1. Discoms’ UDAY results: Rs 12,000 cr saved, but fail to meet operational goals

Discoms’ UDAY results: Rs 12,000 cr saved, but fail to meet operational goals

By December last year, state-run power distribution companies (discoms) saved close to Rs 12,000 crore in interest costs, thanks to the Ujwal Discom Assurance Yojana (UDAY), but they have had a less than creditable record so far in meeting the crucial efficiency parameters set under the scheme.

By: | New Delhi | Updated: May 8, 2017 6:45 AM
According to official data reviewed by FE, of the 27 states that have adopted UDAY, only 10 revised the power tariffs for FY18, with the increases below what was mandated for six of them. (Reuters)

By December last year, state-run power distribution companies (discoms) saved close to Rs 12,000 crore in interest costs, thanks to the Ujwal Discom Assurance Yojana (UDAY), but they have had a less than creditable record so far in meeting the crucial efficiency parameters set under the scheme.

According to official data reviewed by FE, of the 27 states that have adopted UDAY, only 10 revised the power tariffs for FY18, with the increases below what was mandated for six of them. Worse, the aggregate technical and commercial (AT&C) losses slipped further in case of discoms in 12 UDAY states from the levels in March 2016.

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Among the remaining states, the AT&C loss reduction was below UDAY targets in twelve.Among these 10 states that raised tariffs for FY18, the average tariff hike was the highest for Bihar (55%), followed by Madhya Pradesh (9.4%) and Karnataka (8%). However, net of the Bihar government’s subsidy to its discoms, the tariff increase to the consumers will be 28%. Discoms in Uttar Pradesh have not even filed petitions for tariff revision to the state regulator so far.

The dismal performance in achieving the UDAY objectives can be terribly costly for the states. They have taken huge fiscal burdens to salvage the loss-making, heavily indebted discoms. A recent JP Morgan report said the states’ fiscal deficit, excluding UDAY, is expected to touch a 13-year high of 3.4% of their gross domestic product (GDP) in FY17, threatening to reverse gains from the Centre’s restraint in recent years. The fiscal spotlight is back on finances of states, which had adhered to strict fiscal discipline in the aftermath of the global financial crisis when the Centre had to resort to bailout packages to spur the economy. However, between FY13 and FY17, while the Centre has cut its fiscal deficit from 4.9% of GDP to 3.5%, states’ deficit has gone up from 2% of their GDP to the projected 3.4% in FY17.

Under UDAY, state governments are required to take over 75% of the short-term liabilities of their respective discoms (as in September-end 2015), 50% in the first year (FY16) and the balance in FY17. The accumulated losses of discoms stood at a staggering `3.8 lakh crore at the launch of UDAY. Their outstanding debt then stood at `4.3 lakh crore. The scheme was launched in March 2015.

It was thought that operational benefits of UDAY would not only improve the discoms’ financial positions but also ultimately get translated into lower tariffs for consumers. Goa, Rajasthan and Gujarat are the only three states which could achieve their respective AT&C loss reduction targets for April-December, 2016. Though the targets were not met, Haryana, Jharkhand and Manipur achieved reasonable success in reducing the AT&C losses.

According to a person privy to the dynamics of how discoms are implementing UDAY, the real situation of the AT&C losses will be clear only after the state discoms prepare their financial accounts for FY17. AT&C losses are calculated on the basis of the available financial data.

Though not mandatory, the government is urging the UDAY states to come out with quarterly financial data like listed companies. The person said that since seasonal variations plays a significant role in determining AT&C losses, full-year loss figures are expected to be lower than reported now after the inclusion of the data for the colder months.
While the gap between the discoms’ average cost of supply (ACS) and average revenue realised (ARR) too widened in at lest 8 states, the source said that since the state subsidies are ususally released in the final quarter and add to the discom revenues, the ACS-ARR gap for 12 months should also reflect some improvement.

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