Power shock: UDAY scheme fared even worse?

By: |
May 21, 2020 12:30 AM

PFC says discoms' FY18 losses were double the level reported, at Rs 33,365 cr

Discoms in Delhi and West Bengal also recorded negative ACS-ARR gap though they were not part of the UDAY scheme.Discoms in Delhi and West Bengal also recorded negative ACS-ARR gap though they were not part of the UDAY scheme.

The UDAY scheme could have had even lesser efficacy than claimed by the government in nursing the stressed electricity discoms back to health. Though data put out by the states and compiled by the Union power ministry showed a reduction in the combined financial losses of discoms from Rs 51,562 crore in FY16 to Rs 15,132 crore in FY18, state-run Power Finance Corporation (PFC), the principal lender to these entities, has now found that their combined losses stood at Rs 33,365 crore in FY18, more than double the level reported earlier (see chart).

It may be noted that the states themselves have reported a spike in discom losses to Rs 28,036 crore in FY19 and Icra projected the FY20 losses of these entities to be slightly higher at Rs 30,000 crore, pending release of official data.

Of course, PFC, in its “Report on financial performance of state power utilities 2017-18” bears out the fact that the Ujwal Discom Assurance Yojana (UDAY) scheme, launched in FY16, indeed helped in reining in the losses in the initial years. In terms of other parameters too, the scheme has been relatively successful although the stiff targets could not be met. The discoms started being less intent on sticking to the UDAY mandate since FY19. The scheme allowed parts of discom losses to be absorbed by the states with FRBM forbearance.

UDAY — that ran between November 2015 and March 2019 —aimed to reduce aggregate technical and commercial (AT&C) losses of discoms to 15% and eliminate the gap between cost of supply and revenue realised (ACS-ARR gap). According to the government’s UDAY portal, AT&C losses were 18.9% and ACS-ARR gap was Rs 0.42/unit at the end of FY20. In FY16, when the scheme was launched, AT&C losses were 20.7% and the ACS-ARR gap was Rs 0.59/unit.

The government has cited factors such as inadequate hikes in power tariffs, inadequate rise in ‘open access’ transactions and outstanding dues accumulating from state government departments among the reasons for the discoms not meeting the UDAY targets.

To be sure, the FY18 loss figures released by the government were based on the provisional data entered by states on the UDAY portal. The FY18 audited data by PFC also belied the government’s earlier claim that discoms in Uttar Pradesh, Tamil Nadu, Punjab, Karnataka and Madhya Pradesh have reduced their FY18 book losses by more than 50% in comparison to FY16. Apart from Andhra Pradesh and Madhya Pradesh, losses have actually increased for the other states mentioned in the period. Also, power purchase costs in states such as Chhattisgarh, Gujarat, Jharkhand and Punjab have increased from FY16 to FY18, contrary to the government’s claim that the reverse had happened due to the UDAY scheme.

However, there were indeed some improvements recorded in Assam, Gujarat, Haryana, Maharashtra and Rajasthan, as discoms in these states turned revenue surplus, with their average revenue realised surpassing the supply cost (negative ACS-ARR gap) in FY18.

Discoms in Delhi and West Bengal also recorded negative ACS-ARR gap though they were not part of the UDAY scheme. AT&C losses of discoms were down from 23.56% in FY17 to 22.31% in FY18, but the same increased year-on-year in a few states such as Tamil Nadu, Andhra Pradesh, Punjab and Telangana, revealed the PFC report. Also, states have recorded improvements in subsidy disbursals, with all states except Himachal Pradesh, Andhra Pradesh, Karnataka, Rajasthan, Telangana and Punjab releasing entire subsidy booked by their respective discoms in FY18, according to the PFC report.

States have now been asked to reduce AT&C losses of their discoms and also reduce the ACS-ARR gap which will earn them additional net borrowing space of 0.25% of the respective gross state domestic product in FY21. The government’s move to provide Rs 90,000 crore fresh loans to state power distribution companies (discoms) is aimed at clearing a chunk of their obligations to power generation companies. The loans are to be provided through the PFC and REC against receivables of discoms backed by state government guarantees.

Discoms dues to power producers across India, including the private-sector units, stood at a staggering Rs 90,577 crore at the end of March 2020, up 41% from a year earlier. About 88% of these (Rs 79,829 crore) were ‘over-dues’. The total due amount would be even higher if the current unpaid invoices of major power players such as Adani Power and GMR Energy are counted.

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