UDAY or Ujwal Discom Assurance Yojna was launched in November 2015 to help loss-making discoms turn around financially, with support from their State governments.
Performance of UDAY Scheme
- Almost five years after the launch of the Ujjal DISCOM Assurance Yojana (UDAY), there are indications that the power sector is once again in trouble.
- Outstanding dues of discoms towards power purchases have risen sharply, after registering a decline immediately post-UDAY — a clear sign that the scheme is losing impetus after some initial success.
- Not only have losses of state-owned distribution companies (discoms) risen, but their dues for power purchases have also surged. At the end of November 2019, dues owed by discoms to power producers, both independent and state-run entities, stood at Rs 80,930 crore.
- Kaur and Chakroborty use state-specific data from the UDAY portal to show that, at present, AT&C losses stand at 25.41% on an average.
- So far, only seven states including, Tamil Nadu, Telangana, Kerala, Gujarat, Andhra Pradesh, Goa and Himachal Pradesh, have registered losses below 15 per cent and rest of the states have failed to achieve even this.
- Outstanding liabilities of states have been growing at double digit rate since 2015-16 (except 2018-19), resulting in a rise in the debt to GDP ratios, and budget estimates suggest that 16 states and UTs expect to record higher debt-GSDP ratio in 2019-20, according to RBI data.
Causes persisting for high AT&C losses
- AT&C losses can be divided into technical (transmission) losses and non-technical (commercial) losses.
- Low levels of investment in distribution have resulted in overloaded systems, leading to higher technical losses.
- Theft and pilferage of power is a key reason for high commercial losses for discoms.
- Lack of metering and poor billing and collection systems also contribute to commercial losses.
- The scheme also requires distribution companies (DISCOMs) to bring down the gap between average cost of supply and average revenue realized to zero. Instead of reducing this gap, a number of states — Punjab, Jammu and Kashmir, Manipur and Goa — have seen this gap widen in the last few years, said a study done by the National Institute of Public Finance and Policy.
- One of the key reasons for this gap between ACS and ARR is differential tariff structure for different consumers such as under-pricing of tariff for agricultural and residential consumers.
- Several operational inefficiencies, which have hurt the performance of discoms,for instance, across several states, there is a lack of effective billing procedures, poor measurement of power consumption, and ineffective monitoring of power theft.
- The scheme had some positives, though. Of the 28 states that implemented it, 10 have shown either reduced losses or profits in FY ’19.
- Also, even as most states registered an improvement in reducing the ACS-ARR gap and in bringing down AT&C losses, they are way behind in achieving the targets as per the UDAY schedule.
Centre plans to come up with Ujwal DISCOM Assurance Yojana (UDAY) 2.0 after the first one failed, The government must take care of three things in the new scheme.
- It should ensure that short-term borrowings by DISCOMS are monitored.
- DISCOMS should get regular payments.
- All states should follow one methodology to measure aggregate technical and commercial (AT&C).
- Discoms suffer losses either due to technical reasons or commercial reasons. Losses due to technical reasons can be minimized by using latest technology and modern equipment for transmitting and distributing electricity.
- At the commercial level, the losses incurred can be managed by resisting the pressure to provide electricity for free to certain groups.
- Pricing the electricity by taking into account the input, production, transmission and distribution cost along with a healthy profit and not based on political expediency.
- Reducing the cases of electricity thefts by unscrupulous people or entities.