Reforming State Discom’s Financial Health through : UDAY (Ujwal DISCOM Assurance Yojana)

On 6th Nov 2015 , the Union Cabinet  of India has approved a new scheme   UDAY (Ujwal DISCOM Assurance Yojna )as proposed by Ministry of Power headed by Shri Piyush Goyal . The  objective Of UDAY  is to provide   financial turnaround and revival of Power Distribution companies (DISCOMs), with the opportunity to break even in the next 2-3 years which  currently have accumulated losses of approximately Rs. 3.8 lakh crore and outstanding debt of approximately Rs. 4.3 lakh crore (as on March, 2015).keep_calm_and_focus_on_restructuring_mug-rb821bef0d934456dae94d879c6e248e5_x76x5_8byvr_324

The fundamental objective of  scheme and the ways to achieve the, can be summarize in 4 parts  :

  •  Improving operational efficiencies of DISCOMs : By reducing 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 of cost of power : Through Measures like 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), supply of washed and crushed coal, and faster completion of transmission lines.
  • Reduction in interest cost of DISCOMs : 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.
  • Enforcing financial discipline on DISCOMs through alignment with State finance :  In Future States will take over  and fund at least 50% of the future losses (if any) of DISCOMs in a graded manner.ps

Other Notable -features of the Scheme : 

  •  UDAY is optional for all States. 
  • Central Govt. 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 FY 2015-16 and 2016-17.
  • States will issue non-SLR including SDL bonds in the market or directly to the respective banks / Financial Institutions (FIs) holding the DISCOM debt to the appropriate extent.
  • DISCOM debt not taken over by the State shall be converted by the Banks / FIs into loans or bonds ( can be State Guaranteed ) with ROI  < bank’s base rate +  0.1%
  • 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) & failure on part of achieving milestone may result in deduction or forfeit of these grants .
  • It will be operationalized through a mutual  agreement b/w the Ministry of Power, State Government and the DISCOM.

Way Ahead : Moving Further , we will try to analyse the Scheme  Pro’s & Con’s  from perspective of Banking Institutes , Discom’s , Consumers  , Practical-ability to implement . It will be interesting   to find it’s  effect on  Fiscal health of State’s Like Rajasthan where Dis-com losses and debt are way higher than overall GDP  . Also , how much this  scheme will impact  cost of borrowing for developers for Upcoming Renewable Energy Project and if it can really give the PUSH required for REC ( Renewable Energy Certificate ) trading market to jump-start .

But Foremost the Question would be will Cong ruled State’s would say YES to this scheme ??

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