UDAY : Analysis – UPSC GS2

Utility: Direct question can be asked on UDAY.
Ujwal DISCOM Assurance Yojana (UDAY) is a financial restructuring and efficiency enhancing program. It aims to reduce the debt burden of the state owned electricity distribution companies (DISCOMs) started. Though the main component of UDAY is debt management, other measures like raising operational efficiency are also proposed to permanently settle the debt scenario of DISCOMs.
Objectives of UDAY:
  • Improving operational efficiencies of DISCOM.
  • Making DISCOMs financially and operationally healthy.
  • Reduction of cost of power.
  • Reduction in interest cost of DISCOMs.
  • Enforcing financial discipline on DISCOMs through alignment with State finances.
Root cause of DISCOMs failure:
  • Politics of free power, repressed tariffs and power thefts leading high transmission losses.
  • Poor infrastructure and low standard of management.
  • Power subsidies are given to all, irrespective of rich/poor.
  • Lack of metering.
  • Decrease in revenue generation owing to the Pandemic.
  • Absence of political consensus at the state level to raise tariffs.
Achievements of UDAY:
  • It took off well, with a large number of states joining the scheme. Several states took over the debt of their utilities, improving their liquidity situation. Evidence also suggests an improvement in the power supply situation.
  • Government’s UDAY scheme has helped debt-laden DISCOMs of 24 states to reduce losses to Rs 369 billion in 2018 from Rs 515.9 billion in the previous financial year.
  • The participating states have achieved an improvement of 1% in Aggregate Technical & Commercial (AT&C or distribution
Challenges in UDAY:
  • High Aggregate Technical & Commercial (AT&C or distribution) losses: AT&C losses remain high, with some states indicating losses of over 40%, far from the 15% target. So far, only 7 states including, Tamil Nadu, Telangana, Kerala, Gujarat, Andhra Pradesh, Goa and Himachal Pradesh, have registered losses below 15% while the rest of the states have failed to achieve even this.
  • Increased gap: The scheme also requires DISCOMs to bring down the gap between the average cost of supply and average revenue realised to zero. Instead of reducing this gap, a number of states like Punjab, Jammu and Kashmir, Manipur and Goa have seen this gap widened in the last few years.
  • Increasing cost: The prevailing maladies in the distribution system and rising share of renewable energy (RE) is increasing the average cost of supply, as it is displacing consumption of low-cost coal.
  • Less profit than loss: The interest received is lower by at least 4-6% indicating that there is a loss of income. For every ₹1 lakh crore of UDAY bonds issued involves a loss of up to ₹6,000 crore for banks and FIs that have lent money to them.
  • State burden: By mandating that State governments have to progressively take over the losses of their SEBs, the Centre has put the onus on the States to deal with the problem.
  • Debt non-payment: Around 21,000 MW of private coal-fired generation capacity is under stress due to the non-payment of debts by DISCOMs.
Way forward:
  • DISCOM business needs to be fundamentally restructured. Governance needs to be improved with greater resilience to political influence.
  • Robust mechanisms need to be put in place to ensure tariff rationalisation and follow-through on subsequent increases.
  • Integrating UDAY scheme with Make in India and Startup India to ensure overall Development.

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