Govt gives nod to UDAY, scheme for revival of power discoms
Updated: Nov 06, 2015 11:38:32am
New Delhi, Nov 6 (KNN) The Union Cabinet chaired by Prime Minister Narendra Modi on Thursday gave its approval to a new scheme moved by the Ministry of Power - Ujwal DISCOM Assurance Yojna or UDAY. UDAY provides for the financial turnaround and revival of Power Distribution companies (DISCOMs), and importantly also ensures a sustainable permanent solution to the problem.
“UDAY is a path breaking reform for realizing the Prime Minister’s vision of affordable and accessible 24x7 Power for All,” said a Cabinet release.
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 on 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.
“Efforts towards 100 per cent village electrification, 24X7 power supply and clean energy cannot be achieved without performing DISCOMs. Power outages also adversely affect national priorities like “Make in India” and “Digital India”,” said the release.
In addition, default on bank loans by financially stressed DISCOMs has the potential to seriously impact the banking sector and the economy at large.
Due to legacy issues, DISCOMs are trapped in a vicious cycle with operational losses being funded by debt. Outstanding debt of DISCOMs has increased from about Rs. 2.4 lakh crore in 2011-12 to about Rs. 4.3 lakh crore in 2014-15, with interest rates upto14-15 per cent.
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 per cent to 15 per cent 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, coal price rationalization based on GCV (Gross Calorific Value), supply of washed and crushed coal, and faster completion of transmission lines.
NTPC alone is expected to save Rs. 0.35 / unit through higher supply of domestic coal and rationalization / swapping of coal which will be passed on to DISCOMs / consumers.
“Financial liabilities of DISCOMs are the contingent liabilities of the respective States and need to be recognized as such. Debt of DISCOMs is de facto borrowing of States which is not counted in de jure borrowing,” said the release.
However, credit rating agencies and multilateral agencies are conscious of this de facto debt in their appraisals. In line with the above and similar observations of Fourteenth Finance Commission, States shall take over 75 per cent of DISCOM debt as on 30 September 2015 over two years - 50 per cent of DISCOM debt shall be taken over in 2015-16 and 25 per cent in 2016-17. This will reduce the interest cost on the debt taken over by the States to around 8-9 per cent, from as high as 14-15 per cent; 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 per cent of the future losses (if any) of DISCOMs in a graded manner. (KNN Bureau)
“UDAY is a path breaking reform for realizing the Prime Minister’s vision of affordable and accessible 24x7 Power for All,” said a Cabinet release.
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 on 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.
“Efforts towards 100 per cent village electrification, 24X7 power supply and clean energy cannot be achieved without performing DISCOMs. Power outages also adversely affect national priorities like “Make in India” and “Digital India”,” said the release.
In addition, default on bank loans by financially stressed DISCOMs has the potential to seriously impact the banking sector and the economy at large.
Due to legacy issues, DISCOMs are trapped in a vicious cycle with operational losses being funded by debt. Outstanding debt of DISCOMs has increased from about Rs. 2.4 lakh crore in 2011-12 to about Rs. 4.3 lakh crore in 2014-15, with interest rates upto14-15 per cent.
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 per cent to 15 per cent 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, coal price rationalization based on GCV (Gross Calorific Value), supply of washed and crushed coal, and faster completion of transmission lines.
NTPC alone is expected to save Rs. 0.35 / unit through higher supply of domestic coal and rationalization / swapping of coal which will be passed on to DISCOMs / consumers.
“Financial liabilities of DISCOMs are the contingent liabilities of the respective States and need to be recognized as such. Debt of DISCOMs is de facto borrowing of States which is not counted in de jure borrowing,” said the release.
However, credit rating agencies and multilateral agencies are conscious of this de facto debt in their appraisals. In line with the above and similar observations of Fourteenth Finance Commission, States shall take over 75 per cent of DISCOM debt as on 30 September 2015 over two years - 50 per cent of DISCOM debt shall be taken over in 2015-16 and 25 per cent in 2016-17. This will reduce the interest cost on the debt taken over by the States to around 8-9 per cent, from as high as 14-15 per cent; 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 per cent of the future losses (if any) of DISCOMs in a graded manner. (KNN Bureau)
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