RBI report: States flouting UDAY norms on taking over discom losses

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Published: October 7, 2019 4:52:49 AM

As per the provision of the Ujwal Discom Assurance Yojana (Uday), states are supposed to take over 5% of discom losses in FY18, 10% in FY19, 25% in FY20 and 50% in FY21.

RBI report, UDAY norms, discom losses, Reserve Bank of India, Uday bonds, power producers, Discoms’ financial losses, power generating companiesWith the coupon rate on Uday bonds at a premium over those on state-development-loans bonds, the cost of debt servicing has gone up for these states.

Out of the Rs 2,726-crore funding that states were supposed to provide in FY19 against the losses of their power distribution companies (discoms), they have shelled out only Rs1,311 crore, the recent study on state finances published by the Reserve Bank of India (RBI) pointed out. While discoms show no significant sign of recovery, as per the Uday norms, state finances would come under additional pressure going ahead as they are mandated to fund a
progressively higher share of discom losses from their own finances.

As per the provision of the Ujwal Discom Assurance Yojana (Uday), states are supposed to take over 5% of discom losses in FY18, 10% in FY19, 25% in FY20 and 50% in FY21. Even as they managed to pay Rs1,299 crore against the requirement of Rs1,602 crore in FY18, “incomplete compliance” is already on the rise, the RBI study suggested. Government finances of 16 states which signed comprehensive financial and operational turnaround agreements under Uday are already burdened with the Rs2.1 lakh crore worth of Uday bonds.

With the coupon rate on Uday bonds at a premium over those on state-development-loans bonds, the cost of debt servicing has gone up for these states. “The impact on state finances is likely to continue much beyond the terminal year due to interest payment on Uday bonds and redemption of these bonds,” RBI cautioned. Except Uttarakhand, Odisha, West Bengal, Gujarat, Himachal Pradesh, Sikkim, Chhattisgarh and Goa, expenditure on power exceeds receipts from the sector.

Apart from Uday, the recently implemented payment security mechanism for power generating companies, which mandates state-run discoms to open and maintain adequate letter of credit (LC) as payment security to power plants to receive power, is seen to eat into state government funds earmarked for other social welfare schemes. According to a recent note by SBICAP Securities, banks have been demanding additional guarantees from traditionally weak discoms to issue LCs and the respective state governments are coming to rescue. “State governments, fearing power shortages, are likely to divert funds from planned spending in other sectors/social schemes, so it is those schemes that would face the music in the near term in the form of shortfalls/delays,” SBICAP Securities said. Discoms’ financial losses stood at Rs28,369 crore at the end of FY19, up 88.6% year-on-year. Overdues—payment

default of 60 days or more—from discom to power producers were at Rs59,204 crore at August-end. Discoms face cash-flow issues because they state electricity regulators infrequently and inadequately raise consumer tariffs. Dues from bulk consumers such as state government departments and local civic bodies, pegged at a whopping Rs41,000 crore at May-end, have also significantly impaired the discoms’ ability to turnaround.

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