta' or ‘kundi’ – as it is known in different parts of the country is not just a fatal attempt to get free access to power; it’s mockery of our power sector. This business of power theft, of politicians promising free power, and of local authorities turning a blind eye to it could impede the success of the ambitious UDAY scheme of the NDA government aimed at providing 24X7 power to all.

The reforms will have to fight such katiyabaazs at all levels. The Gujarat state government has asked the police force to join hands with the energy department to ensure ‘nuisance-free’ bill collection and metering. Coordinated efforts need an iron political will, a whip-cracking authority, and consumer awareness.

By: Vishal