India : UDAY scheme - a step towards electrifying power sector

The state power distribution companies have reported interest cost savings of Rs. 11,989 crore and sharp reduction of revenue losses by up to 60% in some cases under the Ujjwal Discom Assurance Yojana (UDAY) rolled out in September 2015. UDAY aims to reduce the interest burden, cost of power and energy losses in state-owned distribution utilities with an objective of achieving their sustainable operational and financial turnaround.

A review of UDAY scheme indicates that Rajasthan, Uttar Pradesh, Haryana and Jharkhand have made significant savings in interest cost. Rajasthan has saved Rs 5,068 crore as interest savings, as the state took over Rs 60,500 crore of debt incurred by its power utilities. The state governments are able to borrow at a lower rate than utilities. The review showed that Andhra Pradesh Southern Power Distribution Co. Ltd managed to lower the gap between its cost of power supply and revenue realized from consumers by 38% from Rs 1.09 to Rs 0.68 per kilowatt hour (unit). Rajasthan’s three distribution companies have lowered this gap from Rs 1.68 to Rs 0.66 per unit, a reduction of 61%. Haryana utilities managed a 55% reduction in revenue losses. Eliminating operational losses is essential for distribution companies to be able to purchase and serve more power.

UDAY’s success is crucial for the long-term fortunes of the electricity sector, since distribution companies (discoms) are the weakest link in the electricity value chain. The poor payment track record of discoms adversely affects power generation companies, thereby causing stress in the banking sector. To complement the turnaround scheme for distribution firms, the government has also made coal supplies to power producers more rational, cutting down their transportation costs. However, reducing operational losses is not enough. To be able to purchase more power and do away with power cuts, discoms have to make operational profits. After UDAY’s implementation, the delay in paying back dues by discoms have come down roughly from six months to two-three months.

The states that have joined the UDAY scheme have so far issued bonds worth Rs 2,32,375 crore. Till date, 26 states have joined the scheme, and out of those, 16 have opted to restructure the liabilities of their debt-laden discoms. The total debt of these 16 states is Rs 3,24,912 crore and the amount of total liabilities that will be restructured is Rs 2,82,875 crore. Out of the total bonds issued, state bonds account for Rs 2,08,516 crore and discom bonds account for Rs 23,859 crore. Issuance of these lower interest bearing bonds is significantly contributing in the reduction of discom’s interest cost. After the issuance of these bonds, the remaining debt to be restructured stands at Rs 39,892 crore.


Source :

Smart Grid Bulletin July 2019

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