For the power sector, whether UDAY turned out to be a success or failure?

Related image

Reasonably priced, reliable and sustainable power supply is critical for economic growth. With a vision of 24*7 Power for all and to bring reform in the power sector especially state power distribution companies (DISCOMS), Central Government launched UDAY (Ujwal Discom Assurance Yojna), an optional scheme to join, in November 2015. To help loss-making discoms turn around financially, with support from their State governments as inefficiencies in power distribution such as large transmission and distribution losses on power, have strained the finances of the discoms, who have been borrowing heavily from banks to keep themselves running but exposing the banking sector to risks.[1]

Scheme is supposed to generate revenue for the entire electricity industry as it allows the transfer of three-fourths of the debt of the discoms to state governments’ budget, reduction of interest rates on balance loans and issuance of ‘UDAY bonds’ to banks and other financial institutions by the governments to raise money to pay off the banks. The assumption was that once the financial health of the state is restored, discoms would start buying electricity to avoid load-shedding, leading to the revival of power demand, in turn, to revive the sagging confidence of investors and lenders and restore some shine to the power sector.[2]

Source: Ministry of Power

Objectives of the scheme[3]:

  • Financial Turnaround
  • Operational improvement
  • Reduction of cost of generation of power
  • Development of Renewable Energy
  • Energy efficiency & conservation

Impact of the scheme[4]:

  • Financially & Operationally sound DISCOMs
  • Availability of cheaper funds
  • Increased capital investment
  • Development of Renewable Energy sector
  • Availability of 24*7 Power For All at affordable price

Benefits to the Participating States[5]:

  • Reduction in Cost of power through Central Support
  • Increased supply of domestic coal
  • Allocation of coal linkages at notified prices
  • Coal price rationalization
  • Coal linkage rationalization & allowing coal swaps
  • Supply of washed & crushed coal Additional coal at notified prices
  • Faster completion of Interstate Transmission lines
  • Power purchase through transparent competitive bidding

Lacunae in the scheme[6]:

  • Not open for private discoms currently though their inclusion is under consideration but their financial bailout will still not be the realm of the state.
  • Joining and signing of the MoU under a tripartite agreement between the Centre, the state government and the discom, is optional.
  • lack of penalties
  • no specific monitoring and compliance mechanism.
  • birth to a vicious debt recycle since the major banks/FIs who were already the lenders are again helping for the repayment.

Failure of the scheme:

Nearly two years after the announcement of the scheme, power demand still remains weak as reflected in low capacity utilisation of power plants. When States need central assistance to keep their discoms running operations they always promise to implement power sector reforms. However, after receiving money they slip to business-as-usual mode as visible in 2001 and 2012 when they needed the financial package from the Centre.[7] Their attitude toward the UDAY scheme is hardly any different.

Losses of power discoms under various state governments have shown a marked reduction:

The Union government under the UDAY scheme tried to reduce a load of debt from the Discoms, which tantamount to almost 4.3 trillion rupees. Jharkhand Government, one of the first states to sign for the UDAY has again defaulted in clearing outstanding payments of power suppliers[8] by denying payment to Damodar valley cooperation for 700MW electricity it acquires daily. This in spite of the state availing benefits worth more than Rs.5300 crores under various components of the UDAY scheme and wiping off more than 75% of the outstanding loan of the state Discom from the balance sheet clearly shows non-implementation of the scheme by the state government.[9]

On the other hand, power utilities in some states have managed to cut down their losses significantly on account of increased bill payment compliance by consumers including by state government’s operation on reduction in power theft and tight monitoring of the utilities. For example, in 2016-17, Rajasthan reduced losses by 54% to Rs5,208 crore from a year ago, Tamil Nadu lowered losses by 35% to Rs3,783 crore, while Uttar Pradesh cut losses by 14% to Rs6,619 crore.[10]

The issue pertaining to power purchase cost to be allowed on true-up for FY 2014-15 came before Appellate Tribunal for Electricity, New Delhi in the case of South Bihar Power Distribution Company Limited (SBPDCL) v. Bihar Electricity Regulatory Commission & others[11] where petition was filed by SBPDCL against the order of the State Commission in 2015 for True-up of financials for FY 2014-15, which was disallowed by state commission.

Upon submission of the Appellant that it is the obligation of the of the Appellant to meet the commitment for providing “24×7 Power For All”, State Commission has curtailed the number of connections the Appellant intends to release under 24×7 plan thereby reducing the energy sales to such category without giving good reason for same, was overturned by appellate tribunal in favour of appellant.[12]

Conclusions:

Discoms if adopt three steps:

  • double Book Keeping
  • computerise inventories and
  • put the performance of electrical equipment in the public domain

will have a profound impact on efficiency and transparency of the power sector.

***

Author: Namrta

You can reach author at: namrta.9809@gmail.com

Namrta graduated from National Law Institute University, Bhopal. Currently, she is pursuing LLM from the same university. She is a researcher at TA.

Endnotes:

[1] http://www.thehindubusinessline.com/opinion/all-you-wanted-to-know-about-uday/article8406121.ece

[2] https://thewire.in/171665/uday-failure-power-demand/

[3] https://www.uday.gov.in/about.php

[4] https://www.uday.gov.in/Impact-of-the-Scheme.php

[5] https://www.uday.gov.in/Benefits-to-Participating-States.php

[6] https://www.linkedin.com/pulse/critical-analysis-uday-vimanyu-sahu

[7] http://indianexpress.com/article/opinion/columns/the-uday-plug-in/

[8]http://www.thehindubusinessline.com/economy/policy/uday-fails-to-provide-a-panacea-for-ailing-discoms/article9523020.ece

[9]http://knnindia.co.in/news/newsdetails/sectors/jharkhands-default-raise-serious-question-about-success-of-uday-scheme

[10]http://www.livemint.com/Industry/K3vFtw9b6RiNTCzxDJwseP/Staterun-discoms-cut-losses-by-215-in-FY17.html

[11] Appeal No 141 of 2016 and Appeal No 142 of 2016, In the Appellate Tribunal for Electricity, New Delhi

[12] Indian Kanoon – http://indiankanoon.org/doc/168362532/

Leave a Reply

Your email address will not be published. Required fields are marked *