Plans to revive bankrupt Power Distribution Companies

6 Nov 2015 | Written by Shiladitya ; Edited by Achin Garg

The Union Cabinet gave its approval to the Ujwal DISCOM Assurance Yojna (UDAY) today.

The scheme, proposed by the Ministry of Power, aims to revive bankrupt Power Distribution Companies (DISCOMs) and provide a permanent solution to their financial problems.

UDAY's four initiatives include improvement of operational efficiency of DISCOMs, reducing cost of power and interest, and enforcing financial discipline through alignment with state finances.

In context: UDAY launched by Government to revive DISCOMs

DISCOM debts and respective states

DISCOMS in Rajasthan, Tamil Nadu, Haryana, Uttar Pradesh, Andhra Pradesh, Telangana, Bihar and Jharkhand have the bulk of distressed assets. Rajasthan alone has a debt of Rs.85,000 crore, followed by Tamil Nadu at Rs.70,000 crore.

Losses Woes of the financially struggling DISCOMs

DISCOMs are trapped in a vicious cycle with operational losses being funded by debt.

The DISCOMs in India have accumulated losses of around Rs.380,000 crores, and outstanding debts around Rs.430,000 lakh crores.

As a result power plants are operating at 59% of their capacity, the lowest level, as DISCOMs cannot afford to buy power, thus hampering economic growth and overall quality of life.

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6 Nov 2015Plans to revive bankrupt Power Distribution Companies

State governments to bear brunt of DISCOM debts

Liabilities State governments to bear brunt of DISCOM debts

The financial liabilities of DISCOMs are contingent liabilities of the respective states.

The UDAY scheme plans to convert 75% of the debts of DISCOMs into state government bonds, with 50% of DISCOM debts to be taken over in 2015-2016, and the remaining 25% in 2016-2017.

This is expected to reduce the interest cost on the debt taken over by states from 14-15% to 8-9%.

Efficiency Proposed improvements in operational efficiency

Operational efficiency improvements will include compulsory smart metering, upgradation of transformers and meters etc.

Energy efficiency measures will also be implemented through efficient LED bulbs, agricultural pumps, fans & air-conditioners etc.

As a result, Aggregate Technical & Commercial(AT&C) losses are expected to fall from 22% to 15%, while the gap between Average Revenue Realized(ARR) and Average Cost of Supply(ACS) should be eliminated by 2018-2019.

Cost Proposed reduction in cost of power

The government plans to reduce cost of power through an increased supply of cheap domestic coal, coal linkage rationalization, coal price rationalization, supply of washed and crushed coal, faster completion of transmission lines, and liberal coal swaps from inefficient to efficient plants.

The National Thermal Power Coporation alone is expected to save Rs.0.35/unit of electricity produced when the proposed measures are implemented.

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DISCOM debts in perspective

According to Credit Lyonnais Securities Asia (CLSA), DISCOMs owe banks Rs.550,000 crore. This massive sum is equivalent to two-and-a-half times India's defence budget, and is enough to wipe out India’s fiscal deficit.

28 Jan 2016UDAY receiving huge response from states

Rajasthan, Chhattisgarh, and Jharkhand have already joined the Ujwal Discom Assurance Yojana (UDAY) scheme and UP, Haryana and Bihar are soon going to sign the MoU.

Even Gujarat and Madhya Pradhesh which do not have accumulated debt are keen to join UDAY to take the benefit of reduced cost of resources and finance.

10 more states have given in-principle approval to join the scheme.

4 Mar 2016Punjab - the 7th state to join UDAY scheme

Punjab became the 7th state to get linked to the UDAY scheme for the "revival of discoms that will help it save Rs.5,475 crore" in the upcoming 3 years.

The announcement was made in the presence of Power Minister Piyush Goyal and Punjab Deputy CM Sukhbir Badal.

The government is hoping to rope in J&K, Haryana and Andhra Pradesh within this month too.