The UDAY scheme for revival of the debt-laden power distribution companies has resulted in interest savings to the tune of `11,990 crore for them till December 2016.
The UDAY scheme for revival of the debt-laden power distribution companies has resulted in interest savings to the tune of `11,990 crore for them till December 2016. The scheme was launched in November 2015. Though the UDAY states – 20 states had already opted for the scheme by the end of last year and seven more joined since – had many targets to improve operational efficiency and cut pilferage, their performance on these fronts have not uniformly kept pace the objectives. According to sources, although many state discoms have taken steps such as installing better metering devices and upgrading distribution set-ups in order to cut commercial losses, the benefits from such moves were not visible by December last. Among other goals, UDAY scheme that allowed fiscal leeway for states assuming 75% of discoms’ debts, intends to unravel the bottlenecks in distribution, and bring it in line with the performances of generation and transmission.
Meanwhile, the policy of priority coal linkage and reduced fuel costs has enabled generators to supply power to UDAY-compliant discoms in 16 states to buy power at 49 paise/unit lower than earlier rates, under long-term PPAs.
The above savings on interest costs are meant to be invested to develop the electricity infrastructure in the states to lower the cost of power distribution. The UDAY scheme was launched in November, 2015.
Chhattisgarh, which joined Uday in January last year, has been one of the major beneficiaries of the scheme. From a loss of `540 crore in FY16, the state discom booked a profit of `407.54 crore in the first half of FY17. But a closer look reveals that this feat had nothing to do with the discoms reaping the results of their improved operations. The state’s discoms had interest cost of `651 crore in FY16, while the in the first half of FY17, this came down sharply to `62.57 crore thanks to UDAY. These discoms’ debt service cost reduced from 12% earlier to about 8%. The discoms have swung to profit mostly on the back of lower interest costs rather than better efficiency.
Chhattisgarh’s performance has, however, slipped in the operational front. Its aggregate technical and commercial (AT&C) losses have increased 4.93 percentage points to 26.7% since the time it has joined UDAY. Earlier, the average revenue per unit was nine paisa more than the average cost of supply. It now gains six paisa per unit. To be fair, Chhattisgarh and Gujarat are the only two UDAY states whose revenue per unit is more than the cost of supply. In technical terms, their ACS-ARR gaps are negative.
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Out of the 16 states with updated data in the UDAY portal, AT&C losses have increased for 10 states from the time they had joined UDAY. Under the scheme, AT&C electricity losses have to be brought down to 15% and the ACS-ARR gaps have to be eliminated completely. Though the piecemeal respite of low interest costs gives the discoms some leverage, by no means it established that they are definitely on the way towards attaining self-sustainability. After all, UDAY was not envisaged as a scheme to bailout financially distressed discoms.
It was designed to turn them financially sustainable on the back of improved functioning. It was thought that the operational benefits would ultimately get translated into lower tariff for end users. As many as 19 states have already invoked revisions in the tariff structures to their respective state electricity regulators. To be fair, the full impact of AT&C loss changes shall be reflected only by the end of FY17. These are early days in UDAY implementation with many states being in the process of creating infrastructure for carrying out their action plan. As of now, though, it is too early to rejoice petty accomplishments.